Policy and Government Affairs

The Copyright Discovery Rule: Living on Borrowed Time?

By Alex Gigante

A statute of limitations is often called a statute of repose, “repose” meaning the “elimination of stale claims, and certainty about a plaintiff’s opportunity for recovery and a defendant’s potential liabilities.”1 By mandating “repose,” a statute of limitations expresses the judicial system’s understanding that, despite its “instinct to provide a remedy  for  every  wrong[,] . . . the passage of time must leave some wrongs without a remedy.”2

Before 1957, the Copyright Act did not have its own statute of limitations. Instead, each federal court applied what it deemed to be the applicable state-law statute of limitations of the State in which that court sat. This practice resulted in wide local variations in the implementation of the Copyright Act.3 In 1957, determining that “it is highly desirable to provide a uniform period throughout the United States,” Congress sought to remedy the inconsistency by enacting the three-year statute of limitations that is found today in Section 507(b) of the current Act. In settling on three years as the appropriate period, Congress observed that “due to the nature of publication of works of art . . . generally the person injured receives reasonably prompt notice or can easily ascertain any infringement of his rights.”4

Unfortunately, Congress’s desire for uniformity has not come to pass because of the widespread application in copyright cases of the discovery rule, a judge-made rule that suspends the running of a statute of limitations until the plaintiff learned or reasonably could have learned of the defendant’s violation of the plaintiff’s rights.5 Originally conceived for the limited instance where the defendant’s conduct concealed the violation from the plaintiff, federal courts now apply the discovery rule to virtually every kind of fact pattern absent express statutory language to the contrary.6 In the copyright context, because the Copyright Act does not expressly prohibit use of a discovery rule, courts have permitted plaintiffs to sue beyond the three-year statute-of-limitations period even for seemingly open and notorious acts: buildings in plain public view;7 public advertising and sale of sports memorabilia photographs;8 photographs displayed for years online by a major stock-photo agency.9

In TRW Inc. v. Andrews, the Supreme Court put into question the widespread application of the discovery rule in the lower federal courts, holding that the rule is not “applicable across all contexts.”10 However, because the statute of limitations before the Court in TRW could be interpreted without requiring a general decision on the discovery rule, the Court passed on the broader question as “a matter this case does not oblige us to decide . . . .”11 Also, while rejecting the presumption that a discovery rule applies absent express statutory language to the contrary, the Court left the issue ambiguous with its comment that the applicability of the discovery rule could be deduced “by implication from the structure or text of the particular statute.”12

Justice Scalia’s concurring opinion,13 joined by Justice Thomas, characterized the discovery rule as “bad wine of recent vintage,”14 and chastised the majority for not deciding once and for all that there is no presumption of a discovery rule generally applicable to federal statutes of limitation. According to Justice Scalia, “‘That a person entitled to an action has no knowledge of his right to sue, or of the facts out of which his right arises, does not postpone the period of limitation.’”15

In Auscape International v. National Geographic Society,16 an opinion that Prof. Patry describes as “an extremely thorough and well-reasoned review of the issues,”17 District Judge Kaplan of the Southern District of New York made a detailed analysis of the Copyright Act’s text and legislative history to conclude that in light of TRW, the discovery rule could no longer be applied to extend the limitations period under Section 507(b):

In a copyright infringement case, . . . in most cases, the infringement occurs in public. Thus, copyright infringement is not often an extreme situation crying out for a discovery rule.18

Several other judges in the Southern District, persuaded by Judge Kaplan’s reasoning, similarly ruled that TRW foreclosed application of the discovery rule under the Copyright Act.19 In contrast, the Third Circuit Court of Appeals, after making its own analysis of the Copyright Act’s “structure or text,” reached the opposite conclusion in Graham v. Haughey.20 However, in Graham the defendant had systematically concealed its infringement for years, a fact setting that TRW acknowledged always would be appropriate for the discovery rule.21 Nonetheless, although Psihoyos v. John Wiley & Sons, Inc., involved an open and notorious infringement – publication of photographs in a textbook – the Second Circuit Court of Appeals still applied the discovery rule with the brief, cursory statement that “the text and structure of the Copyright Act, unlike the [statute in TRW], evince Congress’s intent to employ the discovery rule, not the injury rule.”22

Meanwhile, in two decisions after TRW the Supreme Court continued to tiptoe around the discovery-rule question. In Petrella v. Metro-Goldwyn-Mayer, Inc., the Court eliminated the defense of laches against copyright-infringement claims and held those claims restricted only by the statute of limitations, but as to the applicable limitations period, the Court pointedly observed that it had “not passed on the question” of the “use [of] discovery accrual in copyright cases ”23 In a subsequent patent case that again did not require the Court to address the discovery rule head on, Chief Justice Roberts nonetheless commented that it “is not ordinarily true” that a statute of limitations is triggered only when the plaintiff knows of the cause of action and that a discovery rule “is not a universal feature of statutes of limitations.”24

In Rotkiske v. Klemm, decided in December 2019, the Supreme Court finally confronted the discovery rule directly in an opinion by Justice Thomas, who nearly 20 years before had joined Justice Scalia’s concurring opinion in TRW.25 Reprising Justice Scalia’s pithy characterization of the discovery rule as “bad wine of recent vintage,” Justice Thomas – joined by six other Justices plus Justice Sotomayor concurring – held that a federal statute of limitations is to be interpreted as written. “Atextual judicial supplementation [with a discovery rule] is particularly inappropriate” because

It is not [the Supreme Court’s] role to second-guess Congress’ decision to include a “violation occurs” provision, rather than a discovery provision The length of a limitations period “reflects a value judgment concerning the point at which the interests in favor of protecting valid claims are outweighed by the interests in prohibiting the prosecution of stale ones.”26

To emphasize that a court should not read a discovery rule into a statute of limitations, Justice Thomas cited several federal statutes that expressly provide for the limitations period to run on discovery. Because “Congress has shown that it knows how to adopt [such] language or provision,” it is improper for a court to supply discovery language when Congress has, by its silence, manifested a different intent.27

It now appears likely that the copyright discovery rule will not survive the strict interpretation of statutes of limitation mandated by Rotkiske. Section 507(b) of the Copyright Act states that an action must be “commenced within three years after the claim accrued.” A cause of action “accrues” when it comes into existence, not when the plaintiff learns of its existence.28 Conceptually, “accrues” is no different from “the date on which the violation occurs” that Rotkiske held to mean when the “violation actually happened.”29 Either the courts of appeal will revisit their prior adoptions of the discovery rule in light of Rotkiske or the right case will present the issue squarely to the Supreme Court.30

The demise of the rule will be salutary. The discovery rule elevates the “instinct to provide a remedy for every wrong” over the  principle of  repose embodied in a  statute  of limitations. To require a defendant to defend against a “stale” claim is not merely a matter of semantics.  A “stale” claim often arises after the documents and files needed for the defense have been misplaced or destroyed, individual memories lapsed, witnesses become unavailable, and corporate memory lost because of employee turnover. Moreover, invocation of the rule immediately puts into issue the plaintiff’s knowledge and diligence in discovering the cause of action, which means another layer of litigation with costly and time-consuming discovery requests and depositions. Faced with these additional litigation expenses, and without the assurance of the successful outcome that would result if the statute of limitations were applied strictly, many defendants make the understandable decision to settle a claim that should have been in repose years before. Elimination of the discovery rule will redress this unfairness and restore the balance between plaintiff and defendant that Congress intends when it enacts a statute of limitations.

1 Gabelli v. Securities and Exchange Commission, 588 U.S. 442, 448 (2013) (quoting from Rotella v. Wood, 528 U.S.549, 555 (2000)).

2 Pearl v. City of Long Beach, 296 F.3d 76, 77 (2nd Cir. 2002), cert. denied, 538 U.S. 922 (2003).

3 Sen. Rep. 85-1014 (1957)

4 Id.

5 TRW Inc. v. Andrews, 534 U.S. 19, 27 (2001). The nine federal circuit courts of appeal that have addressed the issue have held that the discovery rule applies to claims under the Copyright Act. Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. 663, 670 n. 4 (2014).

6 Id.

7 Design Basics, LLC v. Roersma & Wurn Builders, Inc., 2012 WL 1830129, report & recommendation adopted, 2012 WL 1830103 (W.D. Mich. 2012).

8 Boehm v. Heyrman Printing, LLC, 2017 WL 53296 (W.D. Wisc. 2017).

9 Cooley v. Penguin Group (USA) Inc., 31 F.Supp.3d 599 (S.D.N.Y. 2014); Mackie v. Hipple, 2010 WL 3211952 (W.D. Wash. 2010). One treatise argues that the discovery rule is appropriate for the on-line world because “[t]he owner of a copyright simply cannot know of every infringement when it occurs, particularly in today’s world of a global internet which can hide either the infringement or the infringer or both.” 2 H.B. Abrams & T.T. Ochoa, The Law of Copyright § 16:16 (2019). To the contrary, the digitization of information has made detection easier through services  and  applications  that  are  able  to  search  the  internet  for  infringing  uses.  See, e.g., https://www. imagerights.com/; https://tineye. com/; https://support.google.com/youtube/answer/2797370?hl=en.

10 534 U.S. at 27.

11 Id.

12 Id. at 28.

13 Id. at 35-6.

14 Id. at 36.

15 Id. (quoting 2 H. Wood, Limitation of Actions, § 276c(1), at 1411 (4th ed. 1916)).

16 409 F.2d 235 (S.D.N.Y. 2004).

17 6 Patry on Copyright § 20:20 (March 2020).

18 409 F.2d at 247.

19 See Muench Photography, Inc. v. Houghton Mifflin Harcourt Publishing Co., 2013 WL 4464002, *5 (S.D.N.Y. 2013), and cases there cited.

20 568 F.3d 425 (3rd Cir. 2009).

21 534 U.S. at 27.

22 748 F.3d. 120, 124 (2nd Cir. 2014).

23 572 U.S. 663, 670 n. 4 (2014).

24 SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, 137 S.Ct. 954, 962 (2017).

25 140 S.Ct. 355 (2019).

26 Id. at 361 (quoting Johnson v. Railway Express Agency, Inc., 421 U.S. 454, 463–464 (1975)).

27 Id.

28 Gabelli v. Securities and Exchange Commission, 588 U.S. 442, 448 (2013).

29 140 S.Ct. at 360.

30 In Sohm v. Scholastic Inc., 959 F.3d 39, 50 (2nd Cir. 2020), a copyright-infringement case argued before the decision in Rotkiske, but decided after, the Second Circuit Court of Appeals “decline[d] to alter this Circuit’s precedent mandating use of the discovery rule . . . .” In just a footnote, the Court stated that Rotkiske “does not persuade us to depart from this holding.” Id. at 50 n. 2. However, Sohm can be explained as falling within the narrow discovery- rule exception still recognized by the Supreme Court, as the defendant in Sohm concealed the evidence of its infringement from the plaintiff. Hopefully, the Second Circuit, which decides many important copyright cases, will address the issue with greater analysis when presented with application of the discovery rule in a suit involving an open and notorious infringement.

When Social Media Finally Holds Feet to the Fire, Trump Fires Back: Undermining the Communications Decency Act’s Safe Harbor by Executive Order

By Joshua M. Greenberg

Like most other providers of interactive computer services, such as websites or mobile applications that allow their users to post or contribute their own content, Twitter through its Terms of Service and community guidelines has long prohibited its users from posting or communicating, among other things, defamatory, profane, infringing, obscene, unlawful, exploitive, harmful, racist, bigoted, hateful, or threatening content through its service. Yet for many years, Twitter has declined to deactivate or take any further action against President Trump’s account, despite tacitly acknowledging that his tirades might very well violate these prohibitions, on the basis that the blusterous Tweets were nevertheless newsworthy. Facebook’s Marc Zuckerberg has similarly stood by his company’s decision not to fact check politicians on the platform, expressing concerns over free speech and democratic values and being an “arbiter of truth.”

That was until last week. On Wednesday, citing its civic integrity policy, Twitter added a label advising viewers to “Get the facts about mail-in ballots” from a page of curated news articles hyperlinked below two of President Trump’s Tweets that had falsely claimed California was “sending ballots to millions of people, anyone living in the state no matter who they are or how they got there” to seemingly undermine voter confidence in mail-in voting when, in fact, ballots were only being sent to registered California voters. Then on Friday, Twitter limited the viewability of President Trump’s Tweet about protestors in Minneapolis that contained the racially inflammatory trope “when the shooting starts, the looting starts” by placing the Tweet behind a notice stating the Tweet violated Twitter’s rules against glorifying violence before allowing viewers to click through to see it. In neither case did Twitter remove or delete the Tweets.

On Thursday, President Trump channeled his ire towards Twitter and other social networking platforms (namely, Facebook, Instagram, and YouTube) who he believes are censoring speech, particularly conservative speech, into a highly controversial executive order. The purpose of the order was to undermine the immunity from civil liability found in Section 230 of the Communications Decency Act (CDA), 47 U.S.C. § 230(c), which protects interactive computer service providers and their users from liability for certain types of content posted or transmitted by users through those services, websites, apps, etc. and any actions or harm resulting from that content so long as the service provider or user, as the case may be, does not exercise control over the content akin to that of the publisher or speaker. Specifically, the law says, a provider or user of an interactive computer service will not be “treated as the publisher or speaker of any information provided by another information content provider” or be liable for “any action voluntarily taken in good faith to restrict access to or availability of material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected, or any action taken to enable or make available to information content providers or others the technical means to restrict access to [information provided by another information content provider].” Without this liability shield, operators of websites or mobile apps that contain user-generated content or facilitate communication between users will be open to civil liability for such causes of action as defamation, invasion of privacy, products liability and negligent design of the service, failing to screen users’ communications and protect them from one another, among others, for the content that they allow their millions of users to post, contribute, or transmit through their services, despite perhaps not having the resources—monetary, technological, personnel, legal, or otherwise—to police all user-generated content and communications flowing through their service.

The Executive Order on Preventing Online Censorship clarified the federal government’s interpretation of CDA Section 230 to say that “the immunity should not extend beyond its text and purpose to provide protection for those who purport to provide users a forum for free and open speech, but in reality use their power over a vital means of communication to engage in deceptive or pretextual actions stifling free and open debate by censoring certain viewpoints.”  The executive order goes on to state that the safe harbor should not extend so far as to “provide liability protection for online platforms that—far from acting in ‘good faith’ to remove objectionable content—instead engage in deceptive or pretextual actions (often contrary to their stated terms of service) to stifle viewpoints with which they disagree.” The executive order directs the Federal Communications Commission (FCC) and Federal Trade Commission (FTC) to propose new administrative regulations to narrow the scope of immunity provided under the CDA’s safe harbor in a manner that would, among other things, draw greater scrutiny to the alleged misalignment between these companies’ stated policies and “good faith” enforcement and their algorithms for the content and users they promote or do not promote.  The administration framed this alleged discrepancy as a deceptive trade practice, again, harkening back to the notion that social media platforms disfavor conservative voices and viewpoints (despite a lack of evidence of such bias).

The executive order will surely be challenged in court and the long line of caselaw reinforcing the safe harbor in the interest of protecting freedom of expression on the Internet and service providers and their users from liability therefrom, as well as recent lawsuits alleging political bias by social media platforms, will likely render the executive order unenforceable. However, until then, the executive order has the force of law and the FCC and FTC will commence their rulemaking processes so, this policy shift is something every website or mobile app provider whose service contains user-generated content or communications—and the lawyers who represent them—should pay close attention to.

Proposed Guidelines for Resumption of Motion Picture, Television and Streaming Productions

By Amy Stein

Earlier this week, the Industry-Wide Labor-Management Safety Committee Task Force released proposed policies and guidelines for the recommencement of productions, known as the White Paper. As of June 1, the White Paper was submitted to New York Governor Andrew Cuomo and California Governor Gavin Newsom for review.

The Task Force, comprised of the Alliance of Motion Picture and Television Producers, major studios (e.g., Amazon Studios, Apple Studios, HBO, Netflix, Sony, Walt Disney, Warner Bros. Entertainment, Fox), and many guilds and unions (i.e., Director’s Guild of America, I.A.T.S.E. and its West-Coast Studio Local Unions and New York Local Unions, the International Brotherhood of Teamsters, the Basic Crafts Unions, and SAG-AFTRA), sought expert advice from the U.S. Centers for Disease Control and Prevention, the Occupational Safety and Health Administration, health care professionals, and industry professionals who know the ins and outs of production working conditions.

The White Paper is meant to be fluid and will evolve over time in conjunction with governmental suggestions and requirements. As of now, the White Paper is intended to create the initial road map to a safe return to production, which provides guidelines with respect to, for example, “regular, periodic testing of cast and crew for Covid-19,” “universal symptom monitoring, including temperature screening,” providing disposable masks which will be replaced each day, social distancing, as well as suggestions for access to mental and physical health resources.

While the White Paper will directly affect the productions produced under the studio and network system, it also provides a framework for independent films to follow (which frame work will have to comply with governmental requirements and protocols in the jurisdiction of production, and will have to be approved by the applicable guild(s)/union(s) of the production).

It should be noted that the White Paper is a set of recommendations for government authorization to commence production and has yet to be commented on by any governmental authority or department. The White Paper can be found here.

COVID-19 Relief

By Tyler Horowitz

While certain states have started to ease lockdowns and shelter-in-place limitations, the COVID-19 pandemic’s effects have taken a toll on many lives, communities, and small businesses. One of the many challenges this unprecedented situation has spawned is how small business will weather the economic downturn it has caused. This situation has been particularly dire for the entertainment industry and businesses that are in early start-up stages as well as early stages of financing.

On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) to provide emergency financial and health care assistance for individuals, families, and businesses affected by the coronavirus pandemic. On the financial side, the Small Business Administration (SBA) received funding and authority through the CARES Act to modify existing loan programs and establish a new loan program to assist small businesses nationwide that have been adversely impacted by the COVID-19 emergency.

For those small and medium-sized businesses who are unfamiliar with, or haven’t applied to, the Paycheck Protection Program (PPP) or other similar state and federal relief programs, this post will provide a high-level overview of what such businesses need to know to pursue monetary relief.

Paycheck Protection Program

What is the PPP?

The CARES Act, in Section 1102, authorizes the SBA to temporarily guarantee loans in accordance with the terms and conditions of Section 7(a) of the Small Business Act. This relief program provides loans designed to incentivize small businesses to keep their workers on the payroll. Small businesses receive funds to pay for up to eight weeks of payroll costs including benefits, and the SBA will forgive the loan if all employees are kept on the payroll for that time and the money is only used for payroll, rent, mortgage interest, or utilities. Applicants are required to submit a good faith certification stating the following:

  • The loan is needed to support ongoing operations;
  • The loan will be used to retain workers, maintain payroll, and pay for mortgage, lease, and utility payments;
  • The borrower does not have a pending application for a similar loan; and
  • The borrower did not get a similar loan between February 15, 2020 and December 31, 2020.

 Who can apply?

A business is eligible for a PPP loan if the business has not more than 500 employees and if its principal place of residence is in the United States. A business’ principal place of residence is determined in accordance with the guidelines set out in the Code of Federal Regulations (“C.F.R.”) §1.121-1(b)(2). Similarly, PPP loans are also available to 501(c)(3) non-profit organizations with fewer than 500 employees and the self-employed, sole proprietors, and freelance and gig economy workers.

In order to qualify under the PPP, a business must have been in operation during the “Covered Period” of February 15, 2020 – June 30, 2020. The loan may be used to ensure that a business meets its payroll obligations as well as any costs related to family leave, sick or medical leave, insurance premiums, commissions, or rent that is incurred during the Covered Period.

How is the loan size determined?

The loan size is calculated on a case-by-case basis as follows and in accordance with the terms of 13 C.F.R. § 120:

  1. Add all payroll costs for all employees whose principal place of residence is in the United States.
  1. Subtract any compensation paid to an employee in excess of a salary of $100,000.00 annually and/or any amounts paid to an independent contractor or sole proprietor in excess of $100,000.00 annually.
  1. Calculate the average monthly payroll costs (divide the number from Step 2 by 12).
  1. Multiply the average monthly payroll costs, calculated in Step 3 above, by 2.5.
  1. Add the resulting number to any outstanding amount of an Economic Injury Disaster Loan (“EIDL”; discussed below) made between January 1, 2020 – April 3, 2020 and subtract the amount of any EIDL advance.

On April 24, 2020, the SBA issued further guidance on how to calculate maximum loan amounts for each type of applicant (available here).  

How to apply?

You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. A list of participating lenders as well as additional information and full terms can be found here. These loans are first-come, first-served and the Government will continue to make disbursements so long as Congress provides funding.

Economic Injury Disaster Program

The EIDL Program is another option for small businesses administered by the SBA under Section 7(b) of the Small Business Act.  EIDLs are lower interest loans of up to $2 million, with principal and interest deferment available for up to 4 years, that are available to pay for expenses had the pandemic not occurred (e.g., payroll and operating expenses).

To qualify for an EIDL, your business must have suffered “substantial economic injury” from COVID-19. EIDLs are based on a company’s actual economic injury determined by the SBA (less any recoveries such as insurance proceeds) but the amount of the loan may not exceed $2,000,000.00.

Loan parameters

  • The eligibility period commences January 31, 2020 and ends December 31, 2020;
  • Any small business (including sole proprietorships, with or without employees) with 500 or fewer employees;
  • The interest rate on EIDLs is 3.75% fixed for small businesses and 2.75% for nonprofits. The EIDLs have up to a 30-year term and amortization (determined on a case-by-case basis);
  • The money can be used for payroll, rents or mortgages, or other operational costs;
  • Up to $200,000 can be approved without a personal guarantee; and
  • No collateral is required for loans of $25,000 or less. For loans of more than $25,000, a general security interest in business assets will be used for collateral instead of real estate.

Emergency advance

The EIDL Program provides an emergency advance of up to $10,000 to small businesses harmed by COVID-19 within three days of applying for an EIDL. To access the advance, you must first apply for an EIDL and then subsequently request the advance. The advance does not need to be repaid under any circumstance, and may be used to keep employees on the payroll or pay business obligations, including debts, rent and mortgage payments.

Applications and more detailed information can be found here.

Snapshot differences between PPP and EIDL

TermsEIDLPPP
Maximum Loan Amount$2,000,000$10,000,000
Interest Rates3.75%, up to 30 years (2.75% for non-profits)   Any portion of the loan not forgiven will be treated as a two-year loan with a 1% fixed interest rate  
Forgivable AmountOnly $10,000 of the emergency advance is forgiven100% forgivable provided employees are kept on the payroll for eight weeks and the money is only used for payroll, rent, mortgage interest, or utilities
Approved UsesRent, payroll, accounts payable, and any other expenses that could have been met had the pandemic not occurredPayroll expenses, rent, mortgage interest and utilities  
Collateral and Credit Check RequirementsYesNo

Can I Apply to Both?

Yes! However, it is important to note that you cannot use funds from both loans for the same purpose.

For example, you can’t use both EIDL and PPP funds towards payroll.

Additional Resources and News

In addition to PPP and EIDL, private companies have lent support for members of the entertainment industry. For example, Sony Music announced a $100 million Global Relief Fund to support not only medical workers, but also creators, artists, and other partners in the entertainment community who have been impacted by COVID-19.  Similarly, Live Nation Entertainment’s Crew Nation Fund is currently providing financial support to music crews who have been directly impacted by suspended or cancelled shows.

Further, U.S. Senators Amy Klobuchar, Chris Coons, Tim Kaine, and Angus King introduced the New Business Preservation Act . This legislation would create a new $2 billion program at the Treasury Department that would partner with states to invest in promising start-up businesses in areas of the country that do not currently attract significant equity investment and who are particularly vulnerable to the current economic crisis as a result of COVID-19.

Cowan, DeBaets, Abrahams & Sheppard LLP will continue to provide updates on legal developments related to the present crisis and we are available should you need further guidance.

Allen v. Cooper: Supreme Court Upholds State Sovereign Immunity in Copyright Row Over State’s Unauthorized Use of Videos and Images of Blackbeard’s Famed Shipwreck

By Lindsay R. Edelstein

In a technical win for states facing federal claims under the Copyright Act, on Monday, March 23, 2020, the United States Supreme Court struck down the Copyright Clarification Act of 1990 (the “CRCA”), which had allowed states to be sued in federal court for copyright infringement.  Allen v. Cooper, No. 18-877, 2020 WL 1325815 (U.S. Mar. 23, 2020).  The Supreme Court, however, did not foreclose the possibility of later abrogating such sovereign immunity, should Congress draft a tailored, constitutional statute addressing infringement by states.  The decision is available here.

The underlying action was brought by videographer Frederick Allen, who was hired by marine salvage company Intersal, Inc. to document the recovery of Queen Anne’s Revenge, a vessel commandeered by Edward Teach (better known as Blackbeard), and shipwrecked nearly 300 years ago off the North Carolina Coast.  Allen registered the copyrights in all his works created during the ten-year excavation with the U.S. Copyright Office, including videos and photographs of guns, anchors, and other remains on the ship.

The state of North Carolina, which had engaged and contracted with Intersal to conduct the recovery efforts but did not have authorization or a license to use certain of Allen’s works, published some of Allen’s photographs and videos online and in a newsletter.  In response to the unauthorized publications, Allen sued the state for copyright infringement in federal district court.

North Carolina moved to dismiss, invoking the doctrine of sovereign immunity, which precludes federal courts from hearing suits brought by individuals against nonconsenting states.  According to Allen, however, the doctrine was abrogated in the copyright context by Congress with its enactment of the CRCA, which provides, in pertinent part, that states “shall not be immune, under the Eleventh Amendment [or] any other doctrine of sovereign immunity, from suit in Federal court” for copyright infringement.  17 U. S. C. § 511(a).  The district court agreed with Allen and denied North Carolina’s motion. 

North Carolina appealed the case to the U.S. Court of Appeals for the Fourth Circuit, which reversed the district court’s ruling, relying heavily on Florida Prepaid Postsecondary Ed. Expense Bd. v. College Savings Bank, 527 U. S. 627 (1999), which had repudiated the Patent and Plant Variety Protection Clarification Act (“Patent Remedy Act”); the Patent Remedy Act was modelled after the CRCA with identical language concerning sovereign immunity. While the district court had conceded that Florida Prepaid precluded Congress from using its Article I powers (the power to “[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries”) to take away a state’s sovereign immunity, it opined that abrogation of a state’s immunity could still be achieved under Section 5 of the Fourteenth Amendment, which authorizes Congress to “enforce” the commands of the due process clause. 

In reversing the district court’s ruling, the Fourth Circuit cited the requirement that a Section 5 abrogation be “congruent and proportional” to the Fourteenth Amendment injury.  Because the Supreme Court had previously rejected Congress’s attempt, in the Patent Remedy Act, to abolish the states’ immunity in patent infringement suits, the Fourth Circuit held that there was nothing to distinguish the situation in Allen in the context of copyright, which involved a statute with identical language, and related allegations of intellectual property infringement.  

In an opinion authored by Justice Kagan, the Court unanimously sided with the Court of Appeals, holding that “Florida Prepaid all but prewrote our decision today.”  The Court agreed that Article I did not give Congress the authority to enact the CRCA, per the reasoning in Florida Prepaid.  While Allen argued that the Court’s post-Florida Prepaid decision in Cent. Virginia Cmty. Coll. v. Katz, 546 U.S. 356 (2006) – abrogating sovereign immunity with respect to Article I’s bankruptcy clause – changed the analysis, the Court distinguished Katz as “a good-for-one-clause-only holding” that only concerned the bankruptcy clause.  

The Court’s central issue with the CRCA was informed by language found in Section 5 of the Fourteenth Amendment which requires that Congress enforce limitations on states’ authority when they violate due process with “appropriate legislation.”  The word “appropriate” in this context has been interpreted to mean that there must be “a congruence and proportionality between the injury to be prevented or remedied and the means adopted to that end.”  Because, the Court explained, an infringement must be intentional, or at least reckless, to come within the reach of the due process clause, and because the CRCA would impermissibly abrogate states’ sovereign immunity for merely negligent infringement or honest mistakes (which would not violate due process, according to the Court), the CRCA was unconstitutional.  

Allen asserted that the CRCA’s legislative record – namely, a 1988 report by the then-Register of Copyrights arguing that individuals would suffer immediate harm if they were unable to sue infringing states in federal court – was enough to distinguish it from the Patent Remedy Act at issue in Florida Prepaid.  But the Court found the purported evidence of states’ infringement in that legislative record to be unimpressive because, despite undertaking an exhaustive search, the Register only came up with a dozen possible examples of state infringement, some of which were not corroborated.  The CRCA, the Court opined, was enacted to “guard against sloppiness,” not correct constitutional wrongs, and this justification was not sufficient to withstand constitutional scrutiny. 

Significantly, the Court did leave an opening for Congress to pass a valid copyright abrogation law and “effectively stop states from behaving as copyright pirates” or “digital Blackbeards” in the future, if it “appreciate[s] the importance of linking the scope of its abrogation to the redress or prevention of unconstitutional injuries – and of creating a legislative record to back up that connection.”

While the Allen decision certainly sets a limitation on an individual’s ability to prosecute certain copyright claims, it has left the door open for Congress to draft a statute abrogating state sovereign immunity where a state’s infringement is intentional or reckless.  Furthermore, because such a determination is often fact-specific, if such a statute is enacted, federal courts may see an increase in cases filed against states that proceed, at the very least, to the discovery stage.  But for now, copyright owners do not have any recourse against states for copyright infringement, which likely will cause concern to publishers and others in the creative community as to whether state governments will take advantage of the safe passage the Court has provided them at least in the short run.

Nancy Wolff Fields Questions from the Digital Media Licensing Association (DMLA) on Copyright & Artificial Intelligence (AI)

Having recently attended a symposium co-sponsored by the United States Copyright Office and the World Intellectual Property Organization on Copyright & Artificial Intelligence, Nancy noted that as AI infiltrates modern life, the effects on the content licensing industry, creators and copyright will be enormous. Read all about it here.

Supreme Court Determines Objective Reasonableness Should Receive Substantial Weight in Assessing Fee Awards under the Copyright Act, But Not to Exclusion of Other Factors (Kirtsaeng v. Wiley)

For the first time in twenty-two years, the U.S. Supreme Court, in an opinion issued yesterday, addressed the question of when an award of attorney’s fees is appropriate under the U.S. Copyright Act. According to the Court, the objective reasonableness of a losing party’s legal positions should be given substantial weight within a broader analysis that considers all factors relevant to granting fees.

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CDAS Client Alert: Federal Trade Secrets Law Provides Potent New Tool For Businesses In Online & Digital Media Space

Yesterday President Obama signed the Defend Trade Secrets Act of 2016 (“DTSA”), the culmination of several years of bipartisan efforts to federalize trade secret protection, placing it alongside the federal copyright, trademark, and patent statutes.  The DTSA – an extension of the Economic Espionage Act of 1996 – should be significant, generally, to businesses concerned about protecting competitively sensitive information from misappropriation by former employees, industrial spies, and foreign nationals.  It should prove particularly useful to those in the online and digital media space as an important tool in the prevention and remedying of the theft of software-based products.  The DTSA has strong support from the software industry, including from Microsoft, IBM, Adobe, Micron, and the Software Information Industry Association.  Here are three key takeaways from the passage of the DTSA:

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EU-US Safe Harbor Status

I. Introduction

In light of the decision of October 15, 2015 invalidating the US/EU Safe Harbor (the “October Decision”), there is uncertainty surrounding compliance with EU Directive 95/46 (the “Directive”), which prohibits “the transfer of personal data to a third country which does not ensure an adequate level of protection.”  Although the United States Department of Commerce (“Commerce”) continues to issue Safe Harbor certificates, those certificates can no longer be relied upon.

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What 2013 May Ring In For New Copyright Legislation

2012 was a quiet year for any new copyright legislation that could affect those engaged in the creation, production and distribution of entertainment media. With the elections behind us, this could change in 2013. The Copyright Office has indicated that it is interested in tackling several issues that were identified as office priorities in a two-year plan under the new Register of Copyrights, Maria A. Pallante, filed in October 2011. As Co-Chair of the American Bar Association Committee on Copyright Legislation, I have been following these and other legislative issues and will continue to provide updates throughout the year. Continue reading