On July 14, 2022, the Ninth Circuit Court of Appeals issued a significant ruling that will have an impact on all of those who own copyrighted material. Yet, in the process, it created a circuit split of precedent with the Second Circuit. 1
The case, Starz Entertainment LLC v. MGM Domestic Television Distribution held that a copyright infringement suit that was timely filed, can recapture all the damages caused by the infringement, no matter when they occurred. This sets up a direct conflict with the Second Circuit, which ruled that damages were limited to a look-back period of three years, from when the infringement was discovered. 2
Well, how did we get here?
The copyright statute states that in order for a copyright infringement suit to be timely it must be filed “within three years after the claim accrued.” 3 However, in every Circuit, to consider the statute, the question is not only when did the infringement occur, but whether the copyright owner knows or reasonably should know that an infringement has occurred. 4
Yet, in 2014, the Supreme Court decided the Case of Petrella v. Metro-Goldwyn-Mayer. 5 There, it decided that each new sale, use, performance or license of an infringing work was a NEW infringement which reset the three-year statute of limitations period. You can read my blog post about the decision here. 6 Faced with the prospect that this was a statute of limitations that might never expire, the SCOTUS held that a copyright plaintiff that has knowledge of the infringement, yet waits, can only recover damages that accrued during the three year period immediately preceding the filing of the lawsuit. 7 This would prevent the plaintiff from receiving a windfall, by merely waiting until the work was substantially profitable and then filing suit.
This led the Second Circuit to adopt the three-year damages lookback period for all cases, even where the “discovery rule” was in play. 8 This holding was in spite of the SCOTUS stating (albeit in a footnote) that the discovery rule played no part in its analysis of the laches argument and it had “not passed on the question.” 9
The wisdom of the Second Circuit position is called into question by the Starz case.
What happens when the information necessary to discover infringement is in the hands of the infringer?
What happens when the infringer is hiding the acts of infringement?
Does this mean that as long as you don’t get caught you get to keep the plundered booty?
Here’s what happened:
“On July 26, 2013, Starz entered into a licensing agreement (a “Library Agreement”) with MGM Domestic Television Distribution LLC (MGM). The parties entered into a second Library Agreement on May 7, 2015, providing Starz with exclusive exhibition rights to more MGM-owned content. Together, the two Library Agreements provided Starz with the exclusive right to exhibit 585 movies and 176 television series episodes in exchange for about $70 million. More specifically, MGM granted Starz the exclusive right to exhibit those MGM-owned movies and television series episodes on Starz’s suite of services within the United States for specified time periods ranging from months to years. For some titles, Starz secured multiple license periods from MGM, resulting in more than 1,000 separate license periods each operating on its own time frame. In addition to the exclusive exhibition rights, Starz received contractual warranties from MGM that it would not exhibit or license to third parties any of the licensed content in violation of Starz’s exclusive rights.” 10
It wasn’t until August 2019, six years after the initial agreement and four years after the subsequent agreement, that Starz discovered that one of the films they held exclusive rights to, Bill and Ted’s Excellent Adventure, was in fact available on Amazon Prime Video. 11 (N.B. Amazon would not acquire MGM until 2022).
For Starz, it got worse from there on.
“Starz notified MGM of its discovery, and MGM admitted that this improper license violated Starz’s rights… At the time, MGM did not inform Starz of any additional potential exclusivity violations.
Starz decided to investigate further, and, by the end of August, discovered that twenty-two additional movies covered by the Library Agreements were available on Amazon Prime Video. MGM acknowledged these violations in September 2019. Starz then sought formal assurances from MGM in October 2019 that the identified titles were not licensed to any other service provider and that MGM licensed no other covered content in violation of the Library Agreements. Instead of those assurances, in November 2019, MGM provided Starz with a list of 136 movies and 108 television series episodes that had been licensed to other service providers (including MGM-owned rival service Epix) in violation of the Library Agreements. Starz continued to conduct its own investigation and subsequently identified nearly 100 additional movies not included on MGM’s November list that were licensed to third parties during time periods they were exclusively licensed to Starz.” 12
So, under the reasoning of the Second Circuit, Starz is “out of luck” for all infringements that occurred from July 2013 to May 2017, marking the three years immediately preceding Starz filing suit in May of 2020.
Not so fast, says the 9th Circuit. It pointed to its previous decision in Roley v. New World Pictures. 13 There it held:
“Without the benefit of tolling in this situation, a copyright plaintiff who, through no fault of its own, discovers an act of infringement more than three years after the infringement occurred would be out of luck. Such a harsh rule would distort the tenor of the statute. Section 507(b), like all statutes of limitations, is primarily intended to promote the timely prosecution of grievances and discourage needless delay. It makes little sense, then, to bar damages recovery by copyright holders who have no knowledge of the infringement ….” 14
Applying this reason to the Starz case:
“We hold 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.
Applying a separate damages bar based on a three-year “lookback period” that is “explicitly dissociated” from the Copyright Act’s statute of limitations in § 507(b) would eviscerate the discovery rule. There is no reason for a discovery rule if damages for infringing acts of which the copyright owner reasonably becomes aware years later are unavailable. This case provides a textbook example of the absurdity of such a rule. The Library Agreements between Starz and MGM covered hundreds of titles under separate time periods, and some of the exclusivity periods ended as early as 2013. Under the approach urged by MGM and adopted in Sohm, damages may only be recovered for a 2013 infringement if the complaint is filed within three years of 2013, or by 2016. But here, Starz did not discover any infringement until August 2019, and Starz brought suit less than a year later. Thus, while Starz’s copyright infringement claim accrued upon discovery in August 2019, and was therefore timely under § 507(b) because the complaint was filed before August 2022, under MGM’s theory, that same act of infringement has been nonrecoverable since 2016.” 15…
“Adopting a damages bar would mean that “a copyright plaintiff who, through no fault of its own, discovers an act of infringement more than three years after the infringement occurred would be out of luck. Such a harsh rule would distort the tenor of the statute.” 16…
“It makes little sense to bar recovery of damages beyond the three-years before the suit was filed where the copyright holder did not delay, but acted in accordance with § 507(b) by filing his complaint within three years of discovery. This is particularly true in a case such as this where the alleged infringer knows of and controls the infringing acts and the copyright holder has little means of discovering those acts. This would incentivize violation of the copyright holder’s exclusive rights, not protect those rights, which is the purpose of the Copyright Act itself. As amici argue, with the constant evolution of technology, copyright infringement is now “easier to commit, harder to detect, and tougher to litigate.” 17 (citation omitted)
Finally, a court that recognizes the negative impact the internet has upon the rights of copyright holders and rules accordingly, instead of throwing up its collective hands and saying “Well, that’s how the internet works. I guess we’ll just have to live with it.”
- Starz Entertainment LLC v. MGM Domestic Television Distribution 2022 WL 2733507 9th Circuit 2022 ↩
- Sohm v. Scholastic, Inc. 959 F.3rd 39, (2d Cir. 2020) ↩
- 17 U.S.C. 507 ↩
- Starz at 1 ↩
- 572 U.S. 663 (2014) ↩
- Taking the Raging Bull by the Horns: A Statute of Limitations That Never Expires? ↩
- Petrella at 677 ↩
- Sohm v. Scholastic, Inc. 959 F.3rd 39, (2d Cir. 2020) ↩
- Petrella at 670 footnote 4 ↩
- Starz at 2 ↩
- Id. ↩
- Id. ↩
- 19 F.3d 479 (9th Cir. 1994) ↩
- Id. at 481 ↩
- Starz at 7 ↩
- Id. at 8 ↩
- Id. ↩