In a 4-4 split ruling, the Supreme Court this week upheld a lower court ruling in a copyright case, Costco Wholesale Corporation v. Omega, S.A, that could have held major implications for the book business—even though the case doesn’t involve books. With newly appointed Justice Elena Kagan abstaining because of prior involvement, the case, which was expected to set a major precedent for the sale of so-called "gray market" goods, including books, is a legal wash for interested observers, including publishers, libraries, and consumers, as split decisions from the Supreme Court hold no legal precedent.
The copyright battle dates back to 2003, when Costco legally purchased Omega watches from third parties overseas, and then imported and sold the foreign-made watches in the U.S. at a steep discount. Omega watches, however, are subject to copyright, and after authorized Omega dealers in the U.S. complained about Costco’s price-cutting tactics, Omega sued to enjoin Costco from selling the foreign watches. Costco countered that its sale of the watches was protected by “the doctrine of first sale.” First sale generally limits copyright holders' control to the initial sale, and allows for the resale or redistribution of legally acquired physical property without further permission of the copyright holder. First sale is a cornerstone of the used book business, as well as libraries, allowing them to legally acquire and redistribute copies of books and other materials.
In 2005, a district court granted summary judgment to Costco, citing first sale. But in September, 2008, the U.S. Ninth Circuit Court of Appeals reversed, ruling that the term “lawfully made” in the statutory language meant that first sale applied only to goods that were made in the U.S., not to goods originating abroad. The Supreme Court split on whether the appeals court erred in limiting the doctrine of first sale to goods made in the U.S.
The Omega case had stood as yet another flash point for the publishing industry in the digital age. With the rise of massive resellers, like Costco and Wal-mart, and the reach of Internet businesses like Amazon and eBay, secondary markets have flourished over the last decade, especially in the textbook market. And while Omega can take some comfort in the ruling, as it upholds their position, after months of positioning, the split decision does nothing to clarify whether copyright law can be used to stop the price-deflating practice of importing already once-sold foreign goods, including books, into the U.S. market.
Despite the 4-4 split and the limited nature of the decision, the AAP said it was pleased with the ruling. "It said what we wanted it to say" in regard to the importation of goods not intended for sales in the U.S. said AAP spokesperson Judy Platt. "It's not a broad precedent, but it's good." The AAP filed an amicus brief in September urging the Supreme Court to uphold the Ninth Circuit ruling in favor of Omega, maintaining that allowing Costco to sell the watches would in essence “legalize the importation of books that were manufactured abroad for distribution in foreign markets and never intended for sale in the United States.” The case has particular impact in the digital age, AAP officials noted, as consumers can increasingly go online and purchase cheaper foreign editions of textbooks, for example. “The fact that it has become easier today using the Web to seek books from foreign sources,” the AAP brief argued, “cannot legalize the practice nor detract from enforcing the law as Congress intended.”
Consumer groups, meanwhile, including the major library associations, hoped to have the Ninth Circuit ruling favoring Omega overturned. “It’s very invasive to be told that we can’t sell our books or DVDs without the publisher’s or manufacturer’s permission because they were printed or pressed abroad,” noted a blog post by advocacy group Public Knowledge, which filed a brief in July, along with the major library associations. “What happens to Netflix, Amazon and eBay if they have to find out where each item was made, whether it has a copyright logo made outside of the U.S., and then buy licensing rights from the copyright owner if the item was made abroad?"