The Ninth Circuit upheld the district court's denial of MGM Domestic Television Distribution, LLC's motion to dismiss Starz Entertainment, LLC's copyright infringement claims based on the three-year statute of limitations outlined in 17 U.S.C. § 507(b). The court affirmed that copyright claims typically accrue when the infringement occurs but also recognized the "discovery rule," which allows claims to accrue when the copyright holder knows or should reasonably know of the infringement. The panel clarified that under this rule, copyright holders can recover damages for infringing acts occurring before they were aware of the infringement, as long as claims are filed within three years of accrual. The court found that Starz timely filed its claims, thus permitting recovery for all relevant acts of infringement. The ruling emphasized that the Supreme Court's decision in Petrella v. Metro-Goldwyn-Mayer did not eliminate the discovery rule, and that previous interpretations of Petrella regarding laches do not preclude the discovery rule's application in copyright cases.
Petrella's opinion acknowledges the discovery rule in copyright claims, affirming its viability, while any discussion of relief beyond that timeframe is considered non-binding dicta. Starz Entertainment LLC, which provides premium subscription video programming, entered into two Library Agreements with MGM Domestic Television Distribution LLC. The first agreement was signed on July 26, 2013, and the second on May 7, 2015, granting Starz exclusive rights to exhibit 585 movies and 176 television episodes for approximately $70 million. These agreements included warranties from MGM ensuring that it would not license the content to third parties, upholding Starz's exclusivity.
In August 2019, Starz discovered that "Bill & Ted’s Excellent Adventure," a film covered under the agreements, was streaming on Amazon Prime Video during Starz's exclusivity period. MGM admitted to this infringement and offered additional exclusivity periods as a remedy. Upon further investigation, Starz found 22 additional films available on Amazon Prime, leading to MGM's acknowledgment of these violations in September 2019. In October 2019, Starz sought assurances that MGM was not licensing any other content in violation of their agreements. Instead, in November 2019, MGM disclosed a list of 136 movies and 108 TV episodes that had been improperly licensed to other services, including its own competitor, Epix. Starz continued to investigate and identified nearly 100 more movies licensed to third parties during the exclusivity period. Consequently, in May 2020, Starz filed a lawsuit against MGM, asserting 340 claims of direct and contributory copyright infringement, 340 claims of vicarious copyright infringement, one claim of breach of contract, and one claim of breach of the covenant of good faith and fair dealing.
In July 2020, MGM filed a motion to dismiss Starz's copyright infringement claims under Federal Rule of Civil Procedure 12(b)(6), citing the Supreme Court's decision in *Petrella*, which MGM argued imposes a three-year damages limitation from the date of the complaint. The district court ruled that *Petrella* did not overturn the discovery rule, allowing for a three-year damages window under 17 U.S.C. § 507(b), unless the plaintiff was unaware of the infringements at the time they occurred. The court had jurisdiction under 28 U.S.C. § 1338 for copyright actions and certified its order for interlocutory appeal, which was accepted, granting jurisdiction under 28 U.S.C. § 1292(b). The appellate court reviews the denial of dismissal de novo, accepting all well-pleaded factual allegations as true and determining if the complaint presents a plausible claim for relief.
Under 17 U.S.C. § 507, a copyright claim must be initiated within three years after it accrues, typically when the plaintiff has a complete cause of action or when an infringing act occurs. Previous rulings clarified that knowledge of infringement or the ability to be charged with such knowledge is pivotal to the accrual of a claim. The case of *Roley v. New World Pictures* established that a copyright infringement action accrues when the copyright holder knows or should know of the violation. It was determined that plaintiffs can only recover for infringing acts that occurred within the three years leading up to the lawsuit, rejecting the notion of recovering for all infringing acts from the first occurrence regardless of the timeline. Thus, the court recognized the interplay between the discovery rule and the limitations period in copyright cases.
The decision in Polar Bear Productions, Inc. v. Timex Corp. clarified that the copyright statute of limitations under 17 U.S.C. § 507(b) does not prevent recovery for infringement that occurred before a three-year window, provided the copyright holder was unaware of the infringement and that this lack of knowledge was reasonable. The court established that a claim accrues when the copyright owner becomes aware of the infringement or should have reasonably discovered it. This ruling emphasized that barring damages for those unaware of infringement would undermine the purpose of the statute, which is to promote timely claims while discouraging delays.
Additionally, the ruling recognized a "separate accrual" rule, stating that the statute of limitations applies individually to each act of infringement, allowing claims for all acts within three years prior to filing. However, in this case, the plaintiff was unable to provide evidence of any infringing acts within that timeframe.
In Petrella v. Metro-Goldwyn-Mayer, Inc., the Supreme Court addressed whether laches could bar claims for infringement occurring within the three-year limitations period. The case involved Paula Petrella, who, despite knowing of potential infringement since 1998, delayed filing her suit until 2009. The Court ruled that laches cannot be used as a defense against claims for violations that accrue within the statutory window, reaffirming that each infringing act resets the limitations period. The ruling clarified that while a plaintiff can seek damages for infringement, they can only recover for acts occurring within three years prior to the suit, with earlier profits remaining with the defendant.
Section 507(b) restricts MGM's ability to recover returns on its investment in "Raging Bull" for years prior to 2006, limiting Petrella's claims to infringing acts within a three-year window. The Court of Appeals incorrectly presumed that pre-2006 infringing acts barred all relief for infringement occurring thereafter, ignoring the statute's separate-accrual rule. The discovery rule, which allows the limitations period to start upon the plaintiff's awareness of the injury, was not applicable in the Court's laches analysis. The Court established that a copyright claim accrues when an infringing act occurs, a principle known as the 'incident of injury rule.' However, nine Courts of Appeals have recognized the discovery rule as an alternative, although the Court in Petrella did not take a stance on it. The Petrella decision focused solely on laches, which pertains to delays in asserting claims when a plaintiff is aware of them, and did not address situations where a copyright holder is unaware of infringement. Therefore, it is reasonable to conclude that the 'incident of injury' rule is not the only rule applied in copyright cases, particularly since the majority of courts use the discovery rule for accrual. The Ninth Circuit has continued to apply the discovery rule post-Petrella, affirming that a copyright infringement claim accrues when the infringement is discovered or should have been discovered. Most circuit courts, including the Ninth, have not clarified whether Petrella created a separate damages bar, with the Second Circuit being the exception.
In May 2016, Sohm filed a copyright infringement lawsuit against Scholastic, claiming unauthorized use of his photos beyond the limits specified in their licensing agreements. Scholastic sought summary judgment, arguing that the incident of injury rule should dictate when Sohm’s claim accrued and that, under the discovery rule, Sohm should have discovered the infringements over three years before filing suit. Additionally, Scholastic contended that the Supreme Court's decision in Petrella limited damages to three years preceding the complaint.
The district court rejected Scholastic's arguments, applied the discovery rule, and determined that Sohm was not on inquiry notice before the three-year period, allowing him to claim damages for earlier infringements. The Second Circuit affirmed this ruling, stating that a copyright infringement claim accrues only when the copyright holder discovers or should have discovered the infringement, referencing its precedent in Psihoyos.
The Second Circuit also noted that the Supreme Court in Petrella did not resolve the discovery rule's applicability, reinforcing its prior decision in Psihoyos. The court upheld the district court's finding that Sohm was not aware of the infringements more than three years prior to filing. However, Scholastic argued that Petrella imposed a damages limitation to only those infringements occurring within the three years before the lawsuit, to which the Second Circuit concurred, stating that Petrella explicitly separated the statute of limitations from the damages limitation. Thus, the court concluded that a plaintiff can recover only for damages incurred during the three years preceding the lawsuit, regardless of their prior knowledge of the infringements, and found the district court's contrary ruling to be incorrect.
MGM advocates for a limitation on Starz's recovery of damages for copyright infringement to a three-year period preceding the filing of the lawsuit, based on the Second Circuit's approach in Sohm and the Petrella decision. However, the court disagrees with this position, asserting that the discovery rule permits copyright holders to seek damages for all infringing acts that occurred prior to their awareness or reasonable discovery of the infringement, with the three-year limitations period commencing at the point of awareness. Implementing a separate damages limitation would undermine the discovery rule's purpose, as it would prevent recovery for infringements discovered long after their occurrence. The case illustrates this absurdity: the Library Agreements between Starz and MGM included titles with exclusivity periods ending as early as 2013, but Starz did not uncover any infringement until August 2019, leading to a timely lawsuit under the three-year limit established by the discovery rule. The court critiques MGM's interpretation, suggesting it would retroactively deny recovery for acts of infringement that occurred prior to the discovery date, effectively rendering the discovery rule meaningless. The court also notes that the majority of district courts in circuits recognizing the discovery rule have dismissed the idea of a damages bar, and Starz provides evidence of numerous cases rejecting the notion that Petrella imposed a damages limitation in discovery rule contexts.
Numerous court cases illustrate the application of the statute of limitations in copyright infringement claims, highlighting the distinction between the "incident of injury" rule and the "discovery rule." Notably, the Supreme Court's ruling in Petrella did not establish a separate damages bar from the statute of limitations, as MGM contends. The relevant language from Petrella pertains specifically to cases governed by the incident of injury rule, wherein damages are limited to three years prior to the filing of a suit. This principle is reinforced by the Second Circuit's interpretation in Sohm, emphasizing that the statute accommodates delays through its provisions. The document lists numerous precedential cases, including Mavrix Photo v. Rant Media and Adobe Systems v. NA Tech Direct, which further contextualize these legal principles and their application across various jurisdictions.
In *Energy Intel. Grp. Inc. v. CHS McPherson Refinery, Inc.*, the court examined the statute of limitations under the Copyright Act, specifically regarding the three-year look-back period for filing claims. It determined that this period aligns with the three years following the act of infringement, indicating that the statute of limitations can be viewed as running forward from the infringement or backward from the filing date—both interpretations yield the same timeframe. MGM's argument suggested that the look-back period established a damages bar determined solely by the filing date, even when the discovery rule applies; however, the court found no statutory support for this view. It clarified that under the Copyright Act, the limitations period specified in 17 U.S.C. § 507(b) is based on when a claim accrues, not the filing date. The court emphasized that a copyright claim is not actionable until it accrues, and § 507(b) does not mention a separate damages bar related to the filing date. The court noted that the language from *Petrella* was merely a shorthand for the limitations described in § 507(b) in cases where infringement and accrual occur simultaneously. Additionally, § 504, which addresses damages, does not impose restrictions based on the filing date, allowing for recovery of actual damages or statutory damages for all infringements involved in the action regardless of when the infringement occurred relative to the complaint.
Laches aims to prevent plaintiffs from unreasonably delaying their claims, but the discovery rule recognizes that a plaintiff may not know they have a claim, thus justifying a longer period to file. A damages bar for copyright claims discovered over three years after the infringement would unjustly disadvantage plaintiffs who acted promptly upon discovery, distorting the statute's intent. Section 507(b) encourages timely grievance prosecution and should not penalize copyright holders who file within three years of discovering infringement, especially when the infringer controls the infringing acts, making detection difficult. Technological advances have made copyright infringement easier and harder to detect, further complicating enforcement. The district court affirmed that the discovery rule applies, confirming that Starz timely filed its infringement claims after discovering the violation in August 2019. Since Starz acted within three years of this discovery, it is entitled to seek damages for all infringements, leading to the affirmation of the district court's denial of MGM's motion to dismiss.
