Letter from AmeriKat II: Is there some Omega v Costco-induced disquiet in the lower courts?

The Decision

Turning first to the statutory language, the Court focused on the meaning of the words "made" and "under". The word "made" was not a term of art in the Copyright Act and the word "under" was held in Kucana v Holder (2010) to be a "chameleon" form (picture, left) which the courts must draw its meaning from its context. Wiley, of course, interpreted "lawfully made under this title" to mean "lawfully made in the United States". Wiley submitted that this would be the logical consequence of the presumption against the extraterritorial application of statutes - a presumption that is explicitly applied to the copyright laws. To be made "lawfully under this title" means only, Wiley submitted, that the copyright works have to be physically made in the US.

The Court of Appeals stated that this was overly simplistic, especially because Title 17 takes into account activity occurring abroad. For example, section 104(b)(2) provides that the works are subject to provisions "under this title" if the works is published in the US or abroad (subject to the foreign country being a treaty party . It is possible, the Court of Appeals stated, to interpret section 109(a)'s "lawfully made under this title" to mean 'any work that is subject to the protection under this title." Indeed, had Congress intended that the first sale doctrine apply to only works made in the US, it could have easily written into the statute to say precisely that -but tellingly it did not.

That being said, the above argument in favor of the reverse interpretation of "lawfully made" does not automatically prevent Wiley's enjoyment of its argument as to its meaning; all it does is point to the fact that the relevant text is simply unclear. However, the Court of Appeals, in a quick sprint to finishing in line with Supreme Court dicta, held that section 602(a) would have no force in the vast majority of cases if the first sale doctrine was interpreted to apply to works manufactured abroad that was made subject to protection under Title 17.

"Accordingly, while perhaps a close call, we think that, in light of its necessary interplay with section 602(a)(1), section 109(a) is best interpreted as applying only to works manufactured domestically. . . In adopting this view, we are comforted by the fact that our interpretation of section 109(a) is one that the Justices appear to have had in mind when deciding Quality King. There the Court reasoned, admittedly in dicta, that section 602(a)(1) had a broader scope than section 109(a) because, at least in part, section 602(a)(1) "applies to a category of copies that are neither piratical nor 'lawfully made under this title'. That category encompasses copies that were 'lawfully made' not under the United States Copyright Act, but instead, under the law of some other country."

The Court of Appeals for the Second Circuit therefore concluded that the District Court correctly decided hat Kirtsaeng could not avail himself of the first sale doctrine under section 109(a) because the books in question were manufactured outside the U.S.

However, all were not happy with this decision. District Judge J Garvan Murtha, who was sitting with the Court of Appeals, issued an 8-page dissenting opinion that boiled down to the fact that courts have split over the meaning of "lawfully made under this title" with some holding it means legally manufactured in the US and others holding that it means lawfully made as a function of US copyright law (i.e. under Title 17). The latter interpretation is, Judge Murtha argued, supported by the Copyright Act as a whole because Congress used the phrase "under this title" in multiple sections of the Act to describe the scope of the rights crated by the Act. Again, if Congress intended to limit section 109(a)'s scope to items "manufactured" in the US, it could have easily done so. Further, Judge Murtha stated:

"Economic justifications also support applicability of the first sale doctrine to foreign made copies. Granting a copyright holder unlimited power to control all commercial activities involving copies of her work would create high transaction costs and lead to uncertainty in the secondary market. An owner first would have to determine the origin of the copy --either domestic or foreign -- before she could sell it. If it were foreign made and the first sale doctrine does not apply to such copies, she would need to receive permission from the copyright holder. Such a result would provide greater protection to copies manufactured abroad than those manufactured domestically. . . .I do not believe Congress intended to provide an incentive for US copyright holders to manufacture copies of their work abroad."

It seems apparent to the AmeriKat, that affirming and dissenting opinions alike, the Court of Appeals is signalling their unease with the status of the statutory text in section 109(a) and may be, like the Supreme Court did in their 4-4 split, flagging to Congress that this provision desperately needs legislative clarification. Or, will we be lucky enough to have an appeal to the Supreme Court again to finally rule on this issue? The AmeriKat hopes so, because given the historical origins of section 109(a) and its statutory interpretation against the backdrop of other provisions under Title 17 these factors do not sit squarely with a reading that "lawfully made under this title" means "lawfully made in the U.S.". Justice Scalia, admittedly not the AmeriKat's favorite Justice, even questioned during oral arguments in Omega v Costco why Congress didn't say that if that is what it intended.

In the final paragraph of the Court of Appeals decision on the first doctrine issue the Court in fact invited Congress to correct their judgment

"If we have misunderstood Congressional purpose in enacting the first sale doctrine, or if our decision leads to policy consequences that were not foreseen by Congress or which Congress now finds unpalatable, Congress is of course able to correct our judgment."

Here Congress, Congress, Congress.....Congressional activism is equally likely and unlikely given the US economic climate, but perhaps one way to stimulate the economy is to allow retailers like Costco to start drumming up business in the grey goods market without the fear of legal action? Could such a change to the US grey goods market only be a matter of time? (picture, left - an Omega watch subject to the Costco dispute)

The AmeriKat would like to thank C E Petit for bringing this decision to the Kat's attention.