Supreme Court Ruling: You May Not Be Able To Legally Sell A Product First Made Outside The US

from the this-is-bad dept

Earlier this year, we covered a rather important copyright case in the Supreme Court, between watchmaker Omega and retailing giant Costco. The crux of the issue was that Costco bought a bunch of Omega watches that were not meant for sale in the US, imported them, and started selling them in the US for less than Omega was selling other watches here. Your basic principles of “you bought it, you can resell it” seemed to apply, but Omega had a nasty copyright trick up it’s sleeve. It had put a little 0.5 cm “globe” design on the underside of the watches — where no one would see it, and then claimed copyright on the design. Thus, they claimed that Costco’s attempt to resell the watches was copyright infringement. Of course, US copyright law has a right of first sale (the same “you bought it, you can resell it” concept), but Omega’s lawyers craftily sought out a loophole in US copyright law.

The Copyright Act’s section that deals with first sale rights (section 109(a) for those playing along with the home game) notes that it only applies to copies “lawfully made under this title.” Omega’s lawyers argued that the design on the watches does not count because the watchers were made outside of the US, and thus not covered by US copyright law and thus the design was not lawfully made under US copyright law.

The Ninth Circuit appeals court — which certainly has a history of wacky rulings — agreed with Omega’s interpretation of the law and the case was appealed to the Supreme Court. The court deadlocked on the issue today, coming to a 4-4 tie (with Justice Kagan not taking part, since she had filed an amicus brief in the case as Solicitor General), meaning that the 9th Circuit ruling stands and copyrighted products first made outside the US may no longer have a right of first sale.

In other words, be careful if you buy a book that was first published outside the US. Technically, you may no longer have a legal right to sell it — or even to lend it to to others, which is why librarians were reasonably worried about this decision.

If there’s any sort of silver lining to all of this, the fact that the Justices deadlocked, rather than coming to a full decision means that it’s not a precedential ruling and a different case could allow them to decide differently later on. Though, if you were wondering, when Kagan filed the amicus brief as Solicitor General… she sided with Omega, and said the Supreme Court should not take the case, since the 9th Circuit’s ruling was just fine.

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Companies: costco, omega

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Comments on “Supreme Court Ruling: You May Not Be Able To Legally Sell A Product First Made Outside The US”

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90 Comments
dandover (profile) says:

Re: Damn

Listen up all you knuckleheads.

The problem here isn’t with the courts, it’s with the way this story is being reported in the media: all wrong.

At first, I too was like, “WTF? What the hell are these judges smoking?” So then I decided to actually *read* the 9th Circuit’s opinion so that I could understand the reasoning that went behind this seemingly loony ruling. Turns out, it actually makes sense and what is being reported in the media is a woefully inadequate summary (with a sprinkling or over-aggrandized sensationalism to top it off).

What the ruling *really* says is that “first sales” made outside the United States don’t qualify as “first sales” under US copyright law. In a nutshell, US copyright law can’t criminalize the making of pirated copies in other countries, because that would be applying US law extra-territorially (i.e. its outside our jurisdiction). Therefore we have another part of copyright law (section 602(a) for you legal nerds) that says that all imports of copyrighted works have to be authorized by the copyright holder. The court ruled that the “first sale” doctrine cannot trump 602(a) where the “first sale” of the copy occurred outside the US, because to allow that would render 602(a) meaningless (anyone could work around the import restrictions simply by selling the stuff once outside the US before importing it). Judges are not allowed to interpret the law in a way that will make a statute meaningless. The sale of imported copies within the United States must be authorized by the copyright holder before they can attain “first sale” status. This is something that the media is misrepresenting. These stories make it sound as if it is flat-out illegal to resell copyrighted stuff that was made overseas. But that’s simply not true. A “first sale” *does* occur when the first *authorized* sale is made inside the US. And after that, any resales are totally legit.

Why does this make sense? It makes sense because without it, the Chinese mafia could simply pirate anything they want, import it into the US and sell it here. Even if they got caught doing this, they could simply claim they are protected by the first sale doctrine and are therefore not infringing copyright. Wired, Techdirt, and just about every other media outlet reporting on this story need to do a better job of conveying the facts correctly.

The only truly wacky aspect of this case (IMHO) is that Omega is getting copyright protection for a watch — something that doesn’t seem to fit the definition of that which should be copyrightable. But, the court didn’t rule on that aspect of the case here, presumably because Costco chose not to argue it.

dandover (profile) says:

Re: Re: Re: Damn

How is limiting US law to US territory “American arrogance”? I would think applying US law extra-territorially would qualify as “American arrogance”.

The US cannot declare copies made outside the US as being either “legal” or “illegal”, because that would necessarily mean applying US law outside of the country. If we cannot deem foreign made copies “legal”, or “illegal”, then how can we possibly judge the legitimacy of the first sales of said copies?

Anonymous Coward says:

Re: Re: Damn

What the ruling *really* says is that “first sales” made outside the United States don’t qualify as “first sales” under US copyright law. In a nutshell, US copyright law can’t criminalize the making of pirated copies in other countries, because that would be applying US law extra-territorially (i.e. its outside our jurisdiction).

This case has nothing to do with “piracy” or illegal copies. There were no claims that the watches were in any way inauthentic. So your “piracy” straw-man doesn’t apply.

It makes sense because without it, the Chinese mafia could simply pirate anything they want, import it into the US and sell it here. Even if they got caught doing this, they could simply claim they are protected by the first sale doctrine and are therefore not infringing copyright.

Ummm, no. The first sale doctrine in no way grants protection to counterfeiters. I don’t know where you got that idea, but it’s totally wrong.

Wired, Techdirt, and just about every other media outlet reporting on this story need to do a better job of conveying the facts correctly.

The one making incorrect claims here seems to be you, my friend.

Anonymous Coward says:

Re: Re: Re: Damn

This case has nothing to do with “piracy” or illegal copies. There were no claims that the watches were in any way inauthentic. So your “piracy” straw-man doesn’t apply.

You need to work on your reading comprehension skills, my friend. Nobody is saying that the watches were counterfeit. In the 9th Circuit’s opinion, they explain that US law cannot deem copies made outside the country “legal” or “illegal” because US copyright law doesn’t apply outside the country. Therefore there is no way to distinguish between legitimate foreign first sales and illegitimate foreign first sales.

In other words, while no one disputed that the watches Costco was selling were authentic, the court could not accept Costco’s argument, because that argument would require the court to allow Costco to sell them even if they were infringing copies. It would set a precedent that would allow infringing copies to be sold in the US as long as the seller could show that there was a “first sale” outside the US.

The first sale doctrine in no way grants protection to counterfeiters.

Again, work on the reading comprehension, buddy. I, and the 9th circuit, are saying exactly that: the first sale doctrine can’t be used to provide protection to potentially infringing copies. This is why the copyright holder has to authorize the first sale in the US — in order to establish, under US law, that the copies are not infringing.

nasch (profile) says:

Re: Re: Re:2 Damn

In other words, while no one disputed that the watches Costco was selling were authentic, the court could not accept Costco’s argument, because that argument would require the court to allow Costco to sell them even if they were infringing copies.

How could they possibly be infringing copies? As far as I can tell, it’s only because this law says you can’t import something copyrighted without the copyright holder’s permission. Note that this is a special protection not afforded to any other category of product. Without the copyrighted logo, Costo would not need any permission from anyone to import these watches.

Likewise if the watches were made in the US and then resold, Omega would have absolutely no legal argument – because of the first sale doctrine. So it sounds to me like the article is pretty accurate. The first sale doctrine doesn’t apply to imported copyrighted goods.

dandover (profile) says:

Re: Re: Re:3 Damn

How could they possibly be infringing copies?

Because 17 USC 602(a) says that the importation of the copies infringed Omega’s copyright. It’s a plainly-worded statute. The only question is, and the one the court had to answer here, is can the first sale doctrine trump section 602(a). They said no, it can’t.

So it sounds to me like the article is pretty accurate. The first sale doctrine doesn’t apply to imported copyrighted goods.

The first sale doctrine may not apply to some imported goods. It depends on whether they were imported with or without the copyright holder’s authorization and whether there was an authorized first sale in the US. If J.K Rowling authorized the importation of a Harry Potter book into the U.S. and I buy that book at a bookstore in New York, then a valid first sale has occurred even if the book was printed in England. I can lend that book to my friend and I won’t be infringing J. K. Rowling’s copyright.

nasch (profile) says:

Re: Re: Re:4 Damn

The first sale doctrine may not apply to some imported goods. It depends on whether they were imported with or without the copyright holder’s authorization

But the whole point of the first sale doctrine is that you don’t need the copyright holder’s authorization. So this statute takes away that protection for imports.

dandover (profile) says:

Re: Re: Re:5 Damn

Yes, and that’s precisely why this case had to go to court. You have competing interests between the need for copyright holders to have a remedy for dealing with unauthorized copies that someone may attempt to import, and the right of purchasers to do what they wish with copies they buy.

The court really had no option but to rule the way they did, because otherwise the first sale doctrine provides a trivial way to work around 602(a) — making 602(a) practically meaningless. Since they are not allowed to rule in a way that makes a statute meaningless, they had to rule that first sale cannot trump 602(a).

Anonymous Coward says:

Re: Re: Re:2 Damn

You need to work on your reading comprehension skills, my friend. Nobody is saying that the watches were counterfeit. In the 9th Circuit’s opinion, they explain that US law cannot deem copies made outside the country “legal” or “illegal” because US copyright law doesn’t apply outside the country.

There have been plenty of cases were imported goods have been legally found to be infringing. I don’t don’t know where you get the idea otherwise, but it’s wrong.

It would set a precedent that would allow infringing copies to be sold in the US as long as the seller could show that there was a “first sale” outside the US.

It would do no such thing. As I pointed out, there have been plenty of cases to the contrary. Are you a troll just making stuff up or what?

Again, work on the reading comprehension, buddy.

My reading comprehension is fine, buddy. I just don’t buy your load of crap.

dandover (profile) says:

Re: Re: Re:3 Damn

There have been plenty of cases were imported goods have been legally found to be infringing.

That’s true, but they were found infringing because they violate section 602(a) (import without authorization) not because they violate section 106 (making of unauthorized copies).

Let me see if I can simplify this for you. If Bob goes to Switzerland and copies a book that is copyrighted in the US, he hasn’t violated US copyright law because US copyright law doesn’t apply to people who are in Switzerland (BTW, I’m picking Switzerland randomly, not because they have special laws there). As far as the US is concerned, Bob didn’t do anything illegal by copying the book while he was in Switzerland (although he probably did violate Swiss copyright law).

Now, if Bob wants to bring the copy he made back into the US, he needs to get the copyright owner’s permission first. If he doesn’t he will be violating US copyright law [section 602(a)]. In fact, the copyright owner’s permission is required for importation whether Bob made the copy himself or not. Even if he bought it at a bookstore in Zurich and its a totally legit copy, he still technically needs the copyright owner’s permission to import it (this may seem hard for some to believe but it’s true and the wording of the statute couldn’t be plainer).

All the court is saying here is that Bob may not use the first sale doctrine as a defense to say that his importation of the copy he made in Switzerland is not a violation of section 602(a). In fact, they say, you can *never* use the first sale doctrine as defense for a violation of section 602(a) — even if the copy was made with the copyright holder’s authorization. This is why Costco may not use the first sale doctrine in this instance. The copies are otherwise legit, but the importation still violates 602(a).

Again, the reason this is sensible is because there is no way to say, under US copyright law, that the copy of the book Bob made in Switzerland (or the watches Costco bought) is illegal. The copy itself isn’t illegal because Bob didn’t violate US copyright law when he made it. In other words the copy Bob made is as legal a copy as the copies sold in the Zurich bookstores as far as US copyright law is concerned.

If you are still skeptical, then you really need to just RTFO (like I did).

nasch (profile) says:

Re: Re: Re:4 Damn

Even if he bought it at a bookstore in Zurich and its a totally legit copy, he still technically needs the copyright owner’s permission to import it

That’s the f-ed up part. There is no legitimate reason for this requirement, it’s just giving extra power to copyright holders for no reason (well, campaign contributions and hookers and blow, presumably). If there was a copyright violation, it occured in Switzerland and should be dealt with under Swiss law. Bringing something from one country to another has nothing to do with copyright (or should).

dandover (profile) says:

Re: Re: Re:5 Damn

There is no legitimate reason for this requirement

Again, the reason is because without this requirement, there would be nothing preventing unauthorized copies from legally entering the country. If some guy in China makes a whole bunch of unauthorized copies of Harry Potter, then he could import them into the US and wouldn’t be infringing copyright. J.K. Rowling couldn’t sue him (in the US) for making the illegal copies, because when he made them he was in China and therefore did not violate US law. She could try to sue him in China, but that’s not really a viable option in general because it leaves US copyright holders at the mercy of Chinese copyright law. This law [section 602(a)] gives J.K. Rowling the ability to sue him in the US for copyright infringement (for importing the copies without authorization) even though the copies were made in China.

dandover (profile) says:

Re: Re: Re:5 Damn

That’s the f-ed up part.

I think we all recognize that there is something wrong with this case. Unfortunately, given the questions the court had to answer, they ruled in the most sensible way they could.

I would say the f-ed up part is that copyright law is being applied to these watches. Personally, if I had been arguing Costco’s case, I would not have tried to go the first sale route. Instead they should have argued that, by putting the copyrighted “design” on the backs of the watches, Omega had given an implied license to import the copyrighted design, because Omega attached it to an object whose primary purpose is in no way at all connected to any artistic value that the design might have. The real value of the “copy” of the copyrighted work is as a watch (which is something that normally doesn’t qualify for copyright protection) not as a work of art or anything like that. Personally, I think that is what is wrong with this case. Unfortunately, this is not the approach Costco took. Since they didn’t raise this issue, the court could not address it.

interval (profile) says:

Re: Correct me if I'm wrong...

Only if they include a hidden trademark, I guess. If I read this correctly, anything made outside the US that includes some aspect that is trademarked is covered by this ruling. So I’m still trying to understand why a manufacturer would either sell their products for less overseas or not simply mark-up their products over there… hmm.. I’m confused. Easily done I must admit…

:Lobo Santo (profile) says:

Re: Re: Correct me if I'm wrong...

DVDs sold in China go for $1.50 (US money) because that way they can sell for a better price than the pirates and still make a profit.

In the US, DVDs sell for like $30, because apparently people in the US are too stoopid to demand things like ‘reasonable markup.’

Therefore, logically, if you’re seling anything in the United States, you should be selling it for 20x more than you’re selling it in the rest of the world. (30 / 1.5 = 20)

; P

Anonymous Coward says:

Re: Re: Re: Correct me if I'm wrong...

No, DVDs in China are sold for that sort of price because it is in line with what people earn. It also reflects on the size of the market and the low production and shipping of goods within the country.

Most DVDs don’t sell in the US for $30, a brief look through best buy at their current sale price (not list) is in the $17-24 range for new releases.

The question is markup, and you have to consider: What are the costs to produce DVDs in the US? What is the cost to ship them? What is the cost for the person to stock them, to run your sale at the register, etc? The US is not a cheap place to do business, and as a result everything is in scale. China truck drivers might make $1 an hour, in the US UPS drivers are making 20 to 30 times that. So all costs are relative.

Big Macs are twice the price (in US dollars) in the UK than they are in the states. Is that a rip off too?

Paul (profile) says:

Re: Re: Re:2 Correct me if I'm wrong...

There is a certain cost to shipping products from China, but that doesn’t explain a cost difference of 1.50 vs 17 dollars. Plenty of other products can be made in China and sold here requiring all the expenses of shipping, stocking, running a register, and yet do not exhibit the same 1.50 to 17 dollar inflation of price.

No, the real reason DVDs and other media is so expensive in the West is the fact that the rights to such media end up in huge Corporate Media Cartels, who demand excessively high fees on such content, driving up the price. Only when their sales begin an undeniable fall towards zero in the face of competition (both legal and illegal) will they give up gouging customers in the West.

If they could get away with selling DVDs in China for 17 dollars a pop, they would regardless of the average salaries there (which BTW are not that different in parts of China than they are in the West).

An interesting video on this topic can be found here:

http://www.flixxy.com/200-countries-200-years-4-minutes.htm

Shane C (profile) says:

Catch-22

Doesn’t Omega’s argument nullify their standing to begin with? Omega is arguing that “first sale doctrine doesn’t apply since the watches weren’t manufactured under US Copyright Law.” If that is so, than other parts of US Copyright Law don’t apply either.

To put it another way, if part of the US Copyright Law doesn’t apply, then wouldn’t all parts of the US Copyright Law not apply? Thus, there’s nothing stopping someone from manufacturing an exact duplicate.

(layman’s view of law here)
After all, you can’t pick and choose what parts of a law you want to follow. Either it applies, or it doesn’t.

Anonymous Coward says:

Re: time to impeach

I hope I’m not in the wrong here with your position, but after spending The Weekend at Bernie Sanders place, I have to agree.

Go to the 8th Hour and 10th Minute of Bernie’s Speech (8:10:00) and Bernie talks about Lobbying. He cites Thom Hartmann, author of “Rebooting The American Dream”. On Page 104: “Given how lucrative lobbying is as an investment, it’s become a huge business. In Februrary 2010, the Center for Responsible Politics… Overall in 2009, it found that the number of registered lobbyists who actively lobby congress was 13,694 lobbyists. Total lobbying spent was $3,470,000,000 in 2009, an total increase of 214% since 1999.”

Bernie’s entire talk is amazing, and built on what has to be years of experience.

There’s a lot here, and I think TechDirt would like to watch the entire video.
http://www.c-spanvideo.org/program/SenateSession4656

If you don’t have time, check out a few hand-picked sniplets at http://www.bernie.org

The Mighty Buzzard (profile) says:

Re: Re: Re:

Congress is allowed to pass laws that overlook things they haven’t thought of and still have the law stand. And Congress could fix this issue quite easily. Simply put, pen a bill that states that no part of an object that is a functional device is eligible to protected under copyright within the US or its holdings.

Granted, some treaties may need to be adjusted but we’re fairly good at throwing our weight around on that sort of thing.

The Infamous Joe (profile) says:

Re: Re: Re:

Ignoring your random insult that served absolutely no point except to harm your status as a serious commenter, I have to ask what you thought would happen.

It only makes sense: when you have one side of a debate pushing for more and more extreme measures to be taken it’s natural for the opposing side to retaliate, calling for even more extreme, but opposite, measures. The ProIP crowd has only brought this on themselves, really.

The time when a middle-ground compromise can be found is quickly slipping away, and you’ll see more and more “all information should be free” members begin to amass. What we *need* is the ProIP people to start to head back to the middle. Some (most?) parts of IP law (and, recently, Trademark law) have started to loose touch with reality all in the name of the almighty dollar. (Forever-minus-a-day, I’m looking at you.)

You said earlier in this discussion that laws should not get fixed on the bench, but in Congress. Unfortunately, many people are quite aware these days that Congress is bought off by big business. The only way we have to get these bad laws put down is through the judicial branch. I am aware that is not the right way to handle it, but desperate times call for desperate measures and all that.

What I have decided is not that we should abolish all IP laws, as I’m sure they sill have a place in this new digital world, albeit a small one, but instead we should abolish lobbying. As long as it exists this country and her laws will be pimped out to the highest bidder, as has *clearly* happened with IP laws. Once bribery of a government official is outlawed, I feel that this country will naturally gravitate back to sanity. (Because, personally, I don’t want anyone in the government to be there to get rich– that is the wrong type of motivational factor for becoming a public servant.)

The Mighty Buzzard (profile) says:

Re: Re: Re: Re:

I’d apologize for the insult but when someone takes a hyperbolic position I simply cannot take them seriously. Any ideal taken far enough to the extreme becomes absurd and anyone still believing in it at that point is a fool at best. So instead I jest since there is no serious discussion to be had.

I’ll grant you pretty much all of your points on Congress but I see that as more of a call to throw every last one of them out on their ass rather than change the distribution of power in our government towards the unelected branch. Down that path lies tyranny and all sorts of other badness.

On lobbyists, I doubt we can do away with them completely but I’m willing to bet we could require that all meetings with public officials by them be held in government offices, be on the record, and be made public as soon as technically possible. Possible exceptions for defense contractors since publicizing the weapons we’re working on would lessen their usefulness.

Sound better?

Greevar (profile) says:

Re: Re: Re:2 Re:

Abolishing copyright is the correct measure. There was never any need to employ copyright laws in the first place. It doesn’t serve those whom create works, it serves the publishers that don’t produce anything of value. An artist can get hired to do a job on contract and earn a living. They did just fine before copyright came to be. It’s the publishers and other middlemen that need these protections because they can’t sell these imaginary goods without it. Copyright was, from the beginning, a tool to censor what people printed and give control over publishing to a handful of wealthy people who use it to gain more wealth. Copyright needs to be abolished, not because “information wants to be free”, but because it was never necessary in the first place and it doesn’t serve those it is believed to serve.

RadialSkid (profile) says:

Re: Re: Re:

I’ll assume you meant the “content should be free” crowd, not the “information should be free” crowd. Information most certainly should be – and in fact, is – free.

As for content, I’ve never been a free-content type of person in the past, and have reached the point that I don’t really care if industry-produced content is free or not, because I’m consuming less and less of it every day.

But with stories like this out there, and with the blatantly anti-culture stance that so many copyright cartels have reached in the present, I’m frankly amazed that anyone like you can defend them. Unless, of course, you’re one of the members of the American oligarchy that seeks to profit from the exploitation of the public.

Make as many pathetic “stoner” jokes as you want…Copyright has become a monster, and monsters should never be tolerated. People like you have driven me to this position.

Justin Johnson (JJJJust) (profile) says:

Re: Re:

As the watches were made outside of the United States, the Ninth Circuit ruled that the watches are not covered under the right of first sale because the right of first sale only covers items lawfully made under the Copyright Act (i.e. the Ninth Circuit says that the Copyright Act right of first sale protection applies to those items made within the United States OR imported into the US with permission of the copyright holder).

Since there is a copyrighted insignia on the watch protected under US copyright law, and since the SCOTUS and Ninth Circuit says that Costco has no right to resell the item, this means that Omega can allege copyright infringement on the basis of unlawful distribution.

Anonymous Coward says:

The vote

I looked and looked, but I cannot find anywhere that mentions how the individual justices voted. Does anyone have a link for it?

Mentioning that SCOTUS was split on the 9th’s wacky decision- yes the 9th’s decision IS wacky. Just remember that half of SCOTUS is wacky as well. Good thing Kagan recused, or we’d have been stuck with a permanent bad precedent.

Another other AC says:

So much for american jobs

Now everything is going to be manufactured in other countries, this way if someone wants something they have to buy direct from the manufacturer. Just image all of the garbage this is going to create when people no longer want something. This really makes no sense at all. Does this mean I cannot sell my Nintendo consoles because it is a japanese company?

How about things that are just assembled in other countries but the parts were made here? Vice versa?. I don’t think there is much that is wholly created in one place. I cannot see how this can possibly work. Most stuff at Walmart was manufactured in China.

Angry Voter says:

Courte Grande Supremeo with cheese

So the oil from outside the US can’t be resold?

Or maybe the junk from China-Mart can’t be resold? That’s a serious problem because they constantly resell stuff between their various legal entities to avoid paying taxes.

Or maybe the junkers from Government-Motors made in Mexico can’t be resold? They also use tax avoidance sales between various shell companies.

Maybe it means the Federal Reserve notes made with silk and hemp from outside the US can’t be transfered?

Maybe it means it’s not such a good idea to pack the Supreme Court with clowns who were never even judges?

bikey says:

first sale

This was a widespread problem in the EU before the ECJ incorporated the ‘exhaustion principle’ from German law in the Deutsche Grammaphone case in the 1970s. Basically, the original rights owner has the right to put his product on the market anywhere in the EU the first time, but then his/her rights are ‘exhausted’ to control it through the market, i.e. IP cannot be used to keep such goods out of other member states. It saved free movement of goods in EU.
In negotiating TRIPS, the parties could not come to any agreement, so it is neutral on the subject. This is not a fluke, it is an issue that stands to destroy free movement of goods. It was dead for a while, but this will bring on a flood. As mentioned by someone above, it has the potential to stop imports altogether – nothing is free of IP and very few consumer goods are made in the US. Another own goal. Good work boys.

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