Supreme Court Hears Copyright Dispute over First-Sale Doctrine

WASHINGTON, D.C. - (Mealey's) The reach of the Copyright Act's first-sale doctrine, codified at 17 U.S. Code Section 109(a), was debated November 8^th by an eight-member panel of the U.S. Supreme Court in a dispute over watches lawfully manufactured abroad and sold domestically by a wholesale warehouse chain (Costco Wholesale Corporation v. Omega S.A., No 08-1423, U.S. Sup.; See 5/3/10, Page 4).

Justice Elena Kagan was recused from the case, which pits petitioner Costco Wholesale Corp. against respondent and watchmaker Omega S.A.

In Quality King Distribs. Inc. v. L'Anza Research Int'l Inc. (523 U.S. 135, 138 [1988]) [enhanced version available to lexis.com subscribers / unenhanced version available from lexisONE Free Case Law], the Supreme Court touched upon the affirmative defense of fair use in a case involving goods manufactured domestically, sold abroad and then re-imported.  In that ruling, it was decided that Section 109(a) provides an exception to Section 602(a)(1)'s general ban on the unauthorized importation of copyrighted works but that Section 602(a)(1) would retain significant effect because the fair use doctrine applies only to copies "lawfully made under this title" and not to copies made under foreign law.

The Ninth Circuit U.S. Court of Appeals - which ultimately found in favor of Omega in the instant dispute, reversing the U.S. District Court for the Southern District of California - concluded that Quality King is limited to its facts and that the first-sale doctrine does not apply to goods that are manufactured abroad and then imported to the United States.

The Supreme Court granted certiorari in April.

Arguing that a fair use defense is indeed available to Costco, petitioner's attorney Roy T. Englert Jr. of Robbins, Russell, Englert, Orseck & Untereiner in Washington, opened oral arguments by calling the instant dispute a "repeat" of Quality King and accusing the Ninth Circuit of altering the doctrine to make it "uniquely favorable to foreign manufacturing of copyrighted goods."

"It is wildly implausible that Congress had any such intent," Englert told the high court.

Aaron M. Panner of Kellogg, Huber, Hansen, Todd in Washington, representing Omega, argued in contrast that Costco's position would "eliminate any practical effect for Section 602(a)(1) by making it not apply to legitimate copies," an outcome he deemed "quite inconsistent with the structure of the Copyright Act." 

Continuing, Panner suggested that the first-sale doctrine should "be read in harmony" with Section 602(a)(1) so that Section 602(a)1) is given "sufficient room to perform the function that it was intended to perform - which is to ensure that a U.S. copyright owner could protect domestic distribution rights against competition from legitimate foreign copies."

"That's precisely what's at issue here," he added.

[Editor's Note:  Full coverage will be in the Nov. 15 issue of Mealey's^TM Litigation Report:  Intellectual Property.  In the meantime, the oral argument transcript is available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844.  Document #16-101115-015T.  For all of your legal news needs, please visit www.lexisnexis.com/mealeys.]

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