Source: https://www.law.cornell.edu/supct/html/96-1470.ZO.html
Timestamp: 2019-04-23 16:23:16+00:00

Document:
QUALITY KING DISTRIBUTORS, INC., PETITIONER v. LANZA RESEARCH INTERNATIONAL, INC.
Section 106(3) of the Copyright Act of 1976 (Act), 17 U.S.C. § 106(3), gives the owner of a copyright the exclusive right to distribute copies of a copyrighted work. That exclusive right is expressly limited, however, by the provisions of §§107 through 120. Section 602(a) gives the copyright owner the right to prohibit the unauthorized importation of copies. The question presented by this case is whether the right granted by §602(a) is also limited by §§107 through 120. More narrowly, the question is whether the first sale doctrine endorsed in §109(a) is applicable to imported copies.
Respondent, Lanza Research International, Inc. (Lanza), is a California corporation engaged in the business of manufacturing and selling shampoos, conditioners, and other hair care products. Lanza has copyrighted the labels that are affixed to those products. In the United States, Lanza sells exclusively to domestic distributors who have agreed to resell within limited geographic areas and then only to authorized retailers such as barber shops, beauty salons, and professional hair care colleges. Lanza has found that the American public is generally unwilling to pay the price charged for high quality products, such as Lanzas products, when they are sold along with the less expensive lower quality products that are generally carried by supermarkets and drug stores. App. 54 (declaration of Robert Hall). Lanza promotes the domestic sales of its products with extensive advertising in various trade magazines and at point of sale, and by providing special training to authorized retailers.
Lanza also sells its products in foreign markets. In those markets, however, it does not engage in comparable advertising or promotion; its prices to foreign distributors are 35% to 40% lower than the prices charged to domestic distributors. In 1992 and 1993, Lanzas distributor in the United Kingdom arranged the sale of three shipments to a distributor in Malta;1 each shipment contained several tons of Lanza products with copyrighted labels affixed.2 The record does not establish whether the initial purchaser was the distributor in the United Kingdom or the distributor in Malta, or whether title passed when the goods were delivered to the carrier or when they arrived at their destination, but it is undisputed that the goods were manufactured by Lanza and first sold by Lanza to a foreign purchaser.
bought all three shipments from the Malta distributor, imported them, and then resold them to retailers who were not in Lanzas authorized chain of distribution.
After determining the source of the unauthorized sales, Lanza brought suit against petitioner and several other defendants.3 The complaint alleged that the importation and subsequent distribution of those products bearing copyrighted labels violated Lanzas exclusive rights under 17 U.S.C. § 106 501 and 602 to reproduce and distribute the copyrighted material in the United States. App. 32. The District Court rejected petitioners defense based on the first sale doctrine recognized by §109 and entered summary judgment in favor of Lanza. Based largely on its conclusion that §602 would be meaningless if §109 provided a defense in a case of this kind, the Court of Appeals affirmed. 98 F.3d 1109, 1114 (CA9 1996). Because its decision created a conflict with the Third Circuit, see Sebastian Intl, Inc. v. Consumer Contacts (PTY) Ltd., 847 F.2d 1093 (1988), we granted the petition for certiorari. 520 U.S. ___ (1997).
What does the statute mean in granting the sole right of vending the same? Was it intended to create a right which would permit the holder of the copyright to fasten, by notice in a book or upon one of the articles mentioned within the statute, a restriction upon the subsequent alienation of the subject-matter of copyright after the owner had parted with the title to one who had acquired full dominion over it and had given a satisfactory price for it? It is not denied that one who has sold a copyrighted article, without restriction, has parted with all right to control the sale of it. The purchaser of a book, once sold by authority of the owner of the copyright, may sell it again, although he could not publish a new edition of it.
In this case the stipulated facts show that the books sold by the appellant were sold at wholesale, and purchased by those who made no agreement as to the control of future sales of the book, and took upon themselves no obligation to enforce the notice printed in the book, undertaking to restrict retail sales to a price of one dollar per copy. Id., at 349350.
The Bobbs-Merrill opinion emphasized the critical distinction between statutory rights and contract rights.10 In this case, Lanza relies on the terms of its contracts with its domestic distributors to limit their sales to authorized retail outlets. Because the basic holding in Bobbs-Merrill is now codified in §109(a) of the Act, and because those domestic distributors are owners of the products that they purchased from Lanza (the labels of which were lawfully made under this title), Lanza does not, and could not, claim that the statute would enable Lanza to treat unauthorized resales by its domestic distributors as an infringement of its exclusive right to distribute copies of its labels. Lanza does claim, however, that contractual provisions are inadequate to protect it from the actions of foreign distributors who may resell Lanzas products to American vendors unable to buy from Lanzas domestic distributors, and that §602(a) of the Act, properly construed, prohibits such unauthorized competition. To evaluate that submission, we must, of course, consider the text of §602(a).
Notwithstanding the clarity of the text of §§106(3), 109(a), and 602(a), Lanza argues that the language of the Act supports a construction of the right granted by §602(a) as distinct from the right under Section 106(3) standing alone, and thus not subject to §109(a). Brief for Respondent 15. Otherwise, Lanza argues, both the §602(a) right itself and its exceptions15 would be superfluous. Moreover, supported by various amici curiae, including the Solicitor General of the United States, Lanza contends that its construction is supported by important policy considerations. We consider these arguments separately.
Lanza advances two primary arguments based on the text of the Act: (1) that §602(a), and particularly its three exceptions, are superfluous if limited by the first sale doctrine; and (2) that the text of §501 defining an infringer refers separately to violations of §106, on the one hand, and to imports in violation of §602. The short answer to both of these arguments is that neither adequately explains why the words under section 106 appear in §602(a). The Solicitor General makes an additional textual argument: he contends that the word importation in §602(a) describes an act that is not protected by the language in §109(a) authorizing a subsequent owner to sell or otherwise dispose of the possession of a copy. Each of these arguments merits separate comment.
Prior to the enactment of §602(a), the Act already prohibited the importation of piratical, or unauthorized, copies.16 Moreover, that earlier prohibition is retained in §602(b) of the present act.17 Lanza therefore argues (as do the Solicitor General and other amici curiae) that §602(a) is superfluous unless it covers non-piratical (lawfully made) copies sold by the copyright owner, because importation nearly always implies a first sale. There are several flaws in this argument.
First, even if §602(a) did apply only to piratical copies, it at least would provide the copyright holder with a private remedy against the importer, whereas the enforcement of §602(b) is vested in the Customs Service.18 Second, because the protection afforded by §109(a) is available only to the owner of a lawfully made copy (or someone authorized by the owner), the first sale doctrine would not provide a defense to a §602(a) action against any non-owner such as a bailee, a licensee, a consignee, or one whose possession of the copy was unlawful.19 Third, §602(a) 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.
When arrangements are made for both a U.S. edition and a foreign edition of the same work, the publishers frequently agree to divide the international markets. The foreign publisher agrees not to sell his edition in the United States, and the U.S. publisher agrees not to sell his edition in certain foreign countries. It has been suggested that the import ban on piratical copies should be extended to bar the importation of the foreign edition in contravention of such an agreement. Copyright Law Revision: Report of the Register of Copyrights on the General Revision of the U.S. Copyright Law, 87th Cong., 1st Sess., 125126 (H. R. Judiciary Comm. Print 1961).
only those made by the publisher of the U.S. edition would be lawfully made under this title within the meaning of §109(a). The first sale doctrine would not provide the publisher of the British edition who decided to sell in the American market with a defense to an action under §602(a) (or, for that matter, to an action under §106(3), if there was a distribution of the copies).
The argument that the statutory exceptions to §602(a) are superfluous if the first sale doctrine is applicable rests on the assumption that the coverage of that section is co-extensive with the coverage of §109(a). But since it is, in fact, broader because it encompasses copies that are not subject to the first sale doctrinee.g., copies that are lawfully made under the law of another countrythe exceptions do protect the traveler who may have made an isolated purchase of a copy of a work that could not be imported in bulk for purposes of resale. As we read the Act, although both the first sale doctrine embodied in §109(a) and the exceptions in §602(a) may be applicable in some situations, the former does not subsume the latter; those provisions retain significant independent meaning.
The use of the words or who imports, rather than words such as including one who imports, is more consistent with an interpretation that a violation of §602 is distinct from a violation of §106 (and thus not subject to the first sale doctrine set out in §109(a)) than with the view that it is a species of such a violation. Nevertheless, the force of that inference is outweighed by other provisions in the statutory text.
Of even greater importance is the fact that the §106 rights are subject not only to the first sale defense in §109(a), but also to all of the other provisions of sections 107 through 120. If §602(a) functioned independently, none of those sections would limit its coverage. For example, the fair use defense embodied in §10722 would be unavailable to importers if §602(a) created a separate right not subject to the limitations on the §106(3) distribution right. Under Lanzas interpretation of the Act, it presumably would be unlawful for a distributor to import copies of a British newspaper that contained a book review quoting excerpts from an American novel protected by a United States copyright.23 Given the importance of the fair use defense to publishers of scholarly works, as well as to publishers of periodicals, it is difficult to believe that Congress intended to impose an absolute ban on the importation of all such works containing any copying of material protected by a United States copyright.
Does an importer sell or otherwise dispose of copies as those words are used in §109(a)?
Whether viewed from the standpoint of the importer or from that of the copyright holder, the textual argument advanced by the Solicitor General25that the act of importation is neither a sale nor a disposal of a copy under §109(a)is unpersuasive. Strictly speaking, an importer could, of course, carry merchandise from one country to another without surrendering custody of it. In a typical commercial transaction, however, the shipper transfers possession, custody, control and title to the products26 to a different person, and Lanza assumes that petitioners importation of the Lanza shipments included such a transfer. An ordinary interpretation of the statement that a person is entitled to sell or otherwise dispose of the possession of an item surely includes the right to ship it to another person in another country.
In sum, we are not persuaded by either Lanzas or the Solicitor Generals textual arguments.
The parties and their amici have debated at length the wisdom or unwisdom of governmental restraints on what is sometimes described as either the gray market or the practice of parallel importation.28 In K mart Corp. v. Cartier, Inc., 486 U.S. 281 (1988), we used those terms to refer to the importation of foreign-manufactured goods bearing a valid United States trademark without the consent of the trademark holder. Id., at 285286. We are not at all sure that those terms appropriately describe the consequences of an American manufacturers decision to limit its promotional efforts to the domestic market and to sell its products abroad at discounted prices that are so low that its foreign distributors can compete in the domestic market.29 But even if they do, whether or not we think it would be wise policy to provide statutory protection for such price discrimination is not a matter that is relevant to our duty to interpret the text of the Copyright Act.
1. See App. 64 (declaration of Robert De Lanza).
2. See id., at 7083.
3. Lanzas claims against the retailer defendants were settled. The Malta distributor apparently never appeared in this action and a default judgment was entered against it.
4. The doctrine had been consistently applied by other federal courts in earlier cases. See Kipling v. G. P. Putnams Sons, 120 F. 631, 634 (CA2 1903); Doan v. American Book Co., 105 F. 772, 776 (CA7 1901); Harrison v. Maynard, Merrill & Co., 61 F. 689, 691 (CA2 1894); Bobbs-Merrill Co. v. Snellenburg, 131 F. 530, 532 (ED Pa. 1904); Clemens v. Estes, 22 F. 899, 900 (Mass. 1885); Stowe v. Thomas, 23 F. Cas. 201, 206207 (ED Pa. 1853).
5. In 1908, when Bobbs-Merrill was decided, the copyright statute provided that copyright owners had the sole liberty of printing, reprinting, publishing, completing, copying, executing, finishing, and vending their copyrighted works. Copyright Act of 1891, §4952, 26 Stat. 1107 (emphasis added).
6. See n. 5, supra.
7. Congress codified the first sale doctrine in §41 of the Copyright Act of 1909, ch. 320, 35 Stat. 1084, and again in §27 of the 1947 Act, ch. 391, 61 Stat. 660.
8. The full text of §106 reads as follows: §106. Exclusive rights in copyrighted works Subject to sections 107 through 120, the owner of copyright under this title has the exclusive rights to do and to authorize any of the following: (1) to reproduce the copyrighted work in copies or phonorecords; (2) to prepare derivative works based upon the copyrighted work; (3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending; (4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly; (5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly; and (6) in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission. 17 U.S.C. § 106 (1994 ed., Supp. I).
10. We do not think the statute can be given such a construction, and it is to be remembered that this is purely a question of statutory construction. There is no claim in this case of contract limitation, nor license agreement controlling the subsequent sales of the book. Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 350 (1908).
12. See n. 8, supra.
13. See text accompanying n. 9, supra.
14. Despite Lanzas contention to the contrary, see Brief for Respondent 2627, the owner of goods lawfully made under the Act is entitled to the protection of the first sale doctrine in an action in a United States court even if the first sale occurred abroad. Such protection does not require the extraterritorial application of the Act any more than §602(a)s acquired abroad language does.
15. See n. 11, supra.
16. See 17 U.S.C. § 106 107 (1970).
18. See n. 17, supra.
. Now those are not piratical copies. Copyright Law Revision Part 2: Discussion and Comments on Report of the Register of Copyrights on General Revision of the U.S. Copyright Law, 88th Cong., 1st Sess., 213 (H. R. Judiciary Comm. Print 1963) (statement of Mr. Sargoy), quoted in 98 F.3d 1109, 1116 (CA9 1996).
20. A participant in a 1964 panel discussion expressed concern about this particular situation. Copyright Law Revision Part 4: Further Discussion and Comments on Preliminary Draft for Revised U.S. Copyright Law, 88th Cong., 2d Sess., 119 (H. R. Judiciary Comm. Print 1964) (statement of Mrs. Pilpel) (For example, if someone were to import a copy of the British edition of an American book and the author had transferred exclusive United States and Canadian rights to an American publisher, would that British edition be in violation so that this would constitute an infringement under this section?); see also id., at 209 (statement of Mr. Manges) (describing similar situation as a troublesome problem that confronts U.S. book publishers frequently).
21. The strength of the implication created by the relevant language in §106A is not diminished by the fact that Congress enacted §106A more recently than §602(a), which is part of the Copyright Act of 1976. Section 106A was passed as part of the Visual Artists Rights Act of 1990 in order to protect the moral rights of certain visual artists. Section 106A is analogous to Article 6bis of the Berne Convention for the Protection of Literary and Artistic Works, but its coverage is more limited. See 2 P. Goldstein, Copyright §5.12, p. 5:225 (2d ed. 1996) (§106A encompasses aspects of the moral rights guaranteed by Article 6bis of the Berne Convention, but effectively gives these rights a narrow subject matter and scope).
23. The §602(a) exceptions, which are substantially narrower than §107, would not permit such importation. See n. 11, supra.
24. Lanzas reliance on §602(a)(3)s reference to §108(g)(2), see n. 11, supra, to demonstrate that all of the other limitations set out in §§107 through 120including the first sale and fair use doctrinesdo not apply to imported copies is unavailing for the same reasons.
25. See also Brief for Recording Industry Association of America et al. 1921.
27. See, e.g., H. R. Rep. No. 1476, 94th Cong., 2d Sess., 79 (1979) (Section 109(a) restates and confirms the first sale doctrine established by prior case law); S. Rep. No. 473, 94th Cong., 1st Sess., 71 (1975) (same).
28. Compare, for example, Gorelick & Little, The Case for Parallel Importation, 11 N. C. J. Intl L. & Comm. Reg. 205 (1986), with Gordon, Gray Market Is Giving Hair-Product Makers Gray Hair, N. Y. Times, July 13, 1997, section 1, p. 28, col. 1.
29. Presumably Lanza, for example, could have avoided the consequences of that competition either (1) by providing advertising support abroad and charging higher prices, or (2) if it was satisfied to leave the promotion of the product in foreign markets to its foreign distributors, to sell its products abroad under a different name.
30. The Solicitor General advises us that such agreements have been made with Cambodia, Trinidad and Tobago, Jamaica, Ecuador, and Sri Lanka.

References: v. 
 § 106
 §602
 §109
 § 106
 §109
 §602
 §109
 v. 
 §109
 §602
 §602
 §602
 §109
 §602
 §602
 §501
 §106
 §602
 §602
 §602
 §109
 §602
 §602
 §602
 §602
 §602
 §109
 §602
 §602
 §109
 §602
 §106
 §602
 §109
 §109
 §602
 §602
 §106
 §109
 §106
 §109
 §602
 §10722
 §602
 §106
 §109
 §109
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 §4952
 §41
 §27
 §106
 § 106
 v. 
 §602
 § 106
 §106
 §106
 §602
 §5
 §602
 §107
 §602
 §108