First Sale Doctrine & Foreign Manufactured Goods - Kirtsaeng v. Wiley

“LAWFULLY MADE UNDER THIS TITLE” Lawfully made in the U.S. v. Manufactured with the permission of the rights holder

CHICAGO BAR ASSOCIATION | Trade & Professional Associations Law By: Alexis Hart McDowell, Esq.

CURRENT STATE OF THE LAW Legally manufactured overseas; Sold overseas; Imported back into U.S. - LEGAL

On March 19, 2013 the U.S. Supreme Court decided Kirtsaeng v. John Wiley & Sons, Inc., (No. 11–697), holding that the First Sale doctrine (17 U. S. C. §109(a)) applies to copies of copyrighted works lawfully made outside the United States and then imported into the U.S. Case Facts: Respondent, John Wiley & Sons, Inc., an academic textbook publisher, often assigns to its wholly owned foreign subsidiary (WileyAsia) rights to publish, print, and sell foreign editions of Wiley’s English language textbooks abroad. Wiley Asia’s books state that they are not to be taken (without permission) into the United States. When petitioner Kirtsaeng moved from Thailand to the United States to study mathematics, he asked friends and family to buy foreign edition English-language textbooks in Thai book shops, where they sold at low prices, and to mail them to him in the United States. He then sold the books, reimbursed his family and friends, and kept the profit.

EVOLUTION OF THE LAW Legally manufactured in U.S.; Sold overseas; Imported back into U.S. - LEGAL

In 1998, the U.S. Supreme Court decided Quality King Distributors, Inc. v. L’anza Research Int’l, Inc., 523 U. S. 135 (1998), holding that a copyrighted item manufactured in the U.S. and initially sold outside the U.S. could be legally imported back into the U.S. pursuant to copyright’s First Sale doctrine (17 U.S.C. §109) and without violating the copyright owner’s importation right (17 U.S.C. §602).

Case Facts: Respondent L’anza, a California manufacturer, sells its hair care products in the United States exclusively to distributors who have agreed to resell within limited geographic areas and only to authorized retailers. L’anza’s foreign prices are substantially lower than its domestic prices. It appears that after L’anza’s United Kingdom distributor arranged for the sale of several tons of L’anza products, affixed with copyrighted labels, to a distributor in Malta, that distributor sold the goods to petitioner, which imported them back into the United States without L’anza’s permission and then resold them at discounted prices to unauthorized retailers.

1 9 April 2013

http://www.law.cornell.edu/supct/html/96-1470.ZS.html

http://www.law.cornell.edu/supct/html/96-1470.ZS.html

Legally manufactured overseas; Sold overseas; Imported back into U.S. - ILLEGAL

In 2010, an equally divided U.S. Supreme Court affirmed the Ninth Circuit’s holding in Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982, (9th Cir. 2008) that the first sale doctrine applies only to copyrighted items that are made and distributed in the United States. The court deadlocked at 4-4 (Judge Kagan recused).

Ninth Circuit Ruling: The First Sale doctrine provides no defense to an infringement action under §§ 106(3) (distribution) and 602(a) (importation) that involves (1) foreign-made, nonpiratical copies of a U.S. copyrighted work, (2) unless those same copies have already been sold in the United States with the copyright owner’s authority.

Case Facts: Omega manufactures watches in Switzerland that bear the engraving of the U.S.-copyrighted “Omega Globe Design” on the underside of the watches. Omega first sold the watches to authorized distributors overseas. Unidentified third parties eventually purchased the watches and sold them to ENE Limited, a New York company, which in turn sold them to Costco. Costco then sold the watches to consumers in California. Although Omega authorized the initial foreign sale of the watches, it did not authorize their importation into the United States or the sales made by Costco. Omega sued under the Copyright Act, claiming the sale of the watches was an infringement of their United States copyright. Costco defended on the grounds of the first sale doctrine, which currently provides a defense for reselling goods manufactured in the United States that are resold by retailers or distributors. Costco claims that the doctrine applies to foreign-manufactured goods as well. The district court granted Costco’s motion for summary judgment, but the Ninth Circuit reversed the ruling.

RELEVANT PROVISIONS FROM THE U.S. COPYRIGHT ACT 17 U.S.C. §106(3) - [T]o distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending.

17 U.S.C. §109(a) - Notwithstanding the provisions of section 106 (3), the 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.

17 U.S.C. §602(a)(1) - 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 9 April 2013

http://www.law.cornell.edu/uscode/text/17/106

http://www.law.cornell.edu/uscode/text/17/usc_sec_17_00000106----000-%233



1 (Slip Opinion) OCTOBER TERM, 2012

Syllabus

NOTE: Where it is feasible, a syllabus (headnote) will be released, as isbeing done in connection with this case, at the time the opinion is issued.The syllabus constitutes no part of the opinion of the Court but has beenprepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.

SUPREME COURT OF THE UNITED STATES

Syllabus

KIRTSAENG, DBA BLUECHRISTINE99 v. JOHN WILEY & SONS, INC.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

No. 11–697. Argued October 29, 2012—Decided March 19, 2013

The “exclusive rights” that a copyright owner has “to distribute copies. . . of [a] copyrighted work,” 17 U. S. C. §106(3), are qualified by theapplication of several limitations set out in §§107 through 122, in-cluding the “first sale” doctrine, which provides that “the owner of a particular copy or phonorecord lawfully made under this title . . . isentitled, without the authority of the copyright owner, to sell or oth-erwise dispose of the possession of that copy or phonorecord,” §109(a).Importing a copy made abroad without the copyright owner’s permis-sion is an infringement of §106(3). See §602(a)(1). In Quality King Distributors, Inc. v. L’anza Research Int’l, Inc., 523 U. S. 135, 145, this Court held that §602(a)(1)’s reference to §106(3) incorporates the§§107 through 122 limitations, including §109’s “first sale” doctrine. However, the copy in Quality King was initially manufactured in theUnited States and then sent abroad and sold.

Respondent, John Wiley & Sons, Inc., an academic textbook pub-lisher, often assigns to its wholly owned foreign subsidiary (WileyAsia) rights to publish, print, and sell foreign editions of Wiley’s Eng-lish language textbooks abroad. Wiley Asia’s books state that they are not to be taken (without permission) into the United States.When petitioner Kirtsaeng moved from Thailand to the United Statesto study mathematics, he asked friends and family to buy foreign edi-tion English-language textbooks in Thai book shops, where they sold at low prices, and to mail them to him in the United States. He then sold the books, reimbursed his family and friends, and kept the profit.

Wiley filed suit, claiming that Kirtsaeng’s unauthorized importa-tion and resale of its books was an infringement of Wiley’s §106(3)

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exclusive right to distribute and §602’s import prohibition. Kirtsaengreplied that because his books were “lawfully made” and acquired le-gitimately, §109(a)’s “first sale” doctrine permitted importation andresale without Wiley’s further permission. The District Court held that Kirtsaeng could not assert this defense because the doctrine does not apply to goods manufactured abroad. The jury then foundthat Kirtsaeng had willfully infringed Wiley’s American copyrights and assessed damages. The Second Circuit affirmed, concluding that§109(a)’s “lawfully made under this title” language indicated that the “first sale” doctrine does not apply to copies of American copyrighted works manufactured abroad.

Held: The “first sale” doctrine applies to copies of a copyrighted worklawfully made abroad. Pp. 7–33.

(a) Wiley reads “lawfully made under this title” to impose a geo-graphical limitation that prevents §109(a)’s doctrine from applying toWiley Asia’s books. Kirtsaeng, however, reads the phrase as impos-ing the non-geographical limitation made “in accordance with” or “incompliance with” the Copyright Act, which would permit the doctrineto apply to copies manufactured abroad with the copyright owner’s permission. Pp. 7–8.

(b) Section 109(a)’s language, its context, and the “first sale” doc-trine’s common-law history favor Kirtsaeng’s reading. Pp. 8–24.

(1) Section 109(a) says nothing about geography. “Under” can logically mean “in accordance with.” And a nongeographical inter-pretation provides each word in the phrase “lawfully made under this title” with a distinct purpose: “lawfully made” suggests an effort to distinguish copies that were made lawfully from those that were not, and “under this title” sets forth the standard of “lawful[ness]” (i.e., the U. S. Copyright Act). This simple reading promotes the tradi-tional copyright objective of combatting piracy and makes word-by-word linguistic sense.

In contrast, the geographical interpretation bristles with linguisticdifficulties. Wiley first reads “under” to mean “in conformance with the Copyright Act where the Copyright Act is applicable.” Wiley thenargues that the Act “is applicable” only in the United States. Howev-er, neither “under” nor any other word in “lawfully made under thistitle” means “where.” Nor can a geographical limitation be read into the word “applicable.” The fact that the Act does not instantly pro-tect an American copyright holder from unauthorized piracy taking place abroad does not mean the Act is inapplicable to copies madeabroad. Indeed, §602(a)(2) makes foreign-printed pirated copies sub-ject to the Copyright Act. And §104 says that works “subject to pro-tection” include unpublished works “without regard to the [author’s]nationality or domicile,” and works “first published” in any of the

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3 Cite as: 568 U. S. ____ (2013)

Syllabus

nearly 180 nations that have signed a copyright treaty with theUnited States. Pp. 8–12.

(2) Both historical and contemporary statutory context indicatethat Congress did not have geography in mind when writing the pre-sent version of §109(a). A comparison of the language in §109(a)’spredecessor and the present provision supports this conclusion. The former version referred to those who are not owners of a copy, but mere possessors who “lawfully obtained” a copy, while the present version covers only owners of a “lawfully made” copy. This new lan-guage, including the five words at issue, makes clear that a lessee ofa copy will not receive “first sale” protection but one who owns a copy will be protected, provided that the copy was “lawfully made.” A nongeographical interpretation is also supported by other provisions of the present statute. For example, the “manufacturing clause,” which limited importation of many copies printed outside the UnitedStates, was phased out in an effort to equalize treatment of copies made in America and copies made abroad. But that “equal treat-ment” principle is difficult to square with a geographical interpreta-tion that would grant an American copyright holder permanent con-trol over the American distribution chain in respect to copies printed abroad but not those printed in America. Finally, the Court normally presumes that the words “lawfully made under this title” carry the same meaning when they appear in different but related sections,and it is unlikely that Congress would have intended the conse-quences produced by a geographical interpretation. Pp. 12–16.

(3) A nongeographical reading is also supported by the canon of statutory interpretation that “when a statute covers an issue previ-ously governed by the common law,” it is presumed that “Congress intended to retain the substance of the common law.” Samantar v. Yousuf, 560 U. S. ___, ___. The common-law “first sale” doctrine, which has an impeccable historic pedigree, makes no geographical distinctions. Nor can such distinctions be found in Bobbs-Merrill Co. v. Straus, 210 U. S. 339, where this Court first applied the “first sale”doctrine, or in §109(a)’s predecessor provision, which Congress enact-ed a year later. Pp. 17–19.

(4) Library associations, used-book dealers, technology compa-nies, consumer-goods retailers, and museums point to various waysin which a geographical interpretation would fail to further basic constitutional copyright objectives, in particular “promot[ing] theProgress of Science and useful Arts,” Art. I, §8, cl. 8. For example, a geographical interpretation of the first-sale doctrine would likely re-quire libraries to obtain permission before circulating the many books in their collections that were printed overseas. Wiley counters thatsuch problems have not occurred in the 30 years since a federal court

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first adopted a geographical interpretation. But the law has not been settled for so long in Wiley’s favor. The Second Circuit in this case was the first Court of Appeals to adopt a purely geographical inter-pretation. Reliance on the “first sale” doctrine is also deeply embed-ded in the practices of booksellers, libraries, museums, and retailers,who have long relied on its protection. And the fact that harm has proved limited so far may simply reflect the reluctance of copyrightholders to assert geographically based resale rights. Thus, the prac-tical problems described by petitioner and his amici are too serious, extensive, and likely to come about to be dismissed as insignificant—particularly in light of the ever-growing importance of foreign trade to America. Pp. 19–24.

(c) Several additional arguments that Wiley and the dissent makein support of a geographical interpretation are unpersuasive. Pp. 24– 33.

654 F. 3d 210, reversed and remanded.

BREYER, J., delivered the opinion of the Court, in which ROBERTS, C. J., and THOMAS, ALITO, SOTOMAYOR, and KAGAN, JJ., joined. KAGAN, J., filed a concurring opinion, in which ALITO, J., joined. GINSBURG, J., filed a dissenting opinion, in which KENNEDY, J., joined, and in which SCALIA, J., joined except as to Parts III and V–B–1.

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(Bench Opinion) OCTOBER TERM, 1997 1

Syllabus

NOTE: Where it is feasible, a syllabus (headnote) will be released, as isbeing done in connection with this case, at the time the opinion is issued.The syllabus constitutes no part of the opinion of the Court but has beenprepared by the Reporter of Decisions for the convenience of the reader.See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.


Syllabus

QUALITY KING DISTRIBUTORS, INC. v. L’ANZARESEARCH INTERNATIONAL, INC.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FORTHE NINTH CIRCUIT

No. 96–1470. Argued December 8, 1997— Decided March 9, 1998

Respondent L’anza, a California manufacturer, sells its hair care prod-ucts in this country exclusively to distributors who have agreed to re-sell within limited geographic areas and only to authorized retailers.L’anza promotes its domestic sales with extensive advertising andspecial retailer training. In foreign markets, however, it does not en-gage in comparable advertising or promotion; its foreign prices aresubstantially lower than its domestic prices. It appears that afterL’anza’s United Kingdom distributor arranged for the sale of severaltons of L’anza products, affixed with copyrighted labels, to a distribu-tor in Malta, that distributor sold the goods to petitioner, which im-ported them back into this country without L’anza’s permission andthen resold them at discounted prices to unauthorized retailers.L’anza filed suit, alleging that petitioner’s actions violated L’anza’sexclusive rights under the Copyright Act of 1976 (Act), 17 U. S. C.§§106, 501, and 602, to reproduce and distribute the copyrighted ma-terial in the United States. The District Court rejected petitioner’s“first sale” defense under §109(a) and entered summary judgment forL’anza. Concluding that §602(a), which gives copyright owners theright to prohibit the unauthorized importation of copies, would be“meaningless” if §109(a) provided a defense, the Ninth Circuit af-firmed.

Held: The first sale doctrine endorsed in §109(a) is applicable to im-ported copies. Pp. 3–18.

(a) In Bobbs-Merrill Co. v. Straus, 210 U. S. 339, 349–350, thisCourt held that the exclusive right to “vend” under the copyrightstatute then in force applied only to the first sale of a copyrightedwork. Congress subsequently codified Bobbs-Merrill’s first sale doc-

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2 QUALITY KING DISTRIBUTORS, INC. v. L’ANZARESEARCH INT’L, INC.

Syllabus

trine in the Act. Section 106(3) gives the copyright holder the exclu-sive right “to distribute copies . . . by sale or other transfer of owner-ship,” but §109(a) provides: “Notwithstanding . . . [§]106(3), theowner of a particular copy . . . lawfully made under this title, . . . isentitled, without the authority of the copyright owner, to sell or oth-erwise dispose of the possession of that copy . . . .” Although the firstsale doctrine prevents L’anza from treating unauthorized resales byits domestic distributors as an infringement of the exclusive right todistribute, L’anza claims that §602(a), properly construed, prohibitsits foreign distributors from reselling its products to American ven-dors unable to buy from its domestic distributors. Pp. 3–7.

(b) The statutory language clearly demonstrates that the rightgranted by §602(a) is subject to §109(a). Significantly, §602(a) doesnot categorically prohibit the unauthorized importation of copy-righted materials, but provides that, with three exceptions, such“[i]mportation . . . is an infringement of the exclusive right to distrib-ute . . . under [§]106 . . . .” Section 106 in turn expressly states thatall of the exclusive rights therein granted— including the distributionright granted by subsection (3)— are limited by §§107 through 120.One of those limitations is provided by §109(a), which expressly per-mits the owner of a lawfully made copy to sell that copy“[n]otwithstanding the provisions of [§]106(3).” After the first sale ofa copyrighted item “lawfully made under this title,” any subsequentpurchaser, whether from a domestic or a foreign reseller, is obviouslyan “owner” of that item. Read literally, §109(a) unambiguouslystates that such an owner “is entitled, without the authority of thecopyright owner, to sell” that item. Moreover, since §602(a) merelyprovides that unauthorized importation is an infringement of an ex-clusive right “under [§]106,” and since that limited right does not en-compass resales by lawful owners, §602(a)’s literal text is simply in-applicable to both domestic and foreign owners of L’anza’s productswho decide to import and resell them here. Pp. 7–9.

(c) The Court rejects L’anza’s argument that §602(a), and particu-larly its exceptions, are superfluous if limited by the first sale doc-trine. The short answer is that this argument does not adequatelyexplain why the words “under [§]106” appear in §602(a). Moreover,there are several flaws in L’anza’s reasoning that, because §602(b) al-ready prohibits the importation of unauthorized or “piratical” copies,§602(a) must cover nonpiratical (“lawfully made”) copies sold by thecopyright owner. First, even if §602(a) applied only to piratical cop-ies, it at least would provide a private remedy against the importer,whereas §602(b)’s enforcement is vested in the Customs Service.Second, because §109(a)’s protection is available only to the “owner”of a lawfully made copy, the first sale doctrine would not provide a

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Cite as: ____ U. S. ____ (1998) 3

Syllabus

defense to a §602(a) action against a non-owner such as a bailee.Third, §602(a) applies to a category of copies that are neither pirati-cal nor “lawfully made under this title”: those that are “lawfullymade” under another country’s law. Pp. 9–12.

(d) Also rejected is L’anza’s argument that because §501(a) definesan “infringer” as one “who violates . . . [§]106 . . . , or who imports . . .in violation of [§]602,” a violation of the latter type is distinct fromone of the former, and thus not subject to §109(a). This argument’sforce is outweighed by other statutory considerations, including thefact that §602(a) unambiguously states that the prohibited importa-tion is an infringement “under [§]106,” thereby identifying §602 vio-lations as a species of §106 violations. More important is the factthat the §106 rights are subject to all of the provisions of “[§§]107through 120.” If §602(a) functioned independently, none of those sec-tions would limit its coverage. Pp. 12–15.

(e) The Court finds unpersuasive the Solicitor General’s argumentthat “importation” describes an act that is not protected by §109(a)’sauthorization to a subsequent owner “to sell or otherwise dispose ofthe possession of” a copy. An ordinary interpretation of that lan-guage includes the right to ship the copy to another person in anothercountry. More important, the Solicitor General’s cramped reading isat odds with §109(a)’s necessarily broad reach. The whole point ofthe first sale doctrine is that once the copyright owner places a copy-righted item in the stream of commerce by selling it, he has ex-hausted his exclusive statutory right to control its distribution.There is no reason to assume that Congress intended §109(a) to limitthe doctrine’s scope. Pp. 15–16.

(f) The wisdom of protecting domestic copyright owners from theunauthorized importation of validly copyrighted copies of their works,and the fact that the Executive Branch has recently entered into atleast five international trade agreements apparently intended to dojust that, are irrelevant to a proper interpretation of the Act. Pp.16–17.

98 F. 3d 1109, reversed.

STEVENS, J., delivered the opinion for a unanimous Court. GINSBURG,J., filed a concurring opinion.

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_________________

1 (Slip Opinion) Cite as: 562 U. S. ____ (2010)

Per Curiam

NOTICE: This opinion is subject to formal revision before publication in thepreliminary print of the United States Reports. Readers are requested tonotify the Reporter of Decisions, Supreme Court of the United States, Wash-ington, D. C. 20543, of any typographical or other formal errors, in orderthat corrections may be made before the preliminary print goes to press.


No. 08–1423

COSTCO WHOLESALE CORPORATION, PETITIONER v. OMEGA, S. A.

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

[December 13, 2010]

PER CURIAM. The judgment is affirmed by an equally divided Court.

JUSTICE KAGAN took no part in the consideration or decision of this case.

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FOR PUBLICATION

UNITED STATES COURT OF APPEALSFOR THE NINTH CIRCUIT

OMEGA S.A., Nos. 07-55368Plaintiff-Appellant, 07-56206

v. D.C. No.CV-04-05443-TJHCOSTCO WHOLESALE CORPORATION,

Defendant-Appellee. OPINIONAppeal from the United States District Court

for the Central District of CaliforniaTerry J. Hatter, District Judge, Presiding

Argued and SubmittedJuly 15, 2008—Pasadena, California

Filed September 3, 2008

Before: Barry G. Silverman, Johnnie B. Rawlinson, andMilan D. Smith, Jr., Circuit Judges.

Opinion by Judge Milan D. Smith, Jr.

12107

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COUNSEL

David S. Richman and Kenneth E. Johnson, TheodoraOringher Miller & Richman, P.C., Los Angeles, California;

12110 OMEGA v. COSTCO

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Barry R. Levy, Horvitz & Levy LLP, Encino, California, forthe plaintiff-appellant.

Aaron J. Moss and Norman H. Levine, Greenberg GluskerFields Claman & Machtinger LLP, Los Angeles, California,for the defendant-appellee.

W. Stephen Cannon and Seth D. Greenstein, ConstantineCannon LLP, Washington, D.C., for the amici curiae.

OPINION

MILAN D. SMITH, JR., Circuit Judge:

In this opinion, we address whether the Supreme Court’sdecision in Quality King Distributors, Inc. v. L’anza ResearchInternational, Inc., 523 U.S. 135 (1998), requires us to over-rule our precedents that allow a defendant in a copyrightinfringement action to claim the “first sale doctrine” of 17U.S.C. § 109(a) as a defense only where the disputed copiesof a copyrighted work were either made or previously sold inthe United States with the authority of the copyright owner.Plaintiff-Appellant Omega, S.A. (Omega) filed claims forinfringing distribution and importation under 17 U.S.C.§§ 106(3) and 602(a) in response to Defendant-AppelleeCostco Wholesale Corporation’s (Costco) unauthorized saleof authentic, imported Omega watches bearing a design regis-tered at the U.S. Copyright Office. The district court grantedsummary judgment to Costco on the basis of the first saledoctrine, and awarded attorney’s fees. We have jurisdictionpursuant to 28 U.S.C. § 1291, and we reverse.

This circuit has construed 17 U.S.C. § 109(a) to provide nodefense to an infringement action under §§ 106(3) and 602(a)that involves (1) foreign-made, nonpiratical copies of a U.S.-copyrighted work, (2) unless those same copies have already

12111OMEGA v. COSTCO

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been sold in the United States with the copyright owner’sauthority. We hold that the first portion of this construction isnot “clearly irreconcilable” with Quality King, and that itremains the law of this circuit. See Miller v. Gammie, 335F.3d 889, 900 (9th Cir. 2003) (en banc). Because there is nogenuine dispute that Omega made the copies of the OmegaGlobe Design in Switzerland, and that Costco sold them in theUnited States without Omega’s authority, the first sale doc-trine is unavailable as a defense to Omega’s claims.

I. FACTUAL AND PROCEDURAL BACKGROUND

The facts are not disputed. Omega manufactures watches inSwitzerland and sells them globally through a network ofauthorized distributors and retailers. Engraved on the under-side of the watches is a U.S.-copyrighted “Omega GlobeDesign.”

Costco obtained watches bearing the copyrighted designfrom the “gray market”1 in the following manner: Omega firstsold the watches to authorized distributors overseas. Unidenti-fied third parties eventually purchased the watches and soldthem to ENE Limited, a New York company, which in turnsold them to Costco. Costco then sold the watches to consum-ers in California. Although Omega authorized the initial for-eign sale of the watches, it did not authorize their importationinto the United States or the sales made by Costco.

Omega filed a lawsuit alleging that Costco’s acquisitionand sale of the watches constitute copyright infringement

1“ ‘Gray-market’ goods, or ‘parallel imports,’ are genuine products pos-sessing a brand name protected by a trademark or copyright. They are typ-ically manufactured abroad, and purchased and imported into the UnitedStates by third parties, thereby bypassing the authorized U.S. distributionchannels.” Parfums Givenchy, Inc. v. Drug Emporium, Inc., 38 F.3d 477,481 n.6 (9th Cir. 1994). Retailers are able to sell these products at a dis-count because the gray market arbitrages international discrepancies inmanufacturers’ pricing systems.


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under 17 U.S.C. §§ 106(3) and 602(a), and subsequentlymoved for summary judgment. Costco filed a cross-motion onthe basis of 17 U.S.C. § 109(a), arguing that, under the firstsale doctrine, Omega’s initial foreign sale of the watches pre-cludes claims of infringing distribution and importation inconnection with the subsequent, unauthorized sales. The dis-trict court ruled without explanation in favor of Costco onboth motions. The court also awarded $373,003.80 in attor-ney’s fees to Costco under 17 U.S.C. § 505. This appeal fol-lowed.

II. STANDARD OF REVIEW

We review de novo a district court’s grant of summaryjudgment under Federal Rule of Civil Procedure 56. Buono v.Norton, 371 F.3d 543, 545 (9th Cir. 2004). Rule 56(c) pro-vides that summary judgment is warranted when the “plead-ings, the discovery and disclosure materials on file, and anyaffidavits show that there is no genuine issue as to any mate-rial fact and that the movant is entitled to judgment as a mat-ter of law.” We review a district court’s award of attorney’sfees under 17 U.S.C. § 505 for an abuse of discretion. Colum-bia Pictures Television, Inc. v. Krypton Broad. of Birming-ham, Inc., 259 F.3d 1186, 1197 (9th Cir. 2001).

III. DISCUSSION

[1] The viability of Omega’s infringement claims hinges onthe relationship among three sections of the Copyright Act of1976: 17 U.S.C. §§ 106(3), 109(a), and 602(a). In relevantpart, § 602(a) reads:

Importation into the United States, without theauthority of the owner of copyright under this title,of copies . . . of a work that have been acquired out-side the United States is an infringement of the


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exclusive right to distribute copies . . . under section106, actionable under section 501.2

Section 106(3) states:

Subject to sections 107 through 122, the owner ofcopyright under this title has the exclusive rights . . .to distribute copies . . . of the copyrighted work tothe public by sale or other transfer of ownership, orby rental, lease, or lending.

Finally, § 109(a) provides:

Notwithstanding the provisions of section 106(3),the owner of a particular copy . . . lawfully madeunder this title, or any person authorized by suchowner, is entitled, without the authority of the copy-right owner, to sell or otherwise dispose of the pos-session of that copy . . . .

This last section codifies the so-called “first sale doctrine,”which holds that “[o]nce [a] copyright owner consents to thesale of particular copies of his work, he may not thereafterexercise the distribution right with respect to those copies.” 2-8 Melville B. Nimmer & David Nimmer, Nimmer on Copy-right § 8.12(B)(1), at 8-156 (1978 ed.).

[2] The text of the Copyright Act establishes by syllogismthat the first sale doctrine of § 109(a) limits § 602(a): First,given that § 106(3) is “subject to sections 107 through 122”and § 109 falls within the designated portion of the Code,§ 109(a) limits the exclusive distribution right in § 106(3).Second, infringing importation under § 602(a) is merely a

2Section 501(a) provides: “Anyone who violates any of the exclusiverights of the copyright owner as provided by sections 106 through 122, . . .or who imports copies . . . into the United States in violation of section602, is an infringer of the copyright . . . .”


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subcategory of “infringement of the exclusive right to distrib-ute copies . . . under section 106,” so conduct that does notviolate § 106(3) cannot constitute infringement under§ 602(a). Finally, because conduct covered by § 109(a) doesnot violate § 106(3), and because absent a violation of§ 106(3) there cannot be infringement under § 602(a), conductcovered by § 109(a) does not violate § 602(a). In short,infringement does not occur under § 106(3) or § 602(a) where“the owner of a particular copy . . . lawfully made under thistitle” imports and sells that copy without the authority of thecopyright owner. 17 U.S.C. § 109(a);3 see Quality King Dis-tribs., Inc. v. L’anza Res. Int’l, Inc., 523 U.S. 135, 144-45(1998) (adopting this interpretation).

[3] Omega concedes that § 109(a) generally limits§§ 106(3) and 602(a), but contends that § 109(a) does notapply in this case. Specifically, Omega argues that § 109(a)provides no defense to the infringement claims because,although the Omega Globe Design was copyrighted in theUnited States, the watches bearing the design were manufac-tured and first sold overseas. Omega claims that the copies ofthe design were not “lawfully made under [Title 17]” in thesecircumstances. 17 U.S.C. § 109(a). Costco responds thatalthough Omega’s position is correct under BMG Music v.Perez, 952 F.2d 318 (9th Cir. 1991), Parfums Givenchy, Inc.v. Drug Emporium, Inc., 38 F.3d 477 (9th Cir. 1994), andDenbicare U.S.A. Inc. v. Toys “R” Us, Inc., 84 F.3d 1143 (9thCir. 1996), the Supreme Court effectively overruled thosecases in Quality King, 523 U.S. 135. For the reasons set forthbelow, we hold that Quality King did not invalidate our gen-eral rule that § 109(a) can provide a defense against §§ 106(3)and 602(a) claims only insofar as the claims involve domesti-cally made copies of U.S.-copyrighted works. Because we

3Other parts of § 109 qualify the first sale doctrine of § 109(a), see gen-erally 17 U.S.C. § 109, but the parties do not argue that any of those limit-ing provisions apply.


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also conclude that the exception to that rule does not apply,§ 109(a) provides no defense in this case.

A. Current Rule in the Circuit

[4] Omega’s position was clearly correct under pre-QualityKing Ninth Circuit precedent. This court has twice held onindistinguishable facts that § 109(a) provides no defenseagainst a claim under § 602(a). In BMG Music, the defendantpurchased copies of the plaintiffs’ U.S.-copyrighted, foreign-manufactured sound recordings, imported them into theUnited States without the plaintiffs’ authorization, and thensold them to the public. 952 F.2d at 319. Following CBS v.Scorpio Music Distributors, 569 F. Supp. 47, 49 (E.D. Pa.1983), aff’d without opinion, 738 F.2d 424 (3d Cir. 1984), weheld that § 109(a) provided no defense against a claim under§ 602(a) in the circumstances because the phrase “lawfullymade under this title” in § 109(a) “grants first sale protectiononly to copies legally made and sold in the United States,”and the copies at issue were made and first sold abroad. 952F.2d at 319. The rationale for this interpretation was twofold:First, a contrary interpretation would impermissibly extendthe Copyright Act extraterritorially. Id. (citing Scorpio, 569 F.Supp. at 49). Second, the application of § 109(a) after foreignsales would “ ‘render § 602 virtually meaningless’ ” as a toolagainst the unauthorized importation of nonpiratical copiesbecause importation is almost always preceded by at least onelawful foreign sale that will have exhausted the distributionright on which § 602(a) is premised. Id. at 319-20 (quotingScorpio, 569 F. Supp. at 49).

[5] Drug Emporium, 38 F.3d 477, followed BMG Music byholding on similar material facts that § 109(a) provided nodefense. However, we criticized the prior interpretation of§ 109(a)’s key phrase—“lawfully made under this title.” Bypermitting the first sale defense only against claims involvingcopies that are “legally made and sold in the United States,”BMG Music appeared to give greater copyright protection to


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foreign-made copies than to their domestically made counter-parts. See 38 F.3d at 482 n.8. We found that “such a resultwould be untenable, and that nothing in the legislative historyor text of § 602 supports such an interpretation.” Id.; see also2 Paul Goldstein, Goldstein on Copyright § 7.6.1, at 142 (3ded. 2007) (criticizing the approach in BMG Music and Scor-pio). We therefore created an exception to BMG Music, con-cluding that § 109(a) can apply to copies not made in theUnited States so long as an authorized first sale occurs here.Drug Emporium, 38 F.3d at 481.

Denbicare, which involved copies made in Hong Kong andvoluntarily sold by the U.S. copyright owner within theUnited States, applied the exception created by Drug Empo-rium. Denbicare, 84 F.3d at 1145-46. The copyright ownersued under §§ 106(3) and 602(a) after the defendant pur-chased the copies and resold them without permission, but werejected the claims: The defendant was not liable for infring-ing importation under § 602(a) because the disputed copieswere imported by third parties prior to the defendant’s pur-chase and resale. Id. at 1149. The defendant also was not lia-ble under § 106(3) because, in light of § 109(a) and DrugEmporium, the copyright owner’s voluntary sale of the copieswithin the United States exhausted the exclusive right of dis-tribution. Id. at 1149-50.

[6] Under these cases, Costco would not be entitled to sum-mary judgment on the basis of § 109(a). The statute would notapply because Omega made copies of the Omega GlobeDesign in Switzerland and Costco sold the copies withoutOmega’s authority in the United States. The district court’sunexplained grant of summary judgment on the basis of§ 109(a) was at odds with BMG Music, Drug Emporium, andDenbicare.4

4Denbicare’s rejection of a § 602(a) claim due to the defendant’s lackof involvement in importation suggests that Omega’s claim under § 602(a)is similarly unmeritorious because, like the defendant in Denbicare,


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B. The Impact of Quality King

We next address the degree to which the Supreme Court’sdecision in Quality King invalidates this circuit’s constructionof § 109(a). This panel may overrule BMG Music, DrugEmporium, and Denbicare if Quality King “undercut[s] thetheory or reasoning underlying the prior circuit precedent insuch a way that the cases are clearly irreconcilable.” Miller,335 F.3d at 900.

1.

[7] It is clear that Quality King did not directly overruleBMG Music, Drug Emporium, and Denbicare. Quality Kinginvolved “round trip” importation: a product with a U.S.-copyrighted label was manufactured inside the United States,exported to an authorized foreign distributor, sold to unidenti-fied third parties overseas, shipped back into the United Stateswithout the copyright owner’s permission, and then sold inCalifornia by unauthorized retailers. 523 U.S. at 138-39. TheCourt held that § 109(a) can provide a defense to an actionunder § 602(a) in this context. Id. at 144-52. However,because the facts involved only domestically manufacturedcopies, the Court did not address the effect of § 109(a) onclaims involving unauthorized importation of copies madeabroad. See id. at 154 (Ginsburg, J., concurring) (“[W]e donot today resolve cases in which the allegedly infringingimports were manufactured abroad.”). Moreover, the Courtnever discussed the scope of § 109(a) or defined what “law-fully made under this title” means.

Costco did not import the disputed copies. See 84 F.3d at 1149. However,Costco waived this argument by not raising it in its opening brief. SeeGreenwood v. FAA, 28 F.3d 971, 977 (9th Cir. 1994) (“We review onlyissues which are argued specifically and distinctly in a party’s openingbrief.”). In any event, we must still decide whether § 109(a) provides adefense against Omega’s claim under § 106(3).


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2.

[8] We next consider whether the reasoning5 of QualityKing is clearly irreconcilable with our general rule that§ 109(a) is limited to copies “legally made . . . in the UnitedStates.” BMG Music, 952 F.2d at 319; see also Denbicare, 84F.3d at 1150. The basis for that rule was our concern thatapplying § 109(a) to foreign-made copies would violate thepresumption against the extraterritorial application of U.S.law. BMG Music, 952 F.2d at 319 (citing Scorpio, 569 F.Supp. at 49); cf. Subafilms, Ltd. v. MGM-Pathe Commc’nsCo., 24 F.3d 1088, 1093-98 (9th Cir. 1994) (en banc)(describing the “undisputed axiom” that United States copy-right law has no extraterritorial application). Quality King dis-missed a similar concern that the triggering of § 109(a) byforeign sales would require an invalid extraterritorial applica-tion of the Copyright Act, explaining that merely recognizingthe occurrence of such sales “does not require the extraterrito-rial application of the Act any more than § 602(a)’s ‘acquiredabroad’ language does.” 523 U.S. at 145 n.14. Costco con-tends that this explanation is irreconcilable with our interpre-tation of § 109(a) in BMG Music.

[9] We reject Costco’s contention and hold that theSupreme Court’s brief discussion on extraterritoriality is not“clearly irreconcilable” with our general limitation of § 109(a)to copies that are lawfully made in the United States. Miller,335 F.3d at 900. The common understanding of the presump-tion against extraterritoriality is that a U.S. statute “appl[ies]only to conduct occurring within, or having effect within, theterritory of the United States, unless the contrary is clearlyindicated by the statute.” Restatement (Second) of ForeignRelations Law of the United States § 38 (1965); see also

5“[L]ower courts [are] bound not only by the holdings of higher courts’decisions but also by their ‘mode of analysis.’ ” Miller, 335 F.3d at 900(quoting Antonin Scalia, The Rule of Law as a Law of Rules, 56 U. Chi.L. Rev. 1175, 1177 (1989)).


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EEOC v. Arabian Am. Oil Co., 499 U.S. 244, 248 (1991).Recognizing the importance of avoiding international con-flicts of law in the area of intellectual property, however, wehave applied a more robust version of this presumption to theCopyright Act, holding that the Act presumptively does notapply to conduct that occurs abroad even when that conductproduces harmful effects within the United States. See Suba-films, Ltd., 24 F.3d at 1096-98; see also William S. Dodge,Understanding the Presumption Against Extraterritoriality,16 Berkeley J. Int’l L. 85, 101 (1998) (characterizing this cir-cuit’s approach under the Copyright Act as consistent withAmerican Banana Co. v. United Fruit Co., 213 U.S. 347, 356(1909), overruled on other grounds, Continental Ore Co. v.Union Carbide & Carbon Corp., 370 U.S. 690, 704-05(1962), which described the presumption as a “general andalmost universal rule . . . that the character of an act as lawfulor unlawful must be determined wholly by the law of thecountry where the act is done”).

[10] Given this understanding of the presumption, theapplication of § 109(a) to foreign-made copies would imper-missibly apply the Copyright Act extraterritorially in a waythat the application of the statute after foreign sales does not. Under the latter application, the statute merely acknowledgesthe occurrence of a foreign event as a relevant fact. The for-mer application would go much further. To characterize themaking of copies overseas as “lawful[ ] . . . under [Title 17]”would be to ascribe legality under the Copyright Act to con-duct that occurs entirely outside the United States, notwith-standing the absence of a clear expression of congressionalintent in favor of extraterritoriality. See 17 U.S.C. § 109(a);see also Subafilms, Ltd., 24 F.3d at 1096 (“There is no clearexpression of congressional intent in either the 1976 Act orother relevant enactments to alter the preexisting extraterrito-riality doctrine.”). Specifically, it would mean that a copyrightowner’s foreign manufacturing constitutes lawful reproduc-tion under 17 U.S.C. § 106(1) even though that statute doesnot clearly provide for extraterritorial application. This is pre-


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cisely what we proscribed in Subafilms, see 24 F.3d at 1098,and Quality King provides no basis for rejecting our approach.

[11] Other significant parts of Quality King’s analysis arealso consistent with BMG Music’s limitation of § 109(a) todomestically made copies. The Court found that copies of awork copyrighted under Title 17 are not necessarily “lawfullymade under [Title 17]” even when made by the owner of thecopyright: The category of copies covered by § 602(a), it wasexplained, encompasses “copies that were ‘lawfully made’ notunder the United States Copyright Act, but instead, under thelaw of some other country.” 523 U.S. at 147. Because§ 602(a) extends to such copies, but on its terms permits aninfringement action only by the “owner of copyright under[Title 17],” copies of a work can be lawfully made “under thelaw of some other country,” rather than “under [Title 17],”even when the copies are protected by a U.S. copyright. Inshort, copies covered by the phrase “lawfully made under[Title 17]” in § 109(a) are not simply those which are lawfullymade by the owner of a U.S. copyright. Something more isrequired. To us, that “something” is the making of the copieswithin the United States, where the Copyright Act applies. See2-8 Nimmer on Copyright § 8.12(B)(6)(c), at 8-178.4(6)-(7).

We also read one of the Court’s illustrations to be consis-tent with this understanding. The Court stated that given

a publisher of [a] U.S. edition [of a work] and a pub-lisher of [a] British edition of the same work, eachsuch publisher could make lawful copies. If theauthor of the work gave the exclusive United Statesdistribution rights—enforceable under the Act—tothe publisher of the United States edition and theexclusive British distribution rights to the publisherof the British edition, however, presumably onlythose made by the publisher of the United States edi-tion would be ‘lawfully made under this title’ withinthe meaning of § 109(a). The first sale doctrine


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would not provide the publisher of the British editionwho decided to sell in the American market with adefense to an action under § 602(a).

523 U.S. at 148 (emphasis added and footnote omitted).Assuming the British edition was made outside the UnitedStates,6 this illustration suggests that “lawfully made underthis title” refers exclusively to copies of U.S.-copyrightedworks that are made domestically. Were it otherwise, the cop-ies made by the British publisher would also fall within thescope of § 109(a). See 2-8 Nimmer on Copyright§ 8.12(B)(6)(c), at 8-178.4(7).

Finally, in the decision’s only direct language on the issue,Justice Ginsburg’s concurrence cited a copyright treatise forthe proposition that “lawfully made under this title” means“lawfully made in the United States.” 523 U.S. at 154 (citingW. Patry, Copyright Law and Practice 166-70 (1997 Supp.)).The majority opinion did not dispute this interpretation, whichaligns closely with the one adopted by our circuit. See BMGMusic, 952 F.2d at 319.

[12] Costco contends that BMG Music’s limitation of§ 109(a) to domestically made copies is inconsistent with theplain language of the statute and its legislative history. Thiscriticism has been made before, including by this court. See,e.g., Parfums Givenchy, Inc. v. C & C Beauty Sales, Inc., 832F. Supp. 1378, 1386-87 (C.D. Cal. 1993), aff’d sub nom. DrugEmporium, 38 F.3d at 482 n.8. Perhaps most compelling is theobjection that BMG Music would provide substantially greatercopyright protection to foreign-made copies of U.S.-copyrighted works. A U.S. copyright owner, for example,

6The illustration offers no specific justification for making this assump-tion over any other regarding the site of manufacture, but Quality Kingcannot be “clearly irreconcilable” with our precedent even if the decisionmerely permits assumptions that are consistent with that precedent. Miller,335 F.3d at 900.


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would be unable to exercise distribution rights after one law-ful, domestic sale of a watch lawfully made in South Dakota,but, without the limits imposed by § 109(a), the same ownercould seemingly exercise distribution rights after even thetenth sale in the United States of a watch lawfully made inSwitzerland. The difference would likely encourage U.S.copyright owners to outsource the manufacturing of copies oftheir work overseas. Drug Emporium and Denbicare, how-ever, resolved this problem by clarifying that parties can raise§ 109(a) as a defense in cases involving foreign-made copiesso long as a lawful domestic sale has occurred. See DrugEmporium, 38 F.3d at 481; Denbicare, 84 F.3d at 1150. Inso-far as Costco contends that § 109(a) should apply to foreign-made copies even in the absence of a lawful domestic sale, thesurviving rule from BMG Music requires otherwise. See 952F.2d at 319.

In summary, our general rule that § 109(a) refers “only tocopies legally made . . . in the United States,” id., is notclearly irreconcilable with Quality King, and, therefore,remains binding precedent. Under this rule, the first sale doc-trine is unavailable as a defense to the claims under §§ 106(3)and 602(a) because there is no genuine dispute that Omegamanufactured the watches bearing the Omega Globe Designin Switzerland. Id.; Fed. R. Civ. P. 56(c); see also Swatch S.A.v. New City, Inc., 454 F. Supp. 2d 1245, 1253-54 (S.D. Fla.2006) (concluding that Quality King is consistent with theinterpretation that “lawfully made under this title” means “le-gally made . . . in the United States”); 2 Goldstein on Copy-right § 7.6.1, at 143-44 (concluding that Quality King“indicates an intention not to disturb lower court holdings thatthe first sale defense is unavailable to importers who acquireownership of gray market goods made abroad”).

3.

We need not decide whether Drug Emporium’s and Denbi-care’s exception to the rule in BMG Music also survives


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Quality King. There is no genuine dispute that the copies ofthe Omega Globe Design were sold in the United States with-out Omega’s authority. The exception, therefore, does notapply in this case. See Denbicare, 84 F.3d at 1145-46(“[Section] 109 applies to copies made abroad only if the cop-ies have been sold in the United States by the copyright owneror with its authority.”). Because the exception does not apply,the question of its continuing viability cannot affect our con-clusion that § 109(a) provides no defense to Omega’s claims.

C. Attorney’s fees under 17 U.S.C. § 505

[13] The final issue is whether the district court abused itsdiscretion in awarding attorney’s fees to Costco. The Copy-right Act provides for an “award [of] a reasonable attorney’sfee to the prevailing party as part of the costs.” 17 U.S.C.§ 505. In deciding whether to award fees under this statute, adistrict court should consider “the degree of success obtained;frivolousness; motivation; objective unreasonableness (bothin the factual and legal arguments in the case); and the needin particular circumstances to advance considerations of com-pensation and deterrence.” Columbia Pictures Television,Inc., 259 F.3d at 1197.

[14] The district court’s award of $373,003.80 in attorney’sfees to Costco was an abuse of discretion because neitherparty has prevailed in this litigation to this point.

REVERSED AND REMANDED.


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First Sale Doctrine & Foreign Manufactured Goods - Kirtsaeng v. Wiley

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Transcript of First Sale Doctrine & Foreign Manufactured Goods - Kirtsaeng v. Wiley