Costco, Omega, Libraries, and Copyright

by Kenneth Crews on December 16, 2010

A highly anticipated ruling from the U.S. Supreme Court about importing of foreign-made copyrighted works was a dud, but not cause for great concern.  Library organizations and many other interested parties filed written briefs with the Court, arguing that the case could have the effect of constraining import and use of books, movies, art, and other works if the copies were made outside the United States. The Supreme Court heard oral arguments on November 8, but only five weeks later, on December 13, the Court effectively ruled that it was not going to rule on this case. The Supreme Court issued in Costco Wholesale Corp. v. Omega S.A. a “per curiam” ruling that affirmed the decision in the lower court and did not offer a new opinion with any national influence.
The Court takes such “inaction” in a case only in the unusual case when one justice (in this case Justice Kagan) does not participate, and the remaining eight justices split four-to-four.  The procedures and processes of the case are addressed elsewhere, so let’s concentrate on substance. This is case about the “first sale” doctrine in copyright law. Nearly everyone reading this essay right now has actually benefited from the doctrine almost every day. Here is how it functions: One of the rights of the copyright owner is the right to distribute copies of the work to the public. If that were the only rule, then a bookstore could not sell books, and a library could not let people check out books, because all of those actions would be a “distribution” of a (presumably) copyrighted work.
Fortunately, copyright law also includes the “first sale” doctrine. It is a crucial exception to the distribution right. The doctrine provides that once a copyright owner places copies of the work into circulation—i.e., makes the “first sale” of the copies—those copies may be further sold, loaned, given away, or otherwise distributed. The copyright owner controls only the “first sale” of each copy.
The issues in the case were also bound up on the statute about importation of copyrighted works, but the key point came down to a phrase in the law of the first sale. The statute (Section 109(a) of the U.S. Copyright Act) applies the rule only to copies that are “lawfully made under this title.” By “this title” the statute is referring to title 17 of the U.S. Code, which includes the U.S. Copyright Act. The lower court that decided the Costco case (the Court of Appeals for the Ninth Circuit) held that the copies that may be bought and sold under the first sale doctrine in fact had to have been made in the United States in order to be made under “this title.” That court also allowed an exception for copies that were made elsewhere, but that were sold in the U.S. with the copyright owner’s consent.
Which takes us to the basic facts of this case. Omega is the maker of expensive watches. Costco is a discount store. Omega did not like seeing its watches offered at slashed prices, and probably did not care for the warehouse environment. The watches were made in Switzerland, and Omega did not consent to their being shipped to the U.S. Nevertheless, Costco picked up the wholesale watches overseas and brought them to the American retail market. The court of appeals ruled that “first sale” did not apply, and Costco violated the distribution right.
About now, you should ask, “Watches are protected by copyright?” Omega had embossed on the back each watch a logo that depicts an artistic rendering of a globe. The logo is a work of art and is copyrightable. Thus, to deal in the watches is also to deal in the copyrighted image. Because copyright vests automatically to a wide range of works, this legal development has the potential to limit the import of foreign-made works, and once those copies are in the U.S., the undercutting of “first sale” can also mean that the copies cannot be further distributed. This decision puts a cloud over some foreign-made materials that are commonly found in U.S. libraries, as well as over the customary business of booksellers, video rental companies, art dealers, museums, and much more.
On the other hand, this is not the time to panic. The substantive ruling is from the Ninth Circuit, and is not technically applicable nationwide. Even so, the ruling does not mean that libraries and other groups need to weed out their foreign collections. Businesses that shop for goods overseas and resell them in the U.S. may well need to reexamine their practices. Libraries and some other organizations, however, can find a few sources of consolation:
  •  The statute governing import of copyrighted works includes a few exceptions. The law explicitly allows “an organization operated solely for scholarly, educational, or religious purposes and not for private gain” to import not more than five copies of a work (other than an audiovisual work) “for its library lending or archival purposes.”
  • The statute further allows such an organization to import a single copy of an audiovisual work “for its archival purposes.”
  • Another exception: Copies of most works may be imported under the authority and for the use of the government of the U.S., a state, or a political subdivision of a state. This exception explicitly does not apply to schools, but it probably would apply to a public library or state museum, or other such governmental organization.
  • One more exception: An individual person may carry or import a single copy of a work into the U.S. for personal use, but not for further distribution.
These exceptions are critical at least for getting some copies of works into the U.S. Note carefully that the exceptions are principally about importing the foreign works and not about distributing them—except the one that specifies “library lending.” That statute strongly implies that a “library lending” distribution of the copies is allowed. When the law does not grant a specific exception, always keep in mind that you can still evaluate whether fair use might apply. Fair use involves an application of four factors in the statute; its meaning in this application is a lengthy discussion to save for another time.
Let’s go back to the developments in this latest case to see what they mean for some common situations:
Scenario A:
A buyer would like to acquire a book that is published and manufactured only in Europe, but available for purchase through Amazon. If the purchase is from, the buyer might safely infer that the copies were imported and sold in the U.S. with the consent of the copyright owner. Such copies have the full benefit of the first sale doctrine. What if the purchase is from Amazon’s U.K. outlet and then shipped by Amazon from the U.K.? Probably any such purchase through an established commercial retailer that routinely ships to the U.S. is also probably fine. Chances are, the copyright owner is well aware of such possibilities and is at least implicitly consenting to the U.S. import and sale. The first sale doctrine would then apply, and the book may be further loaned or sold. If a library is the buyer, one or more of the statutory exceptions will also probably at least allow the import, and perhaps permit library lending.
Scenario B:
A library sends a staff member on a foreign trip to assess and purchase a collection of materials that were made outside the U.S. They might be a shop filled with books, a collection of musical recordings, or even the archival files of a famous writer. Here the library needs to be more attuned to the possibility that the copyright owner(s) may object to the works’ being exported to the U.S. A library buying and importing the materials may be within one of the exceptions above. A private broker looking to make a subsequent sale of the collections may run into import problems if the copyright owners object.
Scenario C:
Many books are published in the U.S., with a version of the same book made and sold at a lower price in other countries. Sometimes the content of the books is identical, but the prices differ dramatically. In order to protect the market for the more expensive version in the U.S., you can realistically expect that the publisher or other rightsholder would object to buying and importing the cheaper book. When someone set up a business to do exactly that, the publisher brought suit, and that case is in the courts right now. We will all have to see if the court bars those imports—and if the Supreme Court will eventually rule on it. Again, a library buying one or even up to five copies of such books may be within the exception.
These scenarios could generally give hope to museums, schools, and many other purchasers of foreign copyrighted works. As a result, a few such purchases will need serious scrutiny. Be careful to note that most of the good news in the scenarios is about importing the materials—just getting the works into the United States. Once they are here, the law is not so clear about ability of the library to further lend or sell the materials.
We also have not heard the last of this dilemma. This brief essay does not touch several major issues affected by this case, and other judicial rulings will surely stir more concerns. These rulings also have implications for many other parts of the Copyright Act, so Congress may need to make a fuller assessment of the law. Stay tuned for more.
These are my views for now, and I welcome your comments.
Full Disclosure: I participated in the preparation of the brief that was submitted by three library associations.  Jonathan Band led the effort, and I thank him for that good work and for his comments on a draft of this blog post.
December 16, 2010


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