Letter from AmeriKat II: Is there some Omega v Costco-induced disquiet in the lower courts?

The Decision

Turning first to the statutory language, the Court focused on the meaning of the words "made" and "under". The word "made" was not a term of art in the Copyright Act and the word "under" was held in Kucana v Holder (2010) to be a "chameleon" form (picture, left) which the courts must draw its meaning from its context. Wiley, of course, interpreted "lawfully made under this title" to mean "lawfully made in the United States". Wiley submitted that this would be the logical consequence of the presumption against the extraterritorial application of statutes - a presumption that is explicitly applied to the copyright laws. To be made "lawfully under this title" means only, Wiley submitted, that the copyright works have to be physically made in the US.

The Court of Appeals stated that this was overly simplistic, especially because Title 17 takes into account activity occurring abroad. For example, section 104(b)(2) provides that the works are subject to provisions "under this title" if the works is published in the US or abroad (subject to the foreign country being a treaty party . It is possible, the Court of Appeals stated, to interpret section 109(a)'s "lawfully made under this title" to mean 'any work that is subject to the protection under this title." Indeed, had Congress intended that the first sale doctrine apply to only works made in the US, it could have easily written into the statute to say precisely that -but tellingly it did not.

That being said, the above argument in favor of the reverse interpretation of "lawfully made" does not automatically prevent Wiley's enjoyment of its argument as to its meaning; all it does is point to the fact that the relevant text is simply unclear. However, the Court of Appeals, in a quick sprint to finishing in line with Supreme Court dicta, held that section 602(a) would have no force in the vast majority of cases if the first sale doctrine was interpreted to apply to works manufactured abroad that was made subject to protection under Title 17.

"Accordingly, while perhaps a close call, we think that, in light of its necessary interplay with section 602(a)(1), section 109(a) is best interpreted as applying only to works manufactured domestically. . . In adopting this view, we are comforted by the fact that our interpretation of section 109(a) is one that the Justices appear to have had in mind when deciding Quality King. There the Court reasoned, admittedly in dicta, that section 602(a)(1) had a broader scope than section 109(a) because, at least in part, section 602(a)(1) "applies to a category of copies that are neither piratical nor 'lawfully made under this title'. That category encompasses copies that were 'lawfully made' not under the United States Copyright Act, but instead, under the law of some other country."

The Court of Appeals for the Second Circuit therefore concluded that the District Court correctly decided hat Kirtsaeng could not avail himself of the first sale doctrine under section 109(a) because the books in question were manufactured outside the U.S.

However, all were not happy with this decision. District Judge J Garvan Murtha, who was sitting with the Court of Appeals, issued an 8-page dissenting opinion that boiled down to the fact that courts have split over the meaning of "lawfully made under this title" with some holding it means legally manufactured in the US and others holding that it means lawfully made as a function of US copyright law (i.e. under Title 17). The latter interpretation is, Judge Murtha argued, supported by the Copyright Act as a whole because Congress used the phrase "under this title" in multiple sections of the Act to describe the scope of the rights crated by the Act. Again, if Congress intended to limit section 109(a)'s scope to items "manufactured" in the US, it could have easily done so. Further, Judge Murtha stated:

"Economic justifications also support applicability of the first sale doctrine to foreign made copies. Granting a copyright holder unlimited power to control all commercial activities involving copies of her work would create high transaction costs and lead to uncertainty in the secondary market. An owner first would have to determine the origin of the copy --either domestic or foreign -- before she could sell it. If it were foreign made and the first sale doctrine does not apply to such copies, she would need to receive permission from the copyright holder. Such a result would provide greater protection to copies manufactured abroad than those manufactured domestically. . . .I do not believe Congress intended to provide an incentive for US copyright holders to manufacture copies of their work abroad."

It seems apparent to the AmeriKat, that affirming and dissenting opinions alike, the Court of Appeals is signalling their unease with the status of the statutory text in section 109(a) and may be, like the Supreme Court did in their 4-4 split, flagging to Congress that this provision desperately needs legislative clarification. Or, will we be lucky enough to have an appeal to the Supreme Court again to finally rule on this issue? The AmeriKat hopes so, because given the historical origins of section 109(a) and its statutory interpretation against the backdrop of other provisions under Title 17 these factors do not sit squarely with a reading that "lawfully made under this title" means "lawfully made in the U.S.". Justice Scalia, admittedly not the AmeriKat's favorite Justice, even questioned during oral arguments in Omega v Costco why Congress didn't say that if that is what it intended.

In the final paragraph of the Court of Appeals decision on the first doctrine issue the Court in fact invited Congress to correct their judgment

"If we have misunderstood Congressional purpose in enacting the first sale doctrine, or if our decision leads to policy consequences that were not foreseen by Congress or which Congress now finds unpalatable, Congress is of course able to correct our judgment."

Here Congress, Congress, Congress.....Congressional activism is equally likely and unlikely given the US economic climate, but perhaps one way to stimulate the economy is to allow retailers like Costco to start drumming up business in the grey goods market without the fear of legal action? Could such a change to the US grey goods market only be a matter of time? (picture, left - an Omega watch subject to the Costco dispute)

The AmeriKat would like to thank C E Petit for bringing this decision to the Kat's attention.

Letter from AmeriKat I: Is there some Omega v Costco-induced disquiet in the lower courts?

div>The AmeriKat walked down Bedford Row early last week, wrapping her coat tightly around her as the chilling wind whipped up auburn leaves around her paws. (picture, left) Later in the week, walking past Wildy & Sons, she was faced with having to discard said coat as the sun beamed down on the glistening fountain in Lincoln's Inn. Perhaps, she thought, there are some last few days of summer to be had? Wishful thinking, she concluded. The signs of the impending seasonal change have truly begun to weave its signature signs into the patchwork quilt that has been the London summer. During last year's weeks of seasonal transition, the AmeriKat was writing about the impending first sale doctrine US Supreme Court ruling in the Omega v Costco case. Now a year later she is again writing about the decision, but this time in relation to its after-effects being felt in the lower courts.

Is all still not well after Omega v Costco? Of course not....

Last Monday the Court of Appeals for the Second Circuit issued their decision in John Wiley & Sons, Inc v Supap Kirtsaeng which examined the status of the first sale doctrine following Omega v Costco. The Appeals Court upheld the interpretation under Quality King and last year's decision in Costco v Omega which held that copyright goods manufactured abroad were not goods "lawfully made under" Title 17 (US copyright law statute) and therefore were not subject to the first sale doctrine. That it is to say, copyright proprietors could control if and the manner in which their goods are imported and sold in the US as long as those goods were manufactured abroad. However, the Supreme Court's "decision", if one can even call it that, was a 4-4 per curiam split after Justice Kagan recused herself was considered a big setback for US retailers and inappropriately encouraged the foreign manufacture of goods.

The Parties

John Wiley & Sons is a publisher of academic, scientific and educational journals and books, including textbooks for sale in domestic and international markets. Wiley's wholly-owned subsidiary manufactures books for sale in foreign countries. The books are largely similar or identical, but can differ in design and content. The foreign editions are marked with a disclaimer stating that they are to be sold only in a particular country or geographic region. Supap Kirtsaeng moved to the US from Thailand in 1997 to study a degree in mathematics at Cornell University and later moved to California to pursue a doctoral degree.

To help subsidize his degree, Kirtsaeng's friends and family shipped him foreign edition textbooks printed by Wiley's subsidiary. He in turn sold them on eBay.com (where else?) and after reimbursing his friends/family for the costs kept the profit. In September 2008, Wiley filed copyright infringement, trade mark infringement and unfair competition actions against Kirtsaeng, but later dropped all but the copyright infringement claims. Kirtsaeng submitted proposed jury instructions charging that the first sale doctrine was a defense to copyright infringement. The District Court prohibited him from raising this defence holding that

"[t]here is no indication that the imported books at issue here were manufactured pursuant to the US Copyright Act. . . [and,][t]o the contrary, the textbooks introduced as evidence purport, on their face, to have been published outside of the United States."

The jury ultimately found Kirtsaeng liable for willful copyright infringement of all eight works subject to the proceedings and imposed damages of $75,000 for each of the works.

The Question

The question before the Appeals Court was whether the District Court correctly determined that the phrase "lawfully made under this title" does not include copyrighted goods manufacutered abroad.

The Law

The Copyright Act of 1976 enacted 17 USC section 602(a)(1) which provides that

"Importation into the United States, without the authority of the owner of copyright under this title, of copies ... of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies or phonorecords under section 106, actionable under section 501"

However, section 109(a) - the codification of the first sale doctrine - provides that

"Notwithstanding the provisions of section 106(3) [of the Copyright Act], the owner of a particular copy...lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy."

The Court, in its footnotes, examined the origin of the first sale doctrine. The first sale doctrine was first endorsed in the Supreme Court case of Bobbs-Merrill Co v Straus (1908) where the Court held that

"The purchase of a book, once sold by authority of the owner of the copyright, may sell it again, although he could not publish a new edition of it. . . . In our view the copyright statutes, while protecting the owner of the copyright in his right to multiply and sell his production, do not create the right to impose, by notice, such as is disclosed in this case, a limitation at which the book shall be sold at retail by future purchasers, with whom there is no privity of contract."

Congress then codified the Bobbs-Merrill holding in the 1909 Copyright Act which became known as the first-sale doctrine. The current version of the doctrine codified in section 109(a) differs, the Court said, in two ways. First, under current copyright law the exclusive right to "vend" granted to copyright holders has been replaced by the exclusive right to "distribute" - but in Quality King it was noted that nothing turns on this alteration. The second change, is that the first sale doctrine no longer applies to "any copy of a copyrighted work" but only to any copy "lawfully made under this title." And this is where the trouble begins....(picture, left - the AmeriKat with a purchased book that has been "lawfully made under this title", or has it....?)

The Court recognized that there is tension between s.109(a) and s.602(a)(1) in that the latter seeks to give copyright holders broad control over the circumstances in which their copyright works may be imported into the US, and the former which limits the extent to which a copyright may control distribution following an initial sale.

The Supreme Court had their first occasion to consider the interplay of these two provisions in the Quality King Distributors, Inc v L'Anza Research International, Inc. (1998). In that case, L'Anza manufactured and sold shampoos, conditioners and other hair care products. (picture, right - the AmeriKat after her weekday morning shampoo) L'Anza sold its products domestically and internationally, but its prices to foreign distributors were 35% to 40% lower than the prices charged to its domestic distributors. L'anza sued Quality King Distributors after Quality King purchased L'anza's products from one of L'anza's foreign distributors and then reimported the products into the US for re-sale. The Supreme Court heard the case to decide the question of whether the first sale doctrine endorsed in section 109(a) is applicable to imported copies.

In an unanimous opinion, the Supreme Court held that section 109(a) limits the scope of section 602(a). However, the Quality King case was concerned with goods manufactured in the US, not goods manufactured abroad. Justice Ginsburg also noted that this distinction

"This case involves a 'round trip' journey, travel of copies in question from the United States to places abroad, then back again. I join the Court's opinion recognizing that we do not today resolve cases in which the allegedly infringing imports were manufactured abroad."

Although, as stated above, the Supreme court did not address the question whether section 109(a) can apply to items manufactured abroad, the decision did contain instructive dicta. For example, the Supreme Court "took pains" to explain the ways in which the two provisions overlap and suggested that copyrighted material manufactured abroad cannot be subject to the first sale doctrine contained in section 109(a) as shown by their example below:

"If the author of the work gave the exclusive U.S. distribution rights–enforceable under the Act–to the publisher of the U.S. edition and the exclusive British distribution rights to the publisher of the British edition, however, presumably only those made by the publisher of the U.S. edition would be “lawfully made under this title” within the meaning of §109(a). The first sale doctrine would not provide the publisher of the British edition who decided to sell in the American market with a defense to an action under §602(a) (or, for that matter, to an action under §106(3), if there was a distribution of the copies)."

In Omega v Costco the Supreme Court was poised to turn this dicta into a holding, but the case law was not advanced after the Supreme Court was split equally. Without any further guidance from the Supreme Court the Court of Appeals had to consider the extent to which section 109(a) applied to items manufacture red abroad.

Click here for Part II 's discussion on the Court of Appeals decision.

What Counsel Would You Have Given: UMG Recordings v. Augusto?

When asked in polite company what this Kat does for a living, he tries his best to explain what IP is all about. Not infrequently, there is a retort at some point by the interlocutor about the exotic nature of IP practice. Contrast that with a discussion about contracts and contract law. Generally speaking, everyone has a rough idea about what a contract is all about--the parties agree and there is a written contract that sets this out, such that the parties more or less have a reasonable expectation what they can expect from each other. IP is esoteric, even inpenetrable, while contracts are part and parcel of our daily lives.

I have found that, in reality, the situation may sometimes be quite the opposite. People have an instinctive notion of what is protected by copyright, namely, you cannot copy the work of someone else with that person's permission. If you do so, or try to make some changes without altering the basic character of the underlying work, there is little uncertainty about what you are doing. You are simply prepared to take the risk of copyright infringement. On the contrary, contracts are often a lot more uncertain about what they allow or forbid. In part this is due to the indeterminacy of language, in part it is due to the absence of a clear legal position on multiple provisions of the contract. Both uncertainty and risk must be taken into account. The upshot is that, from the point of view of risk, persons may sometimes have a better sense of when they are taking the risk of copyright infringement than breach of contract.

I reflected on this while reading a virtually fresh-off-the-press copy of a judgment rendered by the (IP)-influential United States Circuit Court of Appeals for the Ninth District in the case of UMG Recordings, Inc. v Troy Augusto, No. 08-55998 (January 4, 2011) here. In brief, the Court describes the case as follows:

"UMG Recordings appeals the district court’s grant of summary judgment in favor of defendant Troy Augusto on UMG’s claim of copyright infringement in violation of § 501 of the Copyright Act, which entitles copyright owners to institute an action for infringement of the exclusive right to distribute copies of the copyrighted work. See 17 U.S.C.§§ 501(a), (b), 106(3) (2006). The copies in issue comprise eight specially-produced compact discs, each embodying a copyrighted sound recording. UMG, the copyright owner, used the discs solely for marketing purposes, sending them unsolicited to individuals such as music critics and radio disc jockeys. Although Augusto was not one of those individuals, he managed to obtained the discs from various sources. He later sold them at auction [via eBay.com--NJW], an act which UMG contends infringed its exclusive right to distribute the discs."

Augusto argued that the initial distribution of the promotional copies constituted a transfer of ownership in the discs; as a result, the first sales doctrine applies. This doctrine provides that a person who acquires ownership of a copy of a work is permitted to dispose of that copy as he sees fit without requiring the permission of the copyright owner. UMG (being Universal Music Group, described as being among the world's largest music companies, here ) countered with the argument that the distribution of promotional copies was a mere grant of of licence and, as such, the first sale doctrine did not apply in favour of Augusto. The Court of Appeals agreed with the ruling of the district court and affirmed the decision that a transfer of ownership of the discs had taken place.

What I want to focus on is the promotional statement that accompanied the discs in, more or less, the following language:

"This CD is the property of the record company and is licensed to the intended recipient for personal use only. Acceptance of this CD shall constitute an agreement to comply with the terms of the license. Resale or transfer of possession is not allowed and may be punishable under federal and state laws."

Some of the CDs bore a more succinct statement, such as “Promotional Use Only—Not for Sale.”

Put yourself in the position of counsel for a recording company and that you are presented either form of the promotional statement. You are asked: "Will one or both of these forms of promotional statement provide us with a reasonable basis to claim that a licence, and not a sale of the disc, has taken place?" Assume that you are not given a $50,000 budget to research the question and that you are requested to give your advice by the end of the day. Hand over heart, how many of you would advise that the more reasonable construction is that a licence has been created?

You recall the cases on shrink-wrap licences and the various decisions that have
held that a transaction to use mass-distributed software has been construed as a licence (even, as I recall, when language referring to "sale" may sometimes appear). You even reach out to offer a bit of policy by analogy: just as the courts are loathe to apply the copyright law in such a way as to competely overturn the manner in which mass-market software is commercialized, so too will they avoid overturning 'business as usual' in the musical disc business, battered as it is by the challenge of the digital world. Yes, you might consider some or all of these points--and you would, in the eyes of the Ninth Circuit, be wrong.

Consider the court's reasoning, as it noted as follows:

"Our conclusion that the recipients acquired ownership of the CDs is based largely on the nature of UMG’s distribution. First, the promotional CDs are dispatched to the recipients without any prior arrangement as to those particular copies. The CDs are not numbered, and no attempt is made to keep track of where particular copies are or what use is made of them. As explained in greater detail below, although UMG places written restrictions in the labels of the CDs, it has not established that the restrictions on the CDs create a license agreement."

Further on, the Court adds additional observations:

"There are additional reasons for concluding that UMG’s distribution of the CDs did not involve a consensual licensing operation. Some of the statements on the CDs and UMG’s purported method of securing agreement to licenses militate against a conclusion that any licenses were created. The sparest promotional statement, “Promotional Use Only—Not for Sale,” does not even purport to create a license. But even the more detailed statement is flawed in the manner in which it purports to secure agreement from the recipient.... It is one thing to say, as the statement does, that “acceptance” of the CD constitutes an agreement to a license and its restrictions,but it is quite another to maintain that “acceptance” may be assumed when the recipient makes no response at all. This record reflects no responses."

If that is not clear enough for the reader, consider that the district court granted the summary judgment motion on different grounds. As the Court of Appeal itself states:

"The district court based its decision in favor of Augusto in part on somewhat different grounds from those we have adopted. The district court first held that the licensing language in the detailed promotional statement did not create a license because it lacked any provision for UMG to regain possession of the CD", 

relying on a prior decision of the Ninth Circuit (United States v Wise, 550 F.2d. 1180 (9th Cir 1977). No problem here for the Court. Wise and its progeny apply to software users who pay for to acquire products; that is "a very different position from that held by the recipients of UMG's promotional CD's." Indeed, one wonders how the lower court did not see this "obvious" distinction (the Court also found that the recipients could freely distribute the discs under an indiosyncratic piece of U.S. legislation, the Unordered Merchandise Statute, but let's leave that discussion for legal salons in San Francisco and New York.)


When all of this is said and done, this Kat renews his question: how many of you lawyers out there, faced with a similar siutation and requested to give advice in real time, would have counselled your client in accordance with the decision of either of these courts? Copyright law, except perhaps at the margin of giving a view on issues of infringement when non-literal copying is involved, may be a more certain excercise than the challenge of applying contractual provisions of sale and licensing to the disposition of IP rights.

Costco shoot-out ends in 4-4 draw

Here's just a quick note on Monday's US Supreme Court ruling in Costco Wholesale Corp v Omega SA, which ended in a 4-4 draw (Justice Kagan sat this one out).  The IPKat is hugely impressed with the commendable brevity of the Court's ruling (here) and wishes that all the cases he had to read were so short: the entire text of the per curiam judgment is shorter than "Office for Harmonisation in the Internal Market (Trade Marks and Designs) (OHIM)" ...

If you want to know what this dispute was all about, the AmeriKat summarized it here and reviewed the arguments on appeal here.

In essence, the story goes like this: retailers Costco bought a consignment of Omega watches outside the US which they imported and sold in California.  Each watch had an Omega globe design engraved on its back, this design being registered as a copyright work in the US. Omega sued Costco, saying that the sales of its watches constituted an unauthorised infringement of its importation and distribution rights.  Costco said it was entitled to import and sell the watches without Omega's permission: since the watches were genuine and had been put on the market by Omega, subsequent trade in them was permitted under the first sale doctrine (the US term for that Europeans call exhaustion of rights).

The trial judge held in favour of Costco, but Omega appealed successfully to the Ninth Circuit, which held that the first sale rule in the US copyright statute did not apply to foreign sales as a matter of law, since that statute lacked extraterritorial application. The Supreme Court agreed to hear Costco's appeal.  The rest is history.

It appears to the IPKat that, while there are respectable bodies of opinion both in favour of the Ninth Circuit's ruling and against it, the IP community on the other side of the Atlantic has not warmed to this non-result or its consequences. James L Bikoff, David K Heasley and Michael T Delaney (Silverberg Goldman & Bikoff LLP, Washington DC), writing for World Trademark Review, observe:

" ... [The ruling] creates uncertainties and disparities in copyright protection. Under the Ninth Circuit’s reasoning, which is left standing, “lawfully made under this title” ... limits the first sale exhaustion doctrine to goods sold in the United States. A copyright owner who uses a US company to manufacture its goods cannot, after the first sale, prohibit the re-importation of those goods into the United States. But a copyright owner who uses a foreign manufacturer can prohibit US distribution indefinitely. The disparity not only encourages the foreign manufacture of goods bearing US copyrights, it may also impair the ability for US-manufactured goods to compete in foreign markets that do not sustain US prices, because discounted goods sold abroad can be freely imported back into the United States and drive down the value of the product domestically. ...

With the United States importing more than $1 trillion of goods annually, Costco could affect global trade in any good bearing a copyrighted work. The affirmance of the Ninth Circuit’s approach could also affect the way foreign manufacturers prevent the importation of their goods in practice. Until the Supreme Court rules definitively on the subject, and resolves the uncertainties and disparities now pervading this area of the law, purveyors of foreign-made goods should adopt the mantra: caveat vendor".

Writing from Canada, Excess Copyright blogger and internationally respected commentator Howard Knopf suspects that legislative intervention may be on the way:

"This is a big setback for American retailers and consumers. It will be interesting to see if there is a push for Congress to weigh in here. However, given the maximalist mood in the USA, one cannot predict what Congress will do here. The lobbying would be intense on both sides. The USA might want to look at what we have in Canada - which is a separate regime for books that allows for exclusivity in order to protect Canadian publishers for cultural reasons".

Merpel adds, sadly, what it is a shame that international exhaustion of rights -- the most trade-related aspect of IP rights you can imagine -- is the bit that is explicitly excluded from the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), Article 6 of which pathetically whimpers

"Exhaustion

For the purposes of dispute settlement under this Agreement, ... nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights".

Letter from AmeriKat: American lawyers love expensive watches, ABA amicus brief confirms

Last week signaled a week of new beginnings. The nation's children, decked out in their crisp white shirts and shiny schools shoes, returned to school. The workforce dragged their now-tanned heels back to their paper-covered desks and the AmeriKat happily started her first week at her new law firm. The first week back, be it at a new job or a new school year, always includes a flurry of new information, names and procedures to assimilate and very soon 5 days can feel like 50. (picture, left - the AmeriKat not quite getting around to polishing an apple for her new partners) But despite the newness of the environment and the people swirling about her, the AmeriKat found comfort in some old friends' faces - that of her IP and media text and statute books taking up residence on her new desk. The AmeriKat's firm and colleagues may have changed and she may not know what form goes with what client, but thankfully, IP has (mostly) stayed the same.

American Bar Association - a friend of copyright owners in Costco v Omega case

Another old friend that has come to comfort is the American Bar Association (ABA).

Last Tuesday the ABA filed an amicus curiae brief with the US Supreme Court in support of Omega in a case to be heard before the Supreme Court concerning the "first sale" doctrine in relation to copyright goods manufactured and distributed abroad (see original AmeriKat report here). Back in April, the Supreme Court granted Costco a writ of certiorari in the case of Costco Wholesale Corp v Omega SA and will now have the task of deciding whether when a copy is made and distributed abroad it is done so lawfully under section 109(a) and is therefore exempt from the copyright owner's exclusive right to control the importation of copies of its work into the US under section 602.

The case concerns an original 2004 action brought by Omega (part of The Swatch Group Ltd.) against Costco. Costco had sold watches, including the Omega Seamaster, that they had obtained from a New York-based third-party. Omega owns a US Copyright for an engraved emblem of a globe on the back of the Seamaster watch. Costco sold these watches for $1,299 - $700 less than Omega's suggested retail price. Omega argued that Costco had infringed US copyright law and sought to impose limits on the price Costco could sell the watches. Costco won in the first instance, but lost on appeal. The Court of Appeals for the Ninth Circuit held that that copyright owners did have the right to control the manner in which their goods are imported and sold in the US irrespective of the first-sales doctrine (a.k.a. the exhaustion rule) enshrined in section 109(a) because this section did not apply to goods manufactured abroad. The Court of Appeals decision relied substantially on section 602(a) of the Copyright Code which deals with infringing importation of copies.

The crux of the issue before the Supreme Court is the wording of the section 109(a) exception and its relation to section 602. Section 602(a)(1) of the Copyright Act sets out the general prohibitions against importation of copyright works into the US without the authority of the copyright owners that have been acquired outside the US. Section 109(a), which embodies the "first-sale doctrine", provides an exception to this prohibition whereby an owner of a particular copy of a copyright work "lawfully made under this title" is entitled without permission of the copyright owner to sell the copy. To benefit from the exception goods have to be "lawfully made under this title" which the Appeals Court held meant to be "lawfully made in the US" and since the watches were made overseas, Costco could not benefit from the exception. But some argue that the meaning of this phrase remain unresolved - cue Costco.

But unlike the slew of other amici who are mostly supporting Costco, ABA is supporting the copyright owner in this case - Omega. The AmeriKat is intrigued as to their reasoning behind the ABA's allegiance in this case and is curious to see if it was a strategical/political or a legal reason to explain their support.

This ABA amicus comes primarily by way of their Section of Intellectual Property Law (IPL Section) which they gleefully taut as the "world's largest organization of intellectual property professionals, with approximately 25,000 members" and include those who represent "copyright owners" and "users of works of authorship". The IPL Section's Copyright Task Force monitor judicial developments and develop policies of special importance, including whether to file amicus briefs. Other sections of the ABA, including the International Law and Litigation Sections supported the adoption of what is now known as Resolution 109 which urges the Supreme Court to exclude the first-sale doctrine to the importation of goods embodying a copyright work that were not manufactured in the U.S.

The ABA's argument is two-fold - that the Ninth Circuit Court of Appeals judgment was consistent with statutory interpretation and that the judgment is consistent with the application of the Quality King case. (picture, left - the only "Quality King" the AmeriKat knows of) The ABA argue that "lawfully made under this title" means Title 17 of the US Code in which the Copyright Act is codified and is thus more naturally referred to as being "made under" US copyright law. If "lawfully made under this title" meant "lawfully made anywhere in the world" and not just in the U.S., then section 602 which deals with a copyright owner's right to control importation of copies acquired outside the US would be essentially redundant. The ABA argues in support of this conclusion that the long-standing presumption that the "country's proscriptive and prescriptive competence ends at its own borders" as held in American Banana Co v United Fruit Co (1909) supports the view that "lawfully made under this title" is restricted to goods manufactured in the U.S. Indeed, they argue, copyright itself has been consistently interpreted as subject to the presumption of territoriality and restricted within US borders.

The second prong to the ABA's argument is that the Ninth Circuit's decision is consistent with the Quality King case (the case where Justice Stevens seemed to indicate that "lawfully made under this title" did mean "lawfully made in the US"). The Quality King case analyzed the status of Section 602 copies that were made in the US, left the country, then came back, i.e., "round trip". The Court in Quality King did not therefore need to construe the phrase "lawfully made under this title" because the copies had been made in the US. However, in illustrating their holding the Court distinguished between copies "lawfully made" under the US Copyright Act from those made under the law of some other country. For example where a copyright owner divided distribution rights between UK and US publishers, the copies made in the UK would not be copies "lawfully made under this title" for the purposes of Section 109(a).

The ABA argues that the Ninth Circuit was therefore correct in construing that British copies were "made" in another country and not "made under" Title 17 and, in similar circumstances, Costco could not benefit from the section 109 exception because the watches were not made in the US.

If the Supreme Court finds favor with this argument the consequences for the buyers and sellers of goods in the secondary market or "gray market", such as Costco, Amazon and eBay are huge. Gray market buyers argue that copyright owners usually sell their goods to foreign distributors at a discount price and all they are doing is then buying these goods from the distributors at a similar price. Why should they then be penalized as a result of a manufacturer's decision to sell their product at a discount price and further why should US copyright law allow copyright owners to have a second bite of the cherry?

The practical effect of such a Supreme Court decision may be to see US consumers paying higher prices for goods than that of their foreign counterparts and copyright owners being able to price-discriminate without any threat of recourse. In addition, US based manufacturing operations may be relocated to outside the "nation's borders" so that copyright owners can benefit from greater control for goods imported into the U.S. Whichever way you slice it, this case will have a lasting effect on the consumer retail industry, not only in the U.S. but overseas as well.

Given the consumer interest at stake, why did ABA side with Omega? The AmeriKat does not know and in fact finds it slightly surprising that the ABA put their head above the parapet so strongly in favor of copyright owners. It may be interesting to know the proportion of ABA members who represent copyright owners, to those who represent gray market buyers/consumers. If the ABA has these statistics, the IPKat would love to seem them.