Magazine article Information Today

First Sale and Foreign Works

Magazine article Information Today

First Sale and Foreign Works

Article excerpt

The U.S. Supreme Court has been paying more attention to intellectual property (IP) issues in recent years. The end-of-the-term decision in the Bilski case confirmed the legality of business method patents, although they may be more difficult to obtain. A lesser-known but still important copyright decision allows a court to include unregistered copyrighted works along with registered copyrighted works in a class action lawsuit. (Normally, copyrighted works must be registered in order to sue for infringement.) Prior years have also seen significant patent, trademark, and copyright actions addressed by the court.

The 2010-2011 term will probably not be all that different. At least one significant copyright issue is making its way along the Supreme Court's docket and could have significant implications for the information industry. The case, Omega v. Costco Wholesale, will address the question of whether the first sale doctrine applies to copyrighted works that were manufactured and first distributed outside of the U.S. Given that the first sale doctrine allows libraries, used booksellers, and other information businesses to exist, this case could prove to be quite critical.

Omega v. Costco Wholesale

The first sale doctrine can be found in Title 17, Section 109 of the Copyright Act, which says that once a copyright owner distributes a particular copy of a copyrighted work, the owner of that particular copy is entitled to sell, lend, or "otherwise dispose" of that copy without interference by the copyright owner. In other words, once a library purchases a copy of the latest John Grisham novel, the library can lend that copy to hundreds of patrons without requiring permission of or paying royalties to Grisham (or his publisher).

However, one problem with U.S. copyright law is that it only applies in the U.S. This is proving to be the key factor that is sending the Costco case to the Supreme Court. Omega is the maker of high-end wristwatches, which it manufactures in Switzerland and sells worldwide through authorized dealers and distributors, including in the U.S. On the back of the watches is a small engraving with a logo and trademark. This engraving is copyrighted under U.S. law.

The 'Gray Market'

Omega sells its watches at varying prices in different regions of the world, in some cases at lower prices than in the U.S. Using middlemen who make legitimate purchases of the watches in these lower-priced countries, Costco obtained the watches and resold them in its U.S. stores at prices that undercut Omega's U.S. prices. This is often referred to as a "gray market" and is an important but controversial part of the global economy.

Normally, the first sale doctrine would apply. Once the watches (with the copyrighted engraving) were legally sold to the middlemen, they could legally resell them to Costco, which could legally resell them to consumers. However, Omega sued Costco for infringing on its right to distribute the copyrighted watches in the U.S. The argument was that the first sale doctrine did not apply because the first sales occurred overseas and that the middlemen did not have the authority to sell them to Costco. Because no authorized sale had occurred in the U.S., the U.S.-based first sale doctrine did not apply. The Court of Appeals agreed and held that the first sale doctrine did not apply to copyrighted works manufactured and sold outside the U.S.

Dealing With a Global Industry

The information industry is increasingly global in nature. …

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