Contract Defenses Argument Can’t Bypass Expired Statutes of Limitation

Drug manufacturer Amylin Pharmaceuticals hired Consumer Health to develop materials to help Amylin more successfully market its diabetes drug, Byetta.  Although Consumer Health began its work in December 2005, the parties signed a contract in March 2006.  The contract assigned to Amylin the copyright in the materials Consumer Health created.  Amylin stopped paying Consumer Health for work after September 30, 2006, but continued to use the materials Consumer Health created. 

Consumer Health sued Amylin for copyright infringement in July 2013.  The district court ruled that Consumer Health filed its lawsuit too late under both the four-year California statute of limitations applying to contract rescission and the three-year copyright statute of limitations and dismissed the suit.  The Seventh Circuit Court of Appeals affirmed the district court’s ruling that Consumer Health’s suit was filed more than four years too late.

California’s Statute of Limitations for Rescission

The Seventh Circuit addressed only the timeliness, and not the merits, of Consumer Health’s rescission argument.  Consumer Health alleged that it was induced by fraud or duress into signing the contract with Amylin and therefore could rescind the contract. 

The contract provided that California law applied to disputes arising under the contract.  The California statute of limitation for claims of contract rescission based on allegations of fraudulent inducement or economic duress is four years.  Consumer Health did not dispute the district court’s holding that Consumer’s Health rescission claim accrued when the contract was signed in March 2006 or October 2006 at the latest, after Amylin stopped paying. 

Consumer Health argued that the statute of limitations does not apply to defenses, that it’s fraud and economic duress allegations were defensive claims, precluding application of the statute of limitations.

This argument both misunderstands the legal rule and mischaracterizes Consumer Health’s own litigating position. The Supreme Court of California describes the legal rule this way:  One who is sued on a contract may urge defenses that render the contract unenforceable, even if the same matters, alleged as grounds for restitution after rescission, would be untimely. More generally, whether affirmative defenses are exempt from statutes of limitations largely hinges on a realistic assessment of the parties’ litigation posture.

To state the obvious here, Amylin didn’t sue Consumer Health to enforce the contract. Consumer Health sued Amylin asking for rescission as a necessary predicate to a claim of copyright ownership and recovery of damages for infringement. In short, Consumer Health is asserting fraud and economic duress offensively, not defensively, and as such cannot avoid the statute of limitations. The suit is untimely under California’s four-year statute of limitations for rescission claims.

(Opinion pdf pages 7 – 8).

The Copyright Act Statute of Limitations

Consumer Health argued that the separate accrual copyright statute of limitations rule should apply to its infringement claim.  Under the separate accrual rule, each infringing act gives rise to a discrete claim of infringement that accrues when that particular infringing act occurs.  An infringement claim can be based on any infringing act that occurs within the three year look back period from the complaint filing date.  See my post Raging Bull Copyright Owner KO’s Film Studios for more discussion of the separate accrual rule.

The Seventh Circuit ruled that the separate accrual rule does not apply in this case, because copyright ownership is the central dispute in this case.  Consumer Health was trying to rescind the contract, so that it could reclaim its copyright and pursue its infringement claim against Amylin. 

In the ordinary infringement case, ownership is not in dispute. Instead, the focus is on the infringing acts—the nature and scope of the unauthorized work—and any defenses to liability (i.e., ‘fair use’).  But disputes about copyright ownership are different. Unlike an ordinary infringement case in which each infringing act is a discrete wrong triggering a new limitations period, ownership claims accrue only once, when the claimant receives notice that his ownership has been expressly repudiated or contested.

(Opinion pdf page 9).

The Seventh Circuit rejected Consumer Health’s assertion that the U.S. Supreme Court’s decision in Petrella (the Raging Bull case) unsettled the distinction between copyright ownership and other copyright infringement claims.  The Supreme Court did not address disputed ownership, which was not even an issue in Petrella.

This case is Consumer Health Information Corporation v. Amylin Pharmaceuticals, Inc., No. 14-3231, Seventh Circuit Court of Appeals.

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