The Copyright Act prescribes a three-year statute of limitations (17 U.S.C. § 507(b)), and the default “incident of injury” rule dictates that the three-year clock starts running when the infringement occurs. However, when a rightsholder exercising reasonable diligence is unaware of infringement when it occurs, the “discovery rule” applies and the three-year statute of limitations on copyright claims begins to run only once the copyright holder knows or reasonably should know that an infringement occurred. Though these principles are well-settled, a circuit split has emerged concerning damages in late-discovered copyright claims.

The U.S. Court of Appeals for the Ninth Circuit’s recent decision in Starz v. MGM has clarified when damages begin to accrue in copyright cases in the Ninth Circuit, but it has also created a divide by contradicting the Second Circuit Court of Appeals—the only other circuit court to rule on the same issue. Central to this divide is the interpretation of a quote from the U.S. Supreme Court’s decision in Petrella v. Metro-Goldwyn-Mayer. In that case, the Supreme Court stated that, under § 507(b) of the Copyright Act, “a successful plaintiff can gain retrospective relief only three years back from the time of suit. No recovery may be had for infringement in earlier years. Profits made in those years remain the defendant’s to keep.”

The Second Circuit in Sohm v. Scholastic interpreted this to mean that copyright holders can collect damages only for infringement that occurred in the three years prior to filing suit, regardless of when they discover the infringement. But the Ninth Circuit in Starz disagreed, finding that this language in Petrella should not be applied in cases involving the discovery rule and that copyright holders’ damages are not universally limited to injury occurring in this three-year period. This provides copyright holders more leeway to enforce their rights when infringement goes undetected. But in light of the circuit split, companies operating outside of the Ninth Circuit should take particular care to diligently monitor and swiftly enforce their copyrights in case a court adopts the Second Circuit’s interpretation of Petrella.

Sohm v. Scholastic

In May 2020, a panel for the Second Circuit issued the first opinion of any circuit court to address this question. The plaintiff in Sohm, a professional photographer, sued Scholastic, alleging that the company exceeded the print runs permitted by licenses to use his photographs in children’s books. On appeal from the district court, which found that there was no time limit on damages distinct from the statute of limitations, the Second Circuit reversed and held that, in light of Petrella, copyright infringement damages were recoverable for only three years prior to the filing of the complaint—even when the discovery rule tolled the statute of limitations.

Noting a divide among district courts on this issue, the court read Petrella to “explicitly dissociate” the statute of limitations on the Copyright Act from the three-year damages time limit. The Second Circuit therefore drew a distinction between when a claim accrues (to which the discovery rule applies) and when damages may be recovered (which is limited to a “three-year lookback period” notwithstanding the discovery rule).

Starz v. MGM

In July 2022, in Starz v. MGM, the Ninth Circuit arrived at a different interpretation of Petrella. In this case, MGM entered into two licensing agreements with Starz, one in 2013 and one in 2015, providing Starz exclusive exhibition rights to hundreds of movies and television shows. In 2019, more than three years later, Starz discovered that MGM breached these agreements by licensing over 300 of these titles to other service providers.

Starz filed suit in May 2020, bringing copyright and contractual claims against MGM for each violation. The district court found that Petrella left the discovery rule undisturbed. Therefore, the damages bar does not preclude recovery for claims “when the plaintiff reasonably was not aware of the infringements at the time they occurred.”

The Ninth Circuit affirmed the district court’s ruling and found that the Petrella decision “was solely concerned with laches” and did not implicate the discovery rule. The court distinguished the three-year damages bar in Petrella on the basis that the incident of injury rule applied in that case, noting that where the discovery rule is not at play, “the three-year look-back period from the date of filing suit is coextensive with the three-year period following the act of infringement.” Thus, the three-year damages rule in Petrella was “shorthand” for the Copyright Act’s look-back language rather than an additional limitation on damages “in a case where the issue was not before it.” The Supreme Court therefore “could not have intended its language to address the situation where a copyright holder does not know about the infringing act to which the discovery rule, not the incident of injury rule, applies.”

The Ninth Circuit rejected the Second Circuit’s opinion in Sohm as “inherently self-contradictory,” finding that a standalone limitation on damages would “eviscerate” the discovery rule. In practice, the Ninth Circuit noted, the discovery rule would serve no purpose if it nominally allowed for an infringement claim to survive but did not allow plaintiffs to recover damages for infringing acts that the copyright holder only became aware of years later. For example, Starz would have had to file suit in 2016 to recover any damages for 2013, when the infringement began, yet it was not reasonably aware of the infringement until 2019.

Even though Starz brought a timely claim under the discovery rule, it would be unable to recover damages for most instances of infringement, making the discovery rule functionally identical to the incident of injury rule.

Implications for Copyright Holders

The tension between the Ninth and Second Circuits creates a clear circuit split that may require clarification from the Supreme Court to resolve. As of the date of this publication, no certiorari petition has been filed in either Sohm or Starz. In the meantime, copyright holders beyond these circuits are left wondering when damages begin to accrue. As the Ninth Circuit pointed out, applying the Sohm decision would essentially make the discovery rule a dead letter for many copyright plaintiffs, and a lawsuit filed in the wrong circuit could mean the difference between no recovery and full recovery for infringement.

As demonstrated by a list provided in the Starz opinion, district courts from all but the Eighth and Eleventh Circuits have explicitly or implicitly rejected the rule advocated in Sohm. While most of these decisions are unpublished and it is impossible to predict how their corresponding circuits may rule, a preponderance of precedent in some of these circuits may indicate a preference more in line with the Ninth Circuit’s Starz decision than the Second Circuit’s Sohm opinion.

As courts continue to grapple with this issue, copyright holders would be wise to closely monitor use of their content and expeditiously enforce their rights so that they do not risk forfeiting damages in a court bound by, or sympathetic to, the rule in Sohm. Litigants should also be mindful of the forum in which they bring their claims, as this circuit split is unlikely to resolve soon absent intervention by the Supreme Court to clarify the reach of its ruling in Petrella.