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Parallel Market Imports of Foreign-Made Goods Allowed Under U.S. Law, Court Says

Wednesday, March 20, 2013

Parallel Market Imports of Foreign-Made Goods Allowed Under U.S. Law, Court Says

A March 19 Supreme Court decision concerning so-called parallel market products is good news for discount retailers and will expand consumer choice and lower prices, according to ST&R founding member Lee Sandler. The court ruled that the first sale doctrine in U.S. copyright law, which provides that manufacturers lose the right to control the sale of copyrighted goods after their first authorized sale, applies to copies lawfully made overseas and then imported into the U.S. This decision follows a 1998 Supreme Court ruling that the first sale doctrine also applies to goods reimported after having been produced in the U.S. and then exported.

“This is a great decision for the U.S. economy,” said Sandler, who filed an amicus brief in the case on behalf of a major U.S. trade association. “Any other decision would have been shocking to our common sense. U.S. law should support production in the U.S., not production abroad.”

Business groups supporting the court’s decision had asserted that without it U.S. manufacturers could be driven to move their operations overseas to secure copyright protections that would enable them to exercise more control over the distribution and price of their goods in the U.S. According to a Bloomberg article, supporters also argued that “taken to its logical extreme, elimination of the first-sale doctrine for foreign-made goods would prevent libraries from lending books, bar consumers from reselling items and even stop museums from displaying artwork in violation of the copyright owner’s rights.” While Sandler said “this threat from the court is now over,” one of the Supreme Court justices said Congress might want to revisit the issue.

This case arose after a Thai national attending college in the U.S. had friends and family ship him textbooks that he subsequently resold on the Internet. Those books had been produced overseas by a U.S. publishing company using a wholly-owned foreign subsidiary and were intended solely for sale to non-U.S. markets. The individual was sued by the publishing company for violating its exclusive right to distribute its copyrighted works and importing a copy made abroad without its permission. Upholding a district court decision, the Second Circuit Court of Appeals ruled that in this case the first sale doctrine (17 USC § 109(a)) does not provide a valid exception from the ban on unauthorized imports of copyrighted materials (17 USC § 602(a)(1)) because it specifically applies to goods “lawfully made under this title” and the books at issue do not meet that description because they were manufactured overseas where the U.S. law does not apply.

The Supreme Court overturned those decisions by pointing out that section 109(a) “says nothing about geography” and that other provisions clearly extend protection under the Copyright Act beyond U.S. borders. The court also noted that reliance on the first sale doctrine is “deeply embed¬ded in the practices of booksellers, libraries, museums, and retailers” and that “the prac¬tical problems described by petitioner and his amici are too serious, extensive, and likely to come about to be dismissed as insignificant—particularly in light of the ever-growing importance of foreign trade to America.” 

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