• First Sale Doctrine Not Applicable To Foreign Imports Manufactured and First Sold Abroad
  • December 18, 2008 | Authors: Edwin C. Komen; Elizabeth S. Berman
  • Law Firms: Sheppard, Mullin, Richter & Hampton LLP - Washington Office; Sheppard, Mullin, Richter & Hampton LLP - Los Angeles Office
  • The Ninth Circuit recently handed manufacturers a gift.  In a decision which, at first blush, might seem at odds with well-established Supreme Court jurisprudence, manufacturers are now able to use copyright law to keep their products from being imported to the United States, if lawfully manufactured and first sold abroad.

    Many manufacturers try to control the channels of distribution of their products to maintain the exclusivity of their brands.  Despite these efforts, many of these products are diverted and sold outside of the distribution channels authorized by the manufacturer.  Some respond to such diversion with lawsuits alleging copyright infringement, since the labels affixed to the products are copyrighted and the owner of a copyright has the exclusive right to distribute copies under the Copyright Act.  17 U.S.C. § 106(3).  This right, however, is limited by the "First Sale" doctrine, which is that a copyright holder cannot control distribution of copies beyond their first sale.  17 U.S.C. § 109(a).

    In Quality King Distributors v. L'Anza Research International, 523 U.S. 135 (1998), L'Anza brought suit against Quality King for copyright infringement after it discovered that L'Anza products sold in foreign markets found their way to Quality King retail locations in California.  Quality King, 523 U.S. at 138-39.  The issue presented to the Supreme Court was whether the "First Sale" doctrine applies to imported copies, since Section 602(a) of the Act gives the copyright owner the right to prohibit the unauthorized importation of copies.  Id. at 138.  The Court held that it does, meaning L'Anza's right to control the distribution of its products and prohibit the unauthorized importation was exhausted once it sold them to the foreign distributor.  Id. at 140-54.

    In the Ninth Circuit, the "First Sale" doctrine is available as a defense only where the copies of a copyrighted work were "lawfully made" or previously sold in the United States with the authority of the owner.  See 17 U.S.C. § 109(a).  Recently, in Omega v. Costco, 07-55368 (9th Cir. 9-3-2008), the court held Quality King v. L'Anza did not require the Ninth Circuit to overrule that proposition, and that the "First Sale" doctrine was no defense because the goods at issue were not made in the United States.  The court distinguished Quality King because that case "involved 'round trip' importation," meaning the goods were first manufactured in the United States and then sold abroad.  Id. at 12118.  The significance of where the goods were manufactured is that the Copyright Act presumptively does not apply to conduct that occurs abroad, even when that conduct produces harmful effects within the United States.[1]  Id. at 12120.  This means that when the copies are made and first sold outside of the United States, they are not "lawfully made" under the Act, as is required for the "First Sale" doctrine to apply.  Id. at 12121-23.

    This is helpful to manufacturers that produce their goods overseas, and want to control their distribution channels in both domestic and foreign markets since, at least in the Ninth Circuit, the "First Sale" doctrine is not available as a defense to a copyright infringement claim against those engaged in the diversion of their products.

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    [1] The court did not address whether the copies were "lawfully made" under any applicable copyright laws in the country in which the goods were manufactured.  The decision may have been different if they were "lawfully made" abroad.