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Supreme Court Frees Retailers to Import Goods Without Permission of Copyright Owners

By Wade Savoy, wade.savoy@rimonlaw.com

While copyrights might not be an obvious priority for many businesses, nearly all U.S. retailers should pay close attention to a recent Supreme Court decision that dramatically limits copyrights.  The Court ruled that copyright owners cannot stop the importation of goods lawfully made and sold in foreign markets, freeing retailers to import lower-cost goods without facing expensive copyright litigation.
 
The decision will affect many more products than might be immediately apparent. Everything from Christmas ornaments to clothing to smart phones. Indeed, any product sold with more than minimal packaging.
 
Copyright owners have used their rights in the past to segment markets by charging lower prices for products in less-developed countries than in the U.S.  Following the Court’s decision, this strategy might now come under serious attack by retailers.
 
First Sale Doctrine
The case, Kirtsaeng v. John Wiley & Sons, Inc., hinged on the “first sale doctrine,” which generally cuts off a copyright owner’s ability to control the distribution of a product after the initial sale of that product. Under the first sale doctrine, the purchaser of a product protected by copyrights can, without permission from the copyright owner, resell the product, give it away, bury it — just about anything but make copies of it. This doctrine underpins many businesses, such as used bookstores, eBay, Redbox video kiosks, and even libraries.
 
Copyright law restricts the importation of copyrighted products, but the Supreme Court ruled that those restrictions are limited by the first sale doctrine.  The result is that a wide range of products protected by copyrights can now be imported without the permission of copyright owners.
 
High Financial Stakes
To understand the financial impact of the Court’s decision, it helps to know some of the basic facts of the case:  A college student had family and friends in Thailand buy textbooks from local bookstores and mail them to him in the U.S.  He resold the books here and made, by some estimates, $1.2 million in revenue.  The lower court charged him with $600,000 in statutory damages.
 
And that’s only one enterprising student.  Considering that, by the Supreme Court’s count, over $2.3 trillion of foreign goods were imported into the U.S. in 2011, this ruling will have significant financial impact when big business takes advantage of this new freedom.
 
Implications for Retailers, Copyright Owners, and Consumers
Retailers are the most obvious beneficiaries of the Supreme Court’s decision. They will no longer have to worry about the country of origin of the goods they sell, from a copyright perspective, potentially lowering the cost of compliance. And those retailers that have the logistics to source and bring products into the U.S. might be able to sell the imported products for considerably less than the authorized U.S. versions of the same products.
 
The impact on consumers will depend on the location of the consumers.  Consumers in the U.S. likely will benefit as they find imported products being sold for less than U.S. versions, which could also result in the price of the U.S. versions falling to compete with less costly imports.
 
Consumers in less developed countries, however, likely will not fare as well.  They might see the costs of some local products rise as manufacturers try to discourage low-cost imports into the U.S. and to compensate for increased price competition in the U.S.  Also, fewer products might be available to those consumers as copyright owners make the hard decision to pull out of certain international markets altogether rather than compete in the U.S. against their own international pricing.

Retailers Must Still Be Cautious
Although this case is a significant victory for retailers, an importation free-for-all is not advised.  Other laws are still at play.  Under trademark law, for example, importing and selling a product that is materially different from the U.S. version could infringe trademark rights.  And experience has shown that goods acquired from secondary markets sometimes have counterfeits mixed in with legitimate products so it is as important as ever to obtain products from reputable sources and to make sure that there is a substantiated paper trail that leads back to legitimate manufacturers.
 
Working with experienced legal counsel, though, many retailers will be able to take advantage of the ability to import lower-cost goods without fear of costly copyright litigation.

Wade Savoy is the former head of intellectual property for Walmart Stores, and a partner with Rimon, P.C., where his practice includes intellectual property, retail, and consumer products. He can be reached at wade.savoy@rimonlaw.com.


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