Category Archives: Distribution Right

Costco v. Omega and the definition of importation

0
Filed under Distribution Right, First Sale, Supreme Court

As I mentioned in my previous post on Costco v. Omega, I would not be surprised if the Supreme Court’s opinion addresses issues that are outside of the narrow confines of the question presented. One of the issues that the Court may address is the definition of importation in Section 602 of the Act. Omega alleged that Costco committed copyright infringement directly under Section 106(3), and through importation of the watches under 602(a), which invokes the Section 106(3) exclusive right of distribution.

The interesting thing about this play is that Costco didn’t import the watches under a traditional use of the term. Costco acquired the watches from a third-party who brought the watches into the United States. The Copyright Act does not define importation or exportation, or distribution for that matter. According to Omega’s Renewed Motion for Interlocutory Summary Judgment:

Any party in the chain of distribution may be held liable for copyright infringement otherwise a distributor could avoid liability simply by using a straw to import the unauthorized copies. UMG Recordings, Inc. v. Disco Azteca Dist., Inc., 446 F. Supp. 2d 1164, 1173 (E.D. Ca. 2006) (“Disco Azteca”), citing Columbia Broadcasting Systems, Inc. v. Scorpio Music Dist., Inc., 569 F. Supp. 47, 48-49 (E.D. Pa. 1983) (“CBS”). Lack of intent or knowledge of the infringement is no defense to infringement. Educational Testing Service v. Simon, 95 F. Supp. 2d 1081, 1087 (numbered paragraph 33) (C.D. CaL. 1999). See also Parfums Givenchy, Inc. v. Drug Emporium, Inc., 38 F.3d 477, 482 (9th Cir. 1994) (“Parfums Givenchy”).

In C & C Beauty, the plaintiff owned a copyright in a two-dimensional artistic design on the box containing Amarige perfume which was manufactured abroad. 832 F.Supp. at 1381. Defendant was an importer of grey market products who imported and distributed the perfume products including the box containing the copyrighted design. Id. at 1382. The court recognized the validity of the plaintiffs copyright based on the prima facie evidence of the copyright registration. Id. at 1383. The Court looked at the pleadings and affidavits and found no question of fact regarding the actions of the defendant importing and distributing the perfume .
with the copyrighted box acquired abroad, without plaintiffs consent. Id. The Court found the test for infringement under § 602(a) had been met. ¡d. (Parfums Givenchy is based on the same set of facts as C&C Beauty. Id. at 1382.)

The Ninth Circuit did not address the issue of whether the receipt of unauthorized imported goods was an importation because it was outside of the scope of the appeal. The District Court had found that all of the claims were barred by the first-sale doctrine, sidestepping the importation issue.

I think raising the argument was a strong tactical play regardless of whether it’s successful. By arguing that Costco’s actions were an importation, Omega forced the District Court, Ninth Circuit and Supreme Court to evaluate how the meaning of Section 109 is informed by Section 602.

copyright litigation attorneys

Solicitor General recommends denial of cert in Costco v. Omega

4
Filed under Distribution Right, Extraterritoriality, First Sale, Importation

Costco Wholesale Corporation v. Omega, S.A. (Brief for the United States as Amicus Curiae)

The Office of the Solicitor General last Wednesday filed an amicus brief in Costco v. Omega arguing that the Supreme Court should deny cert. To briefly review, Omega distributed watches to authorized dealers in Egypt and Paraguay. One or more of the authorized dealers imported the watches into the U.S. and then sold them to Costco. This stream of commerce enabled Costco to distribute the watches to customers below the regular U.S. retail price. In 2003, Omega began to engrave its watches with a small emblem — no more than a half centimeter across — which Omega registered with the copyright office. Omega filed suit alleging that Costco’s acquisition and sale of the watches constituted copyright infringement under 17 U.S.C. §§ 106(3) and 602(a).

The issue

Costco argued that under the first-sale doctrine Omega’s initial sale of the watches to the authorized dealers in Paraguay and Egypt denied it the ability to enforce exclusive distribution rights against Costco. 17 U.S.C. § 109 states in relevant part (emphasis added):

[T]he owner of a particular copy or phonorecord 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 or phonorecord.

If this all sounds eerily familiar, it should. In 1998 the Supreme Court found in Quality King Distribs., Inc. v. L’Anza Research Int’l, Inc. that if a purchaser in the United States acquires a work that is lawfully manufactured domestically, distributed abroad, and then imported back into the United States, the purchaser is free to distribute the work without infringing a rightsholder’s copyright.

Quality King would be direct precedent for Costco except for a number of substantive factual and legal differences. In Quality King the works at issue were manufactured in the U.S. and took a round trip abroad and then back to the U.S. In Costco the watches were manufactured and distributed abroad and then were imported to the U.S. The issue in this case, thus, turns on whether 17 U.S.C. § 109’s requirement that works be “lawfully made under this title” for the first sale doctrine to apply should be interpreted as meaning “manufactured in the U.S.,” or if the phrase includes copies that were lawfully made abroad under a foreign copyright Act and imported.

Another factual difference between the two cases is that Quality King involved infringement via the importation right under Section 602, which the Act provides constitutes infringement under 106(3). Omega similarly brought suit alleging unlawful importation, along with infringing distribution directly under 106(3), but the facts did not fit the traditional definition of importation. A third-party, not Costco, brought the watches into the United States. Omega argued that Costco’s act of acquiring watches manufactured abroad that were not authorized for sale in the US was defacto importation. A finding otherwise, according to Omega, would allow a party to readily avoid liability under the rights granted in 602 by using a straw man.

The Ninth Circuit in Costco found that “lawfully made under this title” should be interpreted as “granting first sale protection only to copies legally made and sold in the United States.” The Ninth Circuit found that the Supreme Court’s holding in Quality King didn’t conflict with the Circuit’s previous precedent BMG Music, which found that “[c]onstruing [§] 109(a) as superseding the prohibition on importation set forth in . . . § 602 would render § 602 virtually meaningless.” Id. (quoting Scorpio, 569 F. Supp. at 49). And secondly, that recognizing a first-sale defense as to goods manufactured abroad would impermissibly extend the Copyright Act extraterritorially. See id. (citing Scorpio, 569 F. Supp. at 49).

The legal landscape has also changed since the Supreme Court addressed the interaction between Sections 109 and 602 in Quality King. Shortly after the Ninth Circuit issued its opinion in Costco v. Omega, President Bush signed into law the PRO-IP Act, which amended the language of 602 (new language in bold):

(a) INFRINGING IMPORTATION OR EXPORTATION.

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

(2) IMPORTATION OR EXPORTATION OF INFRINGING ITEMS.—Importation into the United States or exportation from the United States, without the authority of the owner of copyright under this title, of copies or phonorecords, the making of which either constituted an infringement of copyright, or which would have constituted an infringement of copyright if this title had been applicable, is an infringement of the exclusive right to distribute copies or phonorecords under section 106, actionable under sections 501 and 506.

It’s possible to argue that by creating the new importation and exportation rights in 602(a)(2), Congress reframed how we should read the grant in 602(a) pre-amendment. Congress, it could be contended, explicitly stated its intention that the first sale doctrine should apply to works manufactured in the U.S. through the passage of the Amendment. If 602(a)(2) of the post-amendment Act states that it’s infringing to import a work “the making of which either constituted an infringement of copyright, or which would have constituted an infringement of copyright if this title had been applicable” then 602(a)(1) would be superfluous if it isn’t read to encompass works that were made and distributed in a non-infringing way abroad. One could contend, thus, that Congress made it clear through the enactment of the PRO-IP Act that it intended for the for the first-sale doctrine to only limit the distribution of works manufactured domestically.

Policy considerations

Costco and a group of amicus petitioners argued, inter alia, that the Ninth Circuit’s decision created negative policy considerations for domestic manufacturing. The Ninth Circuit’s opinion could be read to provide companies that manufacture goods abroad with an additional mechanism to enforce third-tier price discrimination that is not available for works made in the United States. A rightsholder who manufactured works abroad could theoretically bring a suit against all subsequent distributions of the work in the United States (though the S.G.’s brief noted that the Ninth Circuit explicitly refrained from addressing the question of whether “parties can raise 109(a) as a defense in cases involving foreign-made copies so long as a domestic sale has occurred.”). If the first-sale doctrine only applies to works manufactured in the U.S., contended amicus petitioners, and not those manufacturd abroad– if domestic manufacturing offers a copyright holder less ability to prevent arbitrage, and less rights in general, than overseas manufacturing — then the Copyright Act is actively creating incentives for companies to ship manufacturing, and manufacturing jobs, overseas.

A second potential policy problem with the Ninth Circuit’s opinion, argued petitioners, is that it creates a number of “nonsensical” liability outcomes. As Costco argued in its petition:

[T]he decision below mandates a number of nonsensical outcomes, including the following, non-exhaustive list:

  • Imported copies of copyrighted material – be it a British version of a Harry Potter book imported by an individual consumer under the §602(a)(2) “suitcase exemption,” a Picasso fine art print purchased from a foreign art dealer, or a foreign-made classical compact disc – cannot lawfully be resold, loaned, or even given away by the purchaser without committing copyright infringement.
  • Libraries are unable to lend foreign-language texts made abroad.
  • Movie rental businesses such as Netflix and Blockbuster and used-DVD and -CD resale shops, whose existence depends on the first-sale doctrine, can be shut down merely by shifting disc duplication to Mexico or Canada.
  • It is impossible to rent or resell a foreign-produced automobile whose on-board computer systems are loaded with control software covered by a United States copyright registration.

The Solicitor General’s brief

The SG argued that the Supreme Court should deny cert because the Ninth Circuit’s finding in Costco was consistent with Quality King, and the findings of other Circuits, and because there was no evidence that the “most serious potential consequences” had “materialized.”

  • An interesting part of the SG’s brief was how it dealt with the petitioner’s amicus’ policy arguments. The SG noted that the adverse policy effects were “indeed troubling” and “legitimate concerns,” but that the petitioner’s had provided “no basis for concluding that the most serious policy concerns . . . have actually materialized.” The SG stated that the petitioner has forwarded “no evidence that the differential treatment of domestic- and foreign-made copies has caused increased outsourcing of manufacturing operations, and it [has cited] no case in which a copyright owner has sought to extract royalties at multiple stages at an otherwise lawful distribution chain within the United States.”
  • The SG also raised, but took no position on, whether the plaintiffs’ claims should be denied by a finding of copyright misuse.  Argued the SG:

The ‘principal fuction’ of copyright law is the protection of original works, rather than ordinary commercial products that use copyrighted material as a marketing aid.” Quality King, 523 U.S. at 151. Although the doctrine of copyright misuse is both controversial and rarely invoked, it has been recognized by at least one court of appeals. See Lasercomb Am., Inc v. Reynolds, 911 F.2d 970, 973-077 (4th Cir. 990). The United States takes no position on the appropriate resolution of petitioner’s copyright misuse defense. To the extent that the particular type of copyrighted material at issue here raises distinct policy concerns, however, those concerns are best addressed on remand under a legal theory specifically targeted at that alleged abuse.

  • The SG’s brief led with a discussion of how there is no split between the Ninth Circuit’s interpretation and other circuits. I’ve seen the data detailing how a large segment of the Supreme Court’s docket is comprised of cases that involve circuit splits. My initial impression, though,  is that the Supreme Court grants cert in copyright cases that involve a fundamental question of the structure of the Act, and that circuit split considerations play a smaller, if not marginal, role. This is probably an issue that is worth looking into in more detail at a later time.

copyright litigation attorneys

Copyright Office: Distribution of a work online is a publication

1
Filed under Copyright Office, Distribution Right, Publication, Registration

The Copyright Office has adopted an interim regulation that alters the deposit exemption for works available only online. Previously, automated databases available only online were exempted from the mandatory deposit requirements. The exemption was implemented in 1989 because the Copyright Office “in the early 1990s had neither the intention nor the technology to collect such works.”

The Copyright Office has up until now interpreted the exemption to apply to all online-only publications because at the time the exemption was implemented, “for all practical purposes,” the only works being published online were the automated Westlaw and Nexis databases.

The new regulation

In the new regulation “electronic serials” (‘‘This class includes periodicals; newspapers; annuals; and the journals, proceedings, transactions, etc. of societies.’’) are subject to a qualified deposit requirement. Not all rights holders will be requested to deposit their works. The Copyright Office will make demands on authors, at its discretion. A rights holder will then have three months to deposit the work, barring the Office granting additional time in special circumstances.

The logistics for the submission of online–only works will be developed by the Office in consultation with content owners.The Office was not ready to adopt a policy where rights-holders could  by provide a website link so that the Office could download the works itself. The effective date for the new reg is February 24, 2010. It only applies to works published on or after the effective date.

Blogs

In comments, West publishing requested that the definition of serials be revised so that it could not be read to cover databases and blogs. The Office, in response, limited the definition of electronic serials to works “issued or intended to be issued on an established schedule, in successive parts bearing numerical or chronological designations, without subsequent alterations.’’ The Office noted it believed that this definition does not include blogs or databases that are publications with “no demarcations between particular, discrete issues of the publication.”

I’m not convinced the definition of electronic serials still doesn’t cover blogs. Many blogs, like mine, create posts that are automatically numbered by date or post number in the URL. Regardless, the Office’s comments imply that, at least for the time being, they are unlikely to make deposit demands upon blog owners.

Online distribution as publication

The deposit requirement enacted in 17 U.S.C. 402 only applies to works published in the United States. D.C. attorney Patrice Lyons queried whether the distribution of works only online constitutes a publication. Section 101 of title 17 defines ‘‘publication’’ as follows:

“Publication” is the distribution of copies or phonorecords of a work to the public by sale or other transfer of ownership, or by rental, lease, or lending. The offering to distribute copies or phonorecords to a group of persons for purposes of further distribution, public performance, or public display, constitutes publication. A public performance or display of a work does not of itself constitute publication.
To perform or display a work “publicly” means—
(1) to perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a
family and its social acquaintances is gathered; or

(2) to transmit or otherwise communicate a performance or display of the work to a place specified by clause (1) or to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.

It is possible to argue that the distribution of a work on the internet is not a publication because there is no “sale or other transfer of ownership, or by rental, lease, or lending.”

In mid-October, we encountered this issue in Moberg v. 33T LLC, 2009 WL 3182606 (D. Del. 2009). In the case, a defendant moved to dismiss a copyright action brought by a Swedish photographer. The defendant argued that the work was a U.S. work because it was published online concurrently in the US and abroad. As a U.S. work, the defendant argued, the photographer needed to register the works at issue before bringing suit. The Court sidestepped the question of whether a publication had occurred and found that, regardless of whether there was a publication, there was not concurrent publication in the United States and a foreign country.

The Copyright Office in the regulation found that the distribution of a work on the internet constitutes a publication:

Because ‘‘[u]nder the definition in section 101, a work is ‘published’ if one or more copies or phonorecords embodying it are distributed to the public,’’ H.R. Rep. No. 96–1976, at 138 (1976), it follows that the electronic transmission of copies of a work to the public, as addressed in the distribution context in Tasini and Grokster, constitutes publication of that work.

So what does this mean?

Statutory damages are not available under 17 USC 412 for (1) the infringement of copyrights in unpublished works commenced before the effective date of its registration, or (2) any infringement of copyright commenced after first publication of theve found work and before the effective date of its registration, unless such registration is made within three months after the first publication of the work.

Authors of domestic works should be aware that, if Courts adopt the language in the regulation as guidance, they have a three month window to register after they place a work on the internet. In this window an author can still seek statutory damages and attorneys’ fees, even if infringement occurs before the effective date of the registration. If a court were to find that the distribution of an online-only work does not constitute a publication there is no window.

The language in the regulation raises the importance of the Moberg decision for works created outside of the United States and first published online. Previously a court could have found that not all works first published on the internet are U.S. works (due to concurrent publication in the US and abroad) because an online distribution does not constitute a publication. If court’s adopt the Office’s analysis, the only way a work first published online is not a U.S. work is if a tribunal adopts the policy-based findings in Moberg.

software and technology attorneys

Court finds that distribution of sheet music to the U.K. that is made under license in the U.S. is nonifringing

3
Filed under Distribution Right, Extraterritoriality, Pro-IP Act

Music Sales Limited, et al., v. Charles Dumont & Son, Inc., 09-1443 RMB-JS (D. N.J. 2009)

There was an interesting decision issued in the federal district court in New Jersey that addressed the territorial limitations of the U.S. Copyright Act. The decision also contained a brief discussion of the new portions of 17 U.S.C. 602(a), as recently amended by the Pro-IP Act.

The Plaintiff, the leading distributor of sheet music in Europe,  alleged that the Defendant infringed its exclusive right to distribute music in the U.K. by exporting copies across the Atlantic. The Plaintiff was unable to allege that the Defendant infringed its copyright by making copies in the United States because the Defendant had a license to do so. The Court granted the Defendant’s motion to dismiss for lack of subject matter jurisdiction.

Said the Court in regards to the claim that the Defendant infringed the plaintiff’s 106(3) distribution right:

To be clear, the unauthorized distribution of a work in the United Kingdom, by mailing the work from the United States to the United Kingdom, does not constitute infringement under the Copyright Act. Section 106(3) creates a right of distribution in the United States only; any right of distribution that exists in the United Kingdom is a manifestation of British law. Plaintiffs treat the copyright laws of disparate nations as if they comprise a seamless ensemble, with infringement of any one’s law enforceable wherever the act was committed. Of course, this Court’s subject-matter jurisdiction is limited to cases arising under the Copyright Act; it has no power to vindicate violations of British law.

17 U.S.C. 602(a) as amended by the Pro-IP Act

The Pro-IP Act, which was signed into law in October of last year, amended, among other things, Section 602. The Act created a new exclusive right of exportation:

(a) INFRINGING IMPORTATION OR EXPORTATION.

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

(2) IMPORTATION OR EXPORTATION OF INFRINGING ITEMS.—Importation into the United States or exportation from the United States, without the authority of the owner of copyright under this title, of copies or phonorecords, the making of which either constituted an infringement of copyright, or which would have constituted an infringement of copyright if this title had been applicable, is an infringement of the exclusive right to distribute copies or phonorecords under section 106, actionable under sections 501 and 506.

The Court asked for briefing on whether 602 as amended could create liability for the Defendant. Both parties agreed that it didn’t apply:

Here, there is no allegation that the infringing copies were made in violation of copyright; Plaintiffs allege only that the distribution of the (otherwise lawful) copies infringes upon their license. This position is certainly consistent with a plain reading of the statute, and since Plaintiffs agree that the exportation right does not apply here, the Court need not decide its scope.

International Copyright Representation