Source: https://supreme.justia.com/cases/federal/us/523/135/
Timestamp: 2019-04-22 16:02:14+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 523 › Quality King Distributors, Inc. v. L'anza Research Int'l, Inc.
QUALITY KING DISTRIBUTORS, INC. v. L' ANZA RESEARCH INTERNATIONAL, INC.
Respondent Uanza, a California manufacturer, sells its hair care products in this country exclusively to distributors who have agreed to resell within limited geographic areas and only to authorized retailers. Uanza promotes its domestic sales with extensive advertising and special retailer training. In foreign markets, however, it does not engage in comparable advertising or promotion; its foreign prices are substantially lower than its domestic prices. It appears that after Uanza's United Kingdom distributor arranged for the sale of several tons of Uanza products, affixed with copyrighted labels, to a distributor in Malta, that distributor sold the goods to petitioner, which imported them back into this country without Uanza's permission and then resold them at discounted prices to unauthorized retailers. Uanza filed suit, alleging that petitioner's actions violated Uanza's exclusive rights under the Copyright Act of 1976 (Act), 17 U. S. C. §§ 106, 501, and 602, to reproduce and distribute the copyrighted material in the United States. The District Court rejected petitioner's "first sale" defense under § 109(a) and entered summary judgment for Uanza. Concluding that § 602(a), which gives copyright owners the right to prohibit the unauthorized importation of copies, would be "meaningless" if § 109(a) provided a defense, the Ninth Circuit affirmed.
Held: The first sale doctrine endorsed in § 109(a) is applicable to imported copies. Pp. 140-154.
its products to American vendors unable to buy from its domestic distributors. Pp. 140-143.
(b) The statutory language clearly demonstrates that the right granted by § 602(a) is subject to § 109(a). Significantly, § 602(a) does not categorically prohibit the unauthorized importation of copyrighted materials, but provides that, with three exceptions, such "[i]mportation ... is an infringement of the exclusive right to distribute ... under [§ ]106 ... " Section 106 in turn expressly states that all of the exclusive rights therein granted-including the distribution right granted by subsection (3)-are limited by §§ 107 through 120. One of those limitations is provided by § 109(a), which expressly permits the owner of a lawfully made copy to sell that copy "[n]otwithstanding the provisions of [§ ]106(3)." Mter the first sale of a copyrighted item "lawfully made under this title," any subsequent purchaser, whether from a domestic or a foreign reseller, is obviously an "owner" of that item. Read literally, § 109(a) unambiguously states that such an owner "is entitled, without the authority of the copyright owner, to sell" that item. Moreover, since § 602(a) merely provides that unauthorized importation is an infringement of an exclusive right "under [§ ]106," and since that limited right does not encompass resales by lawful owners, § 602(a)'s literal text is simply inapplicable to both domestic and foreign owners of Uanza's products who decide to import and resell them here. Pp. 143-145.
(c) The Court rejects Uanza's argument that § 602(a), and particularly its exceptions, are superfluous if limited by the first sale doctrine. The short answer is that this argument does not adequately explain why the words "under [§ ]106" appear in § 602(a). Moreover, there are several flaws in Uanza's reasoning that, because § 602(b) already prohibits the importation of unauthorized or "piratical" copies, § 602(a) must cover nonpiratical ("lawfully made") copies sold by the copyright owner. First, even if § 602(a) applied only to piratical copies, it at least would provide a private remedy against the importer, whereas § 602(b)'s enforcement is vested in the Customs Service. Second, because § 109(a)'s protection is available only to the "owner" of a lawfully made copy, the first sale doctrine would not provide a defense to a § 602(a) action against a nonowner such as a bailee. Third, § 602(a) applies to a category of copies that are neither piratical nor "lawfully made under this title"; those that are "lawfully made" under another country's law. Pp. 145-149.
§ 602(a) unambiguously states that the prohibited importation is an infringement "under [§ ]106," thereby identifying § 602 violations as a species of § 106 violations. More important is the fact that the § 106 rights are subject to all of the provisions of "[§§ ]107 through 120." If § 602(a) functioned independently, none of those sections would limit its coverage. pp. 149-151.
(e) The Court finds unpersuasive the Solicitor General's argument that "importation" describes an act that is not protected by § 109(a)'s authorization to a subsequent owner "to sell or otherwise dispose of the possession of" a copy. An ordinary interpretation of that language includes the right to ship the copy to another person in another country. More important, the Solicitor General's cramped reading is at odds with § 109(a)'s necessarily broad reach. 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. There is no reason to assume that Congress intended § 109(a) to limit the doctrine's scope. Pp. 151-152.
(f) The wisdom of protecting domestic copyright owners from the unauthorized importation of validly copyrighted copies of their works, and the fact that the Executive Branch has recently entered into at least five international trade agreements apparently intended to do just that, are irrelevant to a proper interpretation of the Act. pp. 153-154.
STEVENS, J., delivered the opinion for a unanimous Court. GINSBURG, J., filed a concurring opinion, post, p. 154.
Raymond H. Goettsch argued the cause and filed a brief for respondent.
JUSTICE STEVENS delivered the opinion of the Court. 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.
ard Kelly, and Robert J. Verdisco; and for Jan-Bell Marketing, Inc., by Michael J. Gaertner.
Briefs of amici curiae urging affirmance were filed for the American Intellectual Property Law Association by Arthur J. Levine and John N O'Shea; for the Beauty and Barber Supply Institute Inc. et al. by Deborah M. Lodge; for the National Consumers League et al. by Charles E. Buffon, Caroline M. Brown, Jan S. Amundson, Quentin Riegel, and Daniel F. O'Keefe, Jr.; for the Recording Industry Association of America et al. by Theodore B. Olson and Preeta D. Bansal; and for Swarovski America Limited by Werner Kronstein.
drug stores." App. 54 (declaration of Robert Hall). Uanza 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 Uanza to a foreign purchaser.
1 See App. 64 (declaration of Robert De Lanza). 2 See id., at 70-83.
3 Uanza'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.
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'Z, Inc. v. Consumer Contacts (PTY) Ltd., 847 F.2d 1093 (1988), we granted the petition for certiorari. 520 U. S. 1250 (1997).
4 The doctrine had been consistently applied by other federal courts in earlier cases. See Kipling v. G. P. Putnam's Sons, 120 F.6d 1, 634 (CA2 1903); Doan v. American Book Co., 105 F.7d 2, 776 (CA7 1901); Harrison v. Maynard, Merrill & Co., 61 F.6d 9, 691 (CA2 1894); Bobbs-Merrill Co. v. Snellenburg, 131 F.5d 0, 532 (ED Pa. 1904); Clemens v. Estes, 22 F.8d 9, 900 (Mass. 1885); Stowe v. Thomas, 23 F. Cas. 201, 206-207 (ED Pa. 1853).
"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.
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.
"(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).
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 § l09(a) of the Act, and because those domestic distributors are owners of the products that they purchased from Uanza (the labels of which were "lawfully made under this title"), L'anza does not, and could not, claim that the statute would enable Uanza to treat unauthorized resales by its domestic distributors as an infringement of its exclusive right to distribute copies of its labels. Uanza 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).
of any copy of a copyrighted work the possession of which has been lawfully obtained." Copyright Act of 1909, ch. 320, § 41, 35 Stat. 1084; see also Copyright Act of 1947, ch. 391, §27, 61 Stat. 660. It is noteworthy that § 109(a) of the 1978 Act does not apply to "any copy"; it applies only to a copy that was "lawfully made under this title."
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).
"(3) importation by or for an organization operated for scholarly, educational, or religious purposes and not for private gain, with respect to no more than one copy of an audiovisual work solely for its archival purposes, and no more than five copies or phonorecords of any other work for its library lending or archival purposes, unless the importation of such copies or phonorecords is part of an activity consisting of systematic reproduction or distribution, engaged in by such organization in violation of the provisions of section 108(g)(2)."
12 See n. 8, supra.
13 See text accompanying n. 9, supra.
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, Uanza argues, both the § 602(a) right itself and its exceptions 15 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.
14 Despite Uanza'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.
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 ActP L'anza therefore argues (as do the Solicitor General and other amici curiae) that § 602(a) is superfluous unless it covers nonpiratical ("lawfully made") copies sold by the copyright owner, because importation nearly always implies a first sale. There are several flaws in this argument.
16 See 17 U. S. C. §§ 106, 107 (1970).
17 Section 602(b) provides in relevant part: "In a case where the making of the copies or phonorecords would have constituted an infringement of copyright if this title had been applicable, their importation is prohibited .... " The first sale doctrine of § 109(a) does not protect owners of piratical copies, of course, because such copies were not "lawfully made."
18 See n. 17, supra.
fense to a § 602(a) action against any nonowner 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).
19 In its opinion in this case, the Court of Appeals quoted a statement by a representative of the music industry expressing the need for protection against the importation of stolen motion picture prints: "We've had a similar situation with respect to motion picture prints, which are sent all over the world-legitimate prints made from the authentic negative. These prints get into illicit hands. They're stolen, and there's no contractual relationship .... 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 (R. R. Judiciary Comm. Print 1963) (statement of Mr. Sargoy), quoted in 98 F.3d 1109, 1116 (CA9 1996).
Even in the absence of a market allocation agreement between, for example, a publisher of the United States edition and a publisher of the British edition of the same work, each such publisher could make lawful copies. If the author of the work gave the exclusive United States distribution rights-enforceable under the Act-to the publisher of the United States edition and the exclusive British distribution rights to the publisher of the British edition,20 however, presumably only those made by the publisher of the United States 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).
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").
be applicable in some situations, the former does not subsume the latter; those provisions retain significant independent meaning.
The text of § 501 does lend support to L'anza's submission.
"(a) Anyone who violates any of the exclusive rights of the copyright owner as provided by sections 106 through 118 or of the author as provided in section 106A(a), or who imports copies or phonorecords into the United States in violation of section 602, is an infringer of the copyright or right of the author, as the case may be .... "
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.
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").
"The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors."
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)?
23 The § 602(a) exceptions, which are substantially narrower than § 107, would not permit such importation. See n. 11, supra.
24 Uanza'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-inc1uding 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.
portation" is neither a sale nor a disposal of a copy under § l09(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.
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).
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.
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.
29Presumably Uanza, 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.
This case involves a "round trip" journey, travel of the copies in question from the United States to places abroad, then back again. I join the Court's opinion recognizing that we do not today resolve cases in which the allegedly infringing imports were manufactured abroad. See W. Patry, Copyright Law and Practice 166-170 (1997 Supp.) (commenting that provisions of Title 17 do not apply extraterritorially unless expressly so stated, hence the words "lawfully made under this title" in the "first sale" provision, 17 U. S. C. § 109(a), must mean "lawfully made in the United States"); see generally P. Goldstein, Copyright § 16.0, pp. 16:1-16:2 (2d ed. 1998) ("Copyright protection is territorial. The rights granted by the United States Copyright Act extend no farther than the nation's borders.").
31 We also note that in 1991, when the first of the five agreements was signed, the Third Circuit had already issued its opinion in Sebastian Int'l, Inc. v. Consumer Contacts (PTY) Ltd., 847 F.2d 1093 (1988), adopting a position contrary to that subsequently endorsed by the Executive Branch.

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