On April 19,
2010, the Supreme Court granted certiorari to review the 9th Circuit's decision
Wholesale Corp. v. Omega, S.A. The grant has broad
implications for companies who sell copyrightable goods at different price
points in the U.S. and foreign markets, and retailers who exploit these pricing
disparities by reselling the less-expensive foreign goods in the U.S. gray
market (or "parallel import" market). The question presented is whether,
as the Ninth Circuit held, the first-sale doctrine does not apply to imported
goods manufactured abroad.
originated when the Costco retail chain acquired genuine Swiss-produced Omega
watches from foreign distributors and re-sold them in its US stores at
below-market prices. Based on a copyrighted logo on the watches, Omega
sued Costco under Section
602(a) of the Copyright Act, which bars importation of copyrighted
works without the copyright owner's permission. Costco defended by
relying on the first sale doctrine of Section
109(a) of the Copyright Act, which generally allows parties who have lawfully acquired ownership of copies of
copyrighted goods to resell those copies to anyone they choose.
Under Costco's argument, copies lawfully bought abroad may be imported into the
United States notwithstanding Section 602(a).
court granted summary judgment to Costco on the basis of the first sale doctrine,
but the Ninth Circuit reversed, holding that the doctrine did not apply to
copies manufactured outside the United States. Attempting to reconcile
Section 602(a) with Section 109(a), the court reasoned that the application of
the first sale doctrine to foreign-manufactured goods would establish an unacceptable extraterritorial extension of American
law. The Ninth Circuit distinguished Quality King Distributors v. L'Anza Research,
523 U.S. 135 (1998), on its facts,
since that case ultimately upheld the first sale doctrine over Section 602(a)
only with respect to copyrighted products that had been originally produced in
the United States before being sold overseas and then imported again.
papers seeking and opposing certiorari, the parties argued whether Section
109(a)'s application of the first sale doctrine to all works "lawfully made
under this title" included works made in foreign jurisdictions, and over the
implications of Qualty King. Costco drew support from the plain
language of the statute. Omega emphasized Justice Ginsberg's concurring
opinion in Quality King and the legislative history of the statute.
Parties also disputed the policy implications of the case. Costco and
amici argued that the exclusion of foreign-produced works from the first
sale doctrine would incentivize companies to shift production overseas, and
would allow companies to exercise control over all resales in the US market
(since retailers would be unable to differentiate between domestic and
foreign-produced goods). Omega argued that the inclusion of
foreign-produced goods under the first sale doctrine would lead copyright
owners to engage in complex licensing and corporate structuring arrangements to
avoid the doctrine's ambit. The Solicitor General filed an amicus brief
opposing review, acknowledging some of the policy concerns raised by Costco but
arguing that the Copyright Act reflected Congress's decision to prioritize
copyright holders' interests in controlling imports ahead of retailers
interests in exploiting the gray goods market. The Court granted review
over that opposition.
Court's ultimate disposition of the case will affect how the gray goods and
secondary markets evolve. Two recent New York decisions, for example,
rejected first sale defenses and held that the importation of textbooks sold
inexpensively abroad is infringing. A decision for Omega would ratify
such decisions, allowing copyright holders to offer discounted pricing in
international markets without fear that they will undercut their US
distribution arms. On the other hand, if Costco wins, retailers will
likely be able to take advantage of international pricing discrepancies to
offer consumers cheaper goods manufactured abroad, leading to growth of the
gray market and the overall secondary market (and harming U.S.
manufacturing). The ruling may have particular importance for online
retailers such as Amazon.com and Ebay, which conduct substantial business
through the secondary market.
also a chance that the Supreme Court will address the propriety of using
copyright law to control the distribution of non-copyrightable goods.
Several amici have questioned the practice of controlling
non-copyrightable goods through their copyrighted labels, and the court's
ruling may suggest that parallel import questions are better decided through a
consumer confusion analysis under trademark law.
will be argued next fall and decided next year.
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