Times Up? Not So Fast: Supreme Court Rules Damages Are Not Limited to Three Year Look Back Where Copyright Act Claim is Timely under “Discovery Rule”

The U.S. Supreme Court issued a decision this week, finding that the 3-year statute of limitations for claims under the Copyright Act does not limit recovery of damages to three years prior to the filing of the lawsuit. The case, Warner Chappell Music, Inc., et al. v. Nealy, 601 U.S. ___ (2024), reversed the rule previously applied by courts around the country, including the Second Circuit in New York.

The case began when Sherman Nealy, a musician, filed a lawsuit in 2018 against Warner Chappell Music, Inc. in the Southern District of Florida. Nealy had previously been part of a short-lived, 1983 music venture with Tony Butler called Music Specialist, Inc. (MSI); MSI recorded several works and released one album together. After the two ended their partnership, Nealy served a long stint in federal prison on drug charges. During his incarceration, and unbeknownst to Nealy, Butler entered into an agreement with Warner Chappell to license MSI’s works, which were ultimately sampled in hit songs by several artists, including Flo Rida, the Black Eyed Peas and Kid Sister.

Nealy alleged that Warner Chappell had infringed on his rights because he held the copyrights to MSIs songs and that the infringing activity went as far back as 2008. The parties all conceded that Nealy’s lawsuit was timely under the 3-year statute of limitations because of the “discovery rule,” which most courts around the country apply. The discovery rule allows a party to bring a copyright claim 3 years after the party discovered the infringing act.

Rejecting a rule applied by the courts in New York, the Supreme Court, in a 6-3 decision written by Justice Kagan, held that the Copyright Act did not limit Nealy to damages for 3 years before the lawsuit was filed. The Court’s majority assumed the correctness of the “discovery rule” and held that “[t]here is no time limit on monetary recovery. So a copyright owner possessing a timely claim for infringement is entitled to damages, no matter when the infringement occurred.”

In dissent, Justices Gorsuch, Thomas and Alito argued that the Copyright Act does not support the discovery rule, and that the Court should either have rejected the discovery rule altogether or dismissed the petition and waited until a case presented the issue of the discovery rule’s validity.

On the defendant’s side, Warner Chappell significantly increases the potential exposure for companies facing copyright infringement claims. On the plaintiff’s side, i.e., for those asserting copyright claims, Justice Gorsuch’s dissent should raise a red flag that the Supreme Court may in the future take up a case to limit or reject the “discovery rule,” which operates to extend the deadline for filing suit.

For more information on the Copyright Act and the discovery rule, please contact Partner Lawrence Bluestone, Esq., who specializes in Complex Commercial Litigation and Intellectual Property via email here or call 973.533.0777.