On October 17, 2024, the Second Circuit denied the petition for rehearing, likely putting this question to rest, at least for now.
Earlier this year, in Michael Grecco Productions, Inc. v. RADesign, Inc., the Second Circuit ruled, “There is no ‘sophisticated plaintiff’ exception to the discovery rule, or to a defendant’s burden to plead and prove a statute-of-limitations defense.” Michael Grecco Prods., Inc. v. RADesign, Inc., No. 23-1078 (2d Cir. Aug. 16, 2024). In so ruling, the Second Circuit reversed the lower court’s dismissal of plaintiff Michael Grecco Productions’ copyright infringement claim but deliberately did not consider or address whether the “discovery rule” is properly applied at all in cases of alleged copyright infringement—a question that has yet to be answered definitively. Following this decision, defendant RADesign sought rehearing en banc, raising this threshold question by arguing that the Copyright Act does not support application of the discovery rule to determine the timeliness of copyright infringement claims. On October 17, 2024, the Second Circuit denied the petition for rehearing, likely putting this question to rest, at least for now.
The Second Circuit’s decision followed two recent U.S. Supreme Court rulings on this issue. First, in Warner Chappell Music, Inc. v. Nealy, 601 U.S. 366 (2024), the Supreme Court ruled that copyright infringement damages are not restricted by the three-year statute of limitations period described in 17 U.S.C. § 507(b), as long as the infringement claim is timely. In that case, the parties did not challenge the timeliness of the claim, and assumed the discovery rule was properly applied. The Supreme Court similarly assumed without deciding that the discovery rule was properly applied in reaching its decision on the available damages. Certain justices suggested in dissent that the Court should have considered the threshold question of whether the discovery rule was properly applied to copyright infringement cases in the first place before reaching a related decision on damages. Nonetheless, when subsequently confronted with this “antecedent” question in Hearst v. Martinelli, No. 23-474 (U.S. May 20, 2024), the Supreme Court declined to grant certiorari, thereby leaving the discovery rule intact for the lower courts to grapple with.
As discussed in an earlier Alert about this case, the Second Circuit was presented with an opportunity to consider the discovery rule’s application in deciding Grecco’s appeal of the lower court’s dismissal of its copyright infringement claim on statute of limitations grounds. Rather than addressing the discovery rule’s broader application, the court ruled only that the discovery rule applies equally to sophisticated and unsophisticated plaintiffs alike. In its petition for rehearing en banc, RADesign doubled down on its challenge to the discovery rule as a threshold issue, rather than the limited application of the discovery rule to “sophisticated” plaintiffs, calling the former a “question of exceptional importance warranting en banc review.” RADesign argued that under Section 507(b) of the Copyright Act, “a claim ‘accrues’ when it is present and complete, i.e. when the injury occurs,” and that there is no basis under the plain text of the statute for finding that a claim accrues “when the infringement was or reasonably could have been discovered.” Rather, it argued that the discovery rule is “out of step with the standard injury rule, contradicts the plain meaning and context of the [Copyright] Act, and conflicts with Supreme Court precedent,” citing Petrella v. MGM, Inc., 572 U.S. 663, 670 (2014) (Ginsburg, J.) (quotation omitted) (“A copyright claim … arises or accrue[s] when an infringing act occurs.”). While RADesign also looked to the dissenting justices in Warner Chappell, noting that Justice Neil Gorsuch “emphasized that the Supreme Court should decide a case ‘squarely presenting the question whether the Copyright Act authorizes the discovery rule,’” it did not address the Supreme Court’s subsequent denial of certiorari in Martinelli, which did squarely present that question. Rather, RADesign presented this case as a “perfect vehicle for revisiting the discovery rule”—at least in the Second Circuit.
By denying RADesign’s rehearing petition, the Second Circuit seems to be adhering to the assumption that the discovery rule properly applies under the Copyright Act, and how a plaintiff’s level of sophistication plays into the discovery rule’s application will likely be a fact-specific determination in most cases. At this time, 11 circuits continue to follow the discovery rule and the Supreme Court seems unwilling to weigh in. Thus, whether this completely closes the book on the discovery rule remains to be seen. In the meantime, the Second Circuit appears to be taking a more plaintiff-friendly approach following Warner Chappell’s rejection of a three-year damages cap (previously applied in the Second Circuit to limit copyright infringement damages under the discovery rule) and the Supreme Court’s refusal to weigh in on the discovery rule’s application to copyright claims more generally.
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