Bill & Ted’s Excellent Licensing Agreement: Ninth Circuit holds that damages for undiscovered copyright infringement are not limited to three years.

July 19, 2022 by Dane Johnson

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Entertainment law case updates

Starz Entertainment LLC v. MGM Domestic Television Distribution LLC
USCA Ninth Cir July 14, 2022

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In Starz Entertainment, LLC v. MGM Domestic Television Distribution, LLC,¹1. No. 21-55379 (9th Cir. July 14, 2022). the U.S. Court of Appeals for the Ninth Circuit affirmed the district court’s denial of a motion to dismiss copyright infringement claims as barred by the three-year statute of limitations under the Copyright Act.²2. 17 U.S.C. § 507(b).

How Long is the Statute of Limitations for a Copyright Claim?

As entertainment attorneys know but independent film producers and other creators might not, a statute of limitations is a law that prevents a person from litigating a claim after a specified time period. Different types of legal claims from, say, a slip on a negligently cleaned floor to a slip up in clearing chain of title to a film clip owned by someone else are subject to different statutes of limitation. After whatever length of time is specified in the applicable, law, a lawsuit generally cannot be brought about the claim. It doesn’t matter if the claim is otherwise rock solid. Two concepts are important to understanding how statutes of limitations work: First, how much time is a potential plaintiff allowed to bring his or her claim to court by filing a complaint against the defendant? Next, when does the clock on the limitations period start ticking?

In copyright cases, the clock generally starts (the claim accrues) when the infringement occurs: the unauthorized copying, distribution, performance, or other violation of the copyright owner’s rights in the protected work. Many times that event is clear. But what happens when the copyright owner doesn’t know about the infringement? What if there is no reasonable way that he or she could know about it? In the Ninth Circuit, there is an exception to the statute of limitations known as the “discovery rule.” It provides that a copyright infringement claim alternatively accrues when the copyright holder knows or reasonably should know that an infringement occurred.

Now When You Say “Exclusive” Rights, Just What Do You Mean?

With the above background in mind, Starz is about licensing of content from MGM’s deep and historic film library to Starz Entertainment for its SVOD (subscription video on-demand) and traditional cable television channels. In 2013, Starz and MGM entered into licensing agreements under which it got the right to distribute close to 600 MGM movies and 175 television episodes, and MGM got about $70 million. The rights were of various duration (the “term” of a license for entertainment content. The deal gave Starz exclusivity (another essential aspect of an intellectual property licensing agreement to negotiate carefully), meaning that in exchange for those tens of millions, MGM promised Starz not to exhibit or license any of the movies or shows involved to anyone else during the term.

Problems arose about six years later. In August 2019, Starz employees began to discover that movies such as Bill & Ted’s Excellent Adventure licensed under the agreement were being made available by MGM to stream on Amazon Prime Video (in addition to Starz). In all over 200 movies and 100 television episodes were apparently licensed by MGM to others during the period the same content had been licensed exclusively to Starz. After paying $70 million for exclusive rights, Starz was perhaps understandably unhappy about the discovery. It sued MGM for multiple claims of copyright infringement for the various film and TV titles as well as breach of contract.

Ninth Circuit Upholds Discovery Rule Exception to Copyright Statute of Limitations

In response, MGM moved to dismiss the complaint, arguing that many of the Starz claims were barred by the three-year copyright statute of limitations. Alternatively, MGM asserted that even if the Starz claims were brought within the time limit, it would be liable for damages only for alleged infringement occurring within the preceding three years. MGM relied on a 2014 Supreme Court opinion, Petrella v. Metro-Goldwyn-Meyer, Inc.,³3. 572 U.S. 663, 134 S.Ct. 1962, 188 L.Ed.2d 979 (2014). which one U.S. court of appeals, the Second Circuit, has interpreted as imposing an absolute bar on copyright claims that are older than three years from the date on which the infringement occurs—even if the copyright owner did not discover it earlier. The district court in Starz denied MGM’s motion to dismiss, which meant that the case continued toward trial. Under the procedural posture of this case, any appeal must usually wait until after a final judgment. But MGM asked the Ninth Circuit for an interim decision. Such an appeal is allowed because if it turns out that a case should have been dismissed, there would be no reason to consume further resources by going on to a trial).

The Ninth Circuit reasoned that MGM was wrong on both arguments, calling the Starz case a “textbook example of the absurdity” of an interpretation of the Copyright Act that would allow suing for copyright infringement within three years of its discovery but disallow damages for the same infringement.⁴4. Starz, No. 21-55379. The court held that in the Ninth Circuit, which has jurisdiction over federal claims in California, Oregon, Washington, Alaska, Hawaii, Idaho, Montana, and Nevada, the discovery rule for accrual of a copyright claim “allows copyright holders to recover damages for all infringing acts that occurred before they knew or reasonably should have known of the infringing incidents and that the three-year limitations period runs from the date the claim accrued, i.e., from the date when the copyright holder knew or should have known of the infringement.”⁵5. Id.

Finding that the record on appeal lacked any evidence that should have placed Starz on notice that its exclusive rights were allegedly being violated by MGM, the Ninth Circuit affirmed the denial of the motion to dismiss.

Takeaway for Filmmakers and Digital Creators

First, always protect your work properly by filing a copyright application. Then, understand that—at least in one of the Ninth Circuit states mentioned above—a registered copyright owner has three years to commence infringement litigation, with the clock on that period starting from when the owners knew or reasonably should have known of the infringing acts. Copyright holders may recover damages for all infringing acts that occurred before they were discovered even if the infringement happened longer than three years before.

Read the decision here.

Questions about responding to a claim for copyright infringement, clearing copyright in your film or television project, or protecting your intellectual property rights? Contact DeepFocus Law at (503) 975-8298 or schedule an entertainment attorney consultation.