WASHINGTON — Discounters and off-price retailers scored a major victory Tuesday when the Supreme Court handed down a decision that permits the purchase of foreign-made goods abroad and their subsequent resale online or in U.S. stores.
This story first appeared in the March 20, 2013 issue of WWD. Subscribe Today.
The High Court’s decision essentially upholds a retailer’s right to buy authentic products from middlemen or distributors abroad and resell them at lower prices in the U.S., a common practice among retailers in the secondary market, under existing American copyright law.
It also shifts the balance of power back to discounters and off-price retailers after they lost the battle to manufacturers in a 2010 Supreme Court case that pitted Costco Wholesale Corp. against Omega SA. In the Costco-Omega decision, the Supreme Court upheld a manufacturer’s and brand’s right under U.S. copyright laws to regulate the distribution, price and resale of its products that are made overseas and imported to the U.S.
The case decided Tuesday — Supap Kirtsaeng vs. John Wiley & Sons Inc. — involved a Thai mathematics doctoral student attending a U.S. university who purchased a publisher’s textbooks, produced in Thailand at reduced prices, and resold them in the U.S.
The publisher of the books, John Wiley & Sons, sued Kirtsaeng for violating the company’s copyrights and the lower courts ruled in favor of the publisher, ordering Kirstaeng to pay hundreds of thousands of dollars for the books he resold.
The Supreme Court reversed the appeals court ruling in a 6-3 decision on Tuesday and threw out a copyright infringement award to John Wiley & Sons.
The legal argument centered on a provision under U.S. copyright law known as the “first-sale doctrine,” under which a manufacturer’s rights to distribution of a product end upon the first authorized sale it makes. Any individual or company that owns a copy of a product lawfully made under the statute can then sell or dispose of the copy without the authority of the copyright owner.
The court addressed the legal question of whether the doctrine applies geographically and held in Tuesday’s majority opinion that the “first-sale doctrine applies to copies of copyrighted work lawfully made abroad.”
Considered by legal experts to be among the most important business and consumer cases of the court’s term, the case has implications for companies such as Costco and Wal-Mart Stores Inc., as well as consumers reselling products on online marketplaces like eBay.
Justice Stephen Breyer, who wrote the majority opinion, cited an argument made by retailers in an amicus brief filed by the Retail Litigation Center.
“Retailers tell us that over $2.3 trillion worth of foreign goods were imported in 2011,” Breyer said. “American retailers buy many of these goods after a first sale abroad. And many of these items bear, carry or contain copyrighted ‘packaging, logos, labels and product inserts and instructions for everyday packaged goods from floor cleaners and health and beauty products to breakfast cereals.’ The retailers add that American sales of more traditional copyrighted works, ‘such as books, recorded music, motion pictures and magazines, likely amount to over $220 billion.’”
An interpretation that the first-sale doctrine does not apply to goods made abroad “would subject many, if not all, of them to the disruptive impact of the threat of infringement suits,” Breyer said.
The majority decision on Tuesday supersedes a split decision on the question in the 2010 Costco-Omega case, in which half of the eight justices participating found that the first-sale doctrine did not apply to imported products. That decision let stand an appeals court ruling that found Costco liable for copyright infringement when it sold Omega watches it bought from a middleman abroad at heavily discounted prices without the Swiss company’s authorization.
“As Justice Breyer recognizes in his majority opinion, the ability to lawfully purchase goods manufactured abroad pursuant to valid copyrights and import and sell them in the U.S. is really important to the whole system of retailing that we currently have in the U.S.,” said Deborah White, president of the Retail Litigation Center. “It was very important that Justice Breyer recognized those principles are embedded in American retailing today in his decision.”
“What we have now is no geographical distinction to the extent to which copyright protection is afforded to manufacturers, whether the goods are made in the U.S. or [produced] overseas and imported legally into the U.S.,” said Joel Benoliel, chief legal officer at Costco. “The big-picture view is this is a victory for consumers because in those instances where the combination of manufacturers and retailers in the U.S. price goods that are imported in a way that causes U.S. consumers to pay significantly more than what the same exact item would cost in other countries, this is a way of skirting that problem and offering those same goods in the U.S. to customers at a more rational price based on the cost to manufacture them.” Benoliel said.
“We are very happy with the decision. We know that the fight over this is not over. It will shift now to Congress.…,” he added. “For now, we are happy. We think it is the correct decision and we think it is an appropriate pro-U.S. consumer decision.”