S. Ct. Resolves 'Raging' Debate Over the Use of the Laches Defense

Case Background

Frank Petrella wrote a screenplay about the life and career of boxing champion Jake LaMotta, which was registered with the Copyright Office in 1963. Several years later, Mr. Petrella assigned the motion picture rights in the screenplay, both in the original term of copyright protection and the renewal term, and these rights were later acquired by Metro-Goldwyn-Mayer, Inc. (MGM). In 1980, MGM released the movie Raging Bull based on the screenplay, which was directed by Martin Scorsese and starred Robert De Niro, who won an Academy Award for his portrayal of LaMotta.

Mr. Petrella died one year later, and as a result, his renewal rights in the 1963 screenplay under existing Supreme Court precedent reverted to his heirs. Frank Petrella's daughter, Paula Petrella, renewed the copyright in 1991, but she nonetheless waited another seven years before approaching MGM and claiming that MGM's ongoing exploitation of the Raging Bull film was infringing. MGM disputed Ms. Petrella's infringement claim on a variety of grounds, and the parties exchanged letters over the ensuing years regarding the merits of her claim. She waited another nine years in silence before finally filing a lawsuit against MGM in the United States District Court for the Central District of California in Jan. 6, 2009.

The statute of limitations in copyrights cases is three years, and under the “separate accrual rule,” a new limitations period is triggered for each infringing act. Put differently, if the infringement is continuing, the plaintiff can claim damages during the three years that preceded the lawsuit even if the initial claim first accrued outside the limitations period. As a result, Ms. Petrella claimed that she was entitled to damages for acts of infringement that occurred after Jan. 6, 2006.

MGM moved for summary judgment before the district court on several grounds, including that Ms. Petrella's 18-year delay barred the suit under the defense of laches. The district court agreed, and its holding was affirmed by the Ninth Circuit. Ms. Petrella's primary justification for the delay was that Raging Bull had not previously been making money, which the lower courts quickly dismissed as unreasonable. The lower courts also easily concluded that MGM suffered prejudice from this delay. MGM relied upon Ms. Petrella's inaction by investing millions of dollars to promote the film and by entering into agreements for further exploitation of the film.

The Supreme Court's Decision

The Supreme Court reversed the Ninth Circuit's decision and held that laches cannot be invoked to bar a claim for damages brought within the three-year limitations period adopted by Congress in '507 of the U.S. Copyright Act. The majority opinion written by Justice Ginsburg held that '507 already takes delay into account because it only permits retrospective relief for the three years preceding the lawsuit. Also, the Court noted, the Copyright Act permits a defendant to deduct expenses incurred in generating profits and profits attributable to its own contributions, thereby allowing the defendant, even where the plaintiff delays for many years, to receive a return on its investment.

In addition, the court pointed out that laches is a defense developed by courts of equity to serve as a guide where no statute of limitations controls the claim, and the Court had previously cautioned against applying laches to bar legal remedies such as damages. The Court did, however, note that it would be appropriate to apply laches to remedies that are equitable in nature, such as injunctive relief or an accounting of profits.

Finally, the Court explained, the doctrine of estoppel could serve in place of the laches defense to prevent prejudice to a defendant (an argument towards which the dissent was especially dubious). Estoppel is based on intentional misrepresentations, rather than delay, and does not conflict with the statute of limitations; thus, the defense remains available to bar both legal and equitable remedies.

The majority was not swayed that the defense of laches was necessary, as MGM argued, “to prevent a copyright owner from sitting still, doing nothing, [and] waiting to see what the outcome of an alleged infringer's investment will be.” In response to this argument, the majority noted: “It is hardly incumbent on copyright owners ' to challenge each and every actionable infringement. And there is nothing untoward about waiting to see whether an infringer's exploitation undercuts the value of the copyrighted work, has no effect on the original work, or even complements it.” Instead, according to the Court, '507 “allows a copyright owner to defer suit until she can estimate whether litigation is worth the candle. She will miss out on damages for periods prior to the three-year look-back, but her right to prospective injunctive relief should, in most cases, remain unaltered.”

The majority also was not persuaded that prejudice arising from a copyright owner's inaction mitigated in favor of MGM's position. First, the Court noted, Congress provided for reversionary renewal rights knowing that they would be exercised long after the work was created and in some cases after the author and other relevant witnesses are deceased. Second, since a copyright plaintiff bears the burden of proving infringement, any prejudice arising from the unavailability of evidence, in the Court's view, “is at least as likely to affect plaintiffs as it is to disadvantage defendants.”

Injury Rule?

As (and potentially more) significant than the Court's ruling on laches is what the majority signaled regarding the accrual of the statute of limitations in copyright cases. Courts have applied one of two approaches to accrual. Under the “injury rule,” a claim accrues from the moment the claim arises, irrespective of when the plaintiff realizes it has a claim. Under the “discovery rule,” a claim only begins to accrue when a plaintiff knows or has reason to know that it has a claim.

Historically, courts have applied the discovery rule in copyright cases. For a few years, that began to change in light of the Supreme Court's opinion in TRW v. Andrews, 534 U.S. 19 (2001), which held that the default method for the accrual of a federal statute of limitations, absent Congressional intention to deviate from it, is the injury rule. (Interestingly, both the opinions in TRW and Petrella were penned by Justice Ginsburg.)

Following this decision, several judges in the Southern District of New York started applying the injury rule in copyright cases, while others continued to apply the discovery rule. The Second Circuit, however, resolved this split in favor of the discovery rule earlier this year. At the moment, every circuit that has addressed the issue applies the discovery rule.

The Petrella opinion may, however, cause some courts to rethink their position. Throughout the opinion, the majority justified its decision by the fact that the plaintiff could only reach back and recover damages for the previous three years. And in the process of explaining the operation of the statute of limitations, the majority stated: “A claim ordinarily accrues when a plaintiff has a complete and present cause of action. ' A copyright claim thus arises or 'accrues' when an infringing act occurs.”

In a footnote, the majority appears to contrast its statement with the accrual rule being used by the lower courts: “Although we have not passed on the question, nine Courts of Appeals have adopted, as an alternative to the incident of injury rule, a 'discovery rule,' which starts the limitations period when the plaintiff discovers, or with due diligence should have discovered, the injury that forms the basis for the claim.”

The majority makes several other statements that might suggest that the injury rule is the appropriate accrual method in copyright cases. For example:

• “Under the Act's three-year provision, an infringement is actionable within three years, and only three years, of its occurrence.”
• “'507(b)'s limitations period ' allows plaintiffs during the lengthy [copyright] term to gain retrospective relief running only three years back from the date the complaint was filed.”

It remains to be seen whether any court will rely on this dicta to revisit the appropriate accrual rule. At least one court already has rejected the argument that Petrella mandates adoption of the injury rule. See, Lefkowitz v. McGraw-Hill Global Education Holdings, LLC, No. 13 Civ. 5023(KPF), 2014 WL 2481904, at 16 n.11 (S.D.N.Y. June 2, 2014).

Impact of Petrella Ruling

There are a few obvious ramifications from the Supreme Court's ruling. A user of a copyrighted work can no longer take solace in a copyright holder's inaction. It is more important than ever to document all aspects of the creation of a work, because a claim could be asserted decades later after key witnesses are no longer available. And since a copyright holder can wait indefinitely to assert its claim, companies need to evaluate carefully whether to continue making investments in a work that could sometime in the future be deemed infringing.

Also, there are existing claims that many thought were previously extinguished but are now revived under this ruling. Already, for example, the guitarist for a band called Spirit has filed a lawsuit alleging that Led Zeppelin's “Stairway to Heaven” infringes one of the band's songs. The band has been aware of its claim for over 40 years. We could see an uptick in litigation, or at least demand letters that ultimately lead to confidential settlements, stemming from previously dormant claims, particularly with respect to works that have gained in popularity over time.

Andrew Pequignot is an attorney in the Atlanta office of Kilpatrick Townsend & Stockton LLP, where he focuses his practice on copyright and entertainment matters. He can be reached at [email protected].

For many years, circuit courts were split on whether and how the equitable doctrine of laches should be applied in copyright cases. The Fourth Circuit, for example, previously held that laches was never an available defense to copyright infringement, regardless of the remedy that was sought by the plaintiff. Other circuit courts, in contrast, held that laches could apply to bar an otherwise timely suit, but only in “extraordinary circumstances” or “the most compelling of cases.” Still other courts held that laches could bar injunctive relief but not damages.

The Ninth Circuit previously endorsed the most expansive application of the laches defense, allowing all relief, both legal and equitable, to be barred where: 1) the plaintiff delayed in initiating the lawsuit; 2) the delay was unreasonable; and 3) the delay resulted in prejudice. The Ninth Circuit also presumed that a claim was barred by laches where the first infringing act occurred outside the three-year statute of limitations in Section 507 of the U.S. Copyright Act.

The Supreme Court in Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014), recently resolved this split amongst the circuit courts in a 6-3 decision, holding that the equitable doctrine of laches could not be invoked to preclude a claim for damages within the statute of limitations for copyright cases. The Court did not, however, find that the laches defense was never available. Under the majority's reasoning, the defense can still be applied to bar injunctive relief and an accounting of the defendant's profits.

Case Background

Frank Petrella wrote a screenplay about the life and career of boxing champion Jake LaMotta, which was registered with the Copyright Office in 1963. Several years later, Mr. Petrella assigned the motion picture rights in the screenplay, both in the original term of copyright protection and the renewal term, and these rights were later acquired by Metro-Goldwyn-Mayer, Inc. (MGM). In 1980, MGM released the movie Raging Bull based on the screenplay, which was directed by Martin Scorsese and starred Robert De Niro, who won an Academy Award for his portrayal of LaMotta.

Mr. Petrella died one year later, and as a result, his renewal rights in the 1963 screenplay under existing Supreme Court precedent reverted to his heirs. Frank Petrella's daughter, Paula Petrella, renewed the copyright in 1991, but she nonetheless waited another seven years before approaching MGM and claiming that MGM's ongoing exploitation of the Raging Bull film was infringing. MGM disputed Ms. Petrella's infringement claim on a variety of grounds, and the parties exchanged letters over the ensuing years regarding the merits of her claim. She waited another nine years in silence before finally filing a lawsuit against MGM in the United States District Court for the Central District of California in Jan. 6, 2009.

The statute of limitations in copyrights cases is three years, and under the “separate accrual rule,” a new limitations period is triggered for each infringing act. Put differently, if the infringement is continuing, the plaintiff can claim damages during the three years that preceded the lawsuit even if the initial claim first accrued outside the limitations period. As a result, Ms. Petrella claimed that she was entitled to damages for acts of infringement that occurred after Jan. 6, 2006.

MGM moved for summary judgment before the district court on several grounds, including that Ms. Petrella's 18-year delay barred the suit under the defense of laches. The district court agreed, and its holding was affirmed by the Ninth Circuit. Ms. Petrella's primary justification for the delay was that Raging Bull had not previously been making money, which the lower courts quickly dismissed as unreasonable. The lower courts also easily concluded that MGM suffered prejudice from this delay. MGM relied upon Ms. Petrella's inaction by investing millions of dollars to promote the film and by entering into agreements for further exploitation of the film.

The Supreme Court's Decision

The Supreme Court reversed the Ninth Circuit's decision and held that laches cannot be invoked to bar a claim for damages brought within the three-year limitations period adopted by Congress in '507 of the U.S. Copyright Act. The majority opinion written by Justice Ginsburg held that '507 already takes delay into account because it only permits retrospective relief for the three years preceding the lawsuit. Also, the Court noted, the Copyright Act permits a defendant to deduct expenses incurred in generating profits and profits attributable to its own contributions, thereby allowing the defendant, even where the plaintiff delays for many years, to receive a return on its investment.

In addition, the court pointed out that laches is a defense developed by courts of equity to serve as a guide where no statute of limitations controls the claim, and the Court had previously cautioned against applying laches to bar legal remedies such as damages. The Court did, however, note that it would be appropriate to apply laches to remedies that are equitable in nature, such as injunctive relief or an accounting of profits.

Finally, the Court explained, the doctrine of estoppel could serve in place of the laches defense to prevent prejudice to a defendant (an argument towards which the dissent was especially dubious). Estoppel is based on intentional misrepresentations, rather than delay, and does not conflict with the statute of limitations; thus, the defense remains available to bar both legal and equitable remedies.

The majority was not swayed that the defense of laches was necessary, as MGM argued, “to prevent a copyright owner from sitting still, doing nothing, [and] waiting to see what the outcome of an alleged infringer's investment will be.” In response to this argument, the majority noted: “It is hardly incumbent on copyright owners ' to challenge each and every actionable infringement. And there is nothing untoward about waiting to see whether an infringer's exploitation undercuts the value of the copyrighted work, has no effect on the original work, or even complements it.” Instead, according to the Court, '507 “allows a copyright owner to defer suit until she can estimate whether litigation is worth the candle. She will miss out on damages for periods prior to the three-year look-back, but her right to prospective injunctive relief should, in most cases, remain unaltered.”

The majority also was not persuaded that prejudice arising from a copyright owner's inaction mitigated in favor of MGM's position. First, the Court noted, Congress provided for reversionary renewal rights knowing that they would be exercised long after the work was created and in some cases after the author and other relevant witnesses are deceased. Second, since a copyright plaintiff bears the burden of proving infringement, any prejudice arising from the unavailability of evidence, in the Court's view, “is at least as likely to affect plaintiffs as it is to disadvantage defendants.”

Injury Rule?

As (and potentially more) significant than the Court's ruling on laches is what the majority signaled regarding the accrual of the statute of limitations in copyright cases. Courts have applied one of two approaches to accrual. Under the “injury rule,” a claim accrues from the moment the claim arises, irrespective of when the plaintiff realizes it has a claim. Under the “discovery rule,” a claim only begins to accrue when a plaintiff knows or has reason to know that it has a claim.

Historically, courts have applied the discovery rule in copyright cases. For a few years, that began to change in light of the Supreme Court's opinion in TRW v. Andrews, 534 U.S. 19 (2001), which held that the default method for the accrual of a federal statute of limitations, absent Congressional intention to deviate from it, is the injury rule. (Interestingly, both the opinions in TRW and Petrella were penned by Justice Ginsburg.)

Following this decision, several judges in the Southern District of New York started applying the injury rule in copyright cases, while others continued to apply the discovery rule. The Second Circuit, however, resolved this split in favor of the discovery rule earlier this year. At the moment, every circuit that has addressed the issue applies the discovery rule.

The Petrella opinion may, however, cause some courts to rethink their position. Throughout the opinion, the majority justified its decision by the fact that the plaintiff could only reach back and recover damages for the previous three years. And in the process of explaining the operation of the statute of limitations, the majority stated: “A claim ordinarily accrues when a plaintiff has a complete and present cause of action. ' A copyright claim thus arises or 'accrues' when an infringing act occurs.”

In a footnote, the majority appears to contrast its statement with the accrual rule being used by the lower courts: “Although we have not passed on the question, nine Courts of Appeals have adopted, as an alternative to the incident of injury rule, a 'discovery rule,' which starts the limitations period when the plaintiff discovers, or with due diligence should have discovered, the injury that forms the basis for the claim.”

The majority makes several other statements that might suggest that the injury rule is the appropriate accrual method in copyright cases. For example:

• “Under the Act's three-year provision, an infringement is actionable within three years, and only three years, of its occurrence.”
• “'507(b)'s limitations period ' allows plaintiffs during the lengthy [copyright] term to gain retrospective relief running only three years back from the date the complaint was filed.”

It remains to be seen whether any court will rely on this dicta to revisit the appropriate accrual rule. At least one court already has rejected the argument that Petrella mandates adoption of the injury rule. See, Lefkowitz v. McGraw-Hill Global Education Holdings, LLC, No. 13 Civ. 5023(KPF), 2014 WL 2481904, at 16 n.11 (S.D.N.Y. June 2, 2014).

Impact of Petrella Ruling

There are a few obvious ramifications from the Supreme Court's ruling. A user of a copyrighted work can no longer take solace in a copyright holder's inaction. It is more important than ever to document all aspects of the creation of a work, because a claim could be asserted decades later after key witnesses are no longer available. And since a copyright holder can wait indefinitely to assert its claim, companies need to evaluate carefully whether to continue making investments in a work that could sometime in the future be deemed infringing.

Also, there are existing claims that many thought were previously extinguished but are now revived under this ruling. Already, for example, the guitarist for a band called Spirit has filed a lawsuit alleging that Led Zeppelin's “Stairway to Heaven” infringes one of the band's songs. The band has been aware of its claim for over 40 years. We could see an uptick in litigation, or at least demand letters that ultimately lead to confidential settlements, stemming from previously dormant claims, particularly with respect to works that have gained in popularity over time.

Andrew Pequignot is an attorney in the Atlanta office of Kilpatrick Townsend & Stockton LLP, where he focuses his practice on copyright and entertainment matters. He can be reached at [email protected].