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2014 Decisions Clarify How the Statute of Limitations Applies to Copyright Infringement Claims

Statutes of Limitations specify the time period in which one must commence a legal proceeding asserting a particular type of claim or lose it. With very few exceptions, failure to file before the Statute of Limitations expires bars the claim forever. Filing even an hour late is fatal. So obviously knowing what the Statute of Limitations is for the type of claim you have is critical.

So what is the Statute of Limitations for a copyright infringement claim? That’s easy— Three years. Section 507(b) of the Copyright Act 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.” But, in fact, it has not been so easy to figure out how that three-year period applies to a given situation. Several important court decisions handed down during 2014 have helped to flesh out and clarify how the copyright Statute of Limitations works, particularly in the very important Second Circuit, which covers New York.

When Does the Statue of Limitations Start to Ruin on a Copyright Claim?

The Copyright Act’s language stating that the Statute of Limitations is three years “after the claim accrued” begs the question of when the claim “accrued.” Does the statute start to run when the infringing act occurs, whether the copyright owner knows about it or not?—the “injury rule.” Or do the three years only start to run when the copyright owner learns (or reasonably should have learned) that the infringement took place?—the “discovery rule.” The issue is particularly important for more subtle types of copyright infringement such as infringement of a computer program or use of licensed material outside the scope of the license granted.

Substantial uncertainty has surrounded this question for at least the last ten years, particularly in New York. Prior to 2004, it was generally thought that two decisions considering disputes over ownership of copyrights from the United States Court of Appeals for the Second Circuit, which interprets how federal laws such as the Copyright Act apply in New York, established the discovery rule. Merchant v. Levy, 92 F.3d 51 (2d Cir. 1996); Stone v. Williams, 970 F.2d 1043 (2d Cir. 1992). However, in 2004, a very influential, highly respected federal trial court judge issued a decision finding that the injury rule should apply instead. Auscape Int’l v. Nat’l Geographic Soc’y, 409 F. Supp. 2d 235 (S.D.N.Y. 2004). The judge reasoned that the legislative history of the Copyright Act and a 2001 Supreme Court decision concerning the Statute of Limitations on claims under the Fair Credit Reporting Act indicated that Congress intended the injury rule to apply to copyright claims. The Merchant and Stone decisions were explained away as applying only to copyright ownership disputes, but not copyright infringement.

A number of the federal trial court judges in New York, although not all, began to follow the Auscape decision. As a consequence, cases where the copyright owner sued more than three years after the infringing acts but less than three years after he or she learned of them would succeed or fail based solely on whether the randomly assigned judge did or did not follow the Auscape decision.

In the meantime, appellate courts in other parts of the country to consider the issue almost uniformly decided that the discovery rule governed copyright claims. E.g., William A. Graham Co. v. Haughey, 568 F.3d 425 (3d Cir. 2009). Surprisingly, it took ten years for the issue to be squarely raised on appeal before the Second Circuit. That finally happened in Psihoyos v. John Wiley & Sons, Inc., 748 F.3d 120 (2d Cir. 2014), That case involved claims that the defendant had published the plaintiff’s copyrighted photographs in textbooks without a license. In some cases the publications occurred more than three years before the suit was filed but less than three years after the plaintiff reasonably learned of the unauthorized publication.

With very little difficulty or discussion, the appeals court determined that the Merchant and Stone cases already established the discovery rule for copyright infringement and that there was no sound reason to limit their holdings to copyright ownership disputes. After all, the same provision of the Copyright Act applies to both. The long-influential Auscape decision merited only a brief mention in a footnote. Accordingly, absent consideration of the issue by the Supreme Court at some future time it now appears settled that the discovery rule applies to the Statute of Limitations for copyright claims throughout the nation. It also appears that the 10-year period of uncertainty about the issue in New York’s federal courts was unwarranted.

Can the Doctrine of Laches Override the Statue of Limitations in Some Cases?

Knowing that the discovery rule applies to the copyright infringement statute of limitations is helpful, but it does not clear up all uncertainty over how the statute applies to a given fact situation. The doctrine known as Laches might also need to be considered. Laches is a doctrine that courts sometimes apply to bar or limit the relief otherwise available where a plaintiff has unreasonably delayed in asserting a claim and the defendant has relied on the delay to its detriment. Can Laches override the Statute of Limitations in copyright infringement cases? In other words, if a copyright owner asserts infringement claims without suing, leading the defendant to conclude that there will be no suit, and then finally sues many more than three years later, can laches bar the suit even though at least some of the damages from infringement occurred during the three-year period before the suit was filed. In a case involving the 1980 motion picture “Raging Bull” about the life of boxer Jake LaMotta, the plaintiff asserted infringement claims in 1998, but filed no suit until 2009. The trial court, and the first appellate court, both ruled that Laches barred the suit even though some of the infringement occurred during the three-year Statute of Limitations period.

However, in May 2014, the United States Supreme Court reversed those rulings, holding that Laches could not trump the Statute of Limitations. Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014). The Court held that, notwithstanding whatever delay occurred, a copyright plaintiff can recover damages for whatever infringement took place during the three years preceding the commencement of the suit. The Court reasoned that each infringing act gives rise to a separate infringement, so that the plaintiff could recover for the exploitation of “Raging Bull” during the three years preceding suit, but not before.

The takeaway from the Petrella case is that a copyright owner whose work is being infringed, but not generating profits for the infringer worth suing over, can sit back and wait for years until the profits justify the cost and effort of suing and then bring the lawsuit. However, the copyright owner will only be able to collect damages for the three years prior to suit.

When Does the Statue of Limitations Begin to Run in the Absence of the Copyright Owner's Actual Knowledge?

Now that it is clear that the discovery rule applies to copyright infringement claims, i.e., that the three-year statute only begins to run when the copyright owner knew, or reasonably should have known, of the infringement, questions can still arise as to when a copyright owner without actual knowledge of the infringement reasonably should have known of it. A suit commenced within three years of the copyright owner’s actual knowledge of the infringement could still be barred if he or she should have known of the infringement more than three years before suit. This poses the question of what facts are sufficient to charge the copyright owner with knowledge of the infringement – and start the Statute of Limitations running – in the absence of actual knowledge. Another important decision in 2014 addressed this issue.

In Chicago Building Design, P.C. v. Mongolian House, Inc., 770 F.3d 610 (7th Cir. 2014), decided last October, an architecture firm sued a former client and its subsequent architect for infringement of the architectural plans that the plaintiff originally created for its client. The plaintiff alleged that its former client copied the plaintiff’s plans and gave them to the subsequent architect, who placed his name on them and filed them with the City of Chicago with the intention of passing them off as his own.

In 2008, an employee of the plaintiff visited the City’s offices and happened to see a set of plans that looked similar to the plaintiff’s plans but had the subsequent architect’s name on them. At that point, the plaintiff did not know whether the plans glimpsed were or were not infringing. To try to get more information, the plaintiff asked for a set of the plans pursuant to the Illinois Freedom of Information Act, but was rebuffed on the ground that blueprints were exempt from disclosure. The plaintiff later learned that the City had issued a building permit based on the plans glimpsed in 2008.

The plaintiff sued in 2012 and the defendants moved to dismiss based on the Statute of Limitations. The trial court held that the suit was barred because the plaintiff had “inquiry notice” of a possible violation of its rights when its employee first saw the plans at the City’s office on December 31, 2008, which made the suit about six weeks too late.

However, on appeal, the Seventh Circuit Court of Appeals reversed, holding that “inquiry notice” was not enough to charge the plaintiff with constructive notice of the infringement. That court held that the copyright statute of limitations starts to run “when the plaintiff learns, or should as a reasonable person have learned, that the defendant was violating his rights.” That does not occur, according to the court, until the date on which a “reasonably diligent plaintiff should have discovered that the defendants were violating its rights.” The court held that “Inquiry notice,” i.e., knowledge that would have led a reasonable person to start investigating the possibility that his rights had been violated, is not the equivalent of constructive notice. In summary, according to the court, “The concept of inquiry notice may help to identify the time at which a reasonable plaintiff can be expected to start investigating a possible violation of his rights, but it does not itself trigger the statute of limitations.”

The Chicago Building Design case shows that determining the time when the statute of limitations is triggered can involve a complex factual inquiry. However, it makes clear that more is required than “inquiry notice.” Thus, the plaintiff’s first inkling that something may be wrong is not the trigger. The concept of constructive knowledge contemplates some opportunity for follow-up to determine the actual facts.

Conclusion

2014 ushered in some important developments in the law applicable to the Statute of Limitations for copyright infringement. We now have relative certainty that the discovery rule applies. We also know that laches cannot doom a copyright action that is otherwise brought within the statutory period, but that damages will be limited to that period. Further, we know that in the absence of actual notice, mere “inquiry notice” or reason to be suspicious that infringement may have occurred is not enough to charge the copyright owner with constructive notice of infringement. There are still, however, open questions for the future concerning precisely how much knowledge short of actual knowledge will start the Statute of Limitations running.

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E-Alert is a quarterly newsletter that features the latest thinking from Tannenbaum Helpern's various departments.

02.12.2015  |  PUBLICATION: E-Alert  |  TOPICS: Intellectual Property, Litigation

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