STARZ ENTERTAINMENT, LLC v. MGM DOMESTIC TELEVISION DISTRIBUTION, LLC
No. 21-55379
United States Court of Appeals, Ninth Circuit
July 14, 2022
D.C. No. 2:20-cv-04085-DMG-KS
Before: Kim McLane Wardlaw, Sandra S. Ikuta, and Bridget S. Bade, Circuit Judges. Opinion by Judge Wardlaw
FOR PUBLICATION
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
Appeal from the United States District Court for the Central District of California Dolly M. Gee, District Judge, Presiding
Argued and Submitted February 10, 2022 San Francisco, California
Filed July 14, 2022
SUMMARY*
Copyright
The panel affirmed the district court‘s denial of a motion to dismiss copyright infringement claims as barred by the three-year limitations period set forth in
Generally, a copyright claim accrues when the infringement occurs. The panel held that Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. 663 (2014), did not do away with the discovery rule, under which a claim alternatively accrues when the copyright holder knows or reasonably should know that an infringement occurred. Declining to adopt the approach taken by the Second Circuit, the panel held that the discovery rule allows copyright holders to recover damages for all infringing acts that occurred before they knew or reasonably should have known of the infringing incidents, and the three-year limitations period runs from the date the claim accrued.
The panel held that the district court correctly applied the discovery rule to conclude that plaintiff timely filed its claims of copyright infringement. Because plaintiff brought its claims within three years after they accrued, it was not barred from seeking damages for all acts of infringement.
COUNSEL
Mark A. Perry (argued), Gibson Dunn & Crutcher LLP, Washington, D.C.; Orin Snyder, Gibson Dunn & Crutcher LLP, New York, New York; Blaine H. Evanson, Gibson Dunn & Crutcher LLP, Irvine, California; Jay P. Srinivasan, Gibson Dunn & Crutcher LLP, Los Angeles, California; for Defendant-Appellant.
J. Wesley Earnhardt (argued), Evan R. Chesler, and Justin C. Clarke, Cravath Swaine & Moore LLP, New York, New York; Robert N. Klieger, Hueston Hennigan LLP, Los Angeles, California; for Plaintiff-Appellee.
Tyler T. Ochoa, Santa Clara University School of Law, Santa Clara, California, for Amicus Curiae Professor Tyler T. Ochoa.
Benjamin H. Diessel and Michael Rondon, Wiggin and Dana LLP, New Haven, Connecticut; Nathan E. Denning, Wiggin and Dana LLP, New York, New York; for Amici Curiae Authors Guild Inc., and Other Artists’ Rights Organizations.
WARDLAW, Circuit Judge:
The Copyright Act,
I.
A.
1. The exclusivity agreements
Starz Entertainment LLC (Starz) provides premium subscription video programming through a suite of premium cable television channels and on-demand services. The content Starz provides to subscribers includes original programming as well as popular movies and television shows licensed from other studios. To acquire external content, Starz enters into licensing agreements with studios and other copyright holders, providing Starz with the exclusive right to exhibit specific content on its services for a defined period.
On July 26, 2013, Starz entered into a licensing agreement (a “Library Agreement“) with MGM Domestic Television Distribution LLC (MGM). The parties entered into a second Library Agreement on May 7, 2015, providing Starz with exclusive exhibition rights to more MGM-owned content. Together, the two Library Agreements provided Starz with the exclusive right to exhibit 585 movies and 176 television series episodes in exchange for about $70 million. More specifically, MGM granted Starz the exclusive right to exhibit those MGM-owned movies and television series episodes on Starz‘s suite of services within the United States for specified time periods ranging from months to years. For some titles, Starz secured multiple license periods from MGM, resulting in more than 1,000 separate license periods each operating on its own time frame. In addition to the exclusive exhibition rights, Starz received contractual warranties from MGM that it would not exhibit or license to third parties any of the licensed content in violation of Starz‘s exclusive rights.
2. Discovery of MGM‘s infringement
In August 2019, a Starz employee discovered that one of the films covered by the licensing agreements, Bill & Ted‘s Excellent Adventure, was available to stream on Amazon Prime Video during Starz‘s exclusivity period. Starz notified MGM of its discovery, and MGM admitted that this improper license violated Starz‘s rights. MGM offered to provide additional periods of exclusivity to remedy this violation. At the time, MGM did not inform Starz of any additional potential exclusivity violations.
Starz decided to investigate further, and, by the end of August, discovered that twenty-two additional movies covered by the Library Agreements were available on Amazon Prime Video. MGM acknowledged these violations in September 2019. Starz then sought formal assurances from MGM in October 2019 that the identified titles were not licensed to any other service
B.
Starz sued MGM in May 2020, asserting 340 claims of direct copyright infringement, 340 claims of 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 moved for dismissal under
II.
The district court had jurisdiction pursuant to
We review the district court‘s denial of a motion to dismiss under
face,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The district court‘s interpretations of the Copyright Act are reviewed de novo. Perfect 10, Inc. v. Giganews, Inc., 847 F.3d 657, 665 (9th Cir. 2017).
III.
A.
A claim ordinarily accrues when the plaintiff has a “complete and present cause of action.” Bay Area Laundry & Dry Cleaning Pension Tr. Fund v. Ferbar Corp. of Cal., 522 U.S. 192, 201 (1997) (citation omitted). In the copyright context, a claim accrues “when an infringing act occurs,” Petrella, 572 U.S. at 670, i.e., when the infringer “violates any of the exclusive rights of the copyright owner,” Bell v. Wilmott Storage Servs., LLC, 12 F.4th 1065, 1080 (9th Cir. 2021) (emphasis omitted) (quoting
In Roley v. New World Pictures, Ltd., 19 F.3d 479 (9th Cir. 1994), we addressed the situation of a continuing violation, where the copyright holder, Roley, had witnessed the original screening of a new movie in August 1987 that he claimed, at that time, infringed his screenplay. We held that a “cause of action for copyright infringement accrues when one has knowledge of a violation or is chargeable with such knowledge.” Id. at 481. But Roley did not file his
complaint alleging infringement until February 1991. Id. at 480. He sought the benefit of the Seventh Circuit‘s then2 view of the three-year limitation period, “that so long as any allegedly infringing conduct occurs within the three years preceding the filing of the action, the plaintiff may reach back and sue for damages or other relief for all allegedly infringing acts,” beginning when the first infringing act occurred, no matter how long ago. Id. at 481 (citing Taylor v. Meirick, 712 F.2d 1112, 1118-19 (7th Cir. 1983)). We squarely rejected that theory of recovery for continuing copyright violations, holding that Roley could recover only for infringing acts that occurred within the three years preceding the filing of the copyright infringement lawsuit. Id. Thus, as early as 1994, we both recognized the discovery rule in the “specific context of cases where infringement and accrual happen simultaneously,” and that when the copyright holder knew of earlier infringing acts, recovery was allowable only for infringing acts occurring within the three-year window before commencing suit.
Our subsequent decision in Polar Bear Productions, Inc. v. Timex Corp., 384 F.3d 700 (9th Cir. 2004) (as amended), recognized the latter point—that Roley did not create a bar against recovery for acts of infringement that occurred prior to the three-year window. Rather, Roley held that a claim accrues at “the moment when the copyright holder ‘has knowledge of a violation or is chargeable with such knowledge,‘” and therefore “the three-year clock begins upon discovery of the infringement.” Id. at 706 (quoting
Roley, 19 F.3d at 481). Therefore, under Roley,
Without the benefit of tolling in this situation, a copyright plaintiff who, through no fault of its own, discovers an act of infringement more than three years after the infringement occurred would be out of luck. Such a harsh rule would distort the tenor of the statute. Section 507(b), like all statutes of limitations, is primarily intended to promote the timely prosecution of grievances and discourage needless delay. It makes little sense, then, to bar damages recovery by copyright holders who have no knowledge of the infringement . . . .
Id. In other words, a claim for copyright infringement may accrue when the copyright owner discovers, or reasonably
In addition to first establishing the discovery rule, Roley was important for another reason—while not labeling it as such, it recognized the “separate accrual” rule. In examining whether any actionable conduct occurred in the three years before Roley filed his complaint, we recognized that the statute of limitations runs separately for each successive incident of infringement. See Roley, 19 F.3d at 481. Although we held that “an action may be brought for all acts that accrued within the three years preceding the filing of the suit,” in an ironic twist, Roley was unable to adduce any
evidence of any infringing act that occurred during that period. Id. at 481-82.
Fast forward two decades from Roley to Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. 663 (2014). There, the Supreme Court was tasked with determining whether the doctrine of laches could bar claims of infringement that accrued within the three-year window of
The Court held that laches is not a defense to claims for relief for violations that accrue within the three-year limitations window. It first explained that “the separate-accrual rule attends the copyright statute of limitations,” such that “each infringing act starts a new limitations period.” Id. at 671. Thus, in deciding that laches is inapplicable, the Court explained that “the copyright statute of limitations,
As earlier observed, a successful plaintiff can gain retrospective relief only three years back
from the time of suit. No recovery may be had for infringement in earlier years. Profits made in those years remain the defendant‘s to keep. Brought to bear here,
§ 507(b) directs that MGM‘s returns on its investment in Raging Bull in years outside the three-year window (years before 2006) cannot be reached by Petrella. Only by disregarding that feature of the statute, and the separate-accrual rule attending§ 507(b) , could the Court of Appeals presume that infringing acts occurring before [three years prior to filing suit] bar all relief, monetary and injunctive, for infringement occurring on and after that date.
Id. (cleaned up).
The discovery rule had no place in the Court‘s laches analysis, nor could it. In the course of discussing the question of when a claim accrues, the Court stated the general rule: A copyright claim “‘accrue[s]’ when an infringing act occurs,” which it labeled “the incident of injury rule.” Id. at 670 (alteration in original). It then dropped a footnote, noting that
[N]ine 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.” William A Graham Co. v. Haughey, 568 F.3d 425, 433 (3d. Cir. 2009) (internal quotation marks omitted). See also 6 W. Patry,
Copyright § 20:19, p. 20-28 (2013) . . . (“The overwhelming majority of courts use discovery accrual in copyright cases.“).
Id. at 670 n.4. However, the Court expressly noted that it had “not passed on the question,” and it did not do so in Petrella. Id. Nor has it had the occasion to address the discovery rule since. See, e.g., SCA Hygiene Prods. Aktiebolag v. First Quality Baby Prods., LLC, 137 S. Ct. 954, 962 (2017) (recognizing that the Court has not decided “whether the Copyright Act‘s statute of limitations is governed by [a discovery] rule“). And because the Petrella Court was solely concerned with laches—a doctrine addressing concerns about delay when plaintiffs know of their claims, but sleep on their legal rights3—it could not have intended its language to address the situation where a copyright holder does not know about the infringing act to which the discovery rule, not the incident of injury rule, applies. It thus seems fair to draw the conclusion that in Petrella, “the Court acknowledged that the ‘incident of injury’ rule it described in the main text of the case is not the only [accrual] rule that federal courts apply in copyright infringement cases,” Mitchell v. Capitol Recs., LLC, 287 F. Supp. 3d 673, 677 (W.D. Ky. 2017), but said nothing else about the discovery rule‘s continued viability.
B.
“The overwhelming majority of courts” today use the discovery rule for determining accrual in copyright cases. See 6 William F. Patry, Patry on Copyright § 20:19 (2013) (collecting cases). Our circuit has continued to apply the discovery rule post Petrella. See Oracle Am., Inc. v. Hewlett Packard Enter. Co., 971 F.3d 1042, 1047 (9th Cir. 2020) (“[A] copyright infringement claim accrues—and the statute of limitations begins to run—when a party discovers, or reasonably should have discovered, the alleged infringement.“); Media Rts. Techs., Inc. v. Microsoft Corp., 922 F.3d 1014, 1022 (9th Cir. 2019) (same). But most circuit courts, including ours, have not yet addressed whether Petrella imposed a damages bar separate from the statute of limitations, as MGM suggests.
The Second Circuit is the only exception. See Sohm v. Scholastic Inc., 959 F.3d 39 (2d Cir. 2020). There, Sohm, a professional photographer, entered into an agreement with different agencies to issue limited licenses to third parties to use his photographs. Id. at 42. In 2004, one of those agencies entered into an agreement with Scholastic, a publisher and distributor of children‘s books, that established fees for certain print-run ranges of Sohm‘s photos. Id. Some twelve years later, in May 2016, Sohm sued Scholastic for copyright infringement, alleging that Scholastic used his photos in numbers in excess of those contemplated in the monthly invoices governing Scholastic‘s licenses. Id. Scholastic moved for summary judgment, arguing that the incident of injury rule should apply to determine when Sohm‘s claim accrued and, even if the discovery rule applied, first, Sohm should have discovered
“damages bar” such that damages should be strictly limited to three years from the time the complaint was filed. See id. at 44. The district court rejected each of Scholastic‘s arguments, applied the discovery rule, found Sohm was not on inquiry notice three years before he filed suit, and was thus entitled to damages for infringing acts before the three-year period preceding suit. See id.
The Second Circuit affirmed the district court‘s grant of summary judgment, concluding “that the discovery rule applies for statute of limitations purposes in determining when a copyright infringement claim accrues under the Copyright Act.” Id. at 50. It explained that “an infringement claim does not ‘accrue’ until the copyright holder discovers, or with due diligence should have discovered, the infringement,” citing its binding precedent in Psihoyos v. John Wiley & Sons, Inc., 748 F.3d 120 (2d Cir. 2014). Sohm, 959 F.3d at 50. It recognized that the Supreme Court in Petrella “specifically noted that it was not passing on the question of the discovery rule,” a position that was “reaffirmed” in SCA Hygiene Products. Id. “Consequently,” the Second Circuit found that “in light of the Supreme Court‘s direct and repeated representations that it has not opined on the propriety of the discovery or injury rules, it would contravene settled principles of stare decisis for this Court to depart from its prior holding in Psihoyos on the basis of Petrella.” Id.
The Second Circuit next considered whether the district court correctly found that Sohm “did not discover, nor with due diligence should have discovered, Scholastic‘s purported copyright infringements more than three years prior to when he filed suit.” Id. It concluded that Scholastic failed to identify any facts or circumstances that would have put Sohm on inquiry notice that Scholastic was infringing its
copyrights, reasoning that “Scholastic cannot rely on the passage of time alone to establish that Sohm should have discovered” the infringing acts. Id. at 51. It upheld the district court‘s determination that Sohm‘s claims accrued within the statute of limitations—that he discovered the earlier acts of infringement within the three-year period before he filed suit. That should have been the end of discussion, but it wasn‘t.
Scholastic, like MGM here, went on to argue that even if the discovery rule means the pre-three-year window claims timely accrued, Petrella created a separate damages bar that limits damages to only those arising from acts of infringement within the three-year window. The Second Circuit agreed, holding that the Petrella Court “explicitly delimited damages to the three years prior to the commencement of a copyright infringement action.” Id. at 52. It found that ”Petrella‘s plain language explicitly dissociated the Copyright Act‘s statute of limitations from its time limit on damages.” Id. The Second Circuit reasoned from Psihoyos and certain language in Petrella that “we must apply the discover[y] rule to determine when a copyright infringement claim accrues, but a three-year lookback period from the time a suit is filed to determine the extent of the relief available.” Id. Accordingly, the Sohm court concluded that “a plaintiff‘s recovery is limited to damages incurred during the three years prior to filing suit,” even where the copyright holder was unaware of the infringing acts, and the district court‘s contrary conclusion was in error. Id.
C.
MGM asks us to adopt the approach taken by the Second Circuit in Sohm, and hold, in light of Petrella, that the damages that Starz may recover on its infringement claims
are strictly limited to
Applying a separate damages bar based on a three-year “lookback period” that is “explicitly dissociated” from the Copyright Act‘s statute of limitations in
render the “discovery rule” functionally identical to the “incident of injury” rule. See Br. of Amicus Curiae Professor Tyler Ochoa in Supp. of Pl.-Appellee & Affirmance at 13-15. By purporting to apply the discovery rule but imposing a three-year damages bar, Sohm is inherently self-contradictory. See 3 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 12.05[B][2][d][ii] (2021) (“But, immediately after nominally reaffirming the discovery rule, Sohm v. Scholastic took a hundred-and-eighty degree turn . . . In sum, the practical import of this case is to adopt the injury rule and reject the discovery rule that it had previously upheld.“). The overwhelming majority of district courts in discovery rule circuits has rejected the concept of a damages bar in discovery rule cases, as Starz argues.4
three-year look-back period from the date of filing suit is coextensive with the three-year period following the act of infringement. When accrual is triggered by the act of infringement, we can accurately describe the statute of limitations as running forward from the act of infringement or looking backward from the date the complaint is filed—either way it is the same exact period of time.
MGM argues that Petrella‘s “look-back” language created a three-year damages bar that is determined solely by the date the complaint is filed even in cases where the discovery rule applies. But the text of the statute provides no support for this argument. In Petrella, the Court explained that, in the Copyright Act, Congress provided for just “two controlling time prescriptions: the copyright term . . . and
injury cases—where infringement and accrual occur simultaneously.
Nor does
Finally, unlike laches which serves to discourage a plaintiff from knowingly “sleeping upon his rights,” where the discovery rule applies, the plaintiff reasonably does not know that he is in such a slumber. Adopting a damages bar would mean that “a copyright plaintiff who, through no fault of its own, discovers an act of infringement more than three years after the infringement occurred would be out of luck. Such a harsh rule would distort the tenor of the statute.” Polar Bear, 384 F.3d at 706. ”
the copyright holder‘s exclusive rights, not protect those rights, which is the purpose of the Copyright Act itself.6 As amici argue, with the constant evolution of technology, copyright infringement is now “easier to commit, harder to detect, and tougher to litigate.” Br. of Amici Curiae The Authors Guild, Inc. and Other Artists’ Rights Organizations in Sup. Of Pl.-Appellee & Affirmance at 3; see also William A. Graham Co. v. Haughey, 568 F.3d 425, 437 (3d Cir. 2009) (“Technological advances such as personal computing and the internet have [made] it more difficult for rights holders to stridently police and protect their copyrights.” (internal quotation marks and citation omitted)).
The district court correctly concluded that “the best read of Petrella is that it did not change any law in the Ninth Circuit pertaining to the discovery rule and the three year damages bar.” This is because the discovery rule is an exception to the general incident of injury rule. When copyright infringement occurs prior to discovery, a simple application of the general rule to the three-year statute of limitations in
The district court correctly applied the discovery rule to conclude that Starz timely filed its claims of copyright infringement. Taking all the facts in the complaint as true, there were no events that occurred that should have placed Starz on notice that MGM was violating its exclusive rights until Starz‘s employee discovered the movie Bill & Ted‘s Excellent Adventure on Amazon Prime Video in August 2019. And as the district court aptly put it, “When Starz did detect smoke, in the form of Bill & Ted‘s Excellent Adventure, it quickly discovered the fire and promptly sued for all 340 infringements.” Because Starz brought its claim within three years after its claim accrued, Starz is not barred from seeking damages for all acts of infringement.
IV.
We therefore affirm the district court‘s denial of MGM‘s motion to dismiss under
AFFIRMED.