Tag Archives: First Sale Doctrine

Best of 2013: Kirtsaeng and Copyright: First sale means first sale

Originally published March 19, 2013.Rotunda area, Newark historic courthouseThe Supreme Court handed down a huge decision in copyright law today, ruling in Kirtsaeng v. John Wiley & Sons, Inc. that the first sale doctrine, which allows for legally acquired copyright-protected works (or, in trademark, goods bearing a trademark) to be resold by their owners, applies to works made overseas — notwithstanding language in the Copyright Act that many courts had held suggested otherwise.

My first involvement in litigation centered on this question was in a case called Pearson v. Textbook Discounters in the Southern District of New York.  It is one of many such cases that had been brought by textbook publishers against resellers of “foreign editions” of American textbooks.  At the time, despite some questioning in a number of decisions, the overwhelming trend (especially in that District) was in favor of the publishers’ efforts to utilize a provision of the Copyright Act to control prices charged to American students for their college textbooks by forbidding the domestic sale of cheaper — but materially identical — versions for the overseas market.  Eric Goldman explains well in this 2009 post about another case Pearson and other publishers brought at the same time, Pearson Education, Inc. v. Liu, 2009 WL 3064779 (S.D.N.Y. Sept. 25, 2009):

Defendants are book resellers participating on various websites under the alias “JMBooks.” They purchase legitimate copies of cheaper international editions of textbooks, ship them to the US, and then resell them online to US students in competition with the US editions of the same textbooks. The court describes the differences between the international and US editions:

The textbooks plaintiffs publish are customized for the geographical markets in which they are sold. Editions authorized for sale in the United States are of the highest quality, and are printed with strong, hard-cover bindings with glossy protective coatings. Sometimes, plaintiffs include academic supplements, such as CD-ROMs or passwords to restricted websites, with these books. Editions authorized for sale outside of the United States, by contrast, have thinner paper, different bindings, different cover and jacket designs, fewer ink colors, and lower-quality photographs and graphics. These foreign editions are not bundled with academic supplements such as CD-ROMs. The cover of a foreign edition may include a legend indicating that the book is a “Low Price Edition” or only authorized for sale in a particular country or geographic region.  The foreign editions are uniformly manufactured outside the United States.

Students usually purchase a textbook only because the instructor required it, and even then they expect to “enjoy” the textbook for only [one] quarter or semester. So many students may not care about the lower quality printing or absence of various supplements, in which case the international editions could serve as a viable and cost-effective substitute for the US editions. Accordingly, Internet resale of the international editions creates a major channel conflict for the publishers and destroys their efforts to price discriminate by geography.

To block this substitution (in technical speak, to stop the parallel importation of the grey market goods), the publishers invoke the importation right in copyright law (17 USC 602). The defendants respond that the importation right, like the distribution right in 106(3), is subject to the First Sale limitations in Sec. 109(a). If so, the defendants hoped to take advantage of the fact that they bought legitimate copies of the international editions to allow them to freely resell those copies to US buyers.

That hope wasn’t working out so well.   Read More…

Split decision

Originally posted 2011-02-01 12:46:49. Republished by Blog Post Promoter

The threat from abroad?!

During my traditional end-of-December goof-off here I didn’t pay adequate attention to the important non-ruling in Costco v. Omega, which involves an issue I have had some involvement in.  That is the application of the First Sale Doctrine in copyright to what I think should be considered the specious category of “overseas only” copyright-protected material.  It’s another “diversion” play.  I think they’re all nonsense.  But unlike most diversion nonsense, this bit may have a statutory basis that has to be addressed.  Our Supreme Court … didn’t.  And neither did LIKELIHOOD OF CONFUSION®, but then again, I don’t get the big bucks to like those guys.

The other difference is I can just wing it, or, worse, crib from someone else.  So, as is so often the case when I miss one like that, however, I get the advantage of, well, copying from someone else.  Here’s some of what Richard Bergovoy has to say about it:

The United States Supreme Court deadlocked 4-4 on the question of whether the “first sale doctrine” permits copyrighted goods manufactured overseas but not authorized for sale in the United States to be sold here on the “gray market,” upholding a Ninth Circuit opinion which ruled in favor of the copyright owner that the doctrine does not apply.

The unsigned opinion in Costco Wholesale Corp. v. Omega S.A. was one of the shortest in the Court’s history: “The judgment is affirmed by an equally divided Court.” . . .

The case involved Omega Seamaster watches manufactured in Switzerland that were engraved on the underside with a US copyrighted “Omega Globe Design.” Omega sold the watches only for distribution in South America, but they found their way to the United States, where they were resold by Costco stores in California at a price of $1,299, compared to the $1,999 suggested retail price for authorized US resellers. Read More…

Kirtsaeng and Copyright: First sale means first sale

Rotunda area, Newark historic courthouseThe Supreme Court handed down a huge decision in copyright law today, ruling in Kirtsaeng v. John Wiley & Sons, Inc. that the first sale doctrine, which allows for legally acquired copyright-protected works (or, in trademark, goods bearing a trademark) to be resold by their owners, applies to works made overseas — notwithstanding language in the Copyright Act that many courts had held suggested otherwise.

My first involvement in litigation centered on this question was in a case called Pearson v. Textbook Discounters in the Southern District of New York.  It is one of many such cases that had been brought by textbook publishers against resellers of “foreign editions” of American textbooks.  At the time, despite some questioning in a number of decisions, the overwhelming trend (especially in that District) was in favor of the publishers’ efforts to utilize a provision of the Copyright Act to control prices charged to American students for their college textbooks by forbidding the domestic sale of cheaper — but materially identical — versions for the overseas market.  Eric Goldman explains well in this 2009 post about another case Pearson and other publishers brought at the same time, Pearson Education, Inc. v. Liu, 2009 WL 3064779 (S.D.N.Y. Sept. 25, 2009):

Defendants are book resellers participating on various websites under the alias “JMBooks.” They purchase legitimate copies of cheaper international editions of textbooks, ship them to the US, and then resell them online to US students in competition with the US editions of the same textbooks. The court describes the differences between the international and US editions:

The textbooks plaintiffs publish are customized for the geographical markets in which they are sold. Editions authorized for sale in the United States are of the highest quality, and are printed with strong, hard-cover bindings with glossy protective coatings. Sometimes, plaintiffs include academic supplements, such as CD-ROMs or passwords to restricted websites, with these books. Editions authorized for sale outside of the United States, by contrast, have thinner paper, different bindings, different cover and jacket designs, fewer ink colors, and lower-quality photographs and graphics. These foreign editions are not bundled with academic supplements such as CD-ROMs. The cover of a foreign edition may include a legend indicating that the book is a “Low Price Edition” or only authorized for sale in a particular country or geographic region.  The foreign editions are uniformly manufactured outside the United States.

Students usually purchase a textbook only because the instructor required it, and even then they expect to “enjoy” the textbook for only [one] quarter or semester. So many students may not care about the lower quality printing or absence of various supplements, in which case the international editions could serve as a viable and cost-effective substitute for the US editions. Accordingly, Internet resale of the international editions creates a major channel conflict for the publishers and destroys their efforts to price discriminate by geography.

To block this substitution (in technical speak, to stop the parallel importation of the grey market goods), the publishers invoke the importation right in copyright law (17 USC 602). The defendants respond that the importation right, like the distribution right in 106(3), is subject to the First Sale limitations in Sec. 109(a). If so, the defendants hoped to take advantage of the fact that they bought legitimate copies of the international editions to allow them to freely resell those copies to US buyers.

That hope wasn’t working out so well.  I had hoped, therefore, to get my client out of New York court.  I argued for dismissal on the ground of personal jurisdiction, based on the fact that my client had nothing to do with the place. That didn’t stop me, however, from hinting broadly to the judge that maybe the underlying claims — which, believe it or not, including claims of trademark infringement — stunk anyway, as I wrote in my moving brief (indulge me here!):

This lawsuit alleges a number of causes of action against defendants, who are in the business of lawfully buying the foreign editions of textbooks published by plaintiffs for overseas use, and making them available for sale to American students seeking lower cost alternatives to the “United States Editions” of those books.    The Complaint goes to great lengths to explain why the U.S. editions are much more valuable to those students – e.g., because they offer features such as better quality paper, online resources, ribbon bookmarks, prettier covers and “different” bindings.   In contrast, the “Foreign Editions” of these works lack these qualities and, of primary concern to plaintiffs, are a lot cheaper to produce and thus can be sold at a profit in poorer lands.

Plaintiffs, however, insist that they stay there.  They allege that the law of copyright, trademark and unfair competition make it unlawful for American students, whether or not burdened by the expense of higher education, to economize by buying the cheaper books published by plaintiff but intended for use only by foreigners.

Based on the silence of the Complaint as to the matter of choice, it appears that the publisher plaintiffs have no interest in whether these students or their parents want to, or can, pay the premium plaintiffs charge for sturdy paper, online supplements, graphic design or impressive ribbons sewn right into the binding. Textbook publishers such as plaintiffs are insulated from such concerns in general, because unlike typical consumers, purchasers of academic textbooks have no control over what texts they will be required to utilize in their studies; that is determined by their instructors.  Read More…

Zediva: The world’s longest extension cord

Originally posted 2011-03-17 11:37:26. Republished by Blog Post Promoter

Matthew David Brozik

Guest blogger Matthew David Brozik

The AP reports that a small California (of course) company thinks it has a brilliant idea, a way to out-Netflix Netflix: Zediva Inc. is going to make available for viewing on subscribers’ Internet devices new movies as soon as they are available on DVD. This is a big deal, because Netflix, for instance, does not do this. Netflix will begin sending physical DVDs of a new movie as soon as the movie comes out on DVD… but the instant viewing option comes later, largely because movie studios want it that way, believing that the ability of consumers to view films instantly at home cuts into DVD sales.

Zediva's doing something right. But is it wrong?

So just how will Zediva be able to transmit, say, “Yogi Bear” on its March 22, 2012, DVD release date?  Here’s how: Zediva will buy a copy of Yogi Bear on DVD, then play it on a DVD player at its Silicon Valley (of course) headquarters, and send the feed to your home. It’s the equivalent of running a very long cable from Zediva’s DVD player to your television set. Right? Movie studios and lawyers who care about these things say no, it is not. While Zediva asserts that what it is doing (or planning to do imminently) is the equivalent of what Netflix does when it mails out DVDs to subscribers (a scheme permitted by the so-called “first-sale doctrine,” which has allowed libraries to lend books to patrons for hundreds of years), several commentators have already countered that it is more akin to Netflix’s other service, that of streaming.  And a streaming arrangement requires licensing, because streaming isn’t lending a physical copy.  (Some commentators are arguing that streaming somehow inherently infringes on a copyright holder’s exclusive public performance right; I don’t agree.)

I’m going to take a potentially unpopular position here (even though I am by no means required to): I think Zediva’s idea is legal, if not particularly smart. The potential for a system that might well be legitimate to devolve into something entirely outside the law, however, is just too great.  That is, for Zediva to do what it says it will, it must own a separate physical copy of a DVD of a given movie for each subscriber who wants to watch it (at the same time). That means if 100 different subscribers want to watch “Yogi Bear” at the same time, in different locations, then Zediva needs to put 100 different DVDs into 100 different DVD players.  Zediva simply may not cut corners and, for instance, rip the content of a DVD and then send a subscriber or two or a hundred the digital information… just until it can run out and pick up some extra copies of Yogi Bear.  And, of course, Zediva may not rip the content of one DVD and then burn the content onto another hundred DVDs to be in compliance with its own (arguably legal) model. Is Zediva smarter than the average start-up? Maybe. If Zediva keeps its nose clean, it just might have something here. Eh, Boo Boo?

UPDATE:  Zediva:  The lawsuit.

They just mailed it to you. It’s yours. You can sell it.

Eric Johnson:

The Ninth Circuit has decided that if you get unsolicited CDs through the mail, you can turn around and sell them on eBay. It’s not copyright infringement, notwithstanding a label on the CD that says “Promotional Use Only—Not for Sale.”
The case is UMG Recordings Inc. v. Augusto, 9th Cir., No. 08-55998, 1/4/11). Here is the opinion [pdf], and BNA has a summary here.

Makes sense, right?  I’ve always thought so.  But not so fast — the holding seems to be based on a far less common-sense ground than suggested in title of this post:

In UMG, it was persuasive to the Ninth Circuit that the CDs were sent unsolicited through the mail. The court looked to the federal Unordered Merchandise Statute (39 U.S.C. §3009), which says that if you get stuff through the mail you didn’t order, the company that sent it to you can’t bill you for it, and you get to keep whatever it is as a gift.

Which, yes, is what you’d think, not only statutorily-wise but real-life wise.  But the point is, as Eric points out, by virtue of their reliance on this statute (and courts, of course, will always — well, they probably should always, but there aren’t too many alwayses any more, are there? — rule as narrowly as possible), this holding does not apply to software, or to other stuff you buy and may foolishly think you own.  Maybe because you even bought it.  With money.

Baby steps, though.  Baby steps!

When he brings you a gift, it's a gift! Now sell it.

License revoked

Originally posted 2008-06-25 18:46:13. Republished by Blog Post Promoter

Ever wonder about this new thing — where someone sells you some stuff, typically something that has some sort of copyright on it, only when you take a close look it turns out they tell you, no, they didn’t really sell it to you — they only licensed it to you? Sounds pretty ridiculous, and sooner or later someone had to test it. Someone has. Jorge Espinosa reports, and I excerpt a tad too much here, but where to cut when it’s all this good?:

In an important opinion regarding the first sale doctrine, Judge James S. Otero of the United States District Court for the Central District of California has ruled in UMG Recordings v. Augusto, No. CV 07-03106 (C.D.Cal. June 10, 2008), that the first sale doctrine protects the sale of promotional music CDs originally distributed with alleged restrictive licenses.

UMG Recordings, Inc. (“UMG”) owns the copyright to numerous songs and produces CDs containing those songs. As a pre-release promotional item, UMG often creates and distributes by unsolicited mail promotional CDs which may contain different art work or songs. These promotional CDs are labeled with the following language:

This CD is the property of the record company and is licensed to the intended recipient for personal use only. Acceptance of this CD shall constitute an agreement to comply with the terms of the license. Resale or transfer of possession is not allowed and may be punishable under federal and state laws.

Augusto purchased a large collection of promotional CDs. He then sold them on the online auction site eBay as rare collectibles not available in stores. . . .

The court rejected the existence of a license and held that the sales were protected by the first sale doctrine . . . First the court analyzed the nature of the alleged license. One hallmark of a license is the owner’s intent to regain possession. In this case UMG did not intend to regain possession of the promotional disks. Another hallmark of a license is a recurring benefit to UMG from the CDs. The absence of a recurring benefit suggested a gift rather than a license. Finally, the only apparent benefit to UMG from the alleged license is to restrain trade, a purpose contrary to law and public policy. Although the promotional CDs were distributed for free, the court noted that the first sale doctrine applies after the “first authorized disposition by which title passes.” Based on these grounds, the language on the CDs did not constitute a restrictive license and its conveyance to the initial recipient exhausted UMG’s rights to the CDs.

There’s a lot more at Jorge’s blog post. The decision itself is here.

But don’t run off so fast. Read More…