May 24, 2014 9:35am PT by Bonnie Eskenazi and Jonathan Sokol
Supreme Court Has Shifted Copyright Risk to Entertainment Studios (Guest Column)
On Monday, the United States Supreme Court decided a copyright case that may have far reaching effects. In a 6-3 decision, the court decided that Paula Petrella, the copyright heir to Raging Bull's original 1963 screenplay, could proceed with her infringement claim against MGM despite an 18-year delay in filing suit.
After Jake LaMotta retired from boxing, he collaborated with his best friend, Frank Petrella, to create a book and two screenplays about LaMotta's life that became the basis for the 1980 award-winning Martin Scorsese film, Raging Bull, starring Robert De Niro. When Frank Petrella died in 1981, his daughter acquired her father's renewal copyright to the original screenplay by operation of law. In 1991, she filed a timely renewal application with the Copyright Office for the 1963 screenplay. However, she waited 18 years before filing a lawsuit for copyright infringement against MGM.
MGM sought to get Petrella's case summarily dismissed, arguing that the equitable doctrine of laches should bar her claim because she had delayed too long in filing suit. Petrella argued that MGM was continuing to exploit the film and that each infringing exploitation started a new three-year statute of limitations period (separate accrual rule). Petrella asserted that she could not be barred by laches from pursuing her claims because her claims were limited to infringing conduct by MGM during the three years prior to filing. The District Court agreed with MGM and dismissed Petrella's case, finding that she had unreasonably delayed in filing suit, resulting in prejudice to MGM since it had spent millions of dollars developing, licensing and marketing different editions of the film for home video and network broadcast. In essence, the District Court held that even if a plaintiff brings a claim within the three-year statute of limitations, a court could still throw the claim out based on laches -- unreasonable, prejudicial delay in filing suit. The 9th Circuit Court of Appeals affirmed.
The high court disagreed. It held that the equitable defense of laches cannot be used by lower courts to bar relief on a copyright infringement claim brought within the Copyright Act's three-year statute of limitations period, which expressly permits a copyright owner to seek damages and relief for infringing conduct occurring within the three-year period before filing suit. Since Petrella sought relief only for conduct occurring within the three-year limitations period set by Congress in the Act, the Supreme Court held the lower courts could not use the doctrine of laches to bar her claims.
The immediate ramification of the decision on the entertainment community is that it effectively shifts the risk for determining copyright ownership to the studios. Traditionally, rights holders have borne the burden of making a Hobson's choice -- once you became aware of some infringing act, should you sue immediately at substantial legal expense, even if the infringement might be minor and not financially successful? Or should you wait to see whether the infringement was returning enough economic reward to make it worth investing the money in a lawsuit but face a potential defense of laches because you waited too long to sue?
MGM insisted laches had to be available "to prevent a copyright owner from sitting still, doing nothing, waiting to see what the outcome of an alleged infringer's investment will be." Petrella conceded that she had waited to file because "the film was deeply in debt and in the red and would probably never recoup." Writing for the majority, Justice Ginsburg held that it was perfectly legitimate for rights holders to wait and see if the infringing act is financially lucrative enough to warrant mounting a lawsuit. "It is hardly incumbent on copyright owners … to challenge each and every actionable infringement … 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 compliments it." Instead, the court pointedly commented that MGM could have sought a declaratory judgment to the extent it truly felt it needed to protect its financial investment.
In rejecting MGM's laches defense, the high court took both a practical business and economic approach. The court pointed out that by allowing an infringement claim to go forward despite years of delay in bringing an action, the plaintiff is limited to three years of past profits, while the ostensibly infringing party may have had financial use of the copyrighted property for decades. "[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 defendants to keep." Further, laches will not bar a successful plaintiff from obtaining prospective injunctive relief preventing future exploitation. However, in fashioning the remedy, the court can consider a plaintiff's delay.
However, the underpinnings of the court's analysis reach beyond a simple examination of the copyright act and rest firmly on the separation of powers exercised by the competing branches of government. Laches is a judicially created and imposed time bar, whereas a statute of limitations is created and imposed by the legislature. Where they conflict, the court held the statute of limitations must prevail. "Inviting individual judges to set a time limit other than the one Congress prescribed … would tug against the uniformity Congress sought to achieve when it enacted [the three-year statute of limitations]."
The Raging Bull decision has redistributed a portion of the balance of power in Hollywood between small-time rights holders and the studios. Rights holders can now engage in a "wait and see" approach to gauge whether an infringer profits enough from its wrongdoing to make suing worthwhile. It also opens the door to rights owners filing copyright infringement claims long thought to be stale and barred by the doctrine of laches as long as the potential defendant is still infringing. The breadth of the holding and its analysis may also extend to trademark infringement and other commercial cases, where laches has also been asserted as an equitable defense.
Bonnie E. Eskenazi and Jonathan B. Sokol are partners in the Los Angeles firm of Greenberg Glusker Fields Claman & Machtinger LLP.