Copyright Damages Case Turns on High Court’s Taste for Discovery

The fate of copyright plaintiffs’ ability to obtain damages for late-discovered claims will turn on the US Supreme Court’s taste for what one justice once dubbed “bad wine of a recent vintage.”

The phrase emerged repeatedly during the Feb. 21 oral argument over Warner Chappell Music Inc.'s bid to reverse a ruling that opened the door to a decade of damages for music producer Sherman Nealy. It was coined by Justice Antonin Scalia in 2001 to describe what’s called a “discovery rule"—pausing a statute of limitations when a violation can’t reasonably be discovered in time.

The Supreme Court, upon taking up Warner’s petition, altered the question it posed, agreeing to assess the availability of damages for acts outside the three-year statute of limitations “under the discovery accrual rule applied by the circuit courts.” But during oral argument, the justices’ questioning revealed discomfort with the very assumption they inserted: that the discovery rule exists in copyright law.

Justices Samuel Alito and Neil Gorsuch most directly questioned the wisdom of adjudicating Warner Chappell Inc. v. Nealy before addressing a pending petition to take up another appeal, Hearst Newspapers LLC v. Martinelli. The justices suggested the high court should consider punting Warner back to the lower court to await a decision on the more fundamental question.

Such a move is possible even after argument in Warner, despite a unanimous acceptance of at least some form of the copyright discovery rule among the circuits that have directly addressed the question. Even without a circuit split on the rule’s existence, when and how it applies remains inconsistent, Sabina A. Vayner of Greenberg Traurig LLP said.

“There is still a lot of confusion about it, still a lot of ambiguity,” Vayner said. “It’s why we’re here, it’s why Martinelli has a cert petition pending. It’s given heartburn to a lot of copyright lawyers for a long time now, and something that’s not fully and unequivocally resolved.”

Justices expressed skepticism about the rule during the argument, and six justices signed onto a 2019 opinion rejecting another discovery rule. That case involved a different law’s statute of limitations that didn’t use the Copyright Act’s phrasing, which starts the countdown to sue upon a claim “accruing.”

But if enough justices doubt the rule’s applicability, they could decide the circuit courts are “all wrong” about its existence, said intellectual property attorney Joshua Simmons of Kirkland & Ellis LLP.

“They can do that, and it has happened,” Simmons said.

The court has shifted both toward a tighter textual reading of the law and a willingness to consider overriding circuit consensus, attorneys say.

“The court has recently seemed less concerned with there being a deep mature circuit split” before taking up cases, appellate attorney Samantha Chaifetzof DLA Piper said.

‘Hard to Ignore the Timing’

Nealy’s 2018 suit alleged Warner had acquired rights he owned from someone else in 2008 without his knowledge and had been exploiting them since, including through derivative works like Flo Rida’s “In the Ayer.” He didn’t learn of the alleged infringement until 2016 because he had been in and out of jail and wasn’t wired into the music industry, Nealy said in his lawsuit.

A Florida federal court certified a question to the US Court of Appeals for the Eleventh Circuit to determine the scope of damages available to Nealy, should he win.

The appeals court said the discovery rule, which it had previously recognized, allowed for damages for any timely claims under it. It rejected Warner’s argument that a 2014 Supreme Court opinion, Petrella v. Metro-Goldwyn-Mayer Inc., barred damages for acts over three years old, even if deemed timely under the discovery rule.

The high court modified the question in Warner’s petition by accepting established precedents in the Eleventh Circuit among others that the rule exists. At the oral argument, Justices Amy Coney Barrett and Ketanji Brown Jackson criticized Warner for arguing the broader question, both saying the justices were very intentionally taking “it off the table.”

But later, Alito redirected the conversation by suggesting the question being argued would go away if the court held that there is no discovery rule applicable to the Copyright Act. He laid out a scenario where the Supreme Court dismisses the case as improvidently granted, and the case returns to district court with the Eleventh Circuit holding intact.

“The district court would be aware that we recently granted a review in a case that does present the issue of whether there is a discovery rule for the Copyright Act,” Alito said. “So If I was the district court judge in those circumstances I might choose not to plow ahead with further proceedings in this case until that issue was resolved.”

The court took up Warner’s case before Hearst filed its petition in November—directly targeting the Fifth Circuit’s new adoption of the rule—and set the argument date shortly before receiving the response they had requested from Martinelli in December. They considered taking up Hearst’s appeal at the court’s Feb. 16 conference, less than a week before the Warner argument, but didn’t make a decision. Copyright attorney J. Kevin Fee of DLA Piper found the timing “interesting.”

“It’s hard to ignore the timing of that, and I have to believe they decided not to decide the cert petition in Martinelli until they had the benefit of the argument in the Warner Chappell case,” Fee said.

Vintage Scalia

Scalia first coined his wine-based reference intended to disparage the discovery rule in his 2001 concurrence in TRW Inc. v. Andrews, calling an “injury-discovery rule” applied by the Ninth Circuit “bad wine of recent vintage.” The court held a general discovery rule doesn’t govern the Fair Credit Reporting Act, and noted it had only directly approved the rule in cases of fraud, concealment, or medical malpractice.

Justice Clarence Thomas, 18 years later, incorporated Scalia’s phrase into his majority opinion in Rotkiske v. Klemm, which rejected applying a discovery rule to the Fair Debt Collection Practices Act. All six current justices who heard Rotkiske joined the opinion.

But neither of the statutes in those cases included the Copyright Act’s “accruing” phrasing.

Gorsuch suggested it would “just be good governance” to address the rule’s existence first.

Questions from justices including Thomas, Alito, and Gorsuch seemed to reveal skepticism of applying the rule to the Copyright Act, Fee said. He also described a broader “change in the composition of the court that has led to more reluctance to read a discovery rule into the statute of limitations.”

Possible Approaches

“There are an endless number of ways it could play out” procedurally if enough justices decide to address the underlying question. Chaifetz said. The most likely outcome is that they’d hold off making a decision on Warner until it can hear Martinelli next term, she said. Holds aren’t uncommon, but it’s unusual for the court to “identify a question, then—lo and behold—comes a case that squarely presents that question.”

There wouldn’t need to be an order from the court signaling it’s holding Warner, but by taking up Martinelli the court would make it “pretty obvious what’s happening,” Chaifetz said. It’s also possible the court could consolidate the cases, though that typically happens before arguments. Chaifetz said she doubted the justices would want to hear from the parties in Warner again in person, though they may request supplemental briefing.

The high court could also decline to address the discovery rule at all and simply accept the circuit courts’ conclusion. If so, the justices could decide the damages-focused circuit split before them in Warner.

Nealy and the US Justice Department separately argued the opinion causing that circuit split—the Second Circuit’s 2021 holding in Sohm v. Scholastic Inc. that the rule exists, but that Petrella capped damages—didn’t make sense. In Petrella, the court explicitly declined to decide on the discovery rule and was unlikely to have implicitly gutted the rule by eliminating damages for timely claims, they argued.

Fee agreed, and said that case’s days are numbered—wherever the court ultimately comes down on the discovery rule.

There aren’t “a ton of things in that argument that were clear other than that the life of Sohm is about to end,” Fee said. “Once a claim is timely, there’s no textual basis to limit the remedies available to copyright owners.”

The case is Warner Chappell Music Inc v. Nealy, U.S., No. 22-1078.