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SCOTUS Settles a Circuit Split in Copyright Damages Over Flo Rida Music Sample Case

By Vaidehi Mehta, Esq. | Reviewed by Joseph Fawbush, Esq. | Last updated on

Do you remember the hits of Music Specialist, Inc.? Probably not. They were a short-lived 80s music venture by Sherman Nealy and Tony Butler.

But you might recognize the name Flo Rida. One of his biggest hits sampled one of the works from Music Specialist. You may also be fans of the Black Eyed Peas and Kid Sister, both of whom also featured clips from Music Specialist songs. Their music was also featured in TV shows such as So You Think You Can Dance.

So even if you’re not familiar with the names, you’ve probably at some point heard the music of Nealy and Butler. Unfortunately for Sherman and Tony, despite their influence in the hip-hop world, their company didn’t exactly become a household name before it dissolved just a few years after its formation. And the two partners didn’t exactly stay chummy – in fact, up until recently, they were embroiled in a lawsuit that has just changed the future of copyright litigation for the entire nation.

The short-lived project that Nealy and Butler called “Music Specialist” ended abruptly just years after it had launched in 1983. Rather than stay partners, its two founders went very separate ways afterward. Nealy was soon sent to prison for drug-related offenses, serving two different terms between 1989 and 2015. In the meantime, Butler was busy milking the fruits of their joint labor.

Without Nealy’s knowledge, Butler entered into an agreement to license songs from the Music Specialist catalog with a company called Warner Chappell Music. Warner Chappell found several big players in the hip-hop industry interested in sampling Music Specialist works on their tracks, such as the ones we mentioned above. In particular, one Music Specialist song called “Jam in the Box” from 1984 was used by Flo Rida in his hit song “In the Ayer,” which reached the top of the charts.

Understandably, when Nealy got out of prison and found out what his former partner had been up to behind his back, he wasn’t thrilled. In 2018, Nealy sued Warner Chappell for copyright infringement, alleging that he held the copyrights to the Music Specialist songs that had been licensed. He sought the profits he was owed as well as damages for the wrongful licensing under the Copyright Act. The federal courts, not state courts, have jurisdiction over all things copyright, so Nealy brought his lawsuit in a district court within the Eleventh Circuit.

The “Discovery Rule”

Butler had entered into the licensing agreement with Warner Chappell in 2008, but the infringing activity occurred ten years before Nealy brought suit. For his copyright claim to hold water, Nealy had to prove that they had been made within the allotted time. The Copyright Act §507(b) states that you have to file your suit “within three years after the claim accrued.” If that were to mean that a plaintiff can bring suit about infringements going back only three years, then that would make many of Nealy’s claims untimely. Put simply, he'd lose.

So what does §507(b) mean? It depends on where you’re bringing suit. An alternative reading of the Copyright Act would hold that a claim “accrues” when the plaintiff discovers (or, with due diligence, should have discovered) the infringing act. This is sometimes referred to as the “discovery rule” and was the controlling rule in the federal circuit where Nealy sued. The discovery rule enables a plaintiff to raise a copyright claim about even a very old infringement if they discovered it within the prior three years.

If the discovery rule applied, all of Nealy’s claims would be timely because he did not learn of Warner Chappell’s infringing conduct until 2016, right after getting out of prison, and he brought suit within less than three years of that. In the district court where Nealy sued, the discovery rule was allowed.

Unfortunately for Nealy, that wasn't the end of the story. The music maker ran into a different issue related to his timing — one regarding the damages he could recover.

Another Circuit Split

Courts are not only divided on the discovery rule; there was also a circuit split regarding damages. The Eleventh Circuit Court of Appeals didn’t have a lot of case law on the issue, and when that happens, courts will turn to the precedent of other circuits. The Second Circuit, for example, has held that even when claims for old infringements are timely (whether under the discovery rule or otherwise), the money you can recover is limited to the three years prior to filing the suit. On the other hand, in the Ninth Circuit, a plaintiff with a timely claim under the discovery rule may obtain “retrospective relief” for an infringement, even if it occurred "more than three years before the lawsuit’s filing.”

The district court agreed with Warner Chappell, the defendant, that even though Nealy could sue under the discovery rule, he could only recover damages for or profits from the past three years. This wouldn’t do him any good since he couldn’t recover any money.

When Nealy appealed the district court’s decision to the Atlanta-based Eleventh Circuit Court of Appeals, they disagreed with the lower court. They rejected the notion that there should be a three-year cap for damages on a timely claim. Rather, they said that full damages should be recoverable under any claims that were considered “timely” under the discovery rule. They wrote that “the plain text of the Copyright Act does not support the existence of a separate damages bar for an otherwise timely copyright claim.”

SCOTUS Gives the Final Say

The U.S. Supreme Court often takes up cases where there is a circuit court split, as there was in this case. And SCOTUS finally handed down the final word, agreeing with the Eleventh Circuit and Nealy. Justice Elena Kagan authored the 6-3 majority opinion.

Though this case was pretty straightforwardly settled, SCOTUS justices may also be taking up the circuit split over whether or not courts should be using the discovery rule in a different copyright dispute between Hearst Newspapers and photographer Antonio Martinelli. Conservative Justice Samuel Alito, who dissented in the Nealy decision, said during oral arguments: “What concerns me is that we are being asked to decide a question that may be eliminated based on a subsequent decision.” That may have given away Justice Alito's position on the matter, anyway. We'll have to wait and see how it plays out.

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