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.
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9 comments:
I think it's a mistake to focus on the place where the copy was made. It's hardly unknown for publishers to rely on printers or other duplicators that are located outside of the US. The fact that they might do so -- most likely for cost savings, even accounting for the cost of shipping copies -- certainly shouldn't be held against the American public.
It's better, I think, to focus on the rights instead. Only the US rightsholder can have made the copies lawfully under US law. It shouldn't matter where he does so. That's an irrelevant detail, at least for our purposes here.
Plus of course, let's not forget that you can also fall back on other defenses. In your example, I think you could make a decent go of fair use, Harper and Row notwithstanding.
The exhaustion rule Europe also only applies to material sold by the rightsholder or with his permission in Europe.
Art. 4 § 2 Directive 2001/29/EC
"The distribution right shall not be exhausted within the Community in respect of the original or copies of the work, except where the first sale or other transfer of ownership in the Community of that object is made by the rightholder or with his consent."
Do note that a directive is not the law in itself. It only says wat member states must put in their laws. Usually, only minimum requirements are imposed and the states have a margin to play with.
But you probably knew that.
Anonymous said "Only the US rightsholder can have made the copies lawfully under US law," but in many cases, the U.S. distributor is merely the importer, not the manufacturer. And in my hypo with Harry Potter there was no manufacture in the U.S., but I assumed most people would not want the copyright owner - whether UK or US -- to stop a sale in the U.S. of books lawfully made and purchased overseas, once the copies are in the country. My question went to whether under the facts copyright owners can stop the ales because the first sale doctrine doesn't seem to facially apply. Copyright as it exists now is territorial. A larger offshot to the problem I posed in effect goes to whether there should be global exhaustion, which is not the rule anywhere.
in many cases, the U.S. distributor is merely the importer, not the manufacturer
Well, if the original rightsholder retains the right to make copies, and the distributor merely imports and distributes them, then the copies have still been made under the imprimatur of the person with the relevant US rights, wherever the copies happened to have been made.
The lawfully made requirement should probably only apply to copies not made by whoever has the US rights. If the distributor merely has distribution rights, then nothing should impair parallel imports. The copyright holder and co. can always structure their arrangements so as to not face this problem, but better that the burden should be on them than on the public.
There is arguably a problem with allowing imports that happen to be lawfully made in their country of origin but which don't involve the appropriate US rightsholder. But as you note, people's expectations are conflicting with how copyright actually works. As is often the case, I think that it's therefore appropriate to modify the law to follow public norms.
In fact, I'd say this is a relatively good guiding policy across the board with regards to copyright law.
In terms of policy, is this round-trip exception favorable to the purposes of encouraging authors to create new works? For example, it would seem possible that distributors could manipulate royalties by selling at a low price to a foreign subsidiary, which then returns the items at only a nominally higher price, thereby allowing the US distributor to sell the product at a higher price to the public while royalties or license fees are being paid at a much lower level. Perhaps this is solely a contractual problem, but I'm wondering if there has been any history of attempts to reform the first sale doctrine to limit the potential or actual abuses of the round-trip exception.
Replying to the previous comment:
In terms of policy, is this round-trip exception favorable to the purposes of encouraging authors to create new works?
Does it matter?
The purpose of copyright is not merely to encourage authors to create new works. Encouraging the creation of derivative works (regardless of by whom) and limiting copyright as much as possible during the term, and ending it as rapidly as possible are of equal importance. Note also that enlarging or lengthening copyright doesn't necessarily result in greater encouragement for authors to create new works.
How many new works do you think would be created solely by further attacks on the first sale doctrine? How fewer new works do you think would be created solely by expanding the first sale doctrine, or restoring it to its historical contours? I don't think it would have a significant impact.
However, enlarging copyright by reducing first sale is harmful to the public and the purpose of copyright, which is to serve the public. Enlarging first sale is beneficial.
Even if there were an affect on creation, with regards to first sale, I doubt that it is so great that it outweighs any harm done to the public by reducing the scope of first sale.
It's best, in my opinion, to consider copyright from the perspective of how well it accomplishes the three public goods (i.e. creation of original works, creation of derivative works, no or minimal copyright). Just focusing on one of them is bound to lead to a less than ideal situation.
With regards to your specific question, it sounds like something best left to a contractual solution. Copyright involves spurring on creation with the possibility of financial reward. If artists care about the extra money, then they can use contracts to get it, if possible. If they don't, why should we care? It won't spur them on any more, apparently.
The purpose of copyright is not merely to encourage authors to create new works. Encouraging the creation of derivative works (regardless of by whom) and limiting copyright as much as possible during the term, and ending it as rapidly as possible are of equal importance.
This is a nice broad ideological statement, but not one that likely reflects the interests of all parties involved in the issues of creation, distribution and consumption of copyrighted works. In addition, it is perhaps a bit of an overstatement relative to the discussion. The first sale doctrine neither works to inhibit or induce the creation of derivative works. It is a limited right to sell, lend, lease or otherwise dispose of the copyrighted material, be it original or derivative in nature, without having to further compensate the content creators in order to do so. Section 109 is written as a restriction on distribution rights granted by Section 106(3) and it shouldn't be confused as a limitation on the right to create derivate works as granted by Section 106(2). As for limiting copyright "as much as possible" and "ending it as rapidly as possible," I am not sure those beliefs of yours are ones that everyone shares with such equal enthusiasm, nonetheless, the first sale doctrine does work to limit or end copyright protections granted by Section 106(3) when a copyrighted work is sold. The problem though is that the real model of content creation and consumption is not a two-party system, but one generally where we have content creators, content distributors, and finally content consumers. Thus, while the design of our current (or your "ideal") first sale doctrine may hopefully beneficial to the content consumers, we need to also consider the relevant impact it will have between distributors and creators too. A broad first sale doctrine without recognition of these different roles could actually end up being harmful rather than beneficial to the purposes you feel copyright should serve.
For example, if we remove the current restrictions on the rental, leasing and lending of computer software in the first sale doctrine, the effect of displacing control on these practices from the content creator to distributors may be entirely harmful toward the creation of new works (including derivative works) or the creator's desire lessen any further their control over copyrighted material. Generally speaking, end consumers are not interested in renting or leasing software between each other, thus these limitations are not all that significant in that regard. However, the removal of these limitations between content creators to distributors would have quite an impact, as the right to enjoy revenues from these practices would shift to the later party. Some software makers might still be able to demand significant portions of the profits generated by these practices, but likely many others would not be able to. Thus, in order to replace the revenue lost by this displacement of these rights, software makers could end practices currently beneficial to the final consumers, such as free maintenance upgrades and bundling of multiple desirable features in one product. By shifting the endowment of the right over the control of leasing, lending and renting to a purchasing party in this situation, the result is likely a clear win for distributors, but possibly not so beneficial as we might have hoped for consumers or creators. The important point this all serves to emphasize is that the endowment of rights between these three types of parties is particularly important toward achieving any purpose we believe that copyright should serve. Thus, when the first sale doctrine may allow for the manipulation of transfer prices as described above, we may want to ask ourselves if we've correctly distributed the rights between these parties correctly or have made an error that was meant to beneficial to one party (i.e., end-consumers), but instead has resulted in the benefits going primarily toward a different purpose (i.e., maximizing distribution profits).
This is a nice broad ideological statement, but not one that likely reflects the interests of all parties involved in the issues of creation, distribution and consumption of copyrighted works.
That's true. However, not all of those parties are of equal importance. Fundamentally, copyright is about serving the public interest, not serving the interests of authors, publishers, distributors, etc. Sometimes their interests may be aligned with the public interest such that everyone wins, but sometimes they're not, and then that's just too bad for them. Assuming at least, that the system works.
The first sale doctrine neither works to inhibit or induce the creation of derivative works.
I know, of course, that it's an exception to the distribution right. Nevertheless, the only reason for having copyright is bound up with creation. Copyright is not about distribution in its own right, and as a monopoly-based system, it's not even good at it. Napster, for example, was far better at distribution than any record company ever was. But it might have had harmful effects on creation. (Of course, it's still up in the air whether it would harm creation enough to justify being shut down)
As for limiting copyright "as much as possible" and "ending it as rapidly as possible," I am not sure those beliefs of yours are ones that everyone shares with such equal enthusiasm,
Again, it's not necessary that they do. It's only necessary that Congress legislates with the public interest in mind, which this is part of.
For example, if we remove the current restrictions on the rental, leasing and lending of computer software in the first sale doctrine, the effect of displacing control on these practices from the content creator to distributors may be entirely harmful toward the creation of new works (including derivative works)
I disagree. In fact, it strikes me that authors and co. typically have a sky-is-falling attitude that makes it difficult to credit their concerns. Remember the Boston Strangler?
Software is typically not rented at all. This is the result of giving control over this to software developers. It's typical for monopolists to ignore the possibility for a more efficient market, but that doesn't mean that we have to stand for it.
I think that rentals (and any minor tweaks needed to 117) would have no negative affect on the creation of software that would not be outweighed by the benefits of being able to rent it.
Plus, the relevant incursion into 109 happened in 1990. Was there a big upsurge in creation attributable to this back then? I certainly don't recall anything of the sort.
So apparently, the restriction re: software hasn't actually helped creation, and creators weren't being harmed in any way beforehand. But it is needlessly harming the market, and impairing the rights of the public. Seems to me that there is no reason whatsoever to keep it, and you've not presented a good argument in light of the pre-1990 state of affairs to defend it.
Plus, the relevant incursion into 109 happened in 1990. Was there a big upsurge in creation attributable to this back then? I certainly don't recall anything of the sort. So apparently, the restriction re: software hasn't actually helped creation, and creators weren't being harmed in any way beforehand. But it is needlessly harming the market, and impairing the rights of the public. Seems to me that there is no reason whatsoever to keep it, and you've not presented a good argument in light of the pre-1990 state of affairs to defend it.
The argument presented here is without merit. First, the inability of one party to “prove” that potential market harm existed does not necessarily create any inference on behalf of the opposing viewpoint that potential market harm did not exist. Unless either party is willing to engage in a thorough and proper statistical analysis on the appropriate data, assuming such data exists, assertions about how markets historically acted should be taken with great skepticism in mind. It is one thing to discuss in the abstract the incentives and disincentives of a law and quite another to make statements about the empirical performance of markets. Second, laws are created for a variety of reasons. Not only are they sometimes meant to address existing problems, but they are also created to address new and developing situations where concern is in the risk of potential future harm. Thus, even where it true that there was “no upsurge in creation attributable,” this focus may be erroneous, as the intent of the law may have been to maintain the current level of incentives for creation rather than allow them to degrade through the actions prohibited. Finally, the real issue we should be concerned with is not the validity of the first sale doctrine as it existed in 1990, but whether it is good law today. Between 1990 and 2005, the market has been significantly altered by the development of the Internet and PCs, which today provide drastically lower transactional costs in the ability to transmit and copy works that are protected by copyright. Restrictions on the first sale doctrine concerning rentals may be far sensible today, as opposed to 1990, when the lower costs in transmission and copying that have developed risk converting a rental market away from a legitimate purpose to one that facilitates infringement. If the benefit conferred on legitimate use of rentals is outweighed by the loss from using rentals as a cheaper and illegal means to permanently acquiring copyrighted works, then the balancing of incentives for creation and consumption may suggest that a restriction on rentals within the first sale doctrine is in the public interest.
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