U.S. Supreme Court affirms Ninth Circuit holding limiting the First Sale doctrine to works that are legally made and sold in the United States

by Allen M Lee5. July 2011 12:03

Under the First Sale doctrine, codified in 17 U.S.C. § 109(a), once a copyright owner consents to the sale of a copy of his work, he may not thereafter exercise the distribution rights with respect to those copies.  Section § 109(a) provides in pertinent part:

 

Notwithstanding  the provisions of section 106(3), the owner of a particular  copy . . . lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy . . . .

At issue in Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982 (9th Cir. Cal. 2008), was whether the First Sale doctrine applies where the works are made outside the United States and sold here. The Ninth Circuit held that the First Sale doctrine does not apply.  On appeal, the U.S. Supreme Court issued a decision without analysis affirming the judgment in a 4-4 Split Decision.   Costco Wholesale Corp. v. Omega, S.A., 2010 U.S. LEXIS 9597 (U.S. Dec. 13, 2010) (affirmed by an equally divided Court).

In Omega S.A., defendant Costco Wholesale Corporation (“Costco”) purchased watches bearing Omega, S.A.’s (“Omega”) copyrighted designs on the “gray market” in the following manner:  Omega manufactured the watches in Switzerland and sold them to authorized distributors overseas.  Other third parties then purchased these watches and sold them to a New York distributor, which then sold the watches to Costco, who then sold the watches in the U.S.  Omega filed a lawsuit alleging that Costco’s sales of its watches constituted copyright infringement because it violated Omega’s exclusive right to distribute copies under 17 U.S.C. § 602(a) and 106(3).  These sections provide in pertinent part:

 

17 U.S.C. § 602(a):

Importation into the United States, without the authority of the owner of copyright under this title, of copies . . . of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies . . . under section 106, actionable under section 501.

 

17 U.S.C. § 106(3):

Subject to sections 107 through 122, the owner of copyright under this title has the exclusive rights . . . to distribute copies . . . of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending.

In reaching its decision, the Ninth Circuit applied its prior precedent, including the presumption against extraterritoriality, which states that a U.S. statute "applies only to conduct occurring within, or having effect  within, the territory of the United States, unless the contrary is clearly indicated by the statute."  Omega S.A. at 987-88 (“the [Copyright] Act presumptively does not apply to conduct that occurs abroad even when that conduct produces harmful effects within the United States”).  Therefore, Section 109(a) applied only to copies lawfully made and sold in the U.S., and not to copies made overseas.  Since the Omega watches sold by Costco were not made in the U.S., Section 109(a) was not available as a defense to copyright infringement. 

As a result of Omega S.A., retailers in the Ninth Circuit that resell goods manufactured from abroad, and purchased and imported into the U.S. by third parties, must obtain consent from the copyright owners prior to reselling the goods.  Similarly, importers of such goods must obtain consent from the relevant copyright owners prior to resale.

 

Allen M. Lee  Mr. Lee’s practice focuses on business, corporate and intellectual property matters, including the creation, protection and exploitation of intellectual property assets.  For more information contact: Allen M. Lee, a Professional Law Corporation, Tel: (408) 249-2735, Email: info@allenmlee.com, Internet: www.allenmlee.com.

 

 

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Ninth Circuit Announces Rule for Determining When a Software User is a Licensee Rather than an Owner of the Product

by Allen M Lee15. September 2010 08:25

On September 10, 2010, the Ninth Circuit announced in Vernor v. Autodesk, Inc., No. 09-35969 (9th Cir. Sept. 10, 2010), a rule for determining when a software user is the owner or a mere licensee in a software program.  This distinction is important, because under copyright law, owners are free to resell their copies of their software program under the first sale doctrine, whereas licensees are not unless otherwise permitted under their respective license agreements.

Under the first sale doctrine, codified in 17 U.S. C. § 109, “the owner of a particular copy . . .  is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy . . .”  However, Congress specifically excluded owners of software from renting, leasing or lending copies of software programs for direct or indirect commercial advantage.  See 17 U.S.C. § 107(b)(1)(A).

The Court held that a software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user’s ability to transfer the software; and (3) imposes notable use restrictions. 

In Vernor, the software program at issue was Autodesk’s AutoCAD Release 14, which is sold pursuant to a software license agreement (“SLA”).  The SLA stated that Autodesk retains title to all copies of the program, and that customers could not rent, lease or transfer the software.  Further, the SLA imposed significant use restrictions, including prohibitions on modification or disassembly of the software, removal of any proprietary notices or marks, use outside the western hemisphere, and use for commercial purposes if the software was labeled for educational use only. Applying these facts, the Court determined Autodesk only granted users a license and not ownership in the program.  As a consequence, the first sale doctrine was not applicable to any subsequent resales of the software, thereby making such resales potentially infringing.

 

Allen M. Lee  Mr. Lee’s practice focuses on business, corporate and intellectual property matters, including the creation, protection and exploitation of intellectual property assets.  For more information contact: Allen M. Lee, a Professional Law Corporation, Tel: (408) 249-2735, Email: info@allenmlee.com, Internet: www.allenmlee.com.

 

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