The U.S. Supreme Court has upheld an open claim for damages for copyright infringement, ruling that music producer Sherman Nealy can seek more than a decade of damages for an unlicensed sample of his Flo Rida work in his song “In the Ayer” from 2008.
The finding, in a Thursday 6-3 ruling, could expand the scope of damages in cases where plaintiffs were previously barred from recovering money for infringement that occurred more than three years before the filing of a lawsuit. In some cases, plaintiffs could potentially get a larger payout by waiting to sue and letting damages pile up rather than trying to stop the alleged infringement, as long as they file suit within the statute of limitations.
“There is no time limit for monetary recovery,” Justice Elena Kagan wrote in the majority opinion. “A copyright owner who has a timely claim of infringement is therefore entitled to damages, regardless of when the infringement occurred.”
The case centers on the 1984 song “Jam the Box,” which is owned by Sherman Nealy's Music Specialist record label in Miami and was sampled by Flo Rida in 2008. However, Nealy was in prison at the time and knew nothing about its use. In 2018 he has Atlantic Records sued, Warner Chappell and Artists Publishing Group, arguing that he had not authorized the use of his label's music and that his former business partner had not been authorized to license. Nealy sought damages dating back a decade, which Warner Chappell opposed because he had only been able to obtain damages for infringement since 2015. Appeals followed.
Courts disagree about the extent to which damages can be recovered. With the Supreme Court's clarity that they are not limited by a lookback period, intellectual property attorney Paul Schoenhard says the decision “increases the risk of damages from copyright infringement for many people in the entertainment industry.”
He emphasizes: “That can mean real money for people.”
Jeff Van Hoosear, another intellectual property lawyer, called the ruling a “victory for copyright owners,” especially “individuals and small entities.” Trademark attorney Zachary Al-Tabbaa says there is “a wave of copyright infringement lawsuits looming, some going back decades,” as long as they file suit in a timely manner.
Thursday's ruling could also discourage copyright holders from detecting infringements early, especially in cases where the alleged infringer's work is more popular and profitable than the work he infringed. An example is a 2015 judgment against Robin Thicke and Pharrell Williams in favor of Marvin Gaye's family over 'Blurred Lines'. Because the Copyright Act allows for the taking of profits, the plaintiffs in that case could have gotten a larger payout if they had waited to sue.
“This encourages parties not to be fully informed,” says Schoenhard. 'Why would you ever want to wait? There may be acts of copyright infringement that would be stopped upon the filing of a lawsuit, so that delay in filing a lawsuit would allow additional damages to be incurred beyond what might otherwise exist.”
By agreeing to review the case, the Supreme Court was poised to resolve a copyright issue that has long divided federal appeals courts. Under the Copyright Act, a plaintiff must file suit “within three years after the claim arises.” One camp has interpreted this wording to mean that the period for filing a lawsuit begins when the violation occurs under the so-called injury rule, while another camp has interpreted it to mean that the period for filing a lawsuit begins when the infringement is discovered under the so-called discovery rule. rule. Approval of the latter would allow plaintiffs to bring claims over old infringements, as long as they learned of them within three years prior to the lawsuit.
In summary proceedings, the music publishers argued that Nealy had not filed a lawsuit for copyright infringement within the three-year period. The federal judge overseeing the case agreed, but his decision was reversed by the 11th U.S. Circuit Court of Appeals. It concluded that the three-year limitation period does not begin to run until the copyright owner “knows or has reason to know [they] were injured.” The finding affirmed the application of the discovery rule under the Copyright Act, as opposed to the injury rule, which holds that the statute of limitations begins to run when infringement occurs, regardless of the plaintiffs' knowledge.
Much to the frustration of copyright lawyers, the court did not resolve the issue. The majority concluded that the question of whether the discovery rule applies under copyright law was not before them because Warner Chappell never challenged the application of the discovery rule.
Justices Clarence Thomas, Samuel Alito and Neil Gorsuch dissented. If the court had ruled on the validity of the discovery rule, Thomas said the Copyright Act would “almost certainly not tolerate it.”
With the interpretation of the wording of the Copyright Act remaining unresolved, claimants may be encouraged to bring claims in certain courts. The 8th and 11th U.S. Circuit Courts of Appeals remain the only courts that have not expressly endorsed the application of the discovery rule, although lower courts within their jurisdiction have applied the doctrine.
The ruling also reinforces the importance of securing licenses as the court clarified that liability for copyright infringement exists indefinitely.
“Customers should be advised not to use copyrighted material in their business activities unless they do so absolutely sure they have the rights to do this,” Al-Tabbaa said. “Otherwise, liability may persist indefinitely if later discovered and a lawsuit is filed in a timely manner.”
The case will be remanded to federal court. One question that may arise is whether Nealy could reasonably have discovered the breach while in prison. If so, the court may rule that he cannot prosecute based on the statute of limitations.
“We are pleased with the Supreme Court's decision to rule in Mr. Nealy's favor,” said Wes Earnhardt, who represented Nealy. “By holding that damages are available for all timely filed infringement claims, regardless of when the infringements occurred, the Court's decision provides clarity on an important issue that has divided the Circuit Courts.”