U.S. Supreme Court Knocks Down Barrier To Cross-Border E-TailWritten by Frank Hayes
The U.S. Supreme Court has removed a major barricade for cross-border E-Commerce. On Tuesday (March 19), the court ruled that so long as a product isn’t pirated, U.S. retailers can import it without violating copyright law. In practice, that means an online retailer can sell U.S. customers many products that are lower priced—and were never intended to be sold in the U.S.—without breaking the law.
We’re not talking about pirated goods here, but what’s often called the “gray market”—legitimate products that aren’t authorized for U.S. sale. Those products are usually priced lower, because they’re intended for less-affluent markets than the U.S. Costco (NASDAQ:COST) and Kmart (NASDAQ:SHLD) have sold those types of products in the past and gotten into legal trouble. This week’s ruling says they won’t have that trouble again (at least until Congress changes the law or product manufacturers come up with new arguments).
But there are much bigger E-Commerce implications in the court’s decision to get rid of those geographical limits.
As StorefrontBacktalk Legal Columnist Mark Rasch explained last April, when the Supreme Court decided to take this case, there are two competing bits of legalese involved here. One is the longstanding idea that when someone sells you something, it’s yours to do with as you please, including reselling it. (As a legal principle, that goes back to the 15th Century, according to the justices.)
That seems to suggest anyone can buy anything anywhere to resell without limits, which is bad news for manufacturers who want to divide their markets up geographically, setting prices according to what they think the locals can afford. (Clearly, E-Commerce makes that really hard to enforce.)
On the other side is a specific phrase in U.S. copyright law that seemed to prevent anyone from importing a copyrighted work “lawfully made under this title” unless the copyright holder authorized the importing. Manufacturers couldn’t copyright watches or shampoo, but they could copyright labels and packaging. U.S. courts decided that clause only kicked in for copyrighted works manufactured outside the U.S., so manufacturers used foreign printers to take advantage of the loophole.
This week’s ruling says the lower courts got it wrong—”lawfully made under this title” means licensed under U.S. copyright law but not necessarily made in the U.S. Loophole closed. And, in theory, E-Commerce floodgates opened.
Or will they be? Big U.S. chains generally don’t like to irritate the manufacturers they depend on.