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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