The Supreme Court this week heard oral arguments in a copyright case that publishers say holds major implications for their businesses—even though the case doesn’t involve books. In Costco Wholesale Corporation v. Omega, S.A, the court will decide whether retail giant Costco can re-sell copyright-protected, foreign-made Omega wristwatches exclusively licensed for sale abroad in the U.S. market. But wristwatches aside, the copyright case holds larger implications for the publishing industry, as well as for libraries and booksellers, as it could also apply to the sale and importation of foreign-made editions.
The conflict began after Costco purchased Omega watches from third parties overseas which had legally acquired the watches from licensed Omega dealers. Costco then imported and sold the foreign-made watches in the U.S. at a steep discount, exploiting the foreign price differential. 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 importation and sale of the watches was protected by “the doctrine of first sale.” First sale generally limits copyright holders' control to the initial sale, and gives consumers the right to re-sell physical property they have legally acquired without 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 is now considering whether the appeals court erred in limiting the doctrine of first sale to goods made in the U.S.
In September, 2010, the Association of American Publishers filed an amicus brief 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 argues, “cannot legalize the practice nor detract from enforcing the law as Congress intended.”
Consumer groups, meanwhile, including the major library associations, hope to have the Ninth Circuit ruling 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,” notes 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?”
The case is yet another flash point for the publishing industry in the digital age—this one, notably, not over digital piracy, but involving legally purchased physical goods. With the rise of massive resellers, like Costco and Walmart, and the reach of Internet businesses like Amazon and eBay, secondary markets have flourished over the last decade, especially in the textbook market. Now at stake: 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.
