Update: Parallel Imports: Trademarks, Copyrights, and the Supreme Court

The stage has been set for an issue important to brand-owners and importers alike, the importation of parallel imports or “gray market” goods, to be addressed by the Supreme Court early in the high court’s October 2010 Term. Oral argument for Costco Wholesale Corporation v. Omega, S.A., No. 08-1423 has been scheduled for Monday, November 8, 2010.

Case Summary: Omega authorized the foreign manufacture and sale of watches bearing a symbol protected by a U.S. copyright. The watches were subsequently imported into the United States without Omega’s authorization and Costco distributed them for sale. Omega then filed suit for unauthorized distribution of copyrighted goods. Omega persuaded the Ninth Circuit that its watches were not “sold” under the protection of the U.S. Copyright Act and, therefore, Costco could not rely on a first sale doctrine defense.

In this case, previously discussed on this blog here, the justices will consider whether the first sale doctrine of the Copyright Act, which allows a copyright holder to exclusively control the first sale of an authorized copy, should be interpreted to provide a defense for parallel importers bringing into the U.S. copyrighted material manufactured and first sold abroad. Newly confirmed Justice Elena Kagan, however, will not participate in this important decision. She has recused herself because, in her previous role as Solicitor General, she filed a brief with the Court recommending denial of certiorari.

The principal briefs as well as seventeen amicus briefs have been filed, all available online courtesy of the American Bar Association. Petitioner Costco contends that the Ninth Circuit was incorrect in holding that the Copyright Act’s first sale doctrine is not implicated when copies are both made and first sold abroad. The Ninth Circuit reached its decision by reasoning that application of the first sale doctrine in such a case would be an impermissible extraterritorial application of U.S. law. Costco argues that extraterritoriality is not a legitimate concern in this instance and that the first sale doctrine should only apply in a situation where the authorized copyright holder making copies abroad is not also authorized to make and sell copies in the United States.

Respondent Omega conversely argues that the Ninth Circuit framed the issue correctly and encourages the Court to conclude that a copy made abroad for foreign sale, whether under the consent of a U.S. copyright owner or not, has not been “sold” under any provision of the Copyright Act. Therefore, according to Omega, the first sale of such copyrighted goods in the United States remains the exclusive domain of the U.S. copyright holder.

Of the seventeen amicus briefs filed, seven are in support of Costco, nine are in support of Omega, and one, filed by the American Intellectual Property Law Association (AIPLA), is in support of neither party. The amici in support of Costco are a collection of merchants and retailers such as Target Corp., Amazon.com, eBay, and Gamestop Corp., consumer-advocacy organizations such as Public Citizen, and library organizations such as the American Library Association and the Association of College and Research Libraries, among others.

In support of Omega are organizations such as the Intellectual Property Owners Organization, the Association of American Publishers, the Motion Picture Association of America, and the American Bar Association, intellectual property owners such as Fujifilm Corporation and Seiko Epson Corporation among others. The United States, under the authority of Acting Solicitor General Neal Kumar Katyal, also filed a brief in support of Omega and has been granted leave by the high court to participate in the oral arguments.

It was somewhat surprising to see Intel in Costco’s corner, as Intel is an owner of a number of copyrighted computer programs distributed throughout the world. Intel, however, is concerned not only for the copyright implications of the Court’s decision but also the implications with respect to patent law, which contains an analogous first sale doctrine. Regarding the copyright issue, Intel authorizes each year the sale and loading of its copyrighted software onto over one hundred million personal computers, which are built abroad and then shipped for sale to destinations around the world, including the United States. These same computers also contain the copyrighted material of several other intellectual property owners. Intel is concerned that, under the Ninth Circuit’s decision, any one of the intellectual property owners who contributed to the manufacture of these computers could subsequently block the first sale in the United States despite having authorized a first sale abroad. According to Intel, such a “drastic reallocation” of property rights for goods in international trade could have dire consequences.

AIPLA stands alone in filing a brief in support of neither party. Instead, AIPLA advances two separate possible outcomes, both of which avoid the issue of extraterritoriality. In the first alternative, AIPLA acknowledges that the Court may reverse the Ninth Circuit by determining that the first sale doctrine defense applies in Costco v. Omega because copyright owner Omega had exhausted its first sale in placing the copyrighted goods in commerce by having, in fact, sold them. In the alternative, AIPLA suggests that the justices could arrive at substantially the same outcome as the lower court by holding that a copyright holder, even where a first sale has already taken place, can nonetheless prevent importation of unauthorized goods. AIPLA reasons that a brand owner like Omega could still prevent parallel importation, the first sale doctrine defense notwithstanding, because, as AIPLA argues, a separate provision of the Copyright Act not implicated by the first sale doctrine prohibits unauthorized importation.

However the Supreme Court decides this case, the reasoning will likely have an impact on a variety of intellectual property holders, not just copyright owners. As pointed out by Intel in its amicus brief, patent law contains an analogous first sale doctrine as does trademark law. If the Court affirms the Ninth Circuit’s decision, a status quo will be preserved, perhaps across the board for all intellectual property owners empowered to control the first sale of their protected goods. If, however, the Court reverses or affirms on other grounds such as those suggested by AIPLA, copyright owners and possibly patent and trademark owners will have to accept a new interpretation of the first sale doctrine.

How are the amici lining up?

In Support of Omega:

  • American Bar Association
  • American Watch Association
  • Association of American Publishers
  • Business Software Alliance
  • Fujifilm Corporation, Seiko Epson Corporation, Epson America, Inc. and Epson Portland, Inc.
  • Intellectual Property Owners Association
  • Motion Picture Association of America, Inc. and the Recording Industry Association of America
  • Software & Information Industry
  • The United States

In Support of Costco:

  • American Library Association, the Association of College and Research Libraries, and the Association of Research Libraries
  • ebay, Inc., Google, Inc., NetCoaltion, the Computer and Communications Industry Association, and the Internet Commerce Coalition
  • Entertainment Merchants Association and the National Association of Recording Merchandisers
  • Intel Corporation
  • Public Citizen
  • Public Knowledge, American Association of Law Libraries, American Free Trade Association, the Electronic Frontier Foundation, Medical Library Association, and the Special Libraries Association
  • Retail Industry Leaders Association, the National Association of Chain Drug Stores, Amazon.com, Inc., Gamestop Corp., Quality King Distributors, Inc., Sam’s West, Inc., and Target Corporation

In Support of Neither Party:

  • American Intellectual Property Law Association

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