Discovering More Copyright Damages

Here’s What Happened:  

In 1983, Sherman Nealy and Tony Butler formed Music Specialists, Inc. The company recorded and released one album and several singles. A few years later, Sherman and Tony had a parting of the ways. Sherman’s post Music Specialists career hit the skids. He was convicted of drug related offenses and served one prison term from 1989 to 2008 and another form 2012 to 2015.

Meanwhile, Tony, unbeknownst to Sherman, licensed Music Specialists’ catalogue to Warner Chappell Music Inc. Tony’s license hit the jackpot. One Music Specialist work (“Jam the Box”) was interpolated into Flo Rida's hit song “In the Ayer,” which sold millions of copies and reached No. 9 on the Billboard chart. Use of that song was in turn licensed to several popular television shows, including “So You Think You Can Dance.” Other Music Specialists songs found their way into recordings by the Black Eyed Peas and Kid Sister.

In 2018, a few years after completing his second prison term, Sherman realized that he had been shut out of the lucrative music deals that Tony got. So, he sued Warner Chappell alleging copyright infringement going back to 2008. Sherman alleged that he held the copyrights to the works and Warner Chappell had no license from him to use the Music Specialists’ catalogue.

The Copyright Act has a 3-year Statute of Limitations. However, the so-called discovery rule enables a diligent plaintiff to raise claims for older infringements if they discovered the infringements within the prior three years. Sherman claimed that the discovery rule applied because the infringements occurred while he was in prison.

The district court granted Warner Chappell’s motion for summary judgment in part ruling that Sherman was only entitled to damages within the 3 year Statute of Limitations. The Eleventh Circuit Court of Appeals reversed.

The federal judicial circuits were split as to whether the 3 year Statute of Limitations also limited the amount of damages a plaintiff can recover. In other words, some circuits have held the discovery rule is all fine and good but damages will are limited to 3 years. Other circuits have held that the all damages are recoverable, even those incurred before the 3 year limitation.

US Supreme Court granted certiorari and resolved the split.

In a 6-3 decision, with Justice Kagan writing for the majority, SCOTUS held that a plaintiff with a timely infringement claim under the discovery rule is entitled damages that occurred more than 3 years before the plaintiff filed suit.

The Court notably assumed that Sherman qualified for bringing an action under the discovery rule.

WHY YOU SHOULD KNOW THIS: The stakes for copyright infringement has gone up. Without any limitation on the period of time for infringement damages, an infringer could be liable for substantial damages.

Note that the discovery rule is not always available, even with the late discovery of an infringement. The plaintiff must have used reasonable diligence to discover the alleged infringement. That means that different plaintiffs may be held to different levels of reasonable diligence.

Case Information:  Warner Chappell Music, Inc. v. Nealy, 144 S. Ct. 1135 (2024)