USDC S.D. New York, May 5, 2009

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  • District court adopts “injury rule” and holds that claim for copyright infringement accrues at the time of infringement

Finding that the U.S. Court of Appeals for the Second Circuit has not addressed whether a claim for copyright infringement accrues under the discovery rule (i.e., when plaintiff knew or should have known of the infringement) or the injury rule (i.e., at the time of infringement), the court adopted the injury rule and held that any claims of copyright infringement by defendant The Medical Protective Company (MedPro) more than three years before the action was filed were time-barred.

Plaintiff, a software developer, filed suit against defendants General Electric Company (GE) and MedPro for exceeding the usage limits of a license agreement. Plaintiff audited MedPro’s direct parent company in April, 2007, and learned that MedPro had exceeded the usage limits in the licensing agreement. Plaintiff’s amended complaint included claims for copyright infringement and breach of contract. MedPro and GE moved to dismiss, and MedPro argued that certain of plaintiff’s claims are barred by the Copyright Act’s three-year statute of limitations.

The court acknowledged that for many years courts in the Second Circuit applied the discovery rule because the U.S. Court of Appeals for the Second Circuit applied the discovery rule to claims for co-ownership of copyrighted materials (citing Merchant v. Levy, 92 F.3d 51 (2d Cir. 1996)). However, the court cited to several more recent district court decisions in the Second Circuit that applied the injury rule, apparently in response to a 2001 U.S. Supreme Court ruling reversing the application of the discovery rule to claims under the Fair Credit Reporting Act. The district court stated that it found the analysis of these district court decisions persuasive and adopted the injury rule. Applying this rule, the court held that any of plaintiff’s claims for infringement prior to February 13, 2005, were time-barred.

Turning to the breach of contract claims against MedPro, the court found that not all of those claims were preempted because MedPro’s promises to notify plaintiff if it exceeded its license, to pay additional fees, to pay for an audit that revealed underpayment of a certain percentage, and to pay the underpaid amount provided “extra elements” that make the claim qualitatively different from a copyright infringement claim.

The court granted GE’s motion to dismiss based, in part, on its finding that a plaintiff must show more than just a legal relationship between the parent and the subsidiary or that the parent benefits from its ownership of the subsidiary to state a claim for vicarious liability and because its breach of contract claims against the company were preempted by the Copyright Act. However, MedPro’s motion to dismiss was granted in part and denied in party. The court found that plaintiff’s claims against MedPro for copyright infringement, to the extent not barred by the statute of limitations, and certain of its claims for breach of contract against the company may continue.