First Sale Doctrine

U.S. Copyright law gives copyright holders the right to prevent unauthorized importation of their copyrighted work into the United States (Section 106). However, the U.S. Copyright law also includes the “First Sale Doctrine” (Section 109), which permits owners of copyrighted works the right to freely dispose of their lawfully obtained copyrighted merchandise without further obligation to the original U.S. copyright owner. That is, after the “first sale” of the copyrighted article, the U.S copyright owner’s exclusive copyrights are “exhausted” – they are eliminated. There is a somewhat analogous First Sale concept in trademark law, which has evolved through case law, similarly limiting the original trademark owner’s right to control distribution of his trademarked product once it has been lawfully sold. In the context of global trade, the First Sale Doctrine protects the ability of third party distributors to purchase, sell and resell genuine, branded and copyrighted goods throughout the international marketplace at prices and under conditions dictated by consumer supply and demand. The First Sale Doctrine facilitates competition and acts as a check and balance against cartel-like marketplace activities. In the context of U.S. Copyright law, the First Sale Doctrine has been the subject of two separate Supreme Court decisions. In 1998, in Quality King. V. L’anza Distribution, the U.S. Supreme Court only partially resolved the conflict between the First Sale Doctrine found in Section 109 of the Copyright Act and the owners right to prevent unauthorized importation described in Section 106. The Court determined that the phrase “lawfully made under this Title”, which is the caveat included within the First Sale Doctrine, means that U.S. copyright owners of U.S. manufactured products cannot rely upon U.S. copyright law to restrict downstream distribution of copyrighted products after they have been “first sold.” In 2010, in Omega v. Costco, the U.S. Supreme Court was faced with another conflict between these same two sections of law, but this time in connection with a watch that was manufactured outside of the United States. The U.S. Copyright owner, in this case, was a Swiss company trying to use its copyrighted design intentionally to control importation of its watches into the United States. The lower appellate court had held in favor of Omega, deciding that the phrase “lawfully made under this Title” found in Section 109 of the Copyright Act (the “First Sale Doctrine”) only provides the right to unfettered downstream distribution of U.S. made products and that Section 106 provides copyright owners of products made outside of the United States with a continuing right to control downstream distribution — so that the “first sale” of even genuine articles in the United States could not occur without authorization of the foreign copyright owner. As noted, in 2010, the case was heard in the Supreme Court, but because Justice Kagan needed to recuse herself, the outcome was a tie vote, creating no definitive precedential decision. As a result, any book or movie or product label or instruction booklet manufactured outside of the United States could, conceivably, only be imported into the United States as and when authorized by the U.S. copy right owner.