William A. Graham Co. v. Haughey, 2009 WL 1564223 (3d. Cir. 2009)

On Friday, the Third Circuit (Scirica, Hardiman, Sloviter writing) issued an order addressing one of the most consistently litigated areas of copyright law. 17 U.S.C. 507(b) provides that “[n]o civil action shall be maintained under the provisions of [the Copyright Act] unless it is commenced within three years after the claim accrued.” The Act, however, doesn’t explicitly state when a claim accrues. As we discussed last week, federal courts have at times adopted two different methods for determining claim accrual under the Copyright Act. If a court applies injury rules, a cause of action accrues at the time of injury; under discovery rules, a claim accrues when the plaintiff discovers, or with due diligence should have discovered, the injury that forms the basis for the claim.

Litigation concerning how to determine when a copyright claim accrues kicked into gear after the Supreme Court’s opinion in TRW Inc. v. Andrews, 534 U.S. 19 (2001).  In the case, the Supreme Court addressed a statute of limitations provision from the Fair Credit Reporting Act:

An action to enforce any liability  created under this subchapter may be brought . . . not later than the earlier of . . .

• (1) 2 years after the date of discovery by the plaintiff of the violation that is the basis for such liability; or
• (2) 6 years after the date on which the violation that is the basis for such liability occurs.

The Ninth Circuit interpreted the “6 years” period as incorporating a general discovery rule because Congress hadn’t “expressly legislated otherwise.” The Supreme Court overturned and found that “to the extent such a presumption exists, a matter this case does not oblige us to decide, the Ninth Circuit conspicuously overstated its scope and force.”

So, if TRW cleared away a hard line presumption for the discovery rule, it still left the circuit courts a great deal of latitude for how to interpret statute of limitations provisions, and whether to incorporate a softer presumption for discovery rules. And following the case, as one would expect, courts have at times reached differing interpretations on this question. While many courts have adopted the discovery rule, there are a series of cases where courts have applied the injury rule. See e.g., Auscape International, 409 F.Supp.2d 235 (S.D.N.Y. 2004); Vasquez v. Torres-Negron, 2007 WL 2244784 (S.D.N.Y. 2007); Roberts v. Keith, 2006 WL 547252 (S.D.N.Y. 2006); Med. Educ. Dev. Servs., Inc. v. Reed Elsevier Group, PLC, 2008 WL 4449412 (S.D.N.Y. 2008). To the best of my knowledge (please let me know in the comments if I’m missing anything), the Ninth Circuit is the only other circuit to directly address the issue of when a copyright claim accrues post TRW. Polar Bear Prod., Inc. v. Timex Corporation, 384 F.3d 700 (9th. Cir. 2004).

The Plaintiff in William A. Graham Co. v. Haughey was an insurance brokerage firm. The Defendant was a former sales employee who struck out on his own. The Defendant entered into an agreement with the Plaintiff to purchase some of its accounts. The Plaintiff provided the Defendant with documentation related to the accounts, including extensive proposals, pursuant to a confidentiality agreement. The Defendant later used the proposals to target new clients. Although the alleged infringement took place between 1992 and 2005, the Plaintiff didn’t find out about the infringement until 2004.

The question on appeal was whether the defendant was only liable for the infringement that occurred after 2002 (injury rules) or whether the defendant could be held liable for all of the infringement since 1992, because the plaintiff neither discovered or with due diligence should have discovered the injury (discovery rules). The Third Circuit found that, provided Congress hasn’t codified an “explicit command” or “implication from the structure and text of the statute, a court should apply a general discovery rule.” Regardless, the Third Circuit also found that structure of the Copyright Act favors use of the discovery rule.  I’ve quoted here at length because I find the analysis interesting:

USI would have us set aside that analysis, applied by this court less than a year ago, in favor of a single district court decision in another circuit which used the injury rule to determine when claims accrue under the Copyright Act. See Auscape Int’l v. Nat’l Geographic Soc’y, 409 F.Supp.2d 235, 247 (S.D.N.Y.2004). We decline to do so. Even the court in Auscape conceded that “the text and structure of the [Copyright Act] lend no guidance” as to “Congress’ intent with regard to when an infringement claim accrues .” Id. at 244. This concession answers in the negative the first question raised in Disabled in Action: whether “Congress has specified an accrual date by ‘explicit command’ or ‘by implication from the structure and text of the statute.’ “ 539 F.3d at 209 (quoting TRW, 534 U.S. at 27-28).

Further, the text and structure of the Copyright Act actually favor use of the discovery rule. As noted by Graham, criminal actions under the Copyright Act must be “commenced within 5 years after the cause of action arose.” 17 U.S.C. § 507(a) (emphasis added). Just six years prior to the amendment to the Copyright Act that added the civil limitations period now codified at 17 U.S.C. § 507(b), the Supreme Court interpreted language similar to § 507(a)’ s criminal limitations period in the Admiralty Act (“cause of action arises”) to embody the injury rule. McMahon v. United States, 342 U.S. 25-26, 27 (1951); see also TRW, 534 U.S. at 32 (noting that petitioner “offer[ed] a strong argument” that use of the word “arise” in a statute of limitations provision signals congressional intent to adopt the injury rule (citing McMahon, 342 U.S. 25)). Significantly, Congress used different language in the civil limitations provision (“after the claim accrued”), which the Supreme Court had previously interpreted as embodying the discovery rule. See Urie v. Thompson, 337 U.S. 163, 169-170 (1949) (construing “cause of action accrued” in Federal Employers’ Liability Act and holding that statute of limitations was not triggered until injured employee should have known of injury). Given the maxim of statutory construction that “when the legislature uses certain language in one part of the statute and different language in another, the court assumes different meanings were intended,” Sosa v. Alvarez-Machain, 542 U.S. 692, 711 n. 9 (2004) (quotation omitted), Graham persuasively argues that the criminal and civil limitations periods embody different claim accrual rules and that § 507(b) should be interpreted to embody the discovery rule.

USI, once again pointing to Auscape, interprets the legislative history of the Copyright Act’s statute of limitations provision as evidence of congressional intent to adopt the injury rule for civil claims brought pursuant to the Copyright Act. However, Congress provided no “directive” mandating use of the injury rule in that legislative history. Disabled in Action, 539 F.3d at 209.

For example, until the statute of limitations provision now codified at 17 U.S.C. § 507(b) was enacted in 1957, the Copyright Act lacked a statute of limitations period for civil actions and courts borrowed state statutes of limitation for analogous claims. See S.Rep. No. 85-1014 (1957), as reprinted in 1957 U.S.C.C.A.N.1961, 1961-62. USI notes several instances in the legislative history of § 507(b) in which congress persons and witnesses argued that § 507(b) was necessary to provide a “uniform” or “fixed” limitations period. However, these statements reflected dissatisfaction with the use of state statutes of limitations, which ranged from one to eight years and therefore encouraged forum-shopping. See id. at 1962; see also Copyrights-Statute of Limitations: Hearing on H.R. 781 Before H. Comm. on the Judiciary, 84th Cong. 9, 35, 40 (1955) (hereafter “Hearing”). None of these statements addressed the separate issue of when a claim would accrue under the new federal three-year statute of limitations.

USI also relies on a statement in the Senate Report 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. The committee agrees that 3 years is an appropriate period for a uniform statute of limitations for civil copyright actions and that it would provide an adequate opportunity for the injured party to commence his action.” S.Rep. No. 85-1014 (1957), as reprinted in 1957 U.S.C.C.A.N.1961, 1962. Again, this statement does not speak directly to the accrual of actions, but rather seeks to support the three-year limitations period adopted by Congress. Moreover, the fact that Congress believed that infringement was “generally” a public act does not necessarily imply that, in cases in which infringement was not public, Congress intended to reject application of the discovery rule. Indeed, the quoted passage speaks of whether the injured party has “reasonably prompt notice” of infringement-an inquiry consistent with the discovery rule.

USI next points to what we view as an unenlightening exchange between Representative Shepard J. Crumpacker and a lobbyist for the motion picture industry during a House committee hearing. Representative Crumpacker was concerned that a movie company could make a movie that infringed on a writer’s script, secretly show that movie in a small town, sit on the movie until the statute of limitations passed, and then release the movie generally while claiming that the writer was barred from enforcing his or her rights. Hearing at 47. The lobbyist responded that each performance of the film would constitute a separate act of infringement. Id. at 48. This exchange is not illustrative of Congressional intent regarding when copyright claims accrue, but is cited by USI because the lobbyist also stated that “if [an act of infringement] occurred three years ago … [, then it] would be barred in three years.” Id. That single statement by a witness at a congressional hearing, which no congress person commented on or agreed with, signifies nothing and is hardly a basis to conclude that Congress intended to apply the injury rule.

USI also notes that Congress considered including certain express provisions to permit tolling of the statute of limitations, including where the infringer was guilty of fraudulent concealment, and it argues that the consideration of these exceptions would have been unnecessary had Congress intended to apply the discovery rule to claims under the Copyright Act. Of course, had Congress included those limited exceptions within § 507(b), the holding in TRW might well have inclined us to reject the discovery rule here. But the important fact is that Congress rejected inclusion of any statutory exceptions to the statute of limitations period, and did so because “the Federal district courts, generally, would recognize these equitable defenses anyway.” H. Rep. No. 84-2419, at 2 (1956).

Moreover, the legislative history makes clear that Congress intended the Copyright Act’s statute of limitations to apply “to the remedy of the person affected thereby, and not to his substantive rights,” id., by which Congress meant that “[e]quitable considerations are available to prolong the time for bringing suit,” id. at 3. Further, Congress feared that inclusion of specific statutory exceptions to the three-year limitations period “might result in unfairness to some persons.” S.Rep. No. 85-1014 (1957), as reprinted in 1957 U.S.C.C.A.N.1961, 1963. Thus, this case actually presents the opposite situation as TRW: Congress considered, but rejected, inclusion of specific statutory exceptions to the Copyright Act’s statute of limitations in order to ensure that the courts could consider any equitable circumstances sufficient to excuse a plaintiff’s failure to sue within the three-year limitations period.

Finally, USI argues that use of the discovery rule would be inappropriate as a matter of policy. USI notes that in TRW the Supreme Court stated that it has “recognized a prevailing discovery rule … in two contexts, latent disease and medical malpractice, ‘where the cry for such a rule is loudest.’ “ TRW, 534 U.S. at 27 (quoting Rotella v. Wood, 528 U.S. 549, 555 (2000)). USI would distinguish copyright infringement, arguing that “there is nothing intrinsically ‘hidden’ or ‘latent’ about copyright infringement because it is by its nature a public act that is only very rarely hidden from the copyright owner.” USI’s Reply Br. at 16. That may be true in some instances but not in all. Technological advances such as personal computing and the internet have “ma[de] it more difficult for rights holders to stridently police and protect their copyrights.” John Ramirez, Note, Discovering Injury? The Confused State of the Statute of Limitations for Federal Copyright Infringement, 17 Fordham Intell. Prop. Media & Ent. L.J. 1125, 1158 (2007) (concluding that discovery rule is appropriate for copyright actions).