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Tuesday, December 14, 2010

Unanswered questions after Costco v. Omega

The Supreme Court has split 4-4 (Justice Kagan recused) in Costco v. Omega.  This is one of those sleeper cases where the Court's decision--when the Court reaches a real decision--will probably affect every American consumer in some way, but nobody will know.  The issue is whether the Copyright Act's "first sale" defense applies to foreign made goods.  The reason that most people probably couldn't care less about the issue is that most people have an extremely cramped view of what is copyrighted.

The first sale defense basically says if the copyright owner lawfully sells something to a consumer, such as a DVD with a copyrighted movie, then the consumer can resell that DVD.  This principle is fine, until copyright owners notice that they have to sell DVDs in China at greatly discounted prices in order to compete with pirates there.  Noting this problem, Justice Ginsburg in a concurrance in a previous case suggested that, because the statute codifying the first sale doctrine immunizes only goods "made lawfully under" the U.S. Copyright Act, this means the first sale doctrine only applies to copyrighted goods made in the United States.  Note the key word is "made," not sold.  Under the narrowest interpretation of the first sale doctrine, even something sold in the U.S. by the copyright owner is not covered by the first sale doctrine if manufactured abroad.

At this point, most people probably still don't care very much, since only a small number of people import classic copyrighted goods like books and DVDs from other countries and want to resell them.  Except then we see the actual "copyrighted good" at issue in Costco v. Omega: a watch where the only copyright is over a tiny logo etched into the back.  The point is that practically every good in the market is a copyrighted good.  Which means that if Justice Ginsburg's view is right, then reselling practically anything made abroad -- a Japanese made Toyota, not to mention all the things "made in China" -- becomes copyright infringement.

Because the Court split 4-4, all eyes will be on Justice Kagan in the next case where she isn't recused.  Given the stakes, it is only a matter of time before this issue returns.

Posted by Tun-Jen Chiang on December 14, 2010 at 01:46 AM | Permalink


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Importing something into the US - such as the Japanese=made Toyota you mentioned - doesn't 'become copyright infringement' as you state. Infringement only occurs when a copyrighted good is imported without AUTHORIZATION of the copyright owner. That would never happen in situations such as auto sales, or most goods actually. Importers know that most markets are carved up by the manufacturer and someone is either the exclusive first distributor of the good or they are not. It happens in business all the time. The importation right only gets at grey market goods where importers are trying to skirt legitimate busines-to-business distribution agreements.

Posted by: david hilton | Mar 7, 2011 6:59:35 PM

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