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Copyright confusion

Editorial

A suit pitting Omega against Costco has resulted in an unsatisfactory ruling by the U.S. 9th Circuit regarding resale rights.

December 16, 2010

Copyright law gives publishers, record labels and other creators unusual control over the works they produce. It also includes an important balancing principle: Much of that control evaporates once a work has been sold, leaving buyers free to resell, rent, lend or give away their purchases. This "first sale" doctrine provides a crucial legal umbrella for libraries and secondhand stores, to name just a few of the beneficiaries.

The doctrine has been undermined, however, by new technology and court rulings. One example of the latter is the U.S. 9th Circuit Court of Appeals' decision that the first-sale rule doesn't apply to items purchased outside the U.S. An appeal to the Supreme Court foundered this week, when the eight justices who heard the case announced that they were irrevocably split.

The issue was whether big-box retailer Costco could sell discounted Swiss Omega watches obtained from companies that had purchased them outside the U.S. The watches had a copyrighted logo engraved on the back, giving Omega the legal basis to sue Costco for infringement. Specifically, Omega accused Costco of violating a provision in the 1976 Copyright Act that bars the unauthorized importation copyrighted works in quantity.

The 9th Circuit agreed with Omega that this provision trumped the first-sale doctrine. With limited exceptions for personal, nonprofit or governmental use, it ruled, no copyrighted product manufactured outside the U.S. can be imported without the copyright owner's permission.

The ruling may help manufacturers combat "gray market" imports, allowing them to lower their prices in countries with lower incomes without fear of the goods being resold at a discount in the U.S. But they don't need copyright law to address that problem; they can do so by signing contracts that bar local retailers from exporting their inventory to resellers.

Narrowing the first-sale doctrine just to items made in the U.S. encourages copyright holders to manufacture their products elsewhere in order to prevent the sale of used or redistributed goods. Those markets are huge, generating as much as $60 billion in sales annually. Libraries, EBay sellers and many discount retailers also will be forced to trace the goods they buy back to the factories just to avoid being hit with a lawsuit for unwittingly infringing.

That's just the sort of expansion of copyrights the courts should be guarding against, but they failed to do so in the Costco case. The first-sale doctrine is a valuable counterbalance to copyright owners' power, and Congress should make sure that it applies no matter where the sale is made.

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