Film enthusiasts may be familiar with the silent film Safety Last! Starring Harold Lloyd, this film debuted in 1923. Even those who are not familiar with the movie may recognize the iconic scene where Lloyd is dangling from the hands of a giant clock. Cupecoy Home Fashion Inc. produces a 12” metal clock with a man dangling from the minute hand. This clock drew the ire of Harold Lloyd Entertainment, who filed a copyright infringement lawsuit on March 11, 2014.
Harold Lloyd Entertainment alleged the clock was a direct appropriation of the iconic clock scene. It also highlighted that it had previously licensed the rights to create a derivative version of the clock scene before. The movie Back to the Future obtained permission to film the scene of Doc Brown (Christopher Lloyd) hanging from the clock tower towards the end of the movie. Most recently, Harold Lloyd Entertainment granted a license to Martin Scorsese to create a similar scene in the movie Hugo. In fact, posters for the movie featured this scene.
It may seem like a movie 1923 is too old to still be protected by copyright. However, it is the edge of copyright protection. If it debuted in 1922, it would be in the public domain. 1923 is the first year where the 95 year term of copyright protection began as per the Digital Millennium Copyright Act. Therefore Safety Last! is protected until 2018.
Even though Cupecoy makes clocks, copyright protection still applies. Unlike patent law, copyright law does not protect physical objects but expressions. Thus Harold Lloyd Entertainment can sue not only movies with other clock scenes, but any media with a similar scene or even products with similar expression. Harold Lloyd Entertainment claims it tried to settle this dispute outside of court but also claims Cupecoy would not respond to its efforts to settle.
If you were to search YouTube for reviews of video games, you would hit countless results. Some channels have been able to rise above the other in terms of subscribers and consequently can be targeted for their negative reviews. This particular dispute involved a video game review uploaded by TotalBiscuit, The Cynical Brit, of the game Day One: Garry’s Incident, made by Wild Game Studios. TotalBiscuit regularly reviews independent (indie) games, games which are developed outside of large studios and which typically have low budgets. While major retail games are sold for $60 on video game consoles or computers, indie games typically are sold for $20 or less. TotalBiscuit prefers to review indie games in order to inform consumers of games they should buy which they may never have heard of before. He also wishes to warn gamers to stay away from games which he feels will be a waste of money. In TotalBiscuit’s opinion, Day One: Garry’s Incident fell in the latter category.
TotalBiscuit’s videos are monetized to receive advertising revenue. Once a YouTube video is approved to receive advertising revenue, the uploader will receive 55% of the advertising revenue Google is paid by advertisers. The types of advertising shown will change depending on many factors such as total video views, total subscribers to the YouTube channel, and the content of the video itself. The most successful channels intake enough revenue for its owner(s) to work exclusively on uploading YouTube content. Naturally, where there is potential to make this kind of money, legal battles will occur.
On October 20th, 2013, TotalBiscuit received a DMCA takedown notice from YouTube and his review of Day One: Garry’s Incident was pulled. Word quickly spread amongst the Internet and gamers began to question Wild Games Studios decision on the game’s community message board on Steam. Steam is the most popular vehicle for selling computer games by direct download and hosts a message board for each respective game. In response to a user’s question, “Why are these devs censoring reviews of their product?” the CEO of Wild Games Studios, Stephane Woods, posted, “We protected our copyright because Total Biscuit has no right to make advertising revenues with our license.” TotalBiscuit crafted his own response in a YouTube video entitled “This video is no longer available: The Day One Garry’s Incident Incident.” This video was highly critical of Wild Game Studios and in particular its CEO, Stephane. After enduring a flood of negative press, Wild Game Studios withdrew its copyright claim and restored TotalBiscuit’s video.
Questions persist after this incident about whether DMCA takedown notices need to be amended to prevent such aggressive usage. Despite what online service providers and content uploaders believe, it is still mandatory to comply with these notices. Failure to takedown infringing content can result in heavy fines and possible jail time for infringers. If service providers do not comply, they risk losing immunity from copyright liability due to their users’ actions.
If you have received a DMCA takedown notice, have had your content removed, or want to protect your own copyrighted content, you can contact Stone Law at 732-444-6303 or leave us a message on our website.
Football video games have existed for over 25 years and have continued to grow in sophistication. Player avatars have evolved from generic pixels to fully developed representations. Electronic Arts (EA), the video games publisher with an exclusive license for NFL games, now records player information like height and weight to create as realistic an experience as possible. Along with these technological advances have come concerns about the use of player likenesses in both professional and amateur football games. The 9th Circuit recently decided a case regarding player likenesses in both the Madden NFL and NCAA video games. The court ruled differently in each case and a quick look at the cases sheds light on how these claims will be handled in the future.
Brown vs. Electronic Arts featured Cleveland Browns running back Jim Brown disputing the use of his likeness in EA’s Madden NFL series. While Jim Brown stopped playing football in 1965, EA included him as part of the 1965 Cleveland Browns team in some versions of the Madden series. His avatar did not include his name but was physically similar to him and simulated his style of play. In later games EA changed the number of Brown’s avatar to make it a little more dissimilar to him.
The other case was In re NCAA Student-Athlete Name & Likeness Licensing Litigation. The plaintiff in this case was Samuel Keller. A quarterback from Arizona State University who transferred to the University of Nebraska. His in-game avatar did not feature his name but did have the same “height, weight, skin tone, hair color, hair style, handedness, home state, play style (pocket passer), visor preference, facial features, and school year as Keller.” In re NCAA Student-Athlete Name & Likeness Licensing Litig., 724 F.3d 1268, 1272 (9th Cir. 2013).
Both of these cases had similar trademark and likeness claims, but it was procedural decisions which caused different rulings at the 9th Circuit level. Both cases started in federal district courts in California. They both made claims under California’s right to publicity law and under the Lanham Act, which establishes federal trademark rights. However, Brown asserted supplemental jurisdiction over his state law claims while Keller asserted federal diversity jurisdiction. This meant if Brown’s Lanham Act claims were dismissed the 9th Circuit could not weigh the state law claims but Keller’s would still be ok.
The Court used the Rogers test to weigh Brown’s Lanham Act claim. Under the Rogers test, a likeness claim loses unless the use of the likeness has no artistic relevance. If it does, the likeness claim still fails if the work does not explicitly mislead the public as to the public figure’s endorsement of the work. In Brown and NCAA, the court ruled the realistic likeness of the players is very important to EA’s artistic goal of creating a video game experience as close to real life as possible. Additionally, EA proved they never led consumers to believe Brown endorsed any of the Madden games. Having failed the Rogers test, Brown’s Lanham claim was dismissed and therefore the rest of his case.
In In re NCAA, the court turned its attention to Keller’s right of publicity claim. The justices stated that unlike the Lanham Act, the right of publicity does not seek to prevent the risk of confusion in consumers but instead is concerned with a public figure’s right to control their image. From this perspective, the court ruled the NCAA avatar was too identical to Keller’s actual likeness. It rejected EA’s 1st Amendment claim and refused to use the Rogers test in a case of right of publicity. Thus Keller’s lawsuit was allowed to proceed.
As a result of the NCAA ruling, EA has settled all pending cases with college players. On September 27th, 2013, it subsequently dropped its plans to release a new game in the franchise and the future of college football games is now in question.
If you have any trademark issues or are defending trademark claims, you can contact Stone Law at 732-444-6303 or leave us a message on our website.
You can learn a great deal about copyright law by analyzing the different copyright issues in the creation of the recent Disney movie, Oz the Great and Powerful. The new Oz movie is a derivative work based on L. Frank Baum’s children’s book, The Wizard of Oz. Elements created in the book were available for Disney to use, but anything created for the 1939 movie was not.
The book was written in 1900, so its copyright protection expired in 1956. Baum had written thirteen sequels continuing the Oz story and they all entered the public domain between 1960 and 1986. Meanwhile, Samuel Goldwyn purchased the film rights from Baum in 1933 then sold them to MGM in 1938. MGM still retains the copyright to the movie it produced until 2034. Disney received the film rights to the other thirteen books in 1954, but MGM did not sell their right to the first book. In fact, MGM and Disney had a few legal battles over the movie content.
In 2011, the 8th Circuit of Appeals ruled that while the characters in Baum’s novels are in the public domain, their depictions in the 1939 movie are still protected. As a result Disney, and anyone else looking to utilize the Oz characters, can draw directly from the novels in the public domain but cannot use another similar to the 1939 movie which was original. This is easier to understand with some examples.
Munchkins were introduced in the book but the depiction of Munchkinland in the movie cannot be copied. To avoid any trouble Disney did not show Munchkinland and did not even use the same style haircuts on their Munchkin characters. Current films cannot copy any of the dialogue in the Wizard of Oz unless the lines were taken from the book. Dorothy’s iconic ruby slippers are also copyright protected because in the book her shoes were silver.
Copyright issues can become very complex and the Oz scenario highlights its complexities. If you are experiencing copyright issues or have concerns about infringement you can contact Stone Law at 732-444-6303 or leave us a message on our website.
Youtube users started reporting this week that Nintendo has started claiming revenue for advertisement on user-created Youtube videos which feature content from Nintendo games. Nintendo confirmed this news stating they became a Youtube partner in February of 2013 and registered their copyright content in the Youtube database. Unlike most infringement cases, Nintendo is not asking Youtube to take down potentially infringing videos. Instead Nintendo is issuing content ID match claims to place its own advertising before, within, or at the end of the videos.
Nintendo is targeted videos featuring Nintendo-owned images or audio of a certain length. The most common videos affected are “Let’s Play” videos. These videos are show gamers playing through video games and can vary from a few seconds of gameplay to entire playthroughs of a game. People upload these videos for humor, to demonstrate how to clear a certain part of the game, or just to show off how good they are. “Let’s Play” channels can boast over 100,000 subscribers and individual videos can reach over 1,000,000 views.
As a copyright owner Nintendo has the exclusive right to reproduce their works and to create derivative works under Section 106 of the Copyright Code. Even though Youtube videos are not copies of the software code of video games a video showing gameplay is still a reproduction. Videos which reproduce clips of a game with commentary by a gamer would be considered a derivate work; even though the video may be original enough for its own copyright it is still based on Nintendo works.
Prominent “Let’s Play”ers have already expressed they believe they are protected by fair use. Fair use, defined in Section 107 of the Copyright Code protects reproductions for purposes such as criticism, comment, and more. Many people argue “Let’s Play” videos qualify for a fair use exception because they do often criticize games and have humorous commentary.
It is very likely at least one “Let’s Play”er will sue Youtube or Nintendo to reclaim future advertising revenues. To evaluate fair use courts will look at the purpose and character of the videos, the nature of the Nintendo games, the amount of the games used in the videos, and the effects “Let’s Play” videos will have on the potential market and value of Nintendo’s games. “Let’s Play” videos widely vary from channel to channel so while some videos could be held to be a fair use others may not.
If you host videos Nintendo claimed advertising revenue for you should seek advice from an attorney. Stone Law handles copyright matters ranging from litigation to registration. You can call our office at 732-444-6303 or leave us a message on our website.
On July 10, 2013 the United States District Court for the Southern District of New York ruled Apple was guilty of anti-trust violations for its role in conspiring with book publishers to raise prices for electronic books. The five publishers, Hachette Book Group, Inc., HarperCollins Publishers LLC, Holtzbrinck Publishers LLC d/b/a Macmillan, Penguin Group Inc., and Simon & Schuster Inc., had already settled with the Department of Justice. Apple moved to trial because it claimed it was innocent. The trial was conducted as a bench trial from June 3 to 20 to determine liability and injunctive relief.
At its heart, the court’s ruling determined Apple played a central role in facilitating and executing the conspiracy to raise e-book prices. In the court’s opinion, without Apple the conspiracy would not have been as successful. Amazon was charging $9.99 for e-book versions of New York Times bestsellers and other newly released hardcover books. Apple met with the five publishers in December of 2009 and January of 2010 and suggested prices of $12.99 to $14.99 for its planned iBookstore. Apple promised to set those prices only if it could get agreements from the publishers allowing Apple to offer e-books simultaneously with their hardcover releases.
At the iBookstore’s launch new release e-books were given price caps of $12.99 or $14.99. Apple gave the publishers control of their prices within those caps and also set a 30% commission, similar to the App Store. More importantly, Apple included in its agreements a price parity provision, also known as a Most-Favored-Nation clause, which would penalize a publisher if they did not force Amazon and other retailers to cede control of e-book pricing to the Publishers. This clause was the key piece of evidence which influenced the court’s decision. It essentially prevented Apple from having to compete with Amazon on e-book pricing. In fact, when Steve Jobs was asked why consumers would not just buy cheaper Amazon books he replied, “The price will be the same.”
As a result of these agreements Amazon’s stock fell 9% after the publishers collectively threatened to pull out from Amazon. After Amazon caved in, the prices for Kindle books rose up to Apple’s prices. Average per unit e-book retail prices rose 14.2% for new releases, 42.7% for New York Times bestsellers, and 18.6% across all books from the five publishers. Macmillan also turned down sales promotions to keep prices up. Eventually Random House, the last big publisher, moved towards the same pricing scheme.
Apple argued at court they were not guilty and showed data that e-book prices moved lower in the two years since. However the court was not persuaded and said Apple’s data did not account for other changes in the e-book market. The court also cited many excerpts from emails which show collusion between Apple and the publishers. The court ruled Apple participated and facilitated a horizontal price-fixing conspiracy, which is per se unlawful. Apple was not able to convince the court the agreements had any pro-competitive effects either.
Apple has already stated it will appeal the ruling. Appeals from the Southern District of New York go up to the 2nd Circuit of Appeals. If necessary, the next step after the 2nd Circuit is the Supreme Court. If Apple is still found liable the parties will move to a trial to determine damages.
If you have an issue related to publication or e-books please contact Stone Law at 732-444-6303 or send us a message on our website.
Trademark infringement suits happen every day and Hollywood is no exception. On May 16th of 2013, the United States District Court for the Northern District of Indiana decided a lawsuit against Warner Bros. for the Clean Slate program in The Dark Knight Rises. For those who may not remember, in the movie the Clean Slate program that could erase a person’s entire history. This of course is not to be confused with Tony Stark’s Clean Slate program to destroy his Iron Man suits.
Warner Bros. was sued by Fortres Grand Corporation. Fortres Grand started selling a real life Clean Slate in 2000 and registered a trademark for it in 2001. The nonfictional program protects computer networks by erasing all evidence of user activity so later users see none of the previous user’s activity. Fortres Grand sued Warner Bros. for trademark infringement for not only the movie but two websites Warner Bros. made for Rykin Data, the fictitious company which developed Clean Slate in the movie. Fortres Grand claimed Warner Bros. committed trademark infringement by using a fictional product that was similar to their real product. Warner Bros. responded with a motion to dismiss the case.
The Court analyzed Fortres Grand’s reverse confusion theory that Warner Bros. saturated the market with a trademark similar to the one owned by Fortres Grand and consumers will be deceived into thinking Clean Slate is a Warner Bros. product, not Fortres Grand’s. The Court pointed out a fatal flaw in the argument – the product Warner Bros. is advertising is not the fictional software, but the movie itself. Fortres Grand’s case becomes very weak since the analysis for consumer confusion heavily relies upon comparing the two actual products.
In his opinion, Chief Judge Simon noted there is little case law on point but they all reached the same conclusion. In Ocean Bio–Chem, Inc. v. Turner Network Television, Inc. the Southern District of Florida ruled actual products should be used for consumer confusion analysis. The case involved the made-for-TV movie Incident at Dark River. In the movie a kid dies from pollution caused by a fictional company called Starbrite Batteries. Ocean Bio-Chem owned a real company called Star Brite Distributing and brought suit. The Court concluded it must compare the ultimate products, not the fictional company within the movie.
Another related case was Davis v. Walt Disney Co. in the Eighth Circuit. This case involved another made-for-TV movie called Up, Up, and Away. The villains were an environmental software company called Earth Protectors and the plaintiff was the president of Earth Protector, Inc. Again the Court insisted only real products could be used for a consumer confusion analysis.
The last case Chief Judge Simon brings up is Caterpillar Inc. v. Walt Disney Co. from the Central District of Illinois. Caterpillar tried to prevent the release of the home-video movie George of the Jungle 2 because Caterpillar’s farm equipment was in the movie. The Court denied Caterpillar’s request because “it appears unlikely … that any consumer would be more likely to buy or watch George 2 because of any mistaken belief that Caterpillar sponsored this movie.” Caterpillar Inc. v. Walt Disney Co., 287 F. Supp. 2d 913, 920 (C.D. Ill. 2003).
Chief Judge Simon followed the spirit of these cases and ruled it was not plausible consumer could be deceived into believing the fictional Clean Slate was connected to Fortres Grand nor the movie Dark Knight Rises for “obvious” reasons. “Any consumer going online or into a store looking to buy the ‘clean slate’ software mentioned in The Dark Knight Rises would quickly find that they are unable to do so because it is not a real product.” Fortres Grand Corp. v. Warner Bros. Entm’t Inc., 2013 WL 2156318 (N.D. Ind. May 16, 2013). He also points out no one looking for the real Clean Slate program is likely to mistakenly buy a ticket to The Dark Knight Rises either.
For now at least it looks like movies can include whatever fake products they like as far as trademarks are concerned. It doesn’t matter if the names are identical as long as the product or company is fictional and stays that way. To see the full text of the opinion in this case see Fortres Grand Corp. v. Warner Bros. Entm’t Inc., 2013 WL 2156318 (N.D. Ind. May 16, 2013).
A federal district judge in New York ruled for the Associated Press in the case of AP v. Meltwater. The ruling, if upheld on appeal, can have large ramifications throughout the blogosphere and for content aggregators.
The Associated Press, or AP, is a not-for-profit group which creates news reports from all over the country. AP’s revenue comes from licensing fees it earns by licensing uses of its articles to newspapers, websites, and other subscribers.
Meltwater is an Internet media monitoring service. Their news service is a method for their clients to keep tabs on how they are portrayed in the press. AP alleged that Meltwater is infringing AP’s copyright by republishing AP articles without a license. Meltwater uses a computer program to scrape news articles on the web and provides excerpts of those stories daily to its subscribers. Meltwater did not dispute that it took content from AP stories that is protected by the Copyright Act. Instead, Meltwater claimed an affirmative defense of fair use. Meltwater argued it is a search engine, albeit one which is a closed system for subscribers only. This case revolves around thirty-three Registered Articles of the AP which Meltwater copied and then delivered excerpts of to its subscribers. Meltwater News employs automated computer programs known as “crawlers” to scan the Internet for news. This is the same method which most search engines will employ. Meltwater’s crawlers scan approximately 162,000 online news websites from over 190 countries each day to create an index of the websites’ content. It is of notes that Google, Yahoo, and other large search engines do have licenses from the AP.
Meltwater argues that they are not liable for their copyright infringement since it is “fair use” of the plaintiff’s copyrighted work.17 U.S.C. § 107 provides that “the fair use of a copyrighted work . . . for purposes such as criticism, comment, news reporting, teaching . . . scholarship, or research, is not an infringement of copyright.” It is important to note that Meltwater did not claim it was ‘news reporting’ as stated in the fair use exception, but rather that it was a search engine. Courts look to four non-exclusive statutory factors to determine whether a defendant has made fair use of a copyrighted work: (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work. In this case, the first and fourth factors weighed heavily against Meltwater. For the first factor, the district court quote Harper & Row Publishers, Inc. v. Nation Enterp., 471 U.S. 539, 562 (1985), “the fact that a given use is profit-driven is not the focus of the commerciality inquiry. Instead, the “crux of the profit/nonprofit distinction is . . . whether the user stands to profit from the exploitation of the copyrighted material without paying the customary price.” Given that Meltwater charges it subscribers thousands of dollars annually for their service, the purpose and character of the infringement is clearly for profit. For the fourth factor, the court quoted Castle Rock Entertainment, Inc v. Carol Publishing Group, 150 F.3d 132, 145 (2nd Cir. 1998), as the concern of this factor is not with “whether the secondary use suppresses or even destroys the market for the original work or its potential derivatives, but [with] whether the secondary use usurps or substitutes for the market of the original.” Meltwater subscribers would have no use for an AP subscription when Meltwater can provide the same information. This constitutes suppressing the market for the original work.
Ultimately, the court decided that commercial Internet news clipping services do not provide enough of a public service to outweigh the enforcement of the copyright laws and therefore allowing Meltwater a free ride on AP’s reporting cannot be justified
If this ruling is upheld by the appellate court and/or the Supreme Court, then content aggregators and bloggers will need to take notice. The internet is often though of as the wild west when it comes to intellectual property law. There is a fine line between a blog linking to another website with a short description, and a blog wholly copying another website’s posts. For amateur bloggers, this is a small matter of poor etiquette, but for professionals, Meltwater may become a very noteworthy.
The Supreme Court decided this week the case of Kirtsaeng v. John Wiley & Sons. The opinion will undoubtedly have a large impact on intellectual property law.
This case deals with a Thai national who was subsidizing his college tuition in the U.S. by having his relatives in Thailand buy textbooks for cheap, shipping them to him in the US, and then selling the text books to Americans on sites such as eBay. He made about a $100,000 profit off this enterprise. Eventually, the publisher caught wind, and sued.
This enterprise is known as the “gray market”. Exploiting the price differential between the US and overseas can be quite profitable. The legality of this practice differs depending on the type of good being sold. Prior to this ruling, on copyrighted goods purchased overseas, most judges were ruling against the gray marketeers.
Kirtsaeng argued that the ‘first sale doctrine’ creates an exception that validates his actions. The “first sale doctrine” in copyright law permits the owner of a lawfully purchased copy of a copyrighted work to resell it. Once you buy a copy of something, you own that copy. You can do as you wish with it. This is codified at 17 U.S.C. § 109(a) of the Copyright Act of 1976. However, Congress also enacted 17 U.S.C. § 602(a)(1).That section provides that importing goods into the United States without the authority of the copyright holder is illegal. The Supreme Court has now decided that §109(a), does in fact, limit the scope of §602(a)(1), and ruled for Kirtsaeng.
Previously, the Supreme Court opinion which was most influential in ‘gray market’ dealings was Quality King Distributors, Inc. v. L’anza Research International, Inc., 523 U.S. 135, (1998). In Quality King, L’anza Research International, a California shampoo company, sold to foreign distributors at rates which were 35% to 40% lower than the prices charged to its domestic distributors. Quality King Distributors, Inc. purchased shipments of L’anza’s products from one of L’anza’s foreign distributors and then reimported the products into the United States for resale. L’anza sued, alleging that Quality King’s actions violated its “exclusive rights under 17 U.S.C. §§ 602. The Supreme Court heard the case to decide the question of “whether the `first sale’ doctrine endorsed in § 109(a) is applicable to imported copies.” The Supreme Court held that § 109(a), limits the scope of § 602(a), and ruled for Quality King.
While this may seem like it is the exact same facts as Kirtsaeng, there was a key difference. In Quality King, the copyrighted items in question had all been manufactured in the United States. In Kirtsaeng, the books were printed overseas. Since these books were intended to be sold in Thailand, it was cheaper and easier for Wiley to print them over there.
With the opinion in Kirtsaeng, the Supreme Court has overruled Omega S.A. v. Costco Wholesale Corp, 541 F.3d 982 (9th Cir. 2008).That case involved the importation into the United States of Omega-brand watches. The watches were ultimately purchased and resold by Costco Wholesale Corporation. The Ninth Circuit had held that § 109(a) (First Sale Doctrine) does not apply to items manufactured outside of the United States. But, the Court’s ruling was 4-4 (with Justice Kagan recused), and therefore the opinion of the Ninth Circuit stood.
The ruling in Kirtsaeng will legitimize the ‘gray market’. Now, copyrighted materials which are sold overseas for cheap, can be purchased, imported into the U.S., and sold for close to market value. This could mean that American consumers can soon purchase high quality, copyrighted goods for the price of cheap foreign knock offs. It will also mean that until the market adjusts, quite a few entrepreneurs will follow in Kirtsaeng’s footsteps and start searching overseas markets for good value without the fear of copyright infringement lawsuits. Places such as Costco, Walmart, and other large retailers will also likely scour foreign markets for cheap sources of goods. Once these practices become widespread, either manufacturers will lower their prices, or pull out of foreign markets all together. Until this happens, the next time you are on vacation overseas, it might just be worth it to pop your head into the local bookstore and pick up a few copies of whatever English texts they have.
The Supreme Court has recently heard arguments in the case of Kirtsaeng v. John Wiley & Sons. The opinion is expected soon, and regardless of how the court rules, it will have a large impact on intellectual property law.
This case deals with a Thai national who was subsidizing his college tuition in the U.S. by having his relatives in Thailand buy textbooks for cheap, shipping them to him in the US, and then selling the text books to Americans on sites such as eBay. He made about a $100,000 profit off this enterprise. Eventually, the publisher caught wind, and sued.
This enterprise is known as the “grey market”. Exploiting the price differential between the US and overseas can be quite profitable. The legality of this practice differs depending on the type of good being sold.
At trial, and on appeal to the 2nd Circuit, John Wiley & Sons, Inc. v. Kirtsaeng, 654 F.3d 210, (2d Cir. 2011), Kirtsaeng argued that the ‘first sale doctrine’ makes his actions legal. The “first sale doctrine” in copyright law permits the owner of a lawfully purchased copy of a copyrighted work to resell it. Once you buy a copy of something, you own that copy. You can do as you wish with it. This is codified at 17 U.S.C. § 109(a) of the Copyright Act of 1976. However, Congress also enacted 17 U.S.C. § 602(a)(1).That section provides that importing goods into the United States without the authority of the copyright holder is illegal. The Supreme Court will have to decide, as it often does, how these two contradictory laws interact.
The 2nd Circuit opinion in Kirtsaeng relied heavily on Quality King Distributors, Inc. v. L’anza Research International, Inc., 523 U.S. 135, (1998). In Quality King, L’anza Research International, a California shampoo company, sold to foreign distributors at rates which were 35% to 40% lower than the prices charged to its domestic distributors. Quality King Distributors, Inc. purchased shipments of L’anza’s products from one of L’anza’s foreign distributors and then reimported the products into the United States for resale. L’anza sued, alleging that Quality King’s actions violated its “exclusive rights under 17 U.S.C. §§ 602. The Supreme Court heard the case to decide the question of “whether the `first sale’ doctrine endorsed in § 109(a) is applicable to imported copies.” The Supreme Court held that § 109(a), does in fact limit the scope of § 602(a), and ruled for Quality King.
While this may seem like it is the exact same facts as Kirtsaeng, there was a key difference. In Quality King, the copyrighted items in question had all been manufactured in the United States. In Kirtsaeng, the books were printed overseas. Since these books were intended to be sold in Thailand, it was cheaper and easier for Wiley to print them over there.
The Supreme Court intended to rule on this distinction when they heard the case of Omega S.A. v. Costco Wholesale Corp, 541 F.3d 982 (9th Cir. 2008).That case involved the importation into the United States of Omega-brand watches. The watches were ultimately purchased and resold by Costco Wholesale Corporation. The Ninth Circuit had held that § 109(a) (First Sale Doctrine) does not apply to items manufactured outside of the United States. But, the Court’s ruling was 4-4 (with Justice Kagan recused), and therefore the opinion of the Ninth Circuit stands.
What this case may come down to is what the phrase “lawfully made under this title” in §109(a) actually means. Does ‘made’ mean where the book is written? Or does this mean where the book was printed? Does ‘under’ mean in the territory that the Copyright Code reaches? Or does it apply to whatever works were copyrighted in the US? If that term is understood by the Court broadly, then §109(a) will subsume §602(a) and the ‘first sale doctrine’ should apply.
If the Court rules for Wiley, as expected, then copyright holders would be protected from their foreign manufacturing hurting business in the US. There could be effect on outsourcing, product manufacturing for copyright holders, if one does outsource the printing of foreign editions, they will enjoy protections that domestic goods do not, under Omega. For average consumers, this would mean that you might not be able to legally resell your property, if you purchased it from overseas. In the digital age of e-commerce, this is becoming more common. For sites such as eBay, they could see potentially significant decline in goods for sale. For import/export companies in the ‘grey market’ businesses, this would be devastating.