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How the Statute of Limitations Affects Damages and Discovery in Copyright Litigation

The Copyright Act’s statute of limitations, 17 U.S.C. § 507(b), provides that “[n]o civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued.” While the Copyright Act is silent as to when a copyright claim accrues, there are two accepted “rules” interpreting this statute: the “discovery rule” and the “injury rule.” Under the discovery rule, a cause of action accrues when the plaintiff discovers, or should have discovered, the injury that forms the basis for the claim. Under the injury rule, a cause of action accrues at the moment the infringement occurs (i.e. the moment of legal injury, even if such injury is unknown at the time).

Most circuit courts around the country have held that the discovery rule applies when analyzing the Copyright Act’s statute of limitations. In fact, “[t]he overwhelming trend is the application of the discovery rule for determining when a copyright claim accrues….” See Design Basics, LLC v. DeShano Companies, Inc., 2012 U.S. Dist. LEXIS 135387, 2012 WL 4321313 (E.D. Mich. Sept. 21, 2012). In the case William A. Graham Co. v. Haughey, 1 the Third Circuit wrote that “use of the discovery rule comports with the text, structure, legislative history and underlying policies of the Copyright Act … we hold that the federal discovery rule governs the accrual of civil claims brought under the Copyright Act.” William A. Graham Co. v. Haughey, 568 F.3d 425, 437 (3d Cir. 2009).

While most courts throughout the country uniformly apply the discovery rule of accrual in copyright cases, dicta contained within the Supreme Court’s 2014 lengthy opinion Petrella v. Metro-Goldwyn-Mayer, Inc., U.S., 134 S.Ct.1962, 188 L.Ed.2d 979 (2014). (“Petrella”) has been used in countless attempts by copyright defendants to convince courts to abolish the discovery rule, and thereby severely restrict copyright owners from meaningfully prosecuting valid claims. However, even the Supreme Court has stated that its dicta do not constitute a decision on this issue.

Petrella concerned the classic film Raging Bull, the copyright of which the plaintiff possessed and which she claimed MGM infringed by marketing and distributing it for roughly three decades. See Petrella, 134 S. Ct. at 1970-71. The substantive holding in Petrella is that laches does not bar a copyright infringement claim filed within the three-year limitations period of § 507(b). The opinion itself provides no analysis on the interpretation of the “discovery” versus the “injury” rule, and the Justices specifically declined to rule on that issue. Id. at 1969 n.4. Specifically, in a footnote of the opinion, the late Justice Ginsburg stated:

Although we have not passed on the question, nine Courts of Appeals have adopted, as an alternative to the incident of injury rule, a “discovery rule,” which starts the limitations period when “the plaintiff discovers, or with due diligence
should have discovered, the injury that forms the basis for the claim.” William A. Graham Co. v. Haughey, 568 F.3d 425, 433 (C.A.3 2009). (internal quotation marks omitted). See also 6 W. Patry, Copyright § 20:19, p. 20-28 (2013) (hereinafter Patry) (“The overwhelming majority of courts use discovery accrual in copyright cases.”) (emphasis added). Id. 1 Directly cited by the Supreme Court in Petrella v. Metro-Goldwyn-Mayer, Inc., U.S., 134 S.Ct.1962, 188 L.Ed.2d 979 (2014).

After the Supreme Court wrote the dicta at issue in the Petrella opinion, courts have continued to apply the discovery rule in the copyright context. In the case Grant Heilman Photography, Inc. v. McGraw-Hill Companies, Inc., 2014 WL 2892504 (E.D. Pa. June 26, 2014) the Eastern District of Pennsylvania wrote: While the language related to the statute of limitations is suggestive, this Court does not find that Petrella overruled the Third Circuit discovery rule. First, the Supreme Court explicitly stated it was not deciding that issue. Second, Petrella was a case about laches, and the holding is limited to that issue. Third, the comment’s placement in a footnote demonstrates it was intended as dicta. Finally, this Court cannot find that a comment in a footnote overrules the standard in nearly every circuit in the country. Accordingly, the discovery rule still applies to determine whether Plaintiff’s claims are barred by the three-year statute of limitations. Id. at *11.

In Frerck v. Pearson Educ., Inc., 2014 U.S. Dist. LEXIS 1111562 (N.D. Ill. Aug. 11, 2014), the Northern District of Illinois specifically declined to follow the injury rule of accrual, even while recognizing the Supreme Court’s dicta in Petrella. The Frerck court wrote: In Petrella v. Metro-Goldwyn-Mayer, Inc.,     U.S.    , 134 S. Ct. 1962, 188 L. Ed. 2d 979 (2014), the Supreme Court said “[a] copyright claim . . . arises or ‘accrue[s]’ when an infringing act occurs.” 134 S. Ct. at 1969. Defendant takes this to mean that I should not apply the discovery rule in this case. Dkt. 138 at 1-2, Defendant’s Notice of Supplemental Authority. I disagree. In Petrella, the Supreme Court explicitly said it was not passing on the question of the “nine Courts of Appeals [who] have adopted, as an alternative to the incident of injury rule, a ‘discovery rule,’ which starts the limitations period when ‘the plaintiff discovers, or with due diligence should have discovered, the injury that forms the basis for the claim.'” Id. at 1969 n. 4. Since the Court did not take up this issue — and because I am bound to follow Seventh Circuit precedent — I will continue to apply the discovery rule (Emphasis added). Frerck v. Pearson Educ., Inc., 2014 U.S. Dist. LEXIS 111562, 8-9 n.3 (N.D. Ill. Aug. 11, 2014). The Supreme Court even weighed in on this very issue in the 2017 case SCA Hygiene Prods. Aktiebolag v. First Quality Baby Prods. LLC, 137 S. Ct. 954, 197 L. Ed. 2d 292, 2017 U.S.
LEXIS 2023 (2017) (“SCA Hygiene”). In SCA Hygiene, the Supreme Court unambiguously held that its opinion in Petrella did not address the issue of whether the discovery or injury rule applies to copyright cases. Id. There, the Court stated:

While some claims are subject to a “discovery rule,” under which the limitations period begins when the plaintiff discovers or should have discovered the injury giving rise to the claim, that is not a universal feature of statutes of limitations. See, e.g., ibid. (limitations period in 31 U.S.C. § 3731(b)(1) begins to run when the cause of action accrues); TRW Inc. v. Andrews, 534 U.S. 19, 28 (2001) (same with regard to 15 U.S.C. §1681p). And in Petrella, we specifically noted that “we have not passed on the question” whether the Copyright Act’s statute of limitations is governed by such a rule. 572. U.S, at ___, n. 4 (slip op., at 4, n. 4). Id. at 962.

Because the Supreme Court has now specifically disclaimed that it ever addressed the application of the discovery rule in Petrella, the current law and application of the discovery rule remains unchanged. However, even while acknowledging and accepting the discovery rule of accrual when it comes to limitations on filing, recently many copyright defendants advocate that courts should somehow find that copyright holders may not recover damages on timely-filed claims beyond a three-year lookback period. By making this argument, copyright defendants propose that courts simultaneously follow the established discovery rule of accrual, and yet still impose a three-year limitation on a plaintiff’s damages claims. If the law should hold that all infringing acts occurring beyond three years prior to filing are ripe for filing, yet time-barred for collecting damages, it would completely abrogate the discovery rule. The following example is illustrative: Architect A creates an original architectural work, registers it with the U.S. Copyright Office, and publishes the same in a plan catalog and on its website all
in 2008. Builder B then copies Architect A’s work on January 1, 2009 without authorization or license, 2 constructs and markets a house built from the work and sells the infringing house to Customer C one year later – thus profiting from the infringement on January 1, 2010. Architect A reasonably discovers the infringements on January 1, 2014 and files suit on January 1, 2015. Under the discovery rule, the suit would be considered timely filed. However, because the infringing acts occurred more than three years prior to filing, under the proposed scheme, Architect A would be barred from recovering any damages. Such a result would frustrate the entire purpose of the Copyright Act, as well as the application of the discovery rule of accrual.

Moreover, implementing three-year limitation on damages will have the undesired effect of incentivizing copyright owners to file lawsuits immediately upon discovering potential infringements without ever even attempting a diligent investigation, or seeking any form of pre- suit resolution. If plaintiffs believe that the “damages clock” starts ticking the moment they discover infringing activity, such will result in a “sue now, ask questions later” mentality amongst copyright owners, likely resulting in frivolous lawsuits – or at the very least, lawsuits which could and should have been resolved amongst the parties in out-of-court discussions. 2 Thus, resulting in a lost licensing fee by Architect A on January 1, 2009 – i.e., a legal injury. Courts considering this newly-formed defensive argument should consider such illogical and undesirable consequences.

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