Cross-posted on the Law Theories blog.
While the distinction between law and equity may seem antiquated to modern ears, the Supreme Court handed down an interesting copyright opinion last week which turned on whether the plaintiff’s claims were legal or equitable in nature. In Petrella v. MGM, the Court held that the affirmative defense of laches, which bars claims where the plaintiff has unreasonably slept on her rights to the prejudice of the defendant, is only available when the claim is equitable in nature—and even then only when the circumstances are extraordinary, which they were not in Petrella’s case.
The facts of the case are fairly straightforward. The plaintiff, Paula Petrella, sued MGM and others in 2009 for copyright infringement, unjust enrichment, and accounting over the movie “Raging Bull.” Petrella’s father authored a book and two screenplays which were the bases for the movie, and he assigned his rights—including his renewal rights—to MGM’s predecessor-in-interest. However, when Petrella’s father died before the commencement of the renewal period, Petrella inherited his renewal rights—the very rights he had previously assigned away—under the Supreme Court’s holding in Stewart v. Abend. Petrella renewed the rights when the original twenty-eight year term was up in 1991.
But it was not until seven years later in 1998 that Petrella contacted MGM to claim that the movie was an infringing derivative work of the rights she had acquired, and it was not until 2009 that Petrella initiated the instant civil action against MGM. The district court granted summary judgment to MGM, holding that all of Petrella’s claims were barred by the doctrine of laches. The Ninth Circuit affirmed, finding that Petrella’s delay from 1991 (when she acquired the rights) to 2009 (when she finally sued MGM) was unreasonable on her part and prejudicial to MGM. The appellate court was not impressed with the fact that Petrella had waited until the movie was profitable before filing suit.
Interestingly, the Ninth Circuit made a point of noting that Petrella’s claims for unjust enrichment and accounting were equitable in nature:
Recovery of an unjust enrichment is an equitable remedy. Seeking an accounting, where the accounting is not provided for by contract, is also an equitable remedy. Because laches is an equitable defense, we agree with the district court that laches also bars Petrella’s unjust enrichment and accounting claims.
The Ninth Circuit cited a treatise for the proposition that “since an accounting of profits is an equitable remedy, the plaintiff may be refused the remedy upon equitable grounds.” Thus, the Court of Appeals indicated that the availability of an equitable defense such as laches turned on the nature of the remedy being sought, and since unjust enrichment and accounting were equitable remedies, laches could bar such claims.
But the Ninth Circuit was not nearly as cautious when it came to Petrella’s copyright infringement claim. Strangely, the appellate court never mentioned exactly which remedy Petrella sought for the infringement. While it was careful to point out that laches applied to the unjust enrichment and accounting claims because those were equitable in nature, the Ninth Circuit carelessly applied laches to the infringement claim without a single word on whether Petrella there sought legal or equitable relief. The circuit panel instead relied on Ninth Circuit precedent providing that “if any part of the alleged wrongful conduct occurred outside of the limitations period, courts presume that the plaintiff’s claims are barred by laches.”
The Ninth Circuit thus viewed the laches defense as equitable in nature and applicable to any claim for equitable relief—even for equitable claims within the three-year statute of limitations period. Additionally, the circuit court thought that laches was applicable to claims for legal remedies, though the rule it invoked had two parts: If all of the allegedly infringing conduct occurred within the three-year statute of limitations period, then laches presumptively did not apply (though it was still available). On the other hand, if some of the allegedly infringing conduct occurred before the three-year statute of limitations period, then laches presumptively did apply. And since Petrella waited almost two decades to sue MGM, the Ninth Circuit applied its presumption that laches barred her copyright infringement claim—even if Petrella was seeking only legal remedies for the infringement.
While this discussion of law vs. equity may sound archaic and overly formalistic, there is one area of constitutional law where the distinction plays a major role, namely, with the right to a jury trial. The Seventh Amendment to the U.S. Constitution provides:
In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved . . . .
Whether there is a constitutional right to a jury trial turns on whether the claim constitutes a “suit at common law.” The Supreme Court has interpreted this to mean that there is a Seventh Amendment right to a jury trial when the claim is one that would have been an action at law instituted in a court of law—as opposed to a suit in equity brought before a court of equity—back in 1791. For modern causes of action that did not exist in 1791, the Court looks at what would have been an analogous claim at the time and characterizes it accordingly. If the claim is legal in nature, then it qualifies as a “suit at common law” and there is a constitutional right to a jury trial. Equitable claims, by contrast, carry no constitutional right to a jury trial, and they are instead heard only by a judge.
In Feltner v. Columbia Pictures, the Supreme Court looked at whether the Seventh Amendment provides a constitutional right to a jury trial on the issue of statutory damages for copyright infringement. The Ninth Circuit below had characterized statutory damages as equitable in nature, thus providing no constitutional right to a jury trial. The Supreme Court disagreed, noting that “suits at common law” under the Seventh Amendment included both judge-made and statutory causes of action:
The Seventh Amendment thus applies not only to common-law causes of action, but also to actions brought to enforce statutory rights that are analogous to common-law causes of action ordinarily decided in English law courts in the late 18th century, as opposed to those customarily heard by courts of equity or admiralty.
The Supreme Court employed a two-pronged analysis to determine whether statutory damages were legal or equitable in nature:
To determine whether a statutory action is more analogous to cases tried in courts of law than to suits tried in courts of equity or admiralty, we examine both the nature of the statutory action and the remedy sought.
In the Supreme Court’s opinion, “close analogues” to claims for statutory damages existed before the Seventh Amendment was adopted in both common law and statutory causes of action for “monetary damages” that “were tried in courts of law, and thus before juries.” The “general rule” was that “monetary relief is legal,” the Court noted, “and an award of statutory damages may serve purposes traditionally associated with legal relief, such as compensation and punishment.” Since statutory damages were analogous to actions at law for actual damages in the late eighteenth century—actions that would have been tried before a jury in a court of law—the Supreme Court held that statutory damages were legal in nature. This in turn meant that there was a constitutional right to a jury trial on the issue of statutory damages under the Seventh Amendment.
The remedies for copyright infringement available under the Copyright Act are codified in Sections 502 – 505, all subject to the three-year statute of limitations found in Section 507(b). Claims for damages and profits fall under Section 504. The copyright owner can elect either “actual damages suffered by him or her” and “any profits of the infringer” under Section 504(b), or “an award of statutory damages” within the given range under Section 504(c). While damages and profits are lumped together in Section 504, it should be noted that the two remedies are quite different in nature. Damages are compensatory, meaning they compensate the plaintiff’s loss and make her whole. Profits, on the other hand, are restitutionary, meaning they disgorge the defendant’s gain under the principle of unjust enrichment. Claims for damages are legal in nature, while claims for profits are equitable.
I think much of the modern confusion about the law-equity divide comes from the fact that courts of law and courts of equity were merged over seventy-five years ago. As the Federal Rules of Civil Procedure now declare: “There is one form of action—the civil action.” Gone are the procedural differences between an action at law and a suit in equity. A plaintiff seeking both legal and equitable remedies can file a single civil action for both types of claims. But while the procedural differences between law and equity have been abrogated, the substantive differences remain. These substantive differences include whether there is a constitutional right to a jury trial on a given claim, and, as the Supreme Court reiterated in Petrella, whether an equitable defense such as laches is available to bar a claim for legal or equitable relief brought within the statute of limitations. The law-equity divide is very much alive in copyright law.
The Supreme Court came down 6-3 in favor of Petrella, with Justice Ginsburg writing for the majority and Justice Breyer in dissent. The Court held that the applicability of laches to claims brought within the statute of limitations turns on whether the remedy sought is legal or equitable in nature:
Section 507(b), it is undisputed, bars relief of any kind for conduct occurring prior to the three-year limitations period. To the extent that an infringement suit seeks relief solely for conduct occurring within the limitations period, however, courts are not at liberty to jettison Congress’ judgment on the timeliness of suit. Laches, we hold, cannot be invoked to preclude adjudication of a claim for damages brought within the three-year window. As to equitable relief, in extraordinary circumstances, laches may bar at the very threshold the particular relief requested by the plaintiff.
This paragraph needs a bit of unpacking. First, the Supreme Court pointed out that the statute of limitations bars all claims—whether for legal or equitable relief—for infringing conduct that occurred more than three years before the claim accrued. But what happened within the three-year limitations period was a bit more complicated. The Court said that because Congress had spoken on the issue of timeliness in enacting the statute of limitations, the judiciary could not “jettison Congress’ judgment.” This was implicitly based on the separation of powers—but that respect for the judgment of Congress only went so far. The Court said that laches could not trump the statute of limitations—but only when the remedy sought was legal in nature. When the plaintiff sought an equitable remedy, laches could be invoked to trump the statute of limitations—but only in “extraordinary circumstances.”
Justice Ginsburg, writing for the majority, offered a bit of history on the interplay between laches and the statute of limitations. It was not until 1957 that Congress enacted a statute of limitations for civil actions under the Copyright Act. Before then, the federal courts would turn to state statutes of limitations for timeliness determinations. Laches could be invoked to trump those state timeliness statutes because doing so was “merely filling a legislative hole,” “not invading congressional prerogatives.” But that’s not the case anymore, as Justice Ginsburg noted, since “Congress addressed the matter and filled the hole” when it added the statute of limitations to the Copyright Act.
Justice Ginsburg observed that the “principal application” of laches was “to claims of an equitable cast for which the Legislature ha[d] provided no fixed time limitation,” and historically statutes of limitations did not apply to “measures of equitable relief.” According to the Supreme Court, this tradition of only applying laches to equitable claims survives in modern times. But note the work that laches does today: The statute of limitations in Section 507(b) still bars all claims for equitable relief for infringing acts more than three years old, but within that three-year period, laches can be invoked to bar all equitable claims. Thus, even though Congress, in enacting the statute of limitations, had also explicitly “filled the hole” with respect to the timeliness of equitable claims, the Supreme Court sees no problem with courts invoking laches to bar claims that are equitable in nature.
The Supreme Court’s reasoning was fairly nuanced—yet, to a degree, it was also nonsensical. The Court held that laches cannot be invoked to bar claims for legal relief because Congress had enacted a statute of limitations for all legal claims. Applying laches to legal claims would invade “congressional prerogatives,” that is, implicate separation of powers concerns. But then the Court also held that laches can be invoked to bar claims for equitable relief, despite the fact that Congress had also enacted a statute of limitations for such equitable claims. And this application of laches, the Court must have thought, did not impermissibly invade “congressional prerogatives.” The judiciary seized that power before the merger of law and equity, and apparently it’s not letting go of it now.
Applying its rule to the facts of Petrella, the Supreme Court held that “the courts below erred in treating laches as a complete bar to Petrella’s copyright infringement suit” because the “action was commenced within the bounds of § 507(b), the Act’s time-to-sue prescription, and d[id] not present extraordinary circumstances” that would merit invoking laches to bar the equitable claims. The Court went on to say that even though Petrella’s delay was not extraordinary, such that it should knock out her equitable claims at the outset, it nevertheless could be relevant at the remedial stage—but only for the equitable claims. Thus, even though Petrella’s delay for almost two decades could not bar her claims for equitable remedies as a threshold matter, those remedies, if awarded, could be negatively adjusted on account of her delay.
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