Weintraub attorneys Scott Hervey and Jamie Lincenberg unpack the Supreme Court’s follow-up decision on damages in Neely v. Warner Chapel Music. Explore how this ruling could reshape future infringement cases.

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Show Notes:
Scott:

In a previous episode of “The Briefing,” we pondered just how far back a plaintiff in a copyright infringement case can go in recovering damages when we discussed the case of Warner Chapel Music versus Neely. Well, the Supreme Court answered that question on May 9th, 2024. The answer is as far back as they’re able. I’m Scott Hervey of Weintraub Tobin, and I’m joined today by my colleague and frequent briefing guest, Jamie Lincenberg. We will be talking about the Neely case and how the Supreme Court’s answer to what was a contested question in copyright law might impact future infringement cases on today’s episode of “The Briefing.”   Jamie, welcome back, and thank you for joining us today.  

Thanks, Scott. I’m happy to be here.  

Jamie, can you give us some background on this case?  

Of course. In the case of Neely versus Warner Chapel Music, which began in 2018, music producer Sherman Neely filed a lawsuit against Warner Chapel Music and Artist Publishing Group. It was a run-of-the-mill copyright infringement case in which Neely claimed that Flo Rida’s 2008 song, “In the Air,” featured an unlicensed sample of a 1984 track that Neely owned.  

And this case became not so run-of-the-mill when Neely’s lawsuit headed to the Supreme Court to answer the then unresolved question of whether damages in a copyright case are limited to just the last three years before the case was filed, or can damages go way back beyond the three years? The reason why this case was right for Supreme Court review was due to a circuit split on the issue.  

Right. The Second Circuit, the jurisdiction covering Neely’s case, applied a three-year damages cap that Justice Ruth Bader-Ginsberg explained in the Supreme Court’s past holding in Petrella versus MGM, as a successful plaintiff can gain retrospective relief only three years back from the time of suit. No recovery may be had for infringement in earlier years, and profits made in those years remain the defendants to keep. The Second Circuit applied the three-year limitation on damages, even in where a plaintiff alleges that his discovery of the infringement was only recently discovered. Despite the Supreme Court’s apparent endorsement of the three-year limitation on damages rule, the Ninth Circuit and the 11th Circuit later broke rank and held that if a plaintiff can prove they only recently discovered the fact that their copyright was infringed, not only can they bring a copyright lawsuit outside of the three-year limitation period, but the plaintiff can also see seek damages going back all the way to the very first infringement.  

That’s right. So, the question on which the Supreme Court granted certiorari in Neely was whether under the discovery, a cruel rule applied by the circuit courts, a copyright plaintiff can recover damages for acts that allegedly occurred more than three years before the filing of a lawsuit. And the Court, the Supreme Court, ended up answering that question in the affirmative.  

Right. The Court points out that if any time limit on damages exists, it must come from the acts remedial sections, but these sections do not apply a time limit on monetary recovery. The Court points out that these sections just state without any qualification that an infringer is liable either for statutory damages or for the owner’s actual damages and the infringer’s profits. So, a copyright owner possessing a timely claim for infringement is entitled to damages no matter when the infringement occurred. The Court also took a shot at the Second Circuit’s logic for applying the three-year damages cap. The Court pointed out that the Second Circuit recognizes the discovery rule and allows a plaintiff to bring a lawsuit for acts of infringement that occurred more than three years earlier, but does not allow the plaintiff to recover damages for the infringement that is the very basis of the lawsuit.  

That’s right, but the still unanswered question from this case is the validity of the discovery rule itself. In the majority opinion, the Supreme Court acknowledges that it has never decided whether a copyright claim accrues when a plaintiff discovers or should have discovered an infringement rather than when the infringement happened. In a dissenting opinion, Justice Gorsuch said that the discovery rule has no role in copyright infringement cases, option of finding a fraud or concealment by the defendant. Justice Gorsuch acknowledged that this court, deciding the Neely case, was not under any independent obligation to take up the question of the validity of the discovery rule since that was not the issue before the court. However, rather than spending time on the Neely case, Gorsuch said he would have dismissed it as improvidently granted and waited another case squarely presenting the question whether the Copyright Act authorizes the discovery rule since, in his words, it is better to answer a question that does matter than one that almost certainly does not.  

So, Scott, based on this opinion, how do you think that this is going to impact the filing of infringement cases moving forward?  

I mean, think about it. There is a damage cap under the accrual where you know that infringement occurred and you’re aware of the infringement at the time that the infringement occurs. And it’s not an instance where you only recently discover an infringement that has been occurring for longer than the three-year statutory period. In those cases, you’re naturally limited to three years of damages because most likely you’re aware of the act of infringement when it happened. But taking into account the discovery rule where an act of infringement has been happening for a very long time, as was the case in the Neely case, where he was not aware of Flo Rida’s song. We previously talked about how anybody could not be aware of that particular song. But nonetheless, I think it’s going to I think it’s going to encourage more of these types of cases. I think it’s going to encourage more cases where it’s alleged that the plaintiff only recently discovered the act of infringement, and then it will be the burden of the defendant to disprove that, to prove that the plaintiff was actually aware or any reasonable person under similar circumstances would have been aware of the act of infringement, and then try to end the case based on late filing of the complaint and a running of the statutory period. But I definitely think this will encourage more people to bring these types of cases because the pot of gold is so much bigger.  

Right. Yeah, that’s what I was going to say.  

But I also think with more of these cases brought, I mean, justice such as dissenting opinion just teed it up for a potential defendant who is going to attack the discovery rule. I mean, that would be if I was defending a defendant who was the recipient of a copyright infringement claim, and the claim was based on the discovery rule, essentially, I would attack the validity of the discovery rule and appeal that all the way up because it seems if Justice Gorsuch, and the majority as well, they were basically welcoming an opportunity to rule on the validity of the discovery rule.  

Right. I feel like right now, the discovery rule, based on this opinion, is maybe in a little bit of a gray area. Do we follow it? Do we not? So, yeah, this leads us to maybe be a case that’s going to examine this discovery rule, maybe all the way up to the Supreme Court?  

Yeah. Well, we’ll definitely keep an eye on that and basically see if the discovery rule falls out of favor in certain circuits. It’s based on this opinion because it somewhat puts its validity into question. Or definitely, like you said, puts it in a gray area for sure. We’ll have to track some of these cases and we’ll report back for sure.  

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