Justices Mull Dismissing ‘Discovery Rule’ Copyright Damages Case

Several US Supreme Court justices questioned whether they should wait to decide Warner Chappell Music Inc.'s bid to cap copyright damages as time-barred until they’ve decided whether to address the propriety of the “discovery rule” in copyright lawsuits.

Warner’s attorneys fielded questions from multiple justices during oral argument Wednesday suggesting its high court petition took primary aim at a question the court had explicitly taken off the table.

The label—accused by rapper and producer Sherman Nealy of infringing his work unbeknownst to him for roughly a decade —argued in its petition the Copyright Act’s three-year statute of limitations barred damages for any prior infringement. But the high court modified the question and said it’d address the availability of older damages “under the discovery accrual rule applied by the circuit courts.”

Some justices suggested the possibility of dismissing Warner Chappell Music Inc. v. Nealy as improvidently granted, and several of them pointed to a more fundamental question on whether the discovery rule exists at all in another case pending before the court in Hearst Newspapers LLC v. Martinelli. Hearst was able to directly appeal whether the discovery rule applies to copyright law because the Fifth Circuit—unlike the Eleventh—hadn’t previously ruled on it.

Justice Samuel Alito laid out the possibility of Warner’s case being dismissed and sent back to district court, which he suggested would likely pause proceedings if the high court agreed to consider Hearst’s appeal. Hearst petitioned the high court in November, and the court requested a response from photographer Antonio Martinelli in December.

“What concerns me is that we’re being asked to decide a question that will be eliminated based on the subsequent decision,” Alito said. “There are two questions: Is there a discovery rule? If there is, what are its implications for relief? The first is logically prior to the second. Why does it make sense to ponder about the second without resolving the first?”

Warner attorney Kannon K. Shanmugam said it didn’t make sense, but said it’s “really critical in any case of statutory interpretation to start with the relevant statutory language.” When the court rephrased the question from Warner’s petition, he said, the company pivoted away from arguing there’s no discovery rule and instead focused on how the Copyright Act language bears on the question at issue.

‘Off the Path’

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.

Shanmugam—a partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP—suggested Wednesday the parties had made all the arguments necessary for the court to decide on the propriety of the discovery rule if it decided that was integral to answering the question in this case.

Justice Amy Coney Barrett asked Nealy attorney Wes Earnhardt of Cravath, Swaine & Moore LLP if the question of whether the rule exists is “cert-worthy.” Earnhart said he didn’t think so because “courts of appeal have uniformly applied” the discovery rule to copyright claims. Alito pressed him how damages could be worthy but not the rule upon which they depend.

“How can a question about the scope of the discovery rule be cert-worthy and yet the existence, the question of the existence of the discovery rule not be cert-worthy,” he asked. “I don’t understand how the second question can be cert-worthy and the first is not.”

Earnhardt said the reason was to correct the Second Circuit’s 2021 decision in Sohm v. Scholastic Inc. in which it “took such a strange turn off of the path.” In that case, the appellate court decided the discovery rule existed but decided it was bound by Petrella to bar damages despite that decision not involving the discovery rule.

“So if the Second Circuit hadn’t gone off the path none of this would be cert worthy?” Justice Brett Kavanaugh asked.

“That’s correct,” Earnhardt said.

The US government also argued Wednesday the Second Circuit had erred. When Barrett asked Justice Department attorney Yaira Dubin if the court should dismiss the case as improvidently granted, Dubin said cleaning up the circuit split caused by Sohm called for the high court’s clarification. She noted that Justice Ruth Bader Ginsberg’s opinion included a footnote specifically saying the court wasn’t deciding the propriety of the discovery rule.

“Petitioner’s reading of Petrella would suggest that in the same opinion in which Justice Ginsberg reserved the question of whether the discovery rule applied she also decided to gut it by eliminating damages thereunder with no textual basis for it,” Dubin said. “I would submit that’s a far stranger reading.”

The case is Warner Chappell Music Inc. v. Nealy, U.S., No. 22-1078, Argued 2/21/24.