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Supreme Court: Can A Retailer Resell Cheap Foreign Products For A Profit In The U.S.?

Written by Mark Rasch
April 18th, 2012

Attorney Mark D. Rasch is the former head of the U.S. Justice Department’s computer crime unit and today serves as Director of Cybersecurity and Privacy Consulting at CSC in Virginia.

Buy low, sell high. Pretty simple. But a case currently before the U.S. Supreme Court tests whether manufacturers can prevent retailers from buying their products for the lowest price simply by, for example, printing the labels for the products outside the United States. By using an “anti-grey market” copyright statute, the holder of the copyrighted work (the company that designed the label) can prevent the importation of authentic products produced for a cheaper foreign market and keep prices to U.S. retailers artificially high. It can also impose liability on the retailer that acquires these perfectly good “grey market” goods.

Take the example of a bottle of L’anza brand shampoo. The manufacturer in California sells the shampoo for say $5 a bottle in the U.S., but sells the same shampoo overseas for only $3 a bottle. Unless it violates your distribution agreement with that manufacturer, it is perfectly legal for a retailer to buy the genuine shampoo overseas, import it back to the U.S., and then resell it for a profit. But add a label to the bottle of shampoo, and the situation may change.

Unlike the shampoo bottle, the label may be subject to U.S. copyright protection (although there are similar provisions for both trademark and patent laws). When the label (as a copyrighted work) is imported into the U.S. without the permission of the copyright holder, this may violate U.S. copyright law.

Nothing in the law is easy and, of course, there are two conflicting laws. One law says that it is illegal to import U.S. copyrighted works into the U.S. without the authority of the copyright owner.

The other law says that, even if you don’t have the permission of the copyright holder, you can sell or dispose of the individual copy that you have bought and you don’t have to pay the copyright holder to do so. It is this law, called the “first sale” doctrine that allows you to sell your used CDs, videocassettes and books. The theory is, when you lawfully bought the copyrighted work, the copyright holder got what they bargained for.

But the first sale doctrine only applies to copyrighted works “made under” U.S. copyright law.

In the case of the shampoo label, about a dozen years ago, the U.S. Supreme Court held that the first sale doctrine applied to what was called “round-trip” exports. The copyrighted work (the label) is made under U.S. copyright law in California, exported overseas, and then reimported to the U.S. without the consent of the copyright holder. Because the label was made under U.S. copyright law, the person who purchased it can both export it and resell it without the permission of the author.


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