The Copyright Act of 1976 stipulates that a plaintiff must file an infringement suit “within three years after the claim accrued.” For many years, courts have disagreed over when that three-year clock actually starts ticking.
Some courts, including some Circuit Courts of Appeal, have held it starts running when the alleged infringement occurred and that suits filed three or more years after that time are not valid. Other courts have held that the statute of limitations only start running when the plaintiff discovers, or reasonably could have discovered, the infringement, even if it occurred more than three years prior — an interpretation known as the “discovery rule.”
The U.S. Supreme Court has never decided the issue, and so the “split in the circuits” has continued, to the frustration of plaintiffs and defendants alike.
The Copyright Act also provides that successful plaintiffs can collect either statutory damages, which can run as high as $150,000 per infringement, or actual damages plus the defendant’s profits derived from the infringing activity.
Most plaintiffs ask for statutory damages because the penalties can add up quickly, particularly where multiple infringing acts or a large number of works infringed are involved. But in 2018, producer Sherman Nealy sued Warner Chappell Music and Atlantic Records for copyright infringement that allegedly occurred as far back as 2008, and asked for disgorgement of profits accrued in the decade since.
The story actually begins even earlier. In 1983, Nealy and a partner, Tony Butler formed Music Specialists, Inc., and released an album and several singles. The venture dissolved a few years later, however, and in 1989 Nealy was sent to prison on drug related charges and served until 2008. He served a second stint from 2012-2015.
While Nealy sat in prison, Butler formed a new company and struck an agreement to license MSI’s catalog to Warner Chappell, which subsequently began licensing the works to others. In 2008, one MSI track “Jam the Box,” was interpolated into Flo Rida’s hit “In the Ayer.”
Nealy only learned of all that activity after his release from prison the second time. Upon his release he claimed to be the rightful copyright owner of the MSI works and sued Warner Chappell for infringement.
As the case was brought in the 11th Circuit, where the discovery rule controls on filing suit, Warner Chappell did not challenge the timeliness of Nealy’s filing. But it did challenge has claim for damages stretching back more than a decade, arguing he was only entitled to damages since the time the suit was filed.
The district court ruled in favor of Warner, but the 11th Circuit Court reversed that decision, arguing that applying the three year rule on damages would effectively gut the discovery rule. Last week, the U.S. Supreme Court, in a 6-3 decision, upheld the 11th Circuit.
While the high court did not resolve the fundamental question of when the statute of limitations starts running for filing a suit because that question was not presented in this case, its ruling that there is no such time limit on damages could hold significant implications for other copyright cases, including those involving generative AI.
Courts have only just begun to wrestle with the question of whether the use of copyrighted materials to train AI models constitutes infringement or falls under fair use. It likely will be many years before the issue is fully resolved, perhaps requiring another Supreme Court test.
Apart from the current legal uncertainty, would-be plaintiffs in those cases face the additional practical challenge of determining with certainty if and when their own works may have been included in training datasets.
AI companies increasingly have grown stingier about disclosing their sources of data, in part for fear of inviting additional lawsuits by artists and rights owners. If it is ultimately determined that unlicensed use of protected works is infringing, however, the Supreme Court’s ruling in Nealy could leave AI companies on the hook for substantial damages even if that use is only discovered or confirmed long after the fact.