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Second Circuit Formally Adopts “Discovery Rule” in Applying Statute of Limitations in Copyright Cases

Last month, the Second Circuit went against the tide of recent S.D.N.Y. decisions and instead joined the majority of circuit courts around the country to hold that the statute of limitations for copyright infringement claims runs from when the infringement is or should have been discovered, and not the date of infringement.  See Psihoyos v. John Wiley & Sons, Civ. No. 12-4874, 2014 WL 1327937, at *1 (2d Cir. Apr. 4, 2014). 

In Psihoyos, a plaintiff photographer sued the defendant for publishing his photos in textbooks and ancillary publications without his permission.  The Second Circuit affirmed the district court’s holding that the Copyright Act’s three-year statute of limitations did not bar the plaintiff’s claims because the plaintiff did not discover the infringements until 2010, less than three years before he filed the suit.

Under 17 U.S.C. § 507(b), civil actions for copyright infringement must be commenced within three years “after the claim accrue[s].”  Prior to Psihoyos, district courts within the Second Circuit were divided with regard to whether the “injury rule” or “discovery rule” applied.  Under the “injury rule,” a claim accrues at the time the infringement occurs while under the “discovery rule,” a claim accrues when the aggrieved party knows or has reason to know of the infringement.  At the time of the court’s decision in Psihoyos, the overwhelming majority of appellate courts subscribed to the “discovery rule.”  However, within the Second Circuit many courts continued to follow Judge Kaplan’s seminal decision in Auscape Int’l v. Nat’l Geographic Society, 409 F. Supp. 2d 235 (S.D.N.Y. 2004), along with Judge Buchwald’s decision in Urbont v. Sony Music Enter. et. al., 863 F. Supp. 2d 279, 282 (S.D.N.Y. 2012), applying the “injury rule.”

The Second Circuit stated that it agreed with its “sister Circuits that the text and structure of the Copyright Act . . . evince[d] Congress’s intent to employ the discovery rule,” and that policy reasons counseled in favor of adopting it.  See Psihoyos, 2014 WL 1327937, at *3.  In so doing, the court distinguished the Supreme Court’s decision in TRW Inc. v. Andrews, 534 U.S. 19 (2001) (refusing to inject a general “discovery rule” into statute of limitations provision of the Fair Credit Reporting Act). The court relied on the reasoning articulated by other circuits grappling with the issue since TRW had been decided.  Psihoyos, 2014 WL 1327937, at *3 & n.3.

Psihoyos raises several issues that will need to be decided in the Second Circuit.  For example, what will be the legal standard for inquiry notice of infringement in the copyright context?  Traditionally, while trademark owners have a duty to police their marks, copyright owners do not.  Thus some courts applying the “discovery rule” have held that a plaintiff is on inquiry notice only “once it possesses information regarding culpable conduct – ‘storm warnings’ - suggesting some reason to investigate.”  Design Basics, LLC v. Chelsea Lumber Co., Civ. No. 11-10854,2013 WL 5539609, at *7-*8 (E.D. Mich. Oct. 8, 2013) (relying on opinions by the First and Third Circuits).  

Since the Psihoyos court relied on its sister circuits in embracing the “discovery rule,” it may also adopt their requirement for “storm warnings.”  If so, will a potential plaintiff be on inquiry notice if an accused infringer floods the Internet or Tweets, for example, an infringing photograph or recording?  While courts have held that public availability of potential infringements “does not, without some additional ‘triggering event,‘ put a plaintiff on inquiry notice,” see id., what constitutes a triggering event will likely be a ripe area for litigation in the Second Circuit now that the “discovery rule” is in place. 

On a practical level, the rule may also require copyright plaintiffs and defendants to allocate discovery resources to litigating statute of limitations issues.  For example, if “storm warnings” are required, litigants will fight over what they were, who received them, and whether a plaintiff acted with reasonable diligence, rather than the often much cleaner line based on the date of the act of infringement.  Thus, Psihoyos may require litigators to pay more attention to statute of limitations issues in copyright cases.

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