Supreme Court Considers Case Over Using Copyright Law To Block Import Of Gray Market Goods
from the massive-abuse-of-copyright-law dept
It's really stunning how frequently we see companies (and individuals) twisting and abusing copyright law to do things way beyond the obvious intentions of the law itself. I had been unaware of this particular case, but Michael Scott alerts us to a legal dispute between Omega (the watch makers) and Costco that the Supreme Court is considering taking, which could have massive implications for whether or not you could legally buy products in the US that were released in other countries. The link above to IP Watch does a really fantastic job explaining all the details clearly, so if you want to dig in, go there, but I'll try to give a quick summary.Basically, lots of companies try to restrict distribution of their goods, even after they're sold -- often with things like authorized distributors and such. Many have tried to use trademark law to claim that others cannot sell their goods, but as the law has evolved, a pretty robust first sale right has been established in many places that effectively says that the manufacturer has no right to control what's done with a product after they've sold it to someone else. Thus, they cannot restrict later resales. One of the ways companies try to get around this is to claim that the products are "different," since first sale rights only apply to products that are the same. But how can a product be different? Well, for example, some companies claim that when they sell through authorized channels, it includes a warranty -- but the unauthorized channels do not include the manufacturer's warranty (even if they include a different warranty) and thus they are "different." Sometimes (bizarrely) this argument works, though other times it does not.
In this case, though, Omega tried a different strategy altogether. Rather than claiming it's a trademark issue, it's using copyright law. Copyright law also has a well-established first sale right, but here's where Omega gets tricky. As Steven Seidenberg at IP Watch explains:
There is, however, one significant difference between the first sale doctrines in US copyright and trademark law. Copyright law has an added qualification. Its first sale doctrine, Section 109(a), applies only to copies "lawfully made under this title."Of course, being astute readers, you should be asking a very important question: what copyright is there in a watch? Ah, again, Omega gets sneaky:
Omega argued that because the copies of its watch design were made outside the US, they were not made under US copyright law and were thus not covered by the first sale doctrine. Costco argued that because the copies were made by the US copyright owner, they should be considered "lawfully made" under US copyright law.
The watchmaker inscribed a tiny, 0.5 cm globe design on the underside of its watches. This design is invisible when the watches are worn, so individuals are unlikely to purchase Omega’s high end watches in order to obtain copies of this inconspicuous design. Because this design is copyrighted, however, it may enable Omega to stop the import of grey market watches into the US.Yes, it put a tiny, barely noticeable engraving on the watch, claimed copyright over that design and is using that copyright claim to try to keep certain watches from being resold in the US. In this specific case, it was a set of Omega watches that were legally sold in Europe (where Omega sells its watches at a much lower price than in the US). The buyer then sold that shipment of watches to Costco in the US, who offered them for retail sale. Hence the lawsuit.
This appears to be a dual abuse of copyright law -- first using copyright law to try to apply to an entire watch, when its really just a minuscule design that most people probably don't notice, and second in trying to route around copyright's well-established first sale doctrine with this convoluted argument that goods made in Europe aren't covered by the first sale right.
The really scary part? The 9th Circuit Appeals Court (known for some wacky rulings) overturned a district court ruling that had sided with Costco, and said that Omega's arguments made sense (pdf). If the Supreme Court does not overturn this ruling, it will likely mean that plenty of companies will use similar tactics to bar the sale of products originally sold outside the US from being resold in the US. This clearly is at odds with the very basis of copyright law and the concept of first sale rights. Hopefully, the Supreme Court recognizes this, though it doesn't have a very good track record on copyright cases.
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Filed Under: copyright, grey market
Companies: costco, omega
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Here's a twist in all of this: Was Costco selling used mechandise as "new"? The first sale right would only apply to used goods, no?
Even though the product was "new in the box", was it not product that had already been retailed? Is the grey market material used, which in turn would lead it not to have guarantee coverage until the original buyer registered it and transferred that to the second buyer?
It seems like grey market may be greyer than they think.
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You still have managed, despite all the words you put on every post, to bring nothing to the table.
Gah.
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Wrong.
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The first-sale doctrine is a limitation on copyright that was recognized by the U.S. Supreme Court in 1908 (see Bobbs-Merrill Co. v. Straus) and subsequently codified in the Copyright Act of 1976, 17 U.S.C. § 109. The doctrine allows the purchaser to transfer (i.e., sell or give away) a particular lawfully made copy of the copyrighted work without permission once it has been obtained. This means that the copyright holder's rights to control the change of ownership of a particular copy end once that copy is sold, as long as no additional copies are made. This doctrine is also referred to as the "first sale rule" or "exhaustion rule."
The very first thing that is required is that the work (in this case a watch) is purchased. As wholesalers of Omega are "market restricted", the only way you get watches from one market to another is to buy them from a retailer, even if you are buying them by the case rather than on an individual basis.
Thus, while they boxes they are in have never been opened, the product has in fact been sold at retail. After all, there is no other way to obtain the goods without a wholesaler breaking their agreement with Omega, which would likely cost them their wholesale agreement.
In order to apply the First Sale Doctrine, you must first have a sale. Otherwise, the goods would still be within Omega's distribution channels, and subject to whatever contractual arrangements exist.
Now, if CostCo sells these "used" goods without indicating that they are used, there would be an issue there as well, not for copyright, but rather as a false representation. Many companies do not honor guarantees for products sold outside of their home market, or will only honor them if you "carry in" the product to the service center in it's home market, as is their right.
There are some interesting implications here...
As a side note, shopping in places like HK is great for this, the same shop will often have the same product in three different versions: Local market, grey market, and black market. The local market are actually intended for the HK market, the grey market often comes from mainland market or places like Indonesia or Thailand (where retail prices may be lower). The black market products are often assembled in the same factories as the real products, but may use rejected components, could be repaired "failed" units, or could be complete knock offs. You trade price point for quality. The grey market products are often 10-30% lower in price than the local market products, but usually are not able to get warrantee coverage
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How you go to such lengths to sound intelligent, but never actually say anything.
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NOT.
I stated up from it was a "twist", my own look at it. If you don't like it, just skip to the next comment. It's just an opinion, that's all.
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I get it that flaming may satisfy some primitive, blood lust impulse and may even satiate an ego need, but really, are those the aspects of our psyches that we should be presenting to the world?
At the end of the day, civility is far more fun because you get to play with ideas -- good ones, bad ones, and really odd ones. And if you just have to be snide, then resorting to wit or Latin is pretty satisfying.
Tum podem extulit horridulum.
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The very first thing that is required is that the work (in this case a watch) is purchased.
Which, it was.
TFA:
Note the key word "sold" there. Further reading will result in the word "resold". I know, crazy, right?
Thus, while they boxes they are in have never been opened, the product has in fact been sold at retail
This has no bearing on anything. At all.
Now, if CostCo sells these "used" goods without indicating that they are used, there would be an issue there as well, not for copyright, but rather as a false representation.
I am beginning to think you don't know the definition of "used", or that it is different than "sold". You do realize that almost everything you buy has been sold at least once, unless you're buying straight from the manufacturer, right? Please tell me you do.
Many companies do not honor guarantees for products sold outside of their home market, or will only honor them if you "carry in" the product to the service center in it's home market, as is their right.
Proof, please. I have returned things that were still under the manufacturer's warranty, and not once did they ask where I bought it, or for how much.
There are some interesting implications here...
In that yet *another* company is trying to misuse IP laws to fit their own agenda, yes. Very interesting.
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Anti-Mike, you are fricken hilarious! Do you have your own blog I can read? You're wasting your comedic talents here. Seriously.
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Distribution networks are not the same as retail sale. Once something that be sold at retail, it isn't "new", just "new in the box".
Example, the original retail buyer would be eligible for a guarantee, but the second buyer would only be eligible if it was first registered and then transferred. The second buyer is not the original retail customer.
For the consumer that gets something "new in the box" thinking it is new, they will be disappointed when the guarantee isn't applicable or available in their market, because they bought what is a re-retailed, out of market product.
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One of the beauties of 'grey' imports is that they are bought wholesale from overseas distributors and shipped to a local distributor prior to distribution to the point of sale.
There is no 'retail' sale any more than when manufacturer ships to distributor A who on-sells to distributor B who on-sells.... until it eventually arrives on the store shelves.
Please try to understand basic commerce before making vague comments about 'retail' versus 'wholesale'.
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Please, at least try to put in a little effort. Your trolling performance lately has seen a significant drop in all aspects.
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The Merchandise is purchased from distributors before it reaches the market it was intended for. In NO WAY does grey goods= USED it actually = savings for you!!!!!
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The Merchandise is purchased from distributors before it reaches the market it was intended for. In NO WAY does grey goods= USED it actually = savings for you!!!!!
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fuck these communist companies
copyright should not even then exist
it should be a WHO EVER the hell makes it best and cheapest
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To me the headline should have been, "Supreme Court Considers Case Over Using Copyright Law To Block First Right Sales of Imported Goods."
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Ah, good point. Yeah, I really don't like the term "grey market" either, but couldn't think of a better way to describe it.
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Cert. is still pending
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Yup. Thanks for the clarification, but did want to point out that I noted repeatedly just that the SC was considering the case, which is what "cert is pending" means...
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What do you have against people reselling what they buy. If Costco legitimately buys watches, why should there be a law barring Costco from reselling them?
"And what if trademark and copyright are part of the toolset, so what?"
Agreed. It should not matter whether there are trademarks or copyrights involved. If you buy something, you should have the right to resell it.
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2) Trademark and Copyright are not a "toolset", they are consumer protection and limited monopoly statues, respectively, not anti-competitive cudgels.
3) Omega is not suing their contracted distributor, nor are they suing an independent middleman. They are suing Costco, the retailer. The difference is that your hypothetical is a contract dispute, and this is a first sale dispute.
Thanks, try again.
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And there lies the rub. Capitalist companies think trademark and copyright exist to protect their profits. Lately, it even appears as if this is the way it was meant to be; I fully expect that if SCOTUS heard this case, they would choose to protect business models instead of consumers.
But the real purpose of trademark is to protect consumers from fakes, not to provide an avenue for you to sue your competitor. And the purpose of copyright is to limit monopolies so that, eventually, goods make their way into the public domain.
But we all know that Congress will never let The Mouse enter the public domain...
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supply and demand?
just what are you talking about, certainly not a working economy - sounds more like a broken one
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What's the difference?
I would rather not have my own rights eroded.
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A little thing called the WTO.
Also I note that the Omega/Wiley interpretation of US law would place the US in violation of the TRIPS agreement (for once "international obligations" don't favour the copyright maximalist!
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Also, I am not re-retailing the product, I am giving it as a gift. Not quite the same thing, is it?
An interesting side note: I often buy products in Asia when I travel, sometimes I give them as gifts. I am very careful though to mention to people that they likely have to guarantee that would apply here. If they have an issue, they can let me know and I can exchange it or get service on my next trip.
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Courts are constrained by law
Before you criticize a court for a ruling you disagree with, it's important to remember that judges have a duty to apply laws as they are written...not as they *wish* they were written. I agree with you that the 9th circuit's ruling is troubling doctrinally, but it's unfair to criticize the court unless the ruling is at odds with the governing statutes. In this case there is a wrinkle that may have in fact tied the 9th circuit's hands. The first sale doctrine applies only to products made "made under" the US Copyright Act. The ambiguity of this term was recognized by the Supreme Court more than a decade ago in a case Quality King v. L'anza... however, that case involved goods produced in the US so the court did not opine on whether the first sale doctrine would apply to goods produced outside of the US.
I fundamentally agree with you that ruling that the first sale doctrine doesn't apply to works produced overseas is bad policy. However, it may be Congress who needs to change the statute in order to avoid this result. That the result is in tension with the "spirit" of copyright is not something the court can base a decision if the statute clearly governs otherwise. To be sure, the phrase "produced under this title" leaves some wiggle room. However, there are considerations that counsel against applying our copyright laws to goods and producers who are situated overseas.
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Under existing law, the 9th Circuit was right. This is either something for SCOTUS to change, or Congress to fix.
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I disagree. The wording is quite straightforward and can be interpreted - as the district court did in Pearson:
see
http://www.pattishall.com/pdf/4-27-10_Omega_v_Costco_Blog_Post.pdf
"In Pearson, the district court held
that the language of Section 109(a) means that "'lawfully made under this title' refers not to the
place a copy is manufactured, but to the lawfulness of its manufacture as a function of U.S.
copyright law."
Clearly no change to the statue is needed - although given your strange system of legal precedents it may be that your Supreme court needs to correct some strange decisions made elsewhere.
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Fair enough. That is a good point, and one worth making.
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Sounds like a case the Canadian Supreme Court got right
As Michael Geist described it "Kraft Canada tried to use copyright law to block the imports, arguing that while the chocolates were legit, the inclusion of the image of the mountain on the Toblerone bar involved an infringement of copyright."
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Wow
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