The U.S. Court of Appeals for the Ninth Circuit recently addressed whether the Supreme Court’s 1998 landmark Quality King decision requires it to overrule its own precedent allowing a defendant in a copyright infringement action to claim the “first sale doctrine” of 17 U.S.C. § 109(a) as a defense only if the disputed copies of a copyrighted work were either made or previously sold in the United States with the authority of the copyright owner. Omega S. A. v. Costco Wholesale Corp., Case No. 07-55368 (9th Cir., Sept. 3, 2008) (Smith, J.).

Omega makes its watches in Switzerland using a U.S. copyrighted design and sells its watches globally through a network of authorized distributors and retailers. Costco acquired Omega watches through a New York company that bought and imported such watches from overseas. Although Omega authorized the initial foreign sale of the watches, it did not authorize their importation into the United States or their resale by Costco. A lawsuit ensued, and the district court, citing Quality King as the authority, granted summary judgment to Costco based on the first sale doctrine.

The “first sale doctrine” codified in the U.S. Copyright Act (at §109(a)) limits a copyright owner’s exclusive distribution right over his copyrighted work to the initial sale of copies “lawfully made under this title.” Under this doctrine, once a lawfully made copy is sold by the copyright owner, his exclusive distribution right with respect to that copy is “exhausted” and the buyer of that copy is free to resell that copy without restriction. In Quality King, the Supreme Court, in reversing the Ninth Circuit, affirmed that the “first sale doctrine” can provide a defense for unauthorized imports if genuine copies were made in the United States and first sold overseas, but were later imported back into the United States without the permission of the copyright owner. An evolving aspect of the “first sale doctrine” is its application to “grey market” goods.

On appeal, the Ninth Circuit held that circuit law remains unchanged in that the “first sale doctrine” provides no defense for unauthorized imports where non-piratical (i.e., genuine) copies were foreign-made and not previously sold in the United States with the authority of the copyright owner. According to the Court, Quality King did not overrule the general rule established by the Ninth Circuit in BMG Music (1991), Parfums Givenchy (1994) and Denicare U.S.A. (1996), which is that the “first sale doctrine” provides a defense only where the disputed copies were either made or previously sold in the United States with the authority of the copyright owner. Nor is the general rule “clearly irreconcilable” with Quality King, requiring that it be overruled, the Court concluded. The Court offered several bases for its conclusion. First, applying the first sale doctrine to foreign-made copies would violate the presumption against the extraterritorial application of U.S. law. In this regard, the Court distinguished the application of the doctrine to the making of copies overseas from the triggering of the doctrine by foreign sales, noting that the former application would require the Copyright Act to give legality to conduct that occurs entirely outside the United States, while the latter application merely acknowledges a foreign event as a relevant factor. Second, the Court interpreted “lawfully made under this title” to mean the making of copies within the United States, where the Copyright Act applies, rather than merely the making of copies by (or under the authority of) the owner of a U.S. copyright. In this regard, the Court noted that Justice Ginsburg’s concurring opinion in Quality King cited a copyright treatise for the proposition that “lawfully made under this title” means “lawfully made within the United States.”