US Supreme Court: Parallel Imports of copyrighted goods are OK

[James Love <love@cptech.org>]

In a case with very important international ramifications, the US
Supreme Court has just ruled the US copyright laws do not prohibit
parallel imports into the US.  This will have certainly have
ramifications in South Africa and other countries seeking to permit
parallel imports of pharmaceuticals, and in Australia, where legislation
to permit parallel imports of Music CDs in currently under
consideration.  Opponents of parallel imports will seek changes in US
law, but supporters of parallel imports will fight to against
anticompetitive restrictions on trade.  

 Jamie

----------------------
Court Lets Discounters Keep
Selling U.S.-Made Goods They Buy
Overseas

By Joan Biskupic
Washington Post Staff Writer
Tuesday, March 10, 1998; Page A07 

American companies from software manufacturers to
book publishers and the recording industry lost an
important battle at the Supreme Court yesterday when the
justices ruled that businesses cannot use the nation's
copyright laws to stop discounters from buying U.S.
manufacturers' products abroad and selling them here at
reduced prices.

Wal-Mart Stores, Costco Cos. and other billion-dollar
discounters selling a wide range of imported goods had
a big stake in the case. Many of the products in their
stores are obtained not from the original manufacturers
but from distributors who get the products overseas.

Yesterday's ruling will ensure that those discounters can
continue to sell these products in their stores.

Although it is not clear what percentage of the goods
sold by drug and retail stores are obtained through
overseas discounters, both sides in the dispute agree that
the "gray market" is a multibillion-dollar industry that
includes items from shampoos to cosmetics to music
CDs and videos. At issue are American consumer goods
sold to an overseas distributor and intended for sale
abroad. Those products are typically sold at
substantially lower prices because they do not include
the heavy costs of advertising and marketing that tend to
hike the prices of U.S. goods. What often happens,
however, is that those distributors then sell the products
not only in foreign countries but to others that in turn sell
the products back to U.S. retailers for sale in the United
States.

While discounters stress the benefits of such trade
practices to consumers, lawyers for manufacturers had
warned the court that it gives discounters a "free ride,"
oversaturates the market and often makes it difficult for a
consumer to obtain a warranty on a product, even when
it carries a popular brand name. More pointedly,
manufacturers tried to argue that the practice violates
federal copyright law.

But the Supreme Court ruled yesterday that once a U.S.
company sells a copyrighted product abroad, it loses its
right to control the distribution and, even though the
product may have been intended for sale somewhere else
in the world at a lower price, it can be imported back for
U.S. sale.

The case involved a shampoo made by L'anza Research
International, a California-based company that sells its
hair products in the United States mostly through
authorized barber shops and beauty salons. In 1992 and
1993, its distributor in the United Kingdom arranged to
sell its products in Malta, at about 40 percent less than
U.S. distributors pay. But the shipment was resold
abroad and the goods found their way back to the United
States without the permission of L'anza. They were then
sold by unauthorized retailers who had bought the hair
care products at discounted prices from a company
called Quality King Distributors Inc.

L'anza sued Quality King, alleging that its importation
and distribution of those products bearing the
copyrighted labels violated L'anza's "exclusive rights"
under federal copyright law. The 9th U.S. Circuit Court
of Appeals ruled for L'anza, saying the unauthorized
distribution was the kind of "evil" Congress sought to
address in the 1976 copyright law.

The high court reversed that by attempting to reconcile a
federal law with potentially conflicted components. The
law does indeed give the holder of a copyright exclusive
right to distribute those "copies" to the public, and says
that copyrighted works acquired outside the country
cannot be imported back without the copyright owner's
consent. But another section of the law establishes the
"first sale" doctrine. Under that provision, a subsequent
owner of a copyrighted work may freely sell the product
anywhere, including in the country where the product
originated.

"The whole point of the first sale doctrine is that once
the copyright owner places a copyrighted item in the
stream of commerce by selling it, he has exhausted his
exclusive statutory right to control its distribution,"
Justice John Paul Stevens wrote for the court.

The Clinton Justice Department had sided with L'anza,
noting the government has been negotiating international
trade agreements based on the view that copyright law
prohibits unauthorized importation.

But Stevens wrote that such executive branch efforts are
"irrelevant" to interpreting an act of Congress. Justice
Ruth Bader Ginsburg wrote a short separate statement
yesterday to note that the ruling in Quality King
Distributors v. L'anza Research International does not
affect cases in which the allegedly infringing imports
actually were made abroad.

"This is an excellent decision for consumers," asserted
Allen R. Snyder, who represented Quality King. "The
court's holding finds that copyright laws don't prevent
American consumers from receiving the benefits of
lower prices that some manufacturers charge overseas."

But Raymond Goettsch, L'anza's lawyer, said, "I do not
think that that is what Congress intended when it" wrote
a law protecting copyright owners from infringements on
their products. He and other lawyers who represent the
publishing and recording industry said they expected to
press Congress to change the law. 

 






-- 
James Love
Consumer Project on Technology
P.O. Box 19367, Washington, DC 20036
love@cptech.org | http://www.cptech.org
202.387.8030, fax 202.234.5176