Starz Entm't, LLC v. MGM Domestic Television Distribution, LLC

39 F.4th 1236

STARZ ENTERTAINMENT, LLC, Plaintiff-Appellee,

v.MGM DOMESTIC TELEVISION DISTRIBUTION, LLC, Defendant-Appellant.

No. 21-55379

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 10, 2022 San Francisco, California

Filed July 14, 2022

Mark A. Perry (argued), Gibson Dunn & Crutcher LLP, Washington, D.C.; Orin Snyder, Gibson Dunn & Crutcher LLP, New York, New York; Blaine H. Evanson, Gibson Dunn & Crutcher LLP, Irvine, California; Jay P. Srinivasan, Gibson Dunn & Crutcher LLP, Los Angeles, California; for Defendant-Appellant.

J. Wesley Earnhardt (argued), Evan R. Chesler, and Justin C. Clarke, Cravath Swaine & Moore LLP, New York, New York; Robert N. Klieger, Hueston Hennigan LLP, Los Angeles, California; for Plaintiff-Appellee.

Tyler T. Ochoa, Santa Clara University School of Law, Santa Clara, California, for Amicus Curiae Professor Tyler T. Ochoa.

Benjamin H. Diessel and Michael Rondon, Wiggin and Dana LLP, New Haven, Connecticut; Nathan E. Denning, Wiggin and Dana LLP, New York, New York; for Amici Curiae Authors Guild Inc., and Other Artists' Rights Organizations.

Before: Kim McLane Wardlaw, Sandra S. Ikuta, and Bridget S. Bade, Circuit Judges.

WARDLAW, Circuit Judge:

The Copyright Act, 17 U.S.C. § 101 et seq. , provides that a civil action for copyright infringement is timely so long as it is "commenced within three years after the claim accrued." 17 U.S.C. § 507(b). Generally, the claim "accrues" when the infringement or violation of one of the copyright holder's exclusive rights occurs, known as the "incident of injury rule." In our circuit, and every other circuit to have reached the question, an exception to that infringement rule has developed. Known as the "discovery rule," a claim alternatively accrues when the copyright holder knows or reasonably should know that an infringement occurred.

In 2014, the Supreme Court addressed the interplay between § 507(b) and the doctrine of laches, holding that laches does not bar relief on a copyright infringement claim brought within § 507(b)'s three-year limitations period. Petrella v. Metro-Goldwyn-Mayer, Inc. , 572 U.S. 663, 667–68, 134 S.Ct. 1962, 188 L.Ed.2d 979 (2014). Since then, defendants accused of copyright infringement have seized upon certain language in Petrella to argue that the Court also did away with the discovery rule. Most courts, including the district court here, have rejected that argument, reasoning that Petrella addressed only the availability of laches in cases where the copyright owner is seeking damages for infringing acts that occurred during the three-year window before a claim is filed. Moreover, because Petrella noted, but did not pass upon, the discovery rule, any language in that opinion discussing relief beyond that window is dicta and did not affect the viability of the discovery rule. Because we agree with the district court that the discovery rule of accrual of copyright claims is alive and well, we affirm.

I.

A.

1. The exclusivity agreements

Starz Entertainment LLC (Starz) provides premium subscription video programming through a suite of premium cable television channels and on-demand services. The content Starz provides to subscribers includes original programming as well as popular movies and television shows licensed from other studios. To acquire external content, Starz enters into licensing agreements with studios and other copyright holders, providing Starz with the exclusive right to exhibit specific content on its services for a defined period.

On July 26, 2013, Starz entered into a licensing agreement (a "Library Agreement") with MGM Domestic Television Distribution LLC (MGM). The parties entered into a second Library Agreement on May 7, 2015, providing Starz with exclusive exhibition rights to more MGM-owned content. Together, the two Library Agreements provided Starz with the exclusive right to exhibit 585 movies and 176 television series episodes in exchange for about $70 million. More specifically, MGM granted Starz the exclusive right to exhibit those MGM-owned movies and television series episodes on Starz's suite of services within the United States for specified time periods ranging from months to years. For some titles, Starz secured multiple license periods from MGM, resulting in more than 1,000 separate license periods each operating on its own time frame. In addition to the exclusive exhibition rights, Starz received contractual warranties from MGM that it would not exhibit or license to third parties any of the licensed content in violation of Starz's exclusive rights.

2. Discovery of MGM's infringement

In August 2019, a Starz employee discovered that one of the films covered by the licensing agreements, Bill & Ted's Excellent Adventure , was available to stream on Amazon Prime Video during Starz's exclusivity period. Starz notified MGM of its discovery, and MGM admitted that this improper license violated Starz's rights. MGM offered to provide additional periods of exclusivity to remedy this violation. At the time, MGM did not inform Starz of any additional potential exclusivity violations.

Starz decided to investigate further, and, by the end of August, discovered that twenty-two additional movies covered by the Library Agreements were available on Amazon Prime Video. MGM acknowledged these violations in September 2019. Starz then sought formal assurances from MGM in October 2019 that the identified titles were not licensed to any other service provider and that MGM licensed no other covered content in violation of the Library Agreements. Instead of those assurances, in November 2019, MGM provided Starz with a list of 136 movies and 108 television series episodes that had been licensed to other service providers (including MGM-owned rival service Epix) in violation of the Library Agreements. Starz continued to conduct its own investigation and subsequently identified nearly 100 additional movies not included on MGM's November list that were licensed to third parties during time periods they were exclusively licensed to Starz.

B.

Starz sued MGM in May 2020, asserting 340 claims of direct copyright infringement, 340 claims of contributory copyright infringement, 340 claims of vicarious copyright infringement, one claim of breach of contract, and one claim of breach of the covenant of good faith and fair dealing. In July 2020, MGM moved for dismissal under Federal Rule of Civil Procedure 12(b)(6), arguing that many of Starz's copyright infringement claims are barred by the Supreme Court's decision in Petrella , which MGM asserts "imposes a strict bar to collecting any damages for copyright infringements that occur more than three years prior to the filing of the complaint."¹ In a well-reasoned order, the district court concluded that Petrella left unaffected the discovery rule—that under the Copyright Act there exists "a three-year damages bar [under § 507(b) ] except when the plaintiff reasonably was not aware of the infringements at the time they occurred."

II.

The district court had jurisdiction pursuant to 28 U.S.C. § 1338, which confers subject matter jurisdiction over copyright actions. At MGM's request, the district court certified its order for interlocutory appeal, which we accepted, vesting us with jurisdiction pursuant to 28 U.S.C. § 1292(b).

We review the district court's denial of a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) de novo. Platt v. Moore , 15 F.4th 895, 901 (9th Cir. 2021). We accept all well-pleaded factual allegations contained in the complaint as true, Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), and decide whether the complaint articulates "enough facts to state a claim to relief that is plausible on its face," Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The district court's interpretations of the Copyright Act are reviewed de novo. Perfect 10, Inc. v. Giganews, Inc. , 847 F.3d 657, 665 (9th Cir. 2017).

III.

A.

17 U.S.C. § 507 establishes the statute of limitations under the Copyright Act: "No civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued." The key question we must answer is when does a copyright infringement claim accrue?

A claim ordinarily accrues when the plaintiff has a "complete and present cause of action." Bay Area Laundry & Dry Cleaning Pension Tr. Fund v. Ferbar Corp. of Cal. , 522 U.S. 192, 201, 118 S.Ct. 542, 139 L.Ed.2d 553 (1997) (citation omitted). In the copyright context, a claim accrues "when an infringing act occurs," Petrella , 572 U.S. at 670, 134 S.Ct. 1962, i.e. , when the infringer "violates any of the exclusive rights of the copyright owner," Bell v. Wilmott Storage Servs., LLC , 12 F.4th 1065, 1080 (9th Cir. 2021) (emphasis omitted) (quoting 17 U.S.C. § 501(a) ), although this is not the only time a claim accrues, as explained below.

In Roley v. New World Pictures, Ltd. , 19 F.3d 479 (9th Cir. 1994), we addressed the situation of a continuing violation, where the copyright holder, Roley, had witnessed the original screening of a new movie in August 1987 that he claimed, at that time, infringed his screenplay. We held that a "cause of action for copyright infringement accrues when one has knowledge of a violation or is chargeable with such knowledge." Id. at 481. But Roley did not file his complaint alleging infringement until February 1991. Id. at 480. He sought the benefit of the Seventh Circuit's then² view of the three-year limitation period, "that so long as any allegedly infringing conduct occurs within the three years preceding the filing of the action, the plaintiff may reach back and sue for damages or other relief for all allegedly infringing acts," beginning when the first infringing act occurred, no matter how long ago. Id. at 481 (citing Taylor v. Meirick , 712 F.2d 1112, 1118–19 (7th Cir. 1983) ). We squarely rejected that theory of...