by Mike Masnick

Filed Under:
copyright, first sale, supreme court

costco, omega

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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  1. icon
    dandover (profile), 14 Dec 2010 @ 9:27am

    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.

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