May 22, 2014

Emerging Trends: Supreme Court Takes Away Possible Defense for Copyright Defendants

In a partial defeat for studios, record companies, publishers and the like, the Supreme Court on May 19, 2014 refused to allow MGM to invoke the equitable doctrine of “laches” as a bar to a claim of copyright infringement, on grounds that the copyright holder had allegedly waited too long to bring suit (Petrella v. Metro-Goldwyn-Mayer, Inc.). In this “Emerging Trends” feature, Kaye Scholer IP Partners Paul Llewellyn and Robert Barnes discuss this recent decision, part of an unusually IP-heavy Supreme Court term, and its potential impacts on both copyright holders and users.

Background: Starting in 1963, Frank Petrella co-wrote and registered the copyright for two screenplays and a novelization about boxer Jake LaMotta’s life. In 1980, MGM released the classic Martin Scorsese film, Raging Bull, based on Petrella’s screenplays. Robert DiNiro won the best actor Oscar for his realistic and vivid portrayal of the boxer’s brutal life in and out of the ring. Over the next three decades, the film’s critical acclaim grew, and MGM received regular profits from video, DVD and television sales. Petrella died in 1981, but, ten years later, his daughter was able to secure a renewal of the rights to the 1963 screenplay. Thereafter, Paula Petrella’s attorney wrote to MGM asserting copyright infringement multiple times over several years but, crucially, Ms. Petrella waited until 2009 to sue MGM for copyright infringement. While her claim was allowed under the letter of the Copyright Act, which permits a plaintiff to sue for an ongoing infringement and collect damages or profits within the three year statute of limitations period immediately preceding the date of the suit, the District Court  and the Ninth Circuit Court of Appeals agreed with MGM that Petrella had sat on her rights for too long, and that her copyright infringement claim was barred by the doctrine of laches—in short, that her delay in suing had unfairly prejudiced MGM. 

Q. What did the Supreme Court rule?

Llewellyn: The Supreme Court reversed and remanded the lower court decision, allowing the daughter of the late Frank Petrella to sue MGM over the ownership of the copyright to Raging Bull. In a 6-3 decision, the Court decided that an 18-year delay in challenging MGM’s copyright to the film did not unfairly prejudice MGM or make the family’s claims untimely.

Q. What is “laches,” and how did it apply to this case? 

Barnes: Federal copyright law has a three year statute of limitations. Normally, that means that the copyright owner can win damages for any infringement that happens in the three years before the lawsuit is filed, even if there were initial infringements years earlier. The copyright owner can’t recover for any infringement that’s more than three years old, but the profits the infringer made in the last three years will typically go to the owner as damages. Laches is a judge-made rule that is intended to protect defendants in unusual situations, such as when the plaintiff unreasonably delayed in suing and the defendant had relied on that delay to continue to exploit the copyrighted work. Some courts have said that in cases like these, where the copyright owner has done nothing for so long, it wouldn’t be fair to tag the infringer even with those last three years of profits or the possibility of an injunction. Whether that’s right or not was the issue the Supreme Court grappled with. 

Llewellyn: In this case, the Court determined that Ms. Petrella had been aware of her rights in 1991 when she won back her father’s copyright. The parties had exchanged correspondence for nine years before she ultimately sued, and MGM claimed it spent millions of dollars promoting the film in the US alone during that time. MGM’s argument was essentially that Ms. Petrella had laid in wait so see how successful MGM was in promoting film on DVD and cable and other new media, and then only sued once the film was profitable. Laches, MGM argued, is intended to prevent the prejudice that MGM claimed it suffered because the plaintiff slept on her rights in this way. In this circumstance, MGM argued, the laches doctrine should trump the three-year statute of limitations and bar all claims as untimely.

Q. Had the lower courts been divided on this issue?

Barnes: Yes, the lower appellate circuit courts found themselves in what is known as a “circuit split” on the issue of whether laches would apply in a copyright suit. The question has always turned on where the case was brought. Identical facts could, and often did, lead to opposite results in Los Angeles as opposed to New York. The Ninth Circuit (serving Los Angeles) applied a presumption of laches for some cases, whereas the Second Circuit (serving New York) would rarely allow the defense at all and would not apply it to monetary damages. The Supreme Court adopted the Second Circuit approach, holding that laches cannot preclude legal remedy (i.e., monetary damages) and may only preclude equitable relief in “extraordinary circumstances.”

Q. What was the Supreme Court’s reasoning for its holding?

Llewellyn: The Supreme Court reasoned that the choice of Congress to provide a separate three-year statute of limitations for each successive act of infringement and a lengthy copyright term which may pass to heirs already provides two controlling time limitations, and laches’ additional time limit cannot be squared with the Congressional regime.  Simply put, the copyright statute of limitations already itself takes account of delay.

Barnes: As for the issue of whether it was fair to allow someone to wait so long before suing, the majority found “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.” In the court’s view, this allows a copyright owner to defer suit until she can estimate whether litigation is “worth the candle.”

Q. What are your thoughts on the potential impact of this decision? Is it a huge loss for the studio here, and for future defendants?

Llewellyn: They are not happy about it, to be sure, but practically speaking, allowing this suit to proceed will only put at risk a small percentage of MGM’s income earned from the film. Moreover, if infringement within the three-year window is shown, the court explained that a defendant may offset against profits made in that period expenses incurred in generating those profits, and may retain the return on investment show to be attributable to its own enterprise, as distinct from the value created by the infringed work—possibly some consolation for the studio here, and for future defendants.

Barnes: One potential upside to this decision in that it will help to eliminate some uncertainty in future disputes—arguably helpful for both parties to such lawsuits. A successful plaintiff can gain retrospective relief only three years back from the time of suit, but no recovery for earlier years—those are the defendants to keep. Besides, merely not having laches doesn’t deprive defendants of all defenses. If a copyright owner engaged in intentionally misleading representations concerning their abstaining from suit, and the alleged infringer detrimentally relies on that deception, the doctrine of estoppel might come into play instead, barring such suit.

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