Copyright Law Blog: Exclusive Rights

Category Archives: Extraterritoriality

Liability in US for overseas infringement stemming from domestic, predicative act outside the SOL

Shourin Sen - 21 October 2010 – 10:04 am

Filed under Extraterritoriality, News, Statute of Limitations

In re Outsidewall Tire Litig., 1:09cv1217 (E.D.V.A. October 18, 2010)

There was an interesting decision on the extraterritorial application of the Copyright Act and the statute of limitations this week. The plaintiffs, an individual and his trio of companies which produced mine vehicle tires, alleged that a group of defendants manufactured and distributed infringing tires. A jury returned a verdict in the plaintiffs’ favor on a series of claims including copyright infringement. Defendants moved for a new trial.

The plaintiffs alleged that the defendants manufactured the infringing tires abroad using designs that were copied in the U.S., outside of the statute of limitations. The Court found that the defendants were domestically liable for damages on the overseas infringement because the infringement was enabled by domestic, predicate acts, even though the domestic acts occurred prior to (what the Court applied as) the statute of limitations period:

Defendants next argue that the verdict should be set aside because no acts of copyright infringement occurred in the United States. As discussed in the July 21 Order, this argument is also unavailing. See July 21 Order, at 14. As an initial matter, the evidence adduced at trial plainly showed (i) that in 2005 and early 2006, Vance copied plaintiffs’ Alpha tire blueprints and modified them to create an infringing derivative work for defendants and (ii) that he did so in part in Virginia. It is true that none of these acts occurred in the United States after October 28, 2006, meaning the acts do not fall within the limitations period for the copyright claims. Indeed, both the manufacturing of the infringing tires based on Vance’s work and the sales of such tires occurred outside the United States during the relevant limitations period. While the Fourth Circuit has [*30] not yet addressed whether extraterritorial exploitation of a copyright falls within the Copyright Act’s jurisdiction when the domestic, predicate acts occurred prior to the limitations period, the Second and Ninth Circuits have sensibly held that such infringement is covered by the Act. See L.A. News Serv. v. Reuters Tel. Int’l, Ltd., 340 F.3d 926, 928 (9th Cir. 2003); Update Art, Inc. v. Modiin Pub., Ltd., 843 F.2d 67, 73 (2d Cir. 1988). ¹⁸ Specifically, the Ninth Circuit has held that while “the Copyright Act does not apply extraterritorially, an exception may apply where an act of infringement is completed entirely within the United States and that such infringing act enabled further exploitation abroad.” L.A. News, 340 F.3d at 928; see also Update Art, 843 F.2d at 73 (in the Second Circuit, holding that although “copyright laws generally do not have extraterritorial application[,] [t]here is an exception . . . when the type of infringement permits further reproduction abroad”). This rule ensures that domestic copyright infringers cannot escape liability for their infringing acts by exploiting the fruits of their infringement in foreign markets. This rule is appropriately applied [*31] in this case. Defendants cannot escape the reach of the Copyright Act where, as here, they initiated and committed their infringing acts in the United States and then attempted to reap the spoils of their infringement by manufacturing and selling their infringing tires abroad. Thus, they are liable for the foreign acts implementing their unlawful infringement scheme.

FOOTNOTES

18 The Sixth Circuit has also recognized that a court has subject matter jurisdiction over a copyright infringement action “as long as some act of infringement occurred in the United States,” even if most of the infringing conduct took occurred abroad. Liberty Toy Co. v. Fred ilber Co., No. 97-3177, 1998 U.S. App. LEXIS 14866, at *11 (6th Cir. June 29, 1998).

Furthermore, the fact that the domestic acts of infringement occurred outside of the limitations period is irrelevant to defendants’ liability, because the Copyright Act’s statute of limitations limits the remedy, not the substantive rights, under the Act. See Prather v. Neva Paperbacks, Inc., 446 F.2d 338, 340 (5th Cir. 1971) (holding that the limitations period would affects “the remedy only, not the substantive right” under the Copyright Act); Peter Letterese & Assocs. v. World Inst. of Scientology Enters., 533 F.3d 1287, 1320 (11th Cir. 2008) [*32] (agreeing with the Fifth Circuit’s analysis). Accordingly, defendants are liable for their foreign acts of infringement despite the fact that the domestic acts of infringement occurred before October 28, 2006.

Finally, defendants’ argue that Virginia law was improperly applied to the claims in this action because the wrongful acts did not occur in Virginia. This assertion is plainly meritless, since there is no question that acts of infringement occurred in the Commonwealth of Virginia. The Supreme Court of Virginia has consistently held that it is the place of the wrong that determines which state’s substantive law applies. See Quillen v. International Playlex, Inc., 789 F.2d 1041, 1044 (4th Cir. Va. 1986) (citing McMillan v. McMillan, 219 Va. 1127, 253 S.E.2d 662 (1979)).

Supreme Court grants cert in Costco v. Omega

Shourin Sen - 20 April 2010 – 9:00 am

Filed under Extraterritoriality, First Sale, Importation, Supreme Court

On Monday (Patriots Day in New England) the Supreme Court granted certiorari in Costco v. Omega. I’ve provided a rundown of the case in late March so I will dispense with the background. A couple of comments on the Supreme Court’s decision to grant cert:

The most interesting part of blogging cases is watching the conversation between the different branches of government and the many layers of our judicial system. I was somewhat surprised when the Supreme Court invited the Solicitor General’s Office to brief cert but upon reflection it made sense. Congress, in enacting the Pro-IP Act, arguably re-framed a core component of copyright law without substantial debate before passage. The invitation by the Supreme Court may have been an attempt to force the Executive to take a position on an issue that was not given discussion before enactment.

To that end, I question whether the Supreme Court’s decision to grant cert in Costco is rooted in forcing debate on the contours of the first-sale doctrine. Oral arguments will provide a spotlight, even if the Supreme Court has no intention of disturbing the Ninth Circuit’s (and all of the other district courts’ that have addressed the issue) interpretation of Sections 109 and 602. If Congress does not amend the provisions in the near future it will likely become a lasting component of American copyright law, given the momentum it takes to pass any law in the U.S. The granting of cert, then, could be an attempt by the Supreme Court to ensure that the contours of the first sale doctrine accurately reflects current Congressional intent before momentum takes hold.

I would not be surprised if the Supreme Court’s opinion contains language on issues that are not directly at bar, such as whether parties can raise 109(a) as a defense in cases involving foreign-made copies so long as a lawful sale has occurred, or about the viability of the defense of copyright misuse.

The Solicitor General’s Office led with the argument that cert should be denied because there was no circuit split, instead of with its statutory analysis. The petitioners made the argument in opposition that the Court should grant cert because there was no circuit split, and unless the issue was addressed post-haste, it would likely become accepted cannon. I made the observation in my previous post on Costco that the Supreme Court appears to grant cert in copyright cases for issues that fundamentally affect the structure of copyright law, and circuit splits play a modest part of the evaluation process. The decision of the Supreme Court to grant cert in Costco provides more support for this contention.

The American Federation of Musicians, which is affiliated with the AFL-CIO, presumably favors the Ninth Circuit’s interpretation that Section 109 does not limit distribution rights in works manufactured outside of the United States. But the Ninth Circuit’s decision, Costco argued, will negatively impact American manufacturing, which I would assume is closer to the core of the AFL-CIO’s lobbying efforts. The AFL-CIO (AFM) elected not to brief on cert. It will be interesting to see if they jump in on merits. A petition could provide a signal of how much, if at all, labor unions are concerned about the Ninth Circuit decision’s possible negative impact on American manufacturing.

Previous posts on Costco v. Omega:

Court Documents:

Solicitor General recommends denial of cert in Costco v. Omega

Shourin Sen - 29 March 2010 – 10:00 am

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.

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

Shourin Sen - 22 October 2009 – 9:00 am

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.