Section 109 of the Copyright Act contains what is commonly called in the United States the "first sale doctrine": if you own a lawfully made copy of a work you can resell that copy (and publicly display it without liability; there is no first sale limitation on the reproduction right, the right to prepare derivative works, or on the performance right). Elsewhere in the world, the doctrine is known as the "exhaustion doctrine" on the theory that the copyright owner, having parted with title to the physical object, has exhausted rights with respect to that copy. Because the doctrine in the U.S. applies to copies that are given away, "exhaustion" is the better name, but "first sale" is what is used, so I will use it too.
The first sale doctrine is essential to libraries and to a functioning resale market, like secondhand books and CDs; its application to the on-line environment has been the subject of much debate. Although now statutory, the first sale doctrine's origins lie in the common law's dislike for restraints on alienation, Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908).
This posting deals with the relationship between the right to import copies in Section 602 and Section 109. Last week, Judge Cote in U2 Home Entertainment, Inc. v. Lai Ying Music & Video Trading, Inc., 2005 U.S. Dist. LEXIS 9853 (S.D.N.Y. May 25, 2005) found that the importation and sale of unauthorized reproductions of certain Chinese language films violated rights held by the exclusive U.S. distributor. The case was correctly decided and is fairly straightforward. It is the type of opinion one would read through quickly and nod your head, including at this sentence: "[T]he importation of copies into the United States of a work manufactured in a foreign country can form the basis for a copyright infringement claim by an exclusive licensed U.S. distributor without regard to the first sale doctrine."
The highlighted language here might not give people pause because the copies were made without permission, thus the first sale defense, which is limited to ownership of lawfully made copies, doesn't apply. But the entire quote is not so limited, that is, it is not limited to authorized or unauthorized copies, and that is where a fascinating unresolved question rears its head.
In Quality King Distributors v. L'anza Research Int'l, Inc., 523 U.S. 135 (1998), the Supreme Court construed the interrelationship among Section 106(3) - the exclusive right to distribute copies - Section 109, and Section 602, in addition to construing the meaning of the language in Section 109, "lawfully made under this title." The short answer to how these sections work is this: unauthorized copies made overseas can be seized by Customs and prohibited entry. Lawfully made copies overseas imported into the U.S. in violation of a U.S. distributor's exclusive distribution right (so-called "parallel imports") cannot be seized by Customs but can be barred by a federal district court.
Quality King dealt with a "round-trip" scenario: copies made in the U.S. but not sold here, sent overseas, and reimported and then sold in the U.S. The Supreme Court held these copies could not be barred by anyone since the first sale doctrine applied: the copies had been lawfully made in the United States. The round trip overseas was an irrelevant factual and legal point. Once lawfully made here, the copyright owner's rights were exhausted as to distribution in the U.S. of those copies.
I thought then and still think that is correct. The Court reached its decision by holding that "lawfully made under this title" in Section 109 means lawfully made according to title 17, which is not extraterritorial: thus, Section 109 is limited to copies made in the U.S. But here is the potential loophole created by this straightforward construction of that language. Copies made overseas are not subject to the first sale doctrine. People usually limit this principle to parallel imports, where its application is non-controversial.
But why is it so limited? Let's say someone in the United States buys, through Amazon.com in the United Kingdom, the next installment of a hot series, like the Harry Potter books, released in the UK, but not in the U.S. The copies come into the country without the U.S. distributor knowing about it. They are then advertised for sale once in the U.S. The importation right isn't helpful because the copies are already in the country. Does the first sale doctrine excuse the sale, or does it not apply because, as Quality King held, "lawfully made under this title" applies only to copies made in the U.S.? Since these copies were made in the UK, they weren't made under title 17, and thus fall outside Section 109. The first sale doctrine thus doesn't apply, and as a straight statutory matter it would appear the copyright owner could bar the sales.