Supreme Court Reverses, Says Laches Does Not Bar Copyright Claim

Supreme Court Reverses, Says Laches Does Not Bar Copyright Claim

 WASHINGTON, D.C. — (Mealey’s) A divided U.S. Supreme Court today ruled that a petitioner’s copyright infringement claim against Metro-Goldwyn-Mayer Inc. (MGM) is not subject to the affirmative defense of laches because her claim was brought within the three-year statute of limitations window proscribed by 17 U.S. Code Section 507(b) (Paula Petrella v. Metro-Goldwyn-Mayer Inc., No. 12-1315, U.S. Sup.; See 2/3/14, Page 16) [an enhanced version of this opinion is available to lexis.com subscribers].

Justice Ruth Bader Ginsburg, joined by Justices Antonin Scalia, Clarence Thomas, Samuel Alito, Sonia Sotomayor and Elena Kagan, wrote for the six-member majority that the Ninth Circuit U.S. Court of Appeals erred “in failing to recognize that the copyright statute of limitations, § 507(b), itself takes ac­count of delay.”

The ruling marks a win for petitioner Paula Petrella, who had alleged infringement by MGM in connection with the film “Raging Bull.”

“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 January 6, 2006 bar all relief, monetary and injunctive, for infringement occurring on and after that date,” the majority ruled.

Screenplay, Book

The late Frank Petrella wrote several literary works based on the life of his longtime friend, boxing champion Jake LaMotta:  “The Raging Bull,” another related screenplay and a book, each of which he copyrighted. In 1976, Petrella and LaMotta assigned the copyrights associated with the works to Chartoff-Winkler Productions. Two years later, United Artists Corp., a subsidiary of MGM, acquired the motion picture rights to the works from Chartoff-Winkler. In 1980, United Artists released “Raging Bull,” a critically acclaimed and award-winning movie based on LaMotta’s life. In 1981, during the original 28-year term of the copyrights for the book and the two screenplays, Petrella died and his renewal rights in the works passed to his heirs. In 1991, his daughter, Paula Petrella, filed a copyright renewal application for the 1963 screenplay.

In 1998, Paula Petrella’s attorney contacted MGM, asserting that Paula Petrella had obtained the rights to the 1963 screenplay and that the continuing exploitation of any derivative work, including “Raging Bull,” was an infringement of these exclusive rights. Over the next two years, Paula Petrella and MGM exchanged a series of letters in which she accused MGM of infringing her copyrights and MGM insisted that it did not. In 2009, Paula Petrella sued MGM, United Artists, Metro-Goldwyn-Mayer Studios Inc., Metro-Goldwyn-Mayer Home Entertainment LLC, Metro-Goldwyn-Mayer Home Entertainment Distribution Corp. and 20th Century Fox Home Entertainment LLC (collectively, MGM) in the U.S. District Court for the Central District of California for copyright infringement. The complaint sought monetary damages, injunctive relief, attorney fees and costs.

Question Presented

Because the Copyright Act has a three-year statute of limitations, Paula Petrella alleged that MGM was liable for infringement beginning in 2006. The District Court granted summary judgment in favor of MGM, however, after finding that the copyright infringement claim was barred by the doctrine of laches. The court held that Paula Petrella had unreasonably delayed by not filing suit until 2009 and that her delay prejudiced MGM in terms of both its commercial expectations and its access to evidence. The Ninth Circuit U.S. Court of Appeals — relying on Danjaq LLC v. Sony Corp. (263 F. 3d 942 [9th Cir. 2001]) — affirmed, holding that Petrella’s copyright, unjust enrichment and accounting claims are barred by laches and that the District Court did not abuse its discretion by denying a related motion by MGM for sanctions and attorney fees. Pursuant to Danjaq, the appellate panel held, laches can bar all relief, both legal and equitable, when a plaintiff delays initiating litigation, when the delay is unreasonable and when the delay results in prejudice. In a concurrence, however, Judge William A. Fletcher stated that the decision was correct only because the panel was compelled to follow Danjaq; what's more, Judge Fletcher lamented that “our circuit is the most hostile to copyright owners of all the circuits.”

Paula Petrella responded with a petition for writ of certiorari with the Supreme Court, presenting the following question:  “Whether the nonstatutory defense of laches is available without restriction to bar all remedies for civil copyright claims filed within the three-year statute of limitations prescribed by Congress, 17 U.S.C. § 507(b).”  The Supreme Court granted the petition in October 2013, and held oral arguments in January.

Prove And Offset

Reversing and remanding, the Supreme Court majority found that “if infringement within the three-year look back period is shown,” the Copyright Act “allows the defendant to prove and offset against profits made in that period ‘deductible expenses’ incurred in generating those profits.”  Furthermore, defendants may “prove and offset ‘elements of profit attributable to factors other than the copyrighted work,’” according to the majority. “Last, but hardly least, laches is a defense developed by courts of equity; its principal application was, and re­mains, to claims of an equitable cast for which the Legisla­ture has provided no fixed time limitation . . . both before and after the merger of law and equity in 1938, this Court has cautioned against invoking laches to bar legal relief,” the majority noted.

Although a dissent authored by Stephen Breyer, in which Chief Justice John G. Roberts Jr. and Justice Anthony Kennedy joined, lamented the potential unfairness of denying laches applicability where a plaintiff has unreasonably delayed bringing suit, the majority noted that the dissent “has come up with no case in which this Court has approved the application of laches to bar a claim for damages brought within the time allowed by a federal statute of limitations.”  The “expansive role for laches” envisioned by MGM “careens away from understandings, past and present, of the essentially gap-filling, not legislation-overriding, office of laches,” according to the majority, which went on to note that none of its precedents “suggests a doctrine of such sweep.”

“Quite the contrary, we have never applied laches to bar in their entirety claims for discrete wrongs occurring within a federally prescribed limitations period. Inviting individual judges to set a time limit other than the one Congress prescribed, we note, would tug against the uniformity Congress sought to achieve when it enacted §507(b),” the majority added.

Litigation Profusion

Next, the majority addressed MGM’s concern that copyright owners might delay bringing suit until their claim could achieve maximum profitability. Again siding with Petrella, the Supreme Court said “it is hardly incumbent on copyright owners . . . to challenge each and every actionable infringement.”  Furthermore “there is 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,” the majority held, because “even if an infringement is harmful, the harm may be too small to justify the cost of litigation.”

“If the rule were, as MGM urges, ‘sue soon, or forever hold your peace,’ copyright owners would have to mount a federal case fast to stop seemingly innocuous infringements, lest those infringements eventually grow in magnitude. Section 507(b)’s three-year limitations period, however, coupled to the separate-accrual rule, avoids such litigation profusion. It allows a copyright owner to defer suit until she can estimate whether litigation is worth the candle. She will miss out on damages for periods prior to the three-year look-back, but her right to prospective injunctive relief should, in most cases, remain unaltered,” the majority added.

Essential Element

Finally, the majority noted that when copyright owners intentionally mislead others as to their intent to abstain from filing suit, the doctrine of estoppel — which presents a “more exacting test than the test for laches” — could instead be applied.

“The gravamen of estoppel, a defense long recognized as available in actions at law, is misleading and consequent loss. Delay may be involved, but is not an element of the defense. For laches, timeliness is the essential element. In contrast to laches, urged by MGM entirely to override the statute of limitations Congress prescribed, estoppel does not undermine Congress’ prescription, for it rests on misleading, whether engaged in early on, or later in time. Stating that the Ninth Circuit ‘ha[d] taken a wrong turn in its formulation and application of laches in copyright cases,’ Judge Fletcher called for fresh consideration of the issue. ‘A recognition of the distinction between . . . estoppel and laches,’ he suggested, ‘would be a good place to start.’ We agree,” the majority held.

“In sum, the courts below erred in treating laches as a complete bar to Petrella’s copyright infringement suit. The action was commenced within the bounds of § 507(b), the Act’s time-to-sue prescription, and does not present extraordinary circumstances of the kind involved in Chirco and New Era. Petrella notified MGM of her copyright claims before MGM invested millions of dollars in creating a new edition of Raging Bull. And the equitable relief Petrella seeks — e.g., disgorgement of unjust gains and an injunction against future infringement — would not result in ‘total destruction’ of the film, or anything close to it. MGM released Raging Bull more than three decades ago and has marketed it continuously since then. Allowing Petrella’s suit to go forward will put at risk only a fraction of the income MGM has earned during that period and will work no unjust hardship on innocent third parties, such as consumers who have purchased copies of Raging Bull. The circumstances here may or may not (we need not decide) warrant limiting relief at the remedial stage, but they are not sufficiently extraordinary to justify threshold dismissal,” the majority concluded, citing Chirco v. Crosswinds Communities, Inc., 474 F. 3d 227, 236 (CA6 2007) [enhanced version] and New Era Publications Int’l v. Henry Holt & Co., 873 F. 2d 576, 584–585 (CA2 1989) [enhanced version].

Counsel

Petrella is represented by Stephanos Bibas, James A. Feldman and Nancy Bregstein Gordon of University of Pennsylvania Law School Supreme Court Clinic in Philadelphia and Glen L. Kulik of Kulik Gottesman & Siegel in Sherman Oaks, Calif. Mark A. Perry, Theodore B. Olson, G. Brinton Lucas and Lindsay S. See of Gibson, Dunn & Crutcher in Washington; Blaine H. Evanson of Gibson Dunn in Los Angeles; Jonathan Zavin and Wook Hwang of Loeb & Loeb in New York; and David Grossman and Robert J. Catalano of Loeb & Loeb in Los Angeles represent the respondents.

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