Solicitor General Tells Supreme Court That First Sale Shouldn't Apply To Foreign-Made Goods

from the unintended-consequences dept

Tue, Mar 30th 2010 11:22am — Mike Masnick

Earlier this year, we discussed an interesting lawsuit that was being appealed to the Supreme Court between retailer Costco and Omega over copyright claims on some imported watches. Copyright on watches? You can read all the details at that link, but basically, Omega started stamping its watches with a tiny, meaningless, barely noticeable engraving, and then registered that with the copyright office. Omega then sold some cheap watches in Europe, while keeping the prices of its US watches much higher. Sensing an arbitrage opportunity, someone who legally bought the cheap Omega watches in Europe sold them to Costco to offer to US consumers. Now, all of this should be legit under basic common sense and any "first sale doctrine," but not so fast. Omega claims the first sale doctrine only applies to goods made in the US... and while a district court sided with Costco, the 9th circuit appeals agreed with Omega. This could lead to seriously troubling outcomes -- such as if you buy a painting made outside the US and import it to the US, you might not actually be allowed to sell it again!

Unfortunately, it looks like the White House's Solicitor General is siding with Omega, recommending that the Supreme Court not take the case. That link has some more details on the case as well, including one tidbit I hadn't noticed before: which is that part of the case hinges on the ProIP Act, which you may recall the entertainment industry pushed hard for a couple years back. Apparently, one of the little noticed sections of ProIP changed the rules on import and export of copyright goods, such that first sale no longer applies to foreign goods. If this interpretation stands, that's incredibly troubling, and once again demonstrates the massive damage caused by entertainment industry lobbyists continuing to push through their own language into copyright law, and pretending it's mostly innocuous changes.

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Filed Under: first sale, supreme court

22 Comments

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PopeHilarius (profile), 30 Mar 2010 @ 11:12am

Wait, what?
I know common sense and the law don't mix, but how could this ruling possibly stand?

This seems like it has immense problems for all commerce. Especially with how Omega snuck in the copyright. Honda could do the same thing and claim used car lots can't sell their cars. Would foreign book importers need permission from each author to stock the books? What about a small record store purchasing and reselling music or movies from abroad?

I'm not that knowledgeable on the specifics here, so maybe I'm missing something, but wouldn't this create huge problems in just about every sector?
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Hephaestus (profile), 30 Mar 2010 @ 11:28am

Re: Wait, what?
"but wouldn't this create huge problems in just about every sector?
"

Yeah it does for imported items, isnt this just wonderful!
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DH, 30 Mar 2010 @ 11:43am

Re: Wait, what?
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DH's love child, 30 Mar 2010 @ 11:45am

Re: Wait, what?
Oops on previous...

Given that damn near EVERYTHING sold in the US is either imported or made from imported material, this would pretty much kill ALL used sales.

Back to your used car analogy, that would seriously dent the new car market as well, because trade-ins are a form of sale.
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bishboria (profile), 30 Mar 2010 @ 11:51am

Do Omega make their watches from US manufactured goods only? If not then they can't even sell their own watches in the US!
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Adrian Lopez, 30 Mar 2010 @ 12:07pm

Amazon.com currently allows the shipping of books from its non-US stores to customers in the US, and it also allows for the sale of non-US books by independent booksellers who sell through Amazon's website. A decision in favor of Omega would make illegal such forms of distribution, and the public would suffer. I hope Amazon files an amicus brief if it hasn't done so already.

Leave it to Obama's and Biden's pro-IP administration to side with those who would steal from our culture by unfairly limiting the manner in which cultural items can spread around the world.
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Anonymous Coward, 30 Mar 2010 @ 12:12pm

omega has a right to license their name and right to sell product only to those retailers they grant that right to. at minimum costco should be required to disclose that the products are not new us retail but effectively resale of out of market product.
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Nastybutler77 (profile), 30 Mar 2010 @ 12:29pm

Re:
That would only be true if they used copyrighted material to make the watches in the first place, which wouldn't make much sense.
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ScaredOfTheMan, 30 Mar 2010 @ 12:40pm

I agree completely!
I will support the banning of foreign made goods arbitrage, if you support the banning of foreign labor arbitrage.

Seriously though its disgusting, the US is supposed to be a free market and support capitalism meanwhile we side with those who want to interfere with market laws of supply and demand.

On a side note, who wears Omega watches anyway?
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JEDIDIAH, 30 Mar 2010 @ 12:44pm

Talk about your imaginary rights...
> omega has a right to license their name and right to sell
> product only to those retailers they grant that right to.

They do not. They have no such right. Furthermore, they have no right to interfere with anyone else and trample on their rights.
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Anonymous Coward, 30 Mar 2010 @ 1:01pm

Re: Talk about your imaginary rights...
Ummm... well... let's go back to that foreign-made car example. Must auto manufacturers sell directly to any member of the public who wishes to buy? No, they generally use a limited number of dealers, whose actions they control tightly. Now imagine the arbitrage model... Audis are bought cheaply in Germany (hypothetically!), and resold at a significant profit in the US. By whom? Not Audi dealers. By third parties, who are very nearly selling "used" cars... they've been bought and sold before, and lose value accordingly.
Cars or watches, this is nothing new... this is classic "grey market".
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Ryan Diederich, 30 Mar 2010 @ 1:04pm

Why would they have any rights?
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Ryan Diederich, 30 Mar 2010 @ 1:07pm

Why would they have any rights?
They were the ones who decided to have a split priced market. Why do they think they can monetize certain people more than others, and use the law to stop anyone from circumventing it?

If Omega can make money on the lower price, then they have no leg to stand on. These watches ARE real Omega watches, not knockoffs, and they were purchased legitimately. Costco found a sweet deal, and Omega gets what it deserves, consequences for its mistakes.

What?!? Consequences!!?!!?! What on earth are those?? We just use the law to get money every time something goes wrong.

(/sarcasm)
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Anonymous Coward, 30 Mar 2010 @ 1:09pm

Wait does that mean I cannot sell my car made in Japan?
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dorp, 30 Mar 2010 @ 1:58pm

Re: Re: Talk about your imaginary rights...
Must auto manufacturers sell directly to any member of the public who wishes to buy? No, they generally use a limited number of dealers, whose actions they control tightly.

You are either misinformed or are a flat our liar. Manufacturers do NOT control actions of their dealers. Try having a dispute with a dealer and see how much support the car manufacturer provides. Here is a hint: none. Now that we got rid of your ridiculous comparison, get back to the drawing board and come back with something that makes sense.
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tracker1 (profile), 30 Mar 2010 @ 2:02pm

Re: Re: Talk about your imaginary rights...
If they are in the original packaging, never opened, they are "new" and can be sold as such.
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ppartekim, 30 Mar 2010 @ 2:05pm

Re: Re: Talk about your imaginary rights...
Actually the car dealers have to buy the cars from the manufacturers and then they resell them to the public. Under the new rule this would be illegal for foreign made cars as the "first sale" has already been used.
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Anonymous Coward, 30 Mar 2010 @ 2:09pm

your car was probably made in north america, not necessirly the us but north america. However, your tv, computer motherboard, video card ...
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mike42 (profile), 30 Mar 2010 @ 2:19pm

Not quite the same, but similar...
I just bought "The Raven" on Amazon. Region 2. Why? Because the region 1 dvd is $37 and the region 2 dvd is $7. Now, why does a movie made in 1963 have a region code?
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Anonymous, 30 Mar 2010 @ 2:47pm

To respond to the used car hypothetical, I don't think the worry is Ford or Chevy (Japanese cars are of course assembled in the U.S.) but the makers of the components of the cars. Under a plain reading of the Copyright Act, the maker of any part in your car, that is manufactured abroad, and has conceptual separate components(which almost all of them)could sue for statutory damages if they have registered their works, or at the very least, an injunction. Even if the big car brands have no interest in halting your ability to sell your car, do we trust every maker of every component?
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AdamR (profile), 30 Mar 2010 @ 2:48pm

Re:
"omega has a right to license their name and right to sell product only to those retailers they grant that right to"

1. Please put down the crack pipe and take a step back.

2. Fill the bath tub with ice and cold water.

3. Jump in and stay in for 90 seconds.

4. Welcome back to reality! I hope
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RobShaver (profile), 30 Mar 2010 @ 3:38pm

Everything is copyrighted when created, right?
In the opening of the Opinion MILAN D. SMITH, JR., Circuit Judge said, "... requires us to overrule our precedents that allow a defendant in a copyright infringement action to claim the “first sale doctrine” of 17 U.S.C. § 109(a) as a defense only where the disputed copies of a copyrighted work were either made or previously sold in the United States with the authority of the copyright owner."

The operant words I think are, "sold in the United States with the authority of the copyright owner."

What the ruling says is that you must have the "authority" of the copyright holder to resell. The fact that the watches were imported seems immaterial. What this ruling says to me is that you can't resell anything with the words "copyright on them without the permission of the copyright owner.

Also, isn't everything automatically copyrighted from the moment it's created, at least "works of art" such as text, photos and paintings? How can a copyright be applied to a "design", as the ruling says? If a copyright applies to designs then everything is copyrighted.

I don't see how this ruling can stand.
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