Accrual of a Claim: Incident of Injury Date v. Discovery of Injury Date
The Copyright Act at 17 U.S.C. §507 requires a plaintiff to sue for copyright infringement within three years after “accrual.” So when’s accrual? The general rule is that it occurs when one of a copyright owner’s exclusive rights is infringed. This is known as the “incident of injury rule.” But often, an important exception to the general rule applies: A copyright infringement claim can accrue when the claim is, or when it should have been discovered, rather than when the infringing acts occurred. Sometimes there’s no delay in discovery and the two events –infringing acts and discovery– are simultaneous. But not always. That’s why nine Courts of Appeals, and the overwhelming majority of courts today, use the “discovery rule of accrual.” This discovery rule does not mean that a plaintiff can recover damages only from the three-year period before filing suit. That’s only the damage rule when discovery of infringement is not different than infringement. But if accrual and discovery aren’t simultaneous, then damages aren’t limited to three years before filing. Roley v. New World Pictures Ltd., 19 F.3d 479 (9th Cir. 1994) didn’t bar damages occurring before the three-year window, as long as the plaintiff hadn’t yet discovered the infringement. Polar Bear Productions, Inc. v. Timex Corp, 384 F.3d 700 (9th Cir. 2004). Roley at 19 F.3d 481 recognized another copyright litigation rule, while not labeling it as such: the “separate accrual” rule, i.e., that each act of infringement has its own statute of limitations. What about laches? When is there “prejudicial delay”?
And what about when accrual and discovery and damages collide in a copyright case involving a laches defense? “Laches” means a right is discovered, but not acted on. In 2014, the U.S. Supreme Court decided Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. 663 (2014), in which the plaintiff, the heir to the writer of the screenplay on which MGM’s 1980 “Raging Bull” film was based, knew at least as early as 1998 that she had a claim, but waited to sue MGM until 2009, only seeking damages from 2006, three years before she sued. The Petrella court rejected MGM’s laches defense, never even discussing the discovery rule when it found no laches. SCOTUS didn’t rule on the discovery rule, because it wasn’t an issue in that laches case, but did note that such discovery rule was used by most Courts of Appeal.
The 2nd Circuit: An Aberration
Most circuit courts haven’t addressed whether Petrella imposed a “damages bar.” But the 2nd Circuit has, and it’s an outlier, holding in Sohm v. Scholastic Inc., 959 F.3d 39, (2d Cir. 2020) that a photographer copyright holder could not sue a publisher, Scholastic, for damages occurring more than three years before he sued, even where that photographer was unaware of Scholastic’s infringing acts. Scholastic argued that Petrella “explicitly delimited damages to the three years prior to the commencement of the copyright infringement action.” No way! Yes way! Scholastic prevailed, but the Second Circuit remains an aberration. The weight of authority interprets Petrella’s holding as only applying when the discovery rule doesn’t, when accrual is based on the “incident of injury rule.”
Starz v. MGM: Back to the 9th Circuit
Starz sued MGM for copyright infringement, and then MGM asked the 9th Circuit, like Scholastic asked the 2nd Circuit, to bar damages sought by Starz in Starz Entertainment, LLC, v. MGM Domestic Television Distribution, LLC, arguing that Petrella limits Starz’s claim for MGM’s infringements that occurred more than three years prior to Starz filing its complaint.
The history: Starz and MGM entered into two agreements in 2013 and 2015 that granted exclusive licensing rights to hundreds of films and TV programs, with Starz spending $70M for those rights. In August 2019, a Starz employee saw that Amazon Prime Video was offering streaming rights to “Bill and Ted’s Excellent Adventure,” a film supposedly exclusively licensed by Starz. Starz contacted MGM, and MGM conceded its violation of the parties’ contract. MGM offered Starz a longer exclusivity term to compensate for this breach.
Starz sensibly did not take MGM’s word for it. Soon, Starz found 22 other movies it was supposed to have exclusive rights to, also available on Amazon Prime Video. MGM admitted those breaches, too. A list of 136 additional film infringements and 108 TV series episode infringements followed, then nearly 100 additional films, all in breach of Starz’s exclusivity rights. Starz sued MGM in May 2020, alleging 340 claims of direct copyright infringement, 340 claims of contributory infringement, and 340 claims of vicarious copyright infringement, as well as contract claims.
Starz Part II
MGM sought to dismiss Starz’s case under Rule 12 (b)(6), arguing that Petrella imposed a strict bar on copyright damages occurring more than three years prior to filing of the complaint. The Starz district court denied that motion, certified its order for interlocutory appeal at MGM’s request, and the 9th Circuit reviewed that denial of the motion to dismiss de novo. The Starz 9th Circuit court went back in time, reviewing history and revisiting Roley, Polar Bear, Petrella, Sohm, and other cases, ultimately concluding that the “discovery rule for accrual allows copyright holders to recover damages for all infringing acts that occurred before they knew or reasonably should have known of the infringing incidents and that the three-year limitations period runs from the date the claim accrued, i.e., from the date when the copyright holder knew or should have known of the infringement.”
Criticizing Sohm as self-contradictory, the Starz court said “[t]here is no reason for a discovery rule if damages for infringing acts of which the copyright owner reasonably becomes aware years later are unavailable.”
Noting that some of Starz’s film and TV works’ exclusive licenses expired as early as 2013, Starz would have had to sue by 2016, but didn’t even discover the first “Bill and Ted” infringement until 2019. A damage bar makes no sense if all it does is turn the “discovery rule” into an “incident of injury” rule. The Starz court also pointed out that the Copyright Act’s damage provisions at §504 doesn’t support any damages bar. Instead, §504 allows recovery for “actual damages. . . as a result of infringement,” “any profits . . . attributable to the infringement, ” or “statutory damages for all infringements involved in the action” id. §504(c)(1) (emphasis added). Had Congress intended to limit recoverable damages or profits to those arising only from acts of infringement during the three-year period before suit was commenced, it would have said so, and said so in §504, which sets forth detailed instructions as to the proper calculation of damages and profits.
Starz Part III
Starz distinguished between a litigant who “sleeps” on their rights and one who just doesn’t know they’ve got rights to enforce, commenting that it would be unfair to prevent a copyright plaintiff, who through no fault of its own, discovers an act of infringement more than three years after the infringement occurred, from suing an infringer. This is particularly unfair when the alleged infringer knows of and controls the infringing acts, and the copyright holder is at a disadvantage in discovering them.
In a nod to practical current grim reality, the Starz court considered how it’s now “easier to commit, harder to detect, and tougher to litigate” copyright infringement, making it more important than ever for courts to acknowledge a copyright plaintiff’s rights, citing to, e.g., William A. Graham Co. v. Haughey, 568 F.3d 425, 437 (3d Cir. 2009) (“Technological advances such as personal computing and the internet have [made] it more difficult for rights holders to stridently police and protect their copyrights.”
The Starz v. MGM Domestic Television decision is here.