Michael Grecco Productions, Inc. v. RADesign, Inc.

Second Circuit holds that no “sophisticated party” exception to “discovery rule” exists, vacating district court order that dismissed copyright infringement claim at pleading stage on grounds that plaintiff should have discovered infringement sooner due to its alleged sophistication in infringement detection.

Plaintiff Michael Grecco Productions Inc. (MGP), a frequent party to litigation, is the owner of copyrighted photographs taken by commercial photographer Michael Grecco. In October 2021, MGP filed a copyright infringement action against shoe designer Ruthie Davis and related entities, claiming that Davis republished, without authorization, MGP’s photographs of model Amber Rose on Davis’ website and social media platform. According to the complaint, Grecco took the photos in January 2017 and Davis’ infringement began in August 2017, more than four years before the complaint was filed. MGP also alleged that it did not discover the infringement until February 2021, less than a year before the complaint was filed. Davis moved to dismiss the complaint on the ground that it was barred by the Copyright Act’s three-year statute of limitations. The district court granted the motion, reasoning that because MGP held itself out as a “sophisticated” plaintiff with experience in discovering and litigating infringements of its copyrighted works, it should have discovered Davis’ alleged infringement within three years of when it began. MGP appealed the decision to the Second Circuit, which vacated the district court’s dismissal order and remanded for further proceedings.

The Second Circuit applies the discovery rule to determine when a copyright claim accrues for purposes of the three-year statute of limitations. Under the discovery rule, a copyright claim accrues, and the limitations period starts to run, when a plaintiff discovers, or with due diligence should have discovered, the alleged infringement. Ten other circuit courts also apply the discovery rule for determining when copyright claims accrue, and in May 2024, the Supreme Court in Warner Chappell Music, Inc. v. Nealy (see our summary of the decision here) assumed without deciding that the discovery rule is valid and applies to infringement claims under the Copyright Act. The Second Circuit rejected the argument, advanced by Davis on appeal, that the Supreme Court in Nealy “cast doubt” on the discovery rule.

The Second Circuit initially focused on the district court’s holding that MGP “must have been unable, with the exercise of due diligence, to discover the infringing activity prior to August 15, 2020, three years after the infringing activity allegedly began.” By this holding, the panel noted, the district court employed the injury rule, as opposed to the discovery rule: It started the three-year clock when the infringement allegedly began, while implying that some extension of time might be available if MGP was unable to discover the infringement within those three years. In doing so, the district court incorrectly reflected the discovery rule as an equitable extension and not the rule of accrual. But, as the panel clarified, the discovery rule is not an exception to the injury rule that only applies to some copyright infringement claims or for which only some copyright plaintiffs qualify. Nor does the discovery rule function as an equitable tolling or estoppel doctrine, the panel noted. Rather, it is Congress’ intended rule of accrual for all civil actions under the Copyright Act.

The panel expressly rejected the district court’s rationale that sophisticated plaintiffs experienced in detecting and bringing copyright infringement claims are ineligible for the discovery rule. Even if the district court’s “sophisticated plaintiff” rationale was merely a presumption that sophisticated plaintiffs can discover infringements immediately or nearly so, such that the date of earliest diligent discovery would always be the date of injury (or approximately so), that rationale was still flawed, the panel held. As it explained, the date on which a plaintiff would have discovered an infringement with the exercise of due diligence is a fact-intensive inquiry that cannot be determined solely from the general nature of a plaintiff’s sophistication and typically requires discovery to resolve.

Here, the district court made no findings as to when and why MGP with due diligence should have discovered the alleged infringement. Such findings would have required consideration of facts outside the complaint, the panel held. MGP did not even plead facts as to its due diligence regarding Davis’ alleged infringement specifically. Nor was it required to do so, as timeliness is not an element of a copyright infringement claim, and MGP was not required to anticipate potential affirmative defenses in its complaint, the panel held.

The panel declined to address, however, whether courts may properly conclude following fact discovery that the diligence by a more sophisticated copyright holder in discovering an alleged infringement is greater than that which is required by a less sophisticated copyright holder. In doing so, it left “for another day—in an appeal where the district court has reached the fact-intensive diligence inquiry—questions about what, if any, role a particular plaintiff’s sophistication may play in that inquiry.”

Summary prepared by Frank D’Angelo and Kyle Petersen