Letter from AmeriKat: American lawyers love expensive watches, ABA amicus brief confirms

Last week signaled a week of new beginnings. The nation's children, decked out in their crisp white shirts and shiny schools shoes, returned to school. The workforce dragged their now-tanned heels back to their paper-covered desks and the AmeriKat happily started her first week at her new law firm. The first week back, be it at a new job or a new school year, always includes a flurry of new information, names and procedures to assimilate and very soon 5 days can feel like 50. (picture, left - the AmeriKat not quite getting around to polishing an apple for her new partners) But despite the newness of the environment and the people swirling about her, the AmeriKat found comfort in some old friends' faces - that of her IP and media text and statute books taking up residence on her new desk. The AmeriKat's firm and colleagues may have changed and she may not know what form goes with what client, but thankfully, IP has (mostly) stayed the same.

American Bar Association - a friend of copyright owners in Costco v Omega case

Another old friend that has come to comfort is the American Bar Association (ABA).

Last Tuesday the ABA filed an amicus curiae brief with the US Supreme Court in support of Omega in a case to be heard before the Supreme Court concerning the "first sale" doctrine in relation to copyright goods manufactured and distributed abroad (see original AmeriKat report here). Back in April, the Supreme Court granted Costco a writ of certiorari in the case of Costco Wholesale Corp v Omega SA and will now have the task of deciding whether when a copy is made and distributed abroad it is done so lawfully under section 109(a) and is therefore exempt from the copyright owner's exclusive right to control the importation of copies of its work into the US under section 602.

The case concerns an original 2004 action brought by Omega (part of The Swatch Group Ltd.) against Costco. Costco had sold watches, including the Omega Seamaster, that they had obtained from a New York-based third-party. Omega owns a US Copyright for an engraved emblem of a globe on the back of the Seamaster watch. Costco sold these watches for $1,299 - $700 less than Omega's suggested retail price. Omega argued that Costco had infringed US copyright law and sought to impose limits on the price Costco could sell the watches. Costco won in the first instance, but lost on appeal. The Court of Appeals for the Ninth Circuit held that that copyright owners did have the right to control the manner in which their goods are imported and sold in the US irrespective of the first-sales doctrine (a.k.a. the exhaustion rule) enshrined in section 109(a) because this section did not apply to goods manufactured abroad. The Court of Appeals decision relied substantially on section 602(a) of the Copyright Code which deals with infringing importation of copies.

The crux of the issue before the Supreme Court is the wording of the section 109(a) exception and its relation to section 602. Section 602(a)(1) of the Copyright Act sets out the general prohibitions against importation of copyright works into the US without the authority of the copyright owners that have been acquired outside the US. Section 109(a), which embodies the "first-sale doctrine", provides an exception to this prohibition whereby an owner of a particular copy of a copyright work "lawfully made under this title" is entitled without permission of the copyright owner to sell the copy. To benefit from the exception goods have to be "lawfully made under this title" which the Appeals Court held meant to be "lawfully made in the US" and since the watches were made overseas, Costco could not benefit from the exception. But some argue that the meaning of this phrase remain unresolved - cue Costco.

But unlike the slew of other amici who are mostly supporting Costco, ABA is supporting the copyright owner in this case - Omega. The AmeriKat is intrigued as to their reasoning behind the ABA's allegiance in this case and is curious to see if it was a strategical/political or a legal reason to explain their support.

This ABA amicus comes primarily by way of their Section of Intellectual Property Law (IPL Section) which they gleefully taut as the "world's largest organization of intellectual property professionals, with approximately 25,000 members" and include those who represent "copyright owners" and "users of works of authorship". The IPL Section's Copyright Task Force monitor judicial developments and develop policies of special importance, including whether to file amicus briefs. Other sections of the ABA, including the International Law and Litigation Sections supported the adoption of what is now known as Resolution 109 which urges the Supreme Court to exclude the first-sale doctrine to the importation of goods embodying a copyright work that were not manufactured in the U.S.

The ABA's argument is two-fold - that the Ninth Circuit Court of Appeals judgment was consistent with statutory interpretation and that the judgment is consistent with the application of the Quality King case. (picture, left - the only "Quality King" the AmeriKat knows of) The ABA argue that "lawfully made under this title" means Title 17 of the US Code in which the Copyright Act is codified and is thus more naturally referred to as being "made under" US copyright law. If "lawfully made under this title" meant "lawfully made anywhere in the world" and not just in the U.S., then section 602 which deals with a copyright owner's right to control importation of copies acquired outside the US would be essentially redundant. The ABA argues in support of this conclusion that the long-standing presumption that the "country's proscriptive and prescriptive competence ends at its own borders" as held in American Banana Co v United Fruit Co (1909) supports the view that "lawfully made under this title" is restricted to goods manufactured in the U.S. Indeed, they argue, copyright itself has been consistently interpreted as subject to the presumption of territoriality and restricted within US borders.

The second prong to the ABA's argument is that the Ninth Circuit's decision is consistent with the Quality King case (the case where Justice Stevens seemed to indicate that "lawfully made under this title" did mean "lawfully made in the US"). The Quality King case analyzed the status of Section 602 copies that were made in the US, left the country, then came back, i.e., "round trip". The Court in Quality King did not therefore need to construe the phrase "lawfully made under this title" because the copies had been made in the US. However, in illustrating their holding the Court distinguished between copies "lawfully made" under the US Copyright Act from those made under the law of some other country. For example where a copyright owner divided distribution rights between UK and US publishers, the copies made in the UK would not be copies "lawfully made under this title" for the purposes of Section 109(a).

The ABA argues that the Ninth Circuit was therefore correct in construing that British copies were "made" in another country and not "made under" Title 17 and, in similar circumstances, Costco could not benefit from the section 109 exception because the watches were not made in the US.

If the Supreme Court finds favor with this argument the consequences for the buyers and sellers of goods in the secondary market or "gray market", such as Costco, Amazon and eBay are huge. Gray market buyers argue that copyright owners usually sell their goods to foreign distributors at a discount price and all they are doing is then buying these goods from the distributors at a similar price. Why should they then be penalized as a result of a manufacturer's decision to sell their product at a discount price and further why should US copyright law allow copyright owners to have a second bite of the cherry?

The practical effect of such a Supreme Court decision may be to see US consumers paying higher prices for goods than that of their foreign counterparts and copyright owners being able to price-discriminate without any threat of recourse. In addition, US based manufacturing operations may be relocated to outside the "nation's borders" so that copyright owners can benefit from greater control for goods imported into the U.S. Whichever way you slice it, this case will have a lasting effect on the consumer retail industry, not only in the U.S. but overseas as well.

Given the consumer interest at stake, why did ABA side with Omega? The AmeriKat does not know and in fact finds it slightly surprising that the ABA put their head above the parapet so strongly in favor of copyright owners. It may be interesting to know the proportion of ABA members who represent copyright owners, to those who represent gray market buyers/consumers. If the ABA has these statistics, the IPKat would love to seem them.