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

April 18th, 2012

Mega-retailer Costco relied on this doctrine when it tried to sell foreign purchased (and foreign manufactured) Omega watches in the United States. The watches were etched with a U.S. copyrighted “Omega Globe Design” logo. A federal appeals court ruled that the watches were U.S. copyrighted (so they couldn’t be imported without the consent of the copyright holder) but were not made under the U.S. copyright law (because they were manufactured overseas), so the first sale doctrine didn’t apply. The Supreme Court split 4-4 on the Costco case (Justice Kagan abstained), tacitly affirming the appellate court.

Get it?

If the copyrighted material—even something as trivial as a label—is not made under U.S. law but is subject to a U.S. copyright, then it enjoys U.S. copyright protection (so it can’t be imported without the permission of the copyright holder) but the first sale doctrine doesn’t protect it. Under this rationale, courts have ruled that U.S. copyrighted music “manufactured” outside the U.S. was not lawfully made under the copyright law (which the court defined to mean “legally manufactured and sold within the United States”) and, therefore, was not subject to the first sale doctrine. Similarly, by printing a U.S. copyrighted perfume box in France, a perfume manufacturer could prevent the importation of lawfully purchased perfume into the U.S.

The Supreme Court this week agreed to hear a case about whether an entrepreneur could lawfully purchase cheaper but authentic textbooks overseas from the publisher’s foreign subsidiary, and then resell these same textbooks back into the United States at prices lower than what the publisher was charging. Naturally, the publisher believes these “foreign made” textbooks are not made under U.S. copyright law and, therefore, the first sale doctrine does not apply. The books can’t be imported, they argue.

There are consequences to both manufacturers and retailers of this interpretation. First, manufacturers would have every incentive to “manufacture” their copyrighted works outside the U.S. but still be subject to U.S. copyright law. DVDs would be pressed in Mexico, labels printed in China and software compiled in the Philippines. This would perversely reward the U.S. company by denying the consumer of the foreign made product the right to resell it.

For retailers unsure of the provenance of products, it would not be good enough for them to show that the products sold were authentic (that is, they were manufactured by the company on the box). To avoid liability under copyright law, they would have to show that the product (and the embedded copyrighted material) was not unlawfully imported. It also means the monopoly created to the copyright (that is, label) manufacturer could be used not only to make money but to realize the “full value” of the work in the United States.

Copyright holders are entitled to be paid for their works. The Supreme Court will decide if retailers have to pay whatever the copyright holder decides to charge in the United States.

If you disagree with me, I’ll see you in court, buddy. If you agree with me, however, I would love to hear from you.


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