December 21, 2017 Articles

Papazian: Copyright, Statute of Limitations, and Statutory Damages

Allowing for statutory damages where actual damages are barred would effectively transform statutory damages into punitive damages.

By Dorian Simmons

A copyright owner brings suit against an alleged infringer within the Copyright Act’s statute of limitations (under the discovery rule of claim accrual). But awards of actual damages and the defendant’s profits attributable to infringement are precluded because the alleged infringing act occurred outside of the three-year limitations period. Is the copyright owner still entitled to statutory damages?

Judge Richard J. Sullivan considered this question in Papazian v. Sony Music Entertainment, No. 16-cv-07911, 2017 WL 4339662 (S.D.N.Y. Sept. 28, 2017). Citing Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962, 1973 (2014), and expressly disagreeing with another judge in the U.S. District Court for the Southern District of New York, he held that all monetary relief was barred. Judge Sullivan’s decision is consistent with the compensatory purpose of statutory damages and avoids incorrectly transforming statutory relief into punitive awards.

Petrella: An Overview
In Petrella, the Supreme Court considered whether the equitable doctrine of laches precluded a copyright infringement suit that was filed within the statute of limitations. The Court explained that laches is only applicable to equitable remedies and even then may be applied only in extraordinary circumstances. The Court held that the statute of limitations controlled when a copyright holder could bring suit and whether actual damages were available. Because the infringing acts occurred outside the statutory limitations period, the Court held that the plaintiff was barred from recovering actual damages or the defendant’s profits attributable to those infringements, which are remedies that otherwise would be available pursuant to section 504(b) of the Copyright Act. The Court was silent, however, as to whether statutory damages also were precluded by the statute of limitations.

Papazian and Statutory Damages: Reliance on Petrella
In Papazian, Judge Sullivan decided—based on Petrella—that statutory damages were precluded by the statute of limitations.

The plaintiff in Papazian sought statutory damages in a case where his infringement claim was timely under the discovery rule but where, under Petrella, he could not recover actual damages or profits because the infringing act occurred outside of the three-year limitations period. Judge Sullivan explained that the discovery rule determines the date of accrual, but the “rolling” approach to damages, as adopted by the Court in Petrella, determines the extent of relief available.

In terms of accrual, under the Copyright Act “[n]o civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued.” 17 U.S.C. § 507(b). The Second Circuit has adopted the discovery rule to determine when a claim accrues. Under the discovery rule, a claim accrues when a plaintiff discovers, or should have discovered, the alleged infringement, regardless of when the infringement actually occurred. See, e.g., Psihoyos v. John Wiley & Sons, Inc., 748 F.3d 120, 124–25 (2d Cir. 2014). Based on the discovery rule, Judge Sullivan ruled that the plaintiff’s suit was not time-barred.

Turning next to the issue of damages, the judge determined that in cases of reoccurring infringing acts, the “rolling” and “continuing” infringement approaches are used to determine which infringing act(s), if any, trigger monetary damages under the Copyright Act. Papazian, 2017 WL 4339662, at *4. Under the continuous infringement approach, multiple infringing acts of the same work are all liable as long as at least one infringing act occurs within the limitations period. Under the rolling approach, monetary relief is only available for infringing acts that occur within the statute of limitations. Concluding that the Second Circuit and the Petrella Court adopted the rolling approach, Judge Sullivan followed suit and disallowed actual damages and profits. Id.

Continuing with his reliance on Petrella, the judge stated that the “most straightforward interpretation of Petrella . . . is that no recovery of any kind, including statutory damages, is permitted for infringing acts occurring more than three years prior to suit.” Id. at *6. But see Energy Intelligence Group, Inc. v. Scotia Capital (USA) Inc., 16-cv-00617, 2017 WL 432805, at *2 (S.D.N.Y. Jan. 30, 2017) (rejecting defendant’s argument that damages are not recoverable for infringing acts occurring more than three years prior to filing).

Rejection of Statutory Damages: Defensible?
Is there support for Judge Sullivan’s interpretation of Petrella and his ruling? Both the Copyright Act and Second Circuit case law support precluding statutory damages when the infringing act falls outside of the three years preceding the filing of the suit.

Given the partially compensatory purpose of statutory damages, awarding such damages when actual damages are time-barred would conflict with the Copyright Act. Section 504(c) of the Copyright Act makes clear that statutory damages are a substitute for actual damages: the copyright owner “may elect, at any time before final judgement is rendered, to recover, instead of actual damages and profits, an award of statutory damages.” 17 U.S.C. § 504(c). Statutory damages are an alternative to actual damages when the latter are difficult to calculate. 6 Patry on Copyright § 22:153 (2017); see also Psihoyos v. John Wiley & Sons, Inc., No. 11 civ 1416(JPO), 2012 WL 5506121, at *3 (S.D.N.Y. Nov. 7, 2012) (noting that “statutory damages are designed precisely for instances where actual harm is difficult or impossible to calculate”). In addition, the consensus in the Second Circuit is that statutory damages should bear a relationship to actual damages absent willful and malicious conduct. See, e.g., Psihoyos, 2012 WL 5506121, at *3.

Furthermore, an award based solely on deterrence where actual damages are barred finds no support in the Copyright Act. While statutory damages have a punitive component, they are not punitive damages. However, allowing for statutory damages where actual damages are barred would effectively transform statutory damages into punitive damages: the punitive component of statutory damages would be the only possible rationale for awarding them. See On Davis, v. The Gap, Inc., 246 F.3d 152, 172 (2d Cir. 2001), as amended (May 15, 2001) (noting that “[t]he purpose of punitive damages—to punish and prevent malicious conduct—is generally achieved under the Copyright Act through the provisions of 17 U.S.C. § 504(c)(2), which allow increases to an award of statutory damages in cases of willful infringement”). But the Copyright Act does not authorize punitive damages as such. Id. (“As a general rule, punitive damages are not awarded in a statutory copyright infringement action”); Viacom Int’l Inc. v. Youtube, Inc., 540 F. Supp. 2d 461, 464 (S.D.N.Y. 2008) (“Common-law punitive damages cannot be recovered under the Copyright Act.”). Awarding statutory damages when actual damages are not just difficult or impossible to prove but rather are foreclosed by the statute of limitations would sever the connection between statutory and actual damages and result in a purely punitive award without statutory authority for doing so.

Ramifications for Pretrial and Discovery
What are the implications for pretrial litigation and discovery of Judge Sullivan’s holding that statutory damages are not available when actual damages are time-barred?

The biggest impact may be on copyright owners. Judge Sullivan’s decision encourages copyright holders to diligently track the use of their works and file suit as early as possible. Those who file suit more than three years after actual occurrence of the infringing acts will be barred from monetary damages completely. Unless the infringement is reoccurring in separate infringing acts, which would extend the period in which at least some monetary relief is available, waiting or being unaware means jeopardizing monetary damages.

Copyright owners who are late to court will only have equitable remedies available. See 17 U.S.C. §§ 502–03 (providing for injunctive relief and the impounding and disposition of infringing articles). Once a claim has been filed in such a circumstance, however, the preclusion of monetary relief will likely not have a major impact. Parties will still seek discovery concerning who owns the rights to a work, when and how the alleged infringement occurred, and other central issues. And infringement suits will still feature experts; although expert testimony on actual damages should be limited to situations in which monetary harm is still relevant, such situations will sometimes occur in cases involving only equitable remedies. For example, consider a scenario in which a copyright owner seeks an injunction to prevent a prior infringer from committing another infringing act. Imagine that the previous act caused financial harm, but actual damages were unavailable as a result of the limitations period. In this case, the amount of actual damages previously caused may be relevant to the potential harm faced by the copyright holder if an infringing act reoccurs.

Conclusion
Although Judge Sullivan’s decision is supported by the Copyright Act and Second Circuit, his interpretation of Petrella is not universally held. Judge P. Kevin Castel stated that “under no reasonable reading of Petrella could the opinion be interpreted to establish a time limit on the recovery of damages separate and apart from the statute of limitations.” Energy Intelligence Group, Inc., 16-cv-00617, 2017 WL 432805, at *2 (S.D.N.Y. Jan. 30, 2017). Creators and their lawyers would be wise, therefore, to observe the Southern District as these divergent readings of Petrella will ultimately influence who comes to court and when.

 

Dorian Simmons is an associate with Weil, Gotshal & Manges LLP in New York, New York.


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