Amicus Curiae Brief — Quality King Distributors, Inc. v. L'Anza Research Int'l, Inc.

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No. 96-1470

IN THE CLERK

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1997

QUALITY KING DISTRIBUTORS, INC.,

Petitioner,

L’ANZA RESEARCH INTERNATIONAL, INC.,

Respondent.

ON WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF OF AMICI CURIAE,

COSTCO COMPANIES, INC.,

WAL-MART STORES, INC., TARGET STORES,

A DIVISION OF DAYTON HUDSON CORPORATION,

NATIONAL ASSOCIATION OF CHAIN DRUG STORES,

INTERNATIONAL MASS RETAIL ASSOCIATION,

NATIONAL ASSOCIATION OF

CATALOG SHOWROOM MERCHANDISERS,

and THE FOOD MARKETING INSTITUTE,

IN SUPPORT OF PETITIONER

PETER J. KADZIK MICHAEL D. SANDLER

DICKSTEIN SHAPIRO (Counsel of Record)

MORIN & OSHINSKY LLP SANDLER AHERN

2101 L Street, N.W. & McCONAUGHY PLLC

Washington, D.C. 20037 1221 Second Avenue

(202) 775-4704 Suite 410

Counsel for Seattle, Washington 98101

National Association of (206) 346-1751

Chain Drug Stores Counsel for

Costco Companies, Inc.

— Additional Counsel Listed on Inside Cover

Washington,O.C. « THIEL PRESS «+ (202) 328.3266

RICHARD KELLY

KELLY LUCAS

MOHEN & PACIFICO

186 Birch Hill Road

Locust Valley, NY 11560

(516) 676-6262

Counsel for

National Association of

Catalog Showroom

Merchandisers

HARRY SULLIVAN

GEORGE GREEN

THE FOOD MARKETING

INSTITUTE

800 Connecticut Ave., N.W.

Washington, D.C. 20006

(202) 429-8259

Counsel for

The Food Marketing Institute

Rosert G. SYKES

Vice President, General

Counsel and Public

Affairs Officer

TARGET STORES

33 South 6th Street

Minneapolis, MN 55402

(612) 304-5777

Counsel for Target Stores

ROBERT J. VERDISCO

Morrison G, Cain

INTERNATIONAL MASS

RETAIL ASSOCIATION

1700 N. Moore Street

Arlington, VA 22209

(703) 841-2300

Counsel for International

Mass Retail Association

SALLIE STROUD

Assistant General Counsel

WAL-MART STORES, INC.

702 S.W. 8th

Bentonville, AR 72717

(501) 273-4505

Counsel for

Wal-Mart Stores, Inc.

Page

TABLE OF CONTENTS

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ARGUMENT:

I. A Sale To A Foreign Market By The U.S. Copy-

right Owner Itself Cuts Off The Distribution

Right Mentioned In Section 6020 6

A. Section 602(a) Will Not Apply Where The

Section 106 Distribution Right Has Been

Cut Off By A First Sale Of A Copy That Is

“Lawfully Made Under This Title”............... 9

B. Section 109˙8 Policy Against Restraints On

Alienation Applies Even Where A U.S.

l e e e ee ee 12

C. Operative Acts By The U.S. Copyright Owner

In Foreign Nations Affect Rights Under A

R ˙ĩ˙ 636633 18

Il. Imposing Liability Would Vitiate The “Good

Faith Purchaser” Rule, In Ways Congress

Could Not Have Intended... ..............50565 21

e „ e eee „„ „„. 27

APPENDIX —

Members of National Association of Chain Drug Stores la

TABLE OF AUTHORITIES

Cases:

Adams v. Burke, 84 U.S. (17 Wall.) 453 (1873) 15

Bloomer v. McQuewan, 55 U.S. (14 How.) 539 (1852)....... 15

Bobbs-Merrill Co. v. Snellenburg, 131 F. 530 (E. D.

D nee eee 0 13

(it)

Cases, continued: Page

Bobbs-Merrill Co. v. Strauss, 210 U.S. 339

| rer „ TTT „ „„ 14, 15

Boesch v. Graff, 133 U.S. 697 (18900)‚! ees 17

Burke & Van Heusen v. Arrow Drug, Inc., 233 F.Supp.

I. IN. 14

C.M. Paula Company v. Logan, 355 F.Supp. 189

LE Wes DUE + oe cer eseeeseseseceecocctens 14

Clemens v. Estes, 22 F. 899 (D. Mass. 1885 )))) 13

Curtiss Aeroplane & M. Corp. v. United Aircraft E. Corp.,

Gn 16

Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518

„„ ee ee „e „„ e „„ 25

Denbicare U.S.A. Inc. v. Toys R Us, Inc., 84 F.3d

1143 (9th Cir.), cert. denied. U.S. 117

fe . |), Sr rrrerryrrrTrererrrrrtiry 11, 20

Disenos Artisticos E Industriales S. A. v. Costco Wholesale

Corporation, 97 F.3d 377 (9th Cir. 1996) ........... 2, 21

Doan v. American Book Co., 105 F. 772 (7th Cir.

re rrrr ra yore eee e ee ee ee 13

EEOC v. Arabian American Oil Co., 499 U.S. 244

CORNED bo esencusecececeswscvedtesdesesooves 19

Ford Motor Company v. B & H Supply, Inc., 646

F.Supp. 975 (D. Minn. 1986)0mMnuAij ee ee ee eee 23

Griffin v. Keystone Mushroom Farm, Inc., 453 F.Supp.

III 17

Harrison v. Maynard, Merrill & Co., 61 F. 689 (2d Cir.

„„ „ „%%%„%„%„„6„„ „6 13. 15

Henry Bill Publishing Co. v. Smythe, 27 F. 914 (8. D.

eee e e ee „ „e 13

Holiday v. Mattheson, 24 F. 185 (C. C. N. V. 1889) 16

Howitt v. Hall, 10 Wkly. Rep. 31. 18

Independent News Co. v. Williams, 293 F.2d 510

Gai. „„ 14

(iii)

Cases, continued: Page

Johnson & Johnson Prod. v. Dal Int I Trading Co., 798

, e 22

K mart Corp. v. Cartier, 486 U.S. 281 (198 10

Lanza Research Int'l, Inc. v. Costco Wholesale Corp.

e ... 2

Montblanc Simplo GmbH et al. v. Costco Wholesale

Corporation et al., C.D. Cal. No. CV-96-1160

— ( ˙ꝛůùm eee ae „le 2

Murray v. Heath, 1 Barn. & Adol. 604 13

Parfums Givenchy, Inc. v. Drug Emporium, Inc., 38

F. 3d 477 (9th Cir. 1994), cert. denied. U.S.

, . 11

Parfums Givenchy, Inc. v. K mart Corporation, Sears

Roebuck and Co., Wal-Mart Stores, Inc., et al.,

e ̃é K ee eee 2

RCA Mfg. Co. v. Whiteman, 114 F. 2d 86 (2d Cir.

ih Wi id we ewe ie bea beak ween 668s 6d coewes 14

Sanofi, S.A. v. Med. Teck Veterinarian Products, 565

ee ˙¼m i wb.e bee 6 17-18

Sears Roebuck & Co. v. Stiffel Co., 376 U.S. 225

EEE EEA eS ꝛ»m! . 0 25

Seiko v. Refac Technology, 9 U.S.P.Q. 2d 1046

, ̃ ˙ N’A—ĩ . ĩ »». 16

Sony Corp. v. Universal City Studios, Inc., 464 U.S.

r en, ere 15, 23, 25

Stabilisierungsfonds Fur Wein v. Kaiser Stuhl Wine

Distributors PTY, Ltd., 647 F.2d 200 (D.C.

Fr, Gb ebive ccopresvedes 23

Subafilms Ltd. v. MGM-Pathe Communications Co.,

24 F.3d 1088 (9th Cir.) (en banc), cert. denied,

— ee eee 19

Swarovski America Ltd. v. Price/Costco Inc., et al.

and Swarovski America Ltd. v. Costco Whole-

sale Corp., C.D. Cal. Nos. 93-6365 SVW

e é⁰ D),, ↄ ˙˖X—j]ꝰo („..

Cases, continued: Page

Taylor v. Pillow, 7 Eq. Cas. 4 ils. 13

Textile Supplies, Inc. v. Garrett, 687 F. 2d 123

Lee 7

United States v. 92 Buena Vista Ave., Rumson, 507

U.S. 111 (1998) 0... ccc rece cece eres erseeseseces 23

Statutes:

een conte e edn 7

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SP UL OSG ee e e e ee e ence 7, 19

ee l e eee e passim

OF TE, Bes o ba Se ceded esi cetcctstessede passim

ee eee e eee ee 15

end e eee eee 22

re eee e e eee ell 20

ZIL 20

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Be I 6 655000 6o6ecnnsenseatotesee bat 21

IL passim

Miscellaneous:

3 M. Nimmer & D. Nimmer, Nimmer on Copyright

aeg (BOBS) ũůhhh hh 7

Universal Copyright Convention 25 UST 1341 (1971) ........ 6

Berne Convention for the Protection of Literary and

Artistic Works (Paris 1971), S. Treaty Doc. No.

27, 99th Cong. 2d Sess. (1986)))))): 6

(v)

Miscellaneous, continued: Page

Chafee, Equitable Servitudes on Chattels, 41 Harv. L. Rev.

es 15

House Report No. 2222, 60th Cong. 2d Sess. (1909) 12

House Report No. 987, 98th Cong. 2d Sess. (1984)......... 15

House Report No. 94-1476, 94th Cong. 2d Sess.

/ Ged ebe eee — 12,14

Senate Report No. 94-473, 94th Cong. Ist Sess.

%%% !.. . ˙»—Ü0- 6's ae 6 15, 20

, ̃ Ä.... tds 65-0.6:6 22

INTEREST OF AMICI CURIAE

Amict have received written consents to file this brief

from petitioner and respondent and are filing these con-

sents separately with the Clerk of the Court.!

1. The Individual Amici

Costco Companies, Inc. (“Costco”) through its sub-

sidiaries operates “Costco Wholesale” and Price Club”

membership warehouse clubs in the United States and

abroad. Costco’s annual sales of over $20 billion make it

the seventh largest retailer in the United States, and

approximately 20,000,000 U.S. cardholders shop at its

warehouse locations.

Wal-Mart Stores, Inc. is the largest retailer in the

United States, with over $104 billion in annual sales. It

operates both Wal-Mart“ stores (2,565 U.S. locations)

and Sam's“ membership warehouse clubs (438 U.S.

locations).

Target Stores, a division of Dayton Hudson Corpora-

tion, accounted for over 70% of the corporation's 1996

annual sales revenue of more than $25 billion dollars,

making Dayton Hudson the fifth largest general merchan-

dise retailer in the United States. Target operates 769

stores in 39 states.

Each of the individual amici will be immediately

affected by the decision in this case. Each sells a wide

range of merchandise that includes imported goods with

copyrighted labels or features. Since 1994, Costco has

been sued four times, solely in the Ninth Circuit, on

claims that its sales of genuine goods violate Section

No counsel for either of the parties authored this brief in

whole or in part. No person or entity, other than amici curiae,

their members and their counsel, made a monetary contribution to

the preparation or submission of this brief.

602(a) of the Copyright Act.? One of those lawsuits was

brought by respondent. Wal-Mart has been sued on the

same theory.“ A decision in this case recognizing a Sec-

tion 602(a) claim will subject the individual amici to

futckre liability for selling genuine products with copy-

righted labels in the normal course of their businesses,

and impose barriers and additional costs when purchasing

such products from anyone other than the U.S. copyright

owner.

2. The Association Amici

National Association of Chain Drug Stores has approxi-

mately 130 members that operate 25,419 retail chain

drug store outlets throughout the United States. Its mem-

bers generate over $110 billion in sales. A list of its mem-

bers is in the Appendix, infra at la.

International Mass Retail Association (“IMRA’’) rep-

resents 180 member companies, including discount

department stores, home centers, category-dominant or

specialty discounters, catalogue showrooms, dollar stores,

warehouse clubs, deep discount drugstores and off-price

stores. Collectively, IMRA retail members operate more

than 70,000 stores in the U.S. and abroad and employ

over two million Americans. IMRA retail members cum-

ulatively represent over $380 billion in annual sales.

2 Disenos Artisticos E Industriales S.A. v. Costco Whole-

sale Corporation, 97 F.3d 377 (9th Cir. 1996); Swarovski Amer-

ica Ltd. v. Price/Costco Inc., et al. and Swarovski America Ltd.

v. Costco Wholesale Corp., C.D. Cal. Nos. 93-6365 SVW, 93-7403

SVV (Judgment Dec. 21, 1994); Lanza Research Int'l, Inc. v.

Costco Wholesale Corp., C.D. Cal. No. 95-0244 TJH (settled 1995);

Montblanc-Simplo GmbH et al. v. Costco Wholesale Corporation et

al., C.D. Cal. No. CV 96-1160 DT (settled 1996).

5g. Parfums Givenchy, Inc. v. K mart Corporation, Sears

Roebuck and Co., Wal-Mart Stores, Inc., et al., C.D. Cal. No.

94-764 HLH.

National Association of Catalog Showroom Merchan-

disers is an association of catalog showroom merchandis-

ers, whose members use catalogs showing brand name

products as a principal medium of advertising. It has

several hundred members; its member discount retail

stores account for approximately $5 billion in annual

sales.

The Food Marketing Institute (“FMI’’) is a nonprofit

association conducting programs in research, education,

industry relations and public affairs on behalf of its 1,500

members including their subsidiaries — food retailers and

wholesalers and their customers in the United States and

around the world. FMI’s domestic member companies

operate approximately 21,000 retail food stores with a

combined annual sales volume of $220 billion — more

than half of all grocery store sales in the United States.

FMI’s retail membership is composed of large multi-store

chains, small regional firms, and independent supermarkets.

Each of the amici associations advocates the freedom

of its members to purchase and resell genuine brand name

products, to make available such products at competitive

prices as determined by each individual retailer, and

thereby to compete freely with other forms of retailing.

The Ninth Circuit’s decision in this case presents a sub-

stantial threat to those freedoms. If the decision stands,

the retailer members of the amici associations will face

significant costs and impediments in purchasing and

reselling genuine goods having a copyrighted label or fea-

ture, affecting substantial commerce. As a result, U.S.

consumers who shop at the thousands of retail stores

operated by the amici associations’ members will be denied

access to the benefits of open competition, including the

lowest possible prices.

SUMMARY OF ARGUMENT

1. When an author creates a work, he or she automati-

cally obtains a copyright virtually worldwide. Although

the author may then internationally exploit the copyright

by a variety of methods, two prototypes of these meth-

ods help illustrate the effect of Section 109(a) on Sec-

tions 106 and 602(a) of the Copyright Act. In “Case 1,”

the copyright owner keeps all worldwide rights for

itself and makes and sells all copies of the work, either in

the United States or abroad. In “Case 2,” the U.S. copy-

right owner absolutely transfers certain of its foreign

rights to others, and the assignee or exclusive licensee of

those foreign rights makes and sells the copies in question.

Whether Section 109(a) cuts off the exclusive distribu-

tion right referred to in Sections 106 and 602(a) differs

between Cases 1 and 2. In Case 1, since the U.S. copy-

right owner itself will have made the particular copies,

those copies will be deemed “lawfully made under this

title” for purposes of Section 109(a) and, thus, may be

freely sold by downstream purchasers. This is also true

if the U.S. copyright owner has made the copies in a for-

eign country or contracted with a foreign manufacturer

to make them abroad. Where, as here, the U.S. copyright

owner itself has made the copies in the United States, Sec-

tion 109(a) explicitly cuts off the exclusive distribution

right on which Section 602(a) depends.

By contrast, where an independent owner of foreign

rights has made and sold the copies that are subsequently

imported (Case 2), those copies will likely be “law-

fully made” only under foreign copyright laws, and not

“under this title” for purposes of Section 109(a). If so,

Section 109(a) would not cut off the Section 106(3) dis-

tribution right and that right would survive for purposes

of Section 602(a).

If legislative history need be considered, one finds that

Section 109(a) is based on the common-law principle

prohibiting restraints on the alienation of personal prop-

erty. When it first enacted the first-sale doctrine, and

when it later re-enacted it in Section 109, Congress made

clear that it was adopting this common law principle.

Once a copyright owner has transferred ownership of a

particular copy, the copyright owner may not exercise

any control whatever over that copy. In the patent area,

where a first-sale doctrine developed in tandem with that

of the copyright law, the courts have applied the doctrine

where U.S. patent owners have sold patented articles

abroad. Similarly, the goal of Section 109(a) is to avoid

restraints on downstream owners, no matter if the intel-

lectual property owner has sold the object in the United

States or in a foreign country.

In addition, a sale overseas is but one of numerous for-

eign “operative acts“ referred to in, or contemplated by,

the Copyright Act. Although courts will not normally

enforce acts of Congress beyond the territorial boundaries

of the United States, this case does not involve enforce-

ment of the Copyright Act in any foreign country. Instead

it involves a commercial transaction originating from the

United States and directed abroad, that has legal signifi-

cance for rights claimed within the United States. Even if

L’anza is deemed to have made a sale abroad, it will not

prevent operation of Section 109(a).

2. If, however, Section 602(a) is to be exalted over the

apparent command of Section 109(a), its effect should be

limited to the sole act proscribed by that provision,

“importation.” Section 602(a) should not be extended

to downstream merchants, like Quality King or amici and

their members. The “good faith purchaser” rule, which

normally protects merchants that deal in genuine goods,

should not be overriden by judicial fiat.

ARGUMENT

A SALE TO A FOREIGN MARKET BY THE U.S. COPY-

RIGHT OWNER ITSELF CUTS OFF THE DISTRIBUTION

RIGHT MENTIONED IN SECTION 602(a).

It is useful to analyze this case from the viewpoint of

how, internationally, a copyright is originated and may

be exploited. Here, L’anza created an original graphic

design for its product labels. From the moment of crea-

tion, L’anza had a copyright in the United States and

most other nations. This occurred both under Section

104 of the Copyright Act, 17 U.S.C. §104, and under the

multilateral treaties implemented by the Act. In partic-

ular, the Berne Convention and the Universal Copyright

Convention give an author in any convention country

automatic recognition of, and protection for, his or her

works upon their creation. Article 5 of the Berne Con-

vention provides in part:

(1) Authors shall enjoy, in respect of works for

which they are protected under this Convention, in

countries of the Union other than the country of

origin, the rights which their respective laws do now

or may hereafter grant to their nationals, as well as

the rights specially granted by this Convention.

(2) The enjoyment and the exercise of these rights

shall not be subject to any formality; such enjoy-

ment and such exercise shall be independent of the

existence of protection in the country of origin of

the work.

Berne Convention for the Protection of Literary and

Artistic Works (Paris 1971), S. Treaty Doc. No. 27, 99th

Cong. 2d Sess., 40 (1986). Similar provisions appear in

Article II of the Universal Copyright Convention, 25

UST 1341 (1971). Section 104 of the Copyright Act

implements these international obligations by granting

reciprocal protection to works created or published in

countries adhering to the Berne Convention and Universal

See 17 U.S.C. §104(b).

This system of treaty rights, thus, gave L’anza instanta-

neous recognition of its copyright virtually worldwide.

Although the protections may vary country by country,

L’anza, as the “owner of copyright,” controlled the full

bundle of rights embodied in its U.S. and foreign copy-

rights.*

A copyright owner may choose different paths to

exploit its copyright internationally, including various

permutations of assignments and licenses. To illustrate

the interaction of Sections 106, 109(a) and 602(a), how-

ever, we focus on two prototypical “cases” that result in

a sale.

*“Owner of copyright, the term used in 17 U.S.C. §§ 106

and 602(a), means the owner of the entire copyright. By contrast,

a “copyright owner” is defined as, “with respect of any one of the

exclusive rights comprised in a copyright, . . . the owner of that

particular right. 17 U.S.C. §101. Thus, where U.S. rights have

been licensed, a copyright owner will not be the “owner of copy-

right“; rather, “the licensor remains the owner of the copyright,

and the licensee is the owner only of the exclusive rights that are

the subject of [the] license. 3 M. Nimmer & D. Nimmer,

Nimmer on Copyright §10.02[C] [2] (1996). Since here L’anza is

both the owner of copyright and the copyright owner of all exclus-

ive rights, we use the terms interchangeably.

> Besides a sale, a copyright owner may simply lease or

entrust a copyrighted object. Leases, for example, are common in

motion picture distribution. Similarly, a foreign contract manufac-

turer or warehouse operator may possess copies while performing

services for a copyright owner. If a bailee or lessee breached its

agreement with the copyright owner and transferred a copy to a

third party, there would not have been any first sale by anyone

with rights under the U.S. copyright. Nor would good title be

transferred if a copy were stolen from a copyright owner, lessee or

bailee, see Textile Supplies, Inc. v. Garrett, 687 F.2d 123, 127

(5th Cir. 1982), and, in that case, there would be no subsequent

“owner” within the meaning of Section 109(a).

Case 1. A copyright owner may keep for itself, as

L’anza has done in this case, all U.S. and foreign rights in

its copyright. If the copyright owner chooses this path, it

will control the reproduction of al copies of the copy-

righted work. If the copyright owner makes those copies

in the United States (as L’anza does) or in a foreign

country, they will be lawful copies under the laws of all

countries. As discussed below, in the eyes of the U.S.

this title.“ 17 U.S.C. §109(a).

In addition, the copyright owner in Case 1 will neces-

sarily control the first distribution of each genuine copy;

it will set the price and terms of the first sale, and it has

the ability to negotiate contractud restrictions with its

immediate purchasers. To market its product internation-

ally, a copyright owner like L’anza could sell to a U.S.

based distributor (with or without an agreement on

where the latter may resell). Or, as actually happened

here, the owner could sell to a distributor abroad. Under

either scenario, importation may occur if a third party

purchaser in a foreign nation finds it economical to resell

the goods back to a customer in the United States.

Case 2. The second prototype involves an absolute

transfer of foreign rights. By an assignment or uncondi-

tional exclusive license, a copyright owner may transfer

the full bundle of rights under one or more foreign copy-

rights. If that occurs and if the assignees or licensees

reproduce copies ia the foreign nations concerned, those

copies would be lawfully made in the eyes of the foreign

would appear not to have been made under any right or

authority derived from the U.S. Copyright Act.

Also under this Case 2, the owner of the U.S. copy-

right will not usually control sales of the foreign-made

copies; the assignee or exclusive licensee of the foreign

rights will set the price and terms of the first sale. Import-

ation might then be the result of the foreign copyright

owner selling to a U.S. customer, or of a third party pur-

chaser exporting to the United States.

We submit that L’anza’s ability to restrict imports

under Section 602(a) differs between Cases 1 and 2. In

particular, Section 602(a) does not give a copyright owner

the blanket right to keep out all imports of products

bearing its copyrighted design. Rather, Section 602a)'s

applicability depends on whether the copyright owner’s

exclusive right to distribute particular copies (under Sec-

tion 106) survives until the time of the importation, or

whether that right has been cut off (under Section

109(a)) by a prior sale. Section 109(a)’s applicability,

in turn, depends on whether the particular copies were

made by or for the U.S. copyright owner (Case 1), or

made solely under foreign law by an independent owner

of foreign rights (Case 2). As we demonstrate below,

Section 109(a) operates to extinguish a U.S. copyright

owner’s rights under Sections 106(3) and 602(a) where,

as here, the copyright owner itself has made the copies

and put them into the stream of commerce.

A. Section 602(a) Will Not Apply Where The Sec-

tion 106 Distribution Right Has Been Cut Off

By A First Sale Of A Copy That Is “Lawfully

Made Under This Title.“

In Section 602(a), Congress adopted a middle ground

between giving a copyright owner a new right to prohibit

imports and allowing unrestricted importation. Congress

decided that importation of a particular copy would

simply be “an infringement of the exclusive right to dis-

tribute copies and phonorecords under section 106... .”

17 U.S.C. §602(a). Thus, to have a claim under Section

602(a), the U.S. copyright owner must still have the Sec-

tion 106 exclusive distribution right for the particular

copies that had been imported. But if the Section 106(3)

exclusive right to distribute has been cut off (for example,

by Section 109(a)’s first sale doctrine), Section 602(a)

can no longer (for those copies) state “an infringement of

the exclusive right to distribute copies . . . . under section

106.” 17 U.S.C. §602(a).

Where it applies, Section 109(a) unquestionably cuts

off L’anza’s rights under Section 106(3). The exclusive

distribution right L’anza is claiming under Section 106(3),

for purposes of Section 602(a), is s] ubject to sections

107 through 120” (17 U.S.C. §106), which of course

encompasses Section 109(a). Conversely, any subsequent

“owner” of a product bearing a copy of Lanza’s design

that has been “lawfully made under this title” is free to

resell that copy “[n] otwithstanding the provisions of sec-

tion 106(3)....” 17 U.S.C. 109(a).

On its face, Section 109(a) applies where the U.S.

copyrighted owner itself has made the copies (as in the

Case 1 scenario), as opposed to an unrelated assignee or

licensee solely of foreign rights (the Case 2 scenario, not

at issue here).“ By its language, Section 109(a) applies to

copies that have been “lawfully made under this title.

17 U.S.C. §109(a). This provision asks both whether the

copy is a lawful one and whether its reproduction was

lawful under this title.“ If made by or at the discretion

of the U.S. copyright owner, it will be treated as lawful

under the Copyright Act.

6 This case also does not present, and thus the Court should

not decide, what would if the U.S. copyright owner and

the foreign assignee or licensee were under common ownership or

control. This was a situation involved in the Court's decision in

K mart Corporation v. Cartier, 486 U.S. 281 (1988), but is not at

issue here.

This is true even where the U.S. copyright owner has

the copyrighted article made in a foreign country. For

example, if L’anza had a particular copy made in Europe,

imported it and then sold it to a U.S. customer, Section

109(a) unquestionably would allow the U.S. customer

“without authority of the copyright owner, to sell or

otherwise dispose of the possession of that copy... .”

17 U.S.C. §109(a). The foreign-made copy would be

“lawfully made under this title. Id.; Denbicare U.S.A.

Inc. v. Toys “R” Us, Inc., 84 F.3d 1143, 1149-50 (9th Cir.),

cert. denied. U.S. , 117 S.Ct. 190 (1996) (goods

made for U.S. copyright owner by a Hong Kong manu-

facturer are covered by Section 109(a));cf Parfums Civ-

enchy, Inc. v. Drug Emporium, Inc., 38 F.3d 477, 482

n.8 (9th Cir. 1994), cert. denied. U.S. , 115 S.Ct.

1315 (1995) (copyrighted goods made by a U.S. copy-

right owner in France are “lawfully made under this title,”

but, under Ninth Circuit law, sales abroad of such goods

do not extinguish rights under Sections 106 and 602(a)).

By contrast, in the Case 2 scenario, if an independent

assignee or licensee of foreign rights had made the partic-

ular copy, one could say that the copy was “lawfully

made,” but only under a foreign nation’s laws and not

“under this title“ within the meaning of Section 109(a).

Because here the U.S. copyright owner made the par-

ticular copies (and did so in the United States), the lang-

uage of Section 109(a) (together with that of Sections

106 and 602(a)) should be dispositive. Yet, if it need be

considered, the underlying purpose of Section 109(a) sup-

ports the same result. As shown below, Section 109(a)

and its precursors were intended to preclude a U.S. copy-

right owner from selling a copyrighted object and then

invoking federal copyright remedies to restrain future

alienation of that object — even where the U.S. copyright

owner sells to a foreign market.

B. Section 109’s Policy Against Restraints On Alien-

ation Applies Even Where A U.S. Copyright

Owner Sells To’A Foreign Market.

1. Section 109(a) did not simply materialize in the

Section 109(a) restates and confirms the principle

that, where the copyright owner has transferred own-

ership of a particular copy . . the person to whom

the copy . . . is transferred is entitled to dispose of it

by sale, rental, or any other means

House Report No. 94-1476, 94th Cong. 2d Sess. 79

(1976) (emphasis added). In particular, Section 109

restated a rule from the 1909 Act which, in turn, codified

a body of judicial precedent:

Section 41 is not intended to change in any way

existing law . . II] t would be most unwise to per-

mit the copyright proprietor to exercise any control

whatever over the article which is the subject of

sale

House Report No. 2222, 60th Cong. 2d Sess. 28-29

(1909) (emphasis added).

The “existing law” codified in the 1909 Act focused

on the Anglo-American rule prohibiting restraints on the

alienation of chattels. The courts of both the United

States and England had held that, where a copyright

owner itself had sold an object embodying a copyrighted

work, (1) normal rules against a seller imposing restraints

on the subsequent alienation of that object would apply,

and (2) the copyright owner/seller would have to look to

contract law, not copyright legislation, for claims against

— — — —— =

purchasers of the object. A lucid summary appeared in

Henry Bill Publishing Co. v. Smythe, 27 F. 914 (S..

Ohio 1886):

[Whenever the owner of the copyright undertakes,

by contract, to attach conditions to his sale of cop-

ies of the work, he must rely on the ordinary reme-

dies for a breach of the contract, if it be violated;

and this is sound doctrine. Inseparably with the

transfer of the title in any copy of the work must

go the right of alienation, so far as the peculiar pro-

tection of the copyright statutes is concerned

R * *

A genuine copy, owned by the owner of the copy-

right, carries with it the ordinary incidents of alien-

ation belonging alike to all property, and, if he parts

with the copyright, he retains with the ownership of

the particular copy this power of sale; or if he sells

a copy to another, having, as owner of the copyright,

authorized a transfer, the purchaser takes the copy

with the ordinary incident of alienation belonging

to all property; and that copy is no longer under

the copyright law.

27 F. at 923, 925. Accord Harrison v. Maynard, Merrill

& Co., 61 F. 689 (2d Cir. 1894).’

The following English cases, discussed in Henry Bill Publish

ing Co., 27 F. at 923-24, reached the same conclusion: Murray v.

Heath, 1 Barn. & Adol. 804 (an owner of a genuine copy not liable

under copyright statute for breaching agreement not to sell that

copy); Taylor v. Pillow, 7 Eq. Cas. 418 (same); Howitt v. Hall, 10

Wkly. Rep. 381 (an exclusive licensee after his license terminated

had the power to sell copies he had made during the license term).

See also Clemens v. Estes, 22 F. 899, 900 (D. Mass. 1885); Doan v.

American Book Co., 105 F. 772, 776 (7th Cir. 1901); Kipling v.

G. P. Putnam Sons, 120 F. 631, 634 (2d Cir. 1903); Bobbs-Merrill

Co. v. Snellenburg, 131 F. 530, 532 (E.D. Pa. 1904) (“the right

to restrain the sale of a particular copy of the book . . has gone

when the owner of the copyright and of that particular copy has

parted with all his title to it.

In Bobbs-Merrill Company v. Straus, 210 U.S. 339

(1908), this Court held that Congress had not intended

to give copyright owners the power to restrain the resale

prices of downstream purchasers, and that normal rules

of sales law still applied:

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 copy-

right, may sell it again, although he could not pub-

lish a new edition.

Id. at 350. The cases preceding the 1976 enactment of

the current Copyright Act similarly reaffirmed that the

first sale doctrine is intended to avoid restraints on the

alienation of copies in the hands of subsequent purchas-

ers. See RCA Mfg. Co. v. Whiteman, 114 F.2d 86, 88,

89 (2d Cir. 1940) (L. Hand); Independent News Co. v.

Williams, 293 F.2d 510, 517 (3d Cir. 1961) (“where the

publisher has parted with the title to the copyrighted

work and despite the fact that as between the immediate

parties there is a contractual restriction on its use, this

restriction does not bar subsequent purchasers from vend-

ing... free of the restriction”); Burke & Van Heusen v.

Arrow Drug, Inc., 233 F. Supp. 881, 882-83 (E.D. Pa.

1964); CM. Paula Company v. Logan, 355 F.Supp. 189,

191 (N.D. Tex. 1973) (upon sale, “the policy favoring a

opposing . . . restraints on alienation“).

Congress reaffirmed this policy when it enacted Sec-

tion 109(a). In discussing Section 109(a), the 1976 com-

mittee reports observed that “the outright sale of an auth-

orized copy of a book frees it from any copyright control

over its resale price or other conditions of its future dis-

tribution. House Report No. 94-1476, supra at 79

(emphasis added); Senate Report No. 94-473, 94th Cong.

Ist Sess. 71 (same). Then in 1984, in connection with the

amending of Section 109 to exempt from the first-sale

doctrine the leasing of sound recordings, see 17 U.S.C.

§ 109(b), the policy was stated even more directly:

The first sale doctrine has its roots in the English

common law rule against restraints on alienation of

property. American courts have affirmed the doc-

trine and distinguished between the owner's exclus-

ive rights in the copyright and the rights of the

owner of an object embodying a work that is under

House Report No. 987, 98th Cong. 2d Sess. 2 (1984), cit-

ing Chafee, Equitable Servitudes on Chattels, 41 Harv.L.

Rev. 945, 982 (1928); Bobbs-Merrill Co. v. Straus, supra;

Harrison v. Maynard, Merrill & Co., supra.

2. The courts have long applied these principles to for-

eign sales, in situations similar to our Case 1 scenario. In

particular, patent decisions have taken an international

approach to the policy against restraints on alienation.®

s patent law may be considered in copyright cases because

of the historic kinship between patent law and copyright law.”

Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 439

(1984). Also, copyright law developed a first sale doctrine in tan-

dem with patent law. See Adams v. Burke, 84 U.S. (17 Wall.)

453, 456, (1873) (after being sold, a patented object is open to

the use of the without further restriction on account

of the monopoly of the tees); Bloomer v. McQuewan, 55

U.S. (14 How.) 539 (1882) (v (when a patented machine passes to

the hands of the purchaser, it is no longer within the limits of the

monopoly. . . And if |the inventor's] right to the implement

or machine is infringed, he must seek redress in the courts of the

State, according to the laws of the State and not under the law

of Congress granting the patent”’).

In Holiday v. Mattheson, 24 F. 185 (C.C.N.Y. 1885), a

U.S. patent holder sold a patented article in England and

then tried to enjoin resale in the United States. The court

held that where there was such an unrestricted foreign

sale by the U.S. patent owner, 'the purchaser acquires

the whole right of the vendor in the thing sold: the right

to use it, to repair it, and to sell it to others.. The

Second Circuit adopted the same view in Curtiss Aero-

plane & M. Corp. v. United Aircraft E. Corp., 266 F. 71

(2d Cir. 1920), where an owner of both U.S. and foreign

patents sold a Canadian-made airplane to the British gov-

ernment and then sued a downstream purchaser who had

brought the airplane to the United States:

If a patentee or his assignee sells a patented arti-

cle, that article is freed from the monopoly of any

patents which the vendor may possess... . If

the vendor’s patent monopoly consists of foreign

and domestic patents, the sale frees the article from

the monopoly of both his foreign and his domestic

patents, and where there is no restriction in the con-

tract of sale the purchaser acquired the complete

title and full right to use and sell the article in any

and every country.

Id. at 78 (emphasis added). See Seiko v. Refac Technol-

ogy, 9 U.S.P.Q. 2d 1046, 1049 (S.D.N.Y. 1988) (a sale

ends the patent owner’s right in the patented object,

“even if that sale takes place abroad”).

Where a copyright owner like L’anza has chosen to

retain the entire worldwide bundle of rights for itself, it

has the right both to make copies and to sell them every-

where. Because L’anza has these rights in both the United

States and the United Kingdom, a sale in either country

frees the particular copy sold of the copyright monopoly

Kr oe OR a ee ee ˙d Ü Ü ²˙ ee Ä

(i e., of the exclusive distribution right), and deprives

L’anza of the ability later to invoke copyright law to

restrain a subsequent alienation of that copy.

In essence, Section 109(a) does not depend on an

exercise of the distribution right in the United States.

Instead, it protects all subsequent “owners” of any cop-

ies “lawfully made under this title.“ Its purpose was not

to ensure that U.S. copyright owners actually exercised

a distribution right within the United States, but to pre-

clude restraints on alienation at least as to copies the

U.S. copyright owner itself has made and sold.

3. Had L’anza chosen the Case 2 path and transferred

some of its foreign rights, the result would appear to be

different if the goods had been made and sold by the for-

eign assignee or licensee. This Court addressed such a

scenario in the patent context, in Boesch v. Graff, 133

U.S. 697 (1890). There, U.S. and German rights were

divided between two owners: Graff held the U.S. rights

and an individual named Hecht owned the German rights.

A dealer in the United States bought a burner made and

sold by Hecht under the German patent. The Court ruled

that the first sale by the German owner could not defeat

rights of the separate U.S. owner:

The right which Hecht had to make and sell the

burners in Germany was allowed him under the laws

of that country, and purchasers from him could not

be thereby authorized to sell the articles in the

United States in defiance of the rights of patentees

under a United States patent.

Id. at 703. Accord Griffin v. Keystone Mushroom Farm,

Inc., 453 F.Supp. 1283 (E.D. Pa. 1978) (sale by an exclus-

ive licensee of Italian rights of a product the licensee

made in Italy did not release the product from the U.S.

patent monopoly); cf. Sanofi, S.A. v. Med-Tech Veterin-

arian Products, 565 F. Supp. 931 (D.N.J. 1983) (first sale

abroad by an owner of both the French and U.S. patents

did not preclude an exclusive licensee of all U.S. rights

from enjoining subsequent U.S. sales). These decisions

suggest that if L’anza had decided to exploit its copyright

internationally by an absolute assignment or exclusive

license of its foreign rights, and if the imports at issue had

been made and previously sold by an independent foreign

owner or licensee rather than L’anza itself, the first sale

doctrine might not defeat the Section 106 distribution

right — or, therefore, a claim under Section 602(a).

Here, however, L’anza kept all rights. It made the cop-

ies. Those copies, “lawfully made under this title,” 17

U.S.C. §109(a), were sold by L’anza itself. Both the lang-

uage and policy of Section 109(a) have a single thrust:

L’anza’s own sales of goods L’anza itself made, cut off

(for those goods) the Section 106 exclusive distribution

right on which any Section 602(a) claim depends. L’anza

cannot afterwards restrain distribution of those same

copies.

C. Operative Acts By The U.S. Copyright Owner

In Foreign Nations Affect Rights Under A U.S.

The district court concluded that a sale intended for a

foreign market should be deemed to have occurred

abroad, and that Section 109(a) could not cut off rights

under Section 602(a) where a foreign sale preceded

importation._ Petition at B5-B6 and n.5. The district

court was incorrect.“ Any prior sale by a U.S. copyright

owner should be viewed as an “operative act“ which, even

9 The Ninth Circuit itself declined to follow the district

court’s place of sale rationale. Petition at A8-A9.

if it occurs abroad, has legal consequences under the

Although it is sometimes loosely said that the Copy-

right Act does not have extraterritori effect, this has gen-

erally been understood to mean that the Act does not

punish infringements that occur entirely outside the

United States. See Subafilms Ltd. v. MGM-Pathe Com-

munications Co., 24 F.3d 1088, 1093 (9th Cir.) (en banc),

cert. denied. U. S. , 114 S.Ct. 512 (1994). This

case, however, does not involve a claim that Congress has

attempted to “enforce its laws beyond the territorial

boundaries of the United States.” EEOC v. Arabian

American Oil Co., 499 U.S. 244, 248 (1991). Instead,

this case involves a commercial transaction originating

within the United States and directed to a foreign coun-

try, which has legal significance for enforcement within

the United States. In fact, even if the L’anza products

had been made abroad and even if the sales had occurred

entirely abroad, they would still be among those “opera-

tive acts” occurring in a foreign country that affect rights

under a U.S. copyright.

The Copyright Act mentions several such foreign oper-

ative acts. As noted, Section 104 confers “protection”

under the U.S. Copyright Act where works are published

in foreign nations that are parties to the Berne Conven-

tion, the Universal Copyright Convention, or some other

“copyright treaty,“ or where the President finds that the

foreign nation grants reciprocal copyright protection for

U.S. works. 17 U.S.C. §104(b). Other parts of the Copy-

right Act that refer to foreign operative acts include pro-

visions on:

e Transfers of copyright ownership “executed in a

foreign country,” 17 U.S.C. §204(b)(2);

right ownership executed “outside the United

States,“ 17 U.S.C. §205(d);

„The placing of copyright notices on works “pub-

lished in the United States or elsewhere,” 17 U.S.C.

§401(a), 402(a);

The exemption for “Berne Convention works whose

country of origin is not the United States” from the

requirement that a copyright be registered before

commencing an infringement action in a U.S. court,

17 U.S.C. §411(a).

Conversely, Section 201(c) prevents some foreign acts

from having the effect of transferring or extinguishing

rights under a U.S. copyright:

[S]ubsection (e) would protect foreign authors

against laws and decrees that would divest them of

their rights under the United States Copyright Act.

It would protect authors within the foreign country

who choose to resist such covert pressures.

Senate Rep. No. 94-473, supra at 107.

By the same token, Congress did not attempt to legis-

late every transaction or occurrence in a foreign country

that would have legal significance within the United

States. For example, a U.S. copyright owner, while resid-

ing abroad, may certainly authorize the publication of a

book or the performance of a play in the United States.

Or, from a foreign base, an author or his or her heirs may

terminate transfers and licenses of U.S. rights to others.

See 17 U.S.C. §203(a) and (b)(5). We have seen that

copies made abroad for the U.S. copyright owner are

“lawfully made under this title” for purposes of Section

109(a). Denbicare, 84 F.3d at 1149-50. A foreign owner

of a U.S. copyright can even authorize, from abroad,

imports into the United States where that owner has not

itself made a first sale of a particular copy. See Disenos

Artisticos E Industriales S. A. v. Costco Wholesale Corpor-

ation, 97 F.3d 377 (9th Cir. 1996) (authority implied

from the foreign owner's license agreements with other

foreign companies).

A first sale by the copyright owner is also such an

operative act that may occur abroad. As discussed above,

the policy against restraints on alienation of goods is at

the root of Section 109(a), and it applies whether a U.S.

patent or copyright owner has sold its goods in its home

market or abroad. Supra at 12-17. In the Case I scenario,

if L’anza’s sale of hair products with copyrighted labels

occurs in the U.S., in Europe or in transit, the answer is

the same. Section 109(a) prevents L’anza from restrain-

ing downstream alienation of those particular copies that

are “lawfully made under this title” and that L’anza

itself has already once sold — and, thus, it cuts off

L’anza’s “exclusive right to distribute [these] copies.

under section 106,” 17 U.S.C. §602(a).

II.

IMPOSING LIABILITY WOULD VITIATE THE “GOOD

FAITH PURCHASER” RULE, IN WAYS CONGRESS

COULD NOT HAVE INTENDED.

Should the Court decide, however, that Section 602(a)

applies in Case 1, the zone of liability should be limited to

those engaged in the sole act proscribed by that section,

“importation.” For purposes of Section 602(a), Section

501 only provides a right of action against, and defines as

an infringer, the person “who imports copies or phono-

records into the United States in violation of section

602... . 17 U.S.C. §501(a) (emphasis added). Since

it does not appear that Quality King was an importer, it

should not have Section 602(a) liability."° Any broader

reading would create enormous commercial consequences

for U.S. retailers and distributors who, today, are being

sued under Section 602(a) for selling goods that are gen-

uine but that were not imported with the U.S. copyright

owner’s consent.

Normally, a downstream merchandiser may rely on the

“good-faith purchaser for value” rule when it acquires

merchandise for resale. That rule protects the free trans-

ferability of all genuine goods. See U.C.C. §2-403. It

“allows people safely to engage in the purchase and sale

of goods without conducting a costly investigation of

the conduct and rights of all previous predecessors in the

chain of distribution.” Johnson & Johnson Prod. v. Dal

Int'l Trading Co., 798 F.2d 100, 104 (3d Cir. 1986)

(retailer not liable for selling imported gray market goods

that others had fraudulently procured).

Congress preserved normal rules relating to the transfer

of personal property, both by Section 109(a) and by mak-

ing clear that ownership of rights under a copyright is

“distinct from ownership of any material object in which

the work is embodied.” 17 U.S.C. §202. In giving copy-

right owners a Section 602 remedy that expressly covers

only the act of “importation,” Congress expressed no

intent to sanction merchants who subsequently deal in

imported objects with copyrighted labels. Indeed, a con-

trary interpretation would saddle retailers with a risk of

10 ne district court found that Quality purchased the

L’anza products after they had been imported: The products

were imported into the United States where they passed through

the stream of commerce until they were purchased by Quality

King in the ordinary course of its business.” Petition at B3. The

court of appeals incorrectly stated (without citation to the record)

that Quality King imported the products. Petition at A2, A3.

voidable titles to their inventory of such goods purchased

from anyone other than the U.S. copyright owner — a

risk the good faith purchaser rule is supposed to avoid:

[T]he law of voidable title [is] a centuries-old con-

cept now codified in 49 States as part of their adop-

tion of the Uniform Commercial Code.... The pri.

mary rules of voidable title are manageable and few

in number. The first is that one who purchases

property in good faith and for value from the holder

of voidable title obtains good title. The second rule,

reciprocal to the first, is that one who acquires prop-

erty from a holder of voidable title other than by a

good faith purchase for value obtains nothing

beyond what the transferor held. The third rule is

that a transferee who acquires property from a good

faith purchaser for value or one of his lawful

successors obtains good title, even if the transferee

did not pay value or act in good faith.

United States v. 92 Buena Vista Ave., Rumson, 507

U.S. 111, 142 (1993) (Kennedy, J., dissenting) (cita-

tions omitted). Of even more concern, retailers deprived

of the good faith purchaser rule for imported products

with copyrighted labels would be subjected to the Copy-

right Act’s “potent arsenal of remedies.” Sony Corp.,

464 U.S. at 433.

The lower courts have indirectly carved out limited

exceptions to the good faith purchaser rule for goods that

are counterfeit or that are not genuine because they mis-

appropriate intellectual property. See Stabilisierungsfonds

Fur Wein v. Kaiser Stuhl Wine Distributors PTY, Ltd.,

647 F.2d 200, 207-08 (D.C. Cir. 1981) (product label

alleged to have misappropriated a common law trade-

mark); Ford Motor Company v. B & H Supply, Inc.,

646 F. Supp. 975 (D. Minn. 1986) (a third party’s auto

parts were sold in counterfeit Ford packaging). This line

of decision has never subjected merchants to liability for

selling genuine products made and originally sold by the

intellectual property owner itself.

The Ninth Circuit's decision in this case, however, has

punched two new holes in the good-faith purchaser shield.

First, it imposes Copyright Act liability on merchants if

it turns out that genuine goods with copyrighted labels,

once distributed by the U.S. copyright owner, were sub-

sequently imported without the copyright owner’s per-

mission. Although the good faith purchaser rules should

have obviated the need to investigate the chain of title to

the L’anza shampoo at issue, even an investigation of the

goods in this case would not necessarily have helped. A

merchant would have discovered that the goods here

were made in the U.S.A., by L’anza, the U.S. manufac-

turer and U.S. copyright owner. Yet, the Ninth Circuit’s

approach imposes liability if the complete provenance of

the goods is not discovered.

Second, the Ninth Circuit imposes liability on mer-

chants if, somewhere upstream, the copyright owner did

not reap the full reward it might have earned. This “full

value” rule would require retailers to conduct a pricing

investigation before buying a product from a jobber or

independent distributor. If the product bears a copy-

righted design on its label, the Ninth Circuit tells retail-

ers that they must ask their suppliers what price the

upstream — and then somehow determine how that price

compares with the potential price the copyright owner

might have charged.

The eventual effect of either prong of the Ninth Cir-

cuit’s assault is evident: there will be fewer (or more

costly) purchases of copyrighted goods from independ-

ent jobbers and traders. As a result, retailers may also

find it more difficult to turn to these jobbers and trad-

ers to buy their excess inventories at the end of a season,

or when a store wishes to make room for new merchan-

dise. Put another way, the Ninth Circuit’s decision in

this case creates strong incentives to deal directly with

the copyright owner and to eschew the same products

when offered by trading companies. jobbers or distribu-

tors like petitioner. Inevitably, this will affect supply

conditions in secondary markets for goods, and increase

prices: with less supply and competition from secondary

sources, prices must rise.

Imposing liability in this case would also produce com-

mercially inexplicable results. A retailer could end up

with two identical bottles of L’anza shampoo on its

shelves, each with a copyrighted label and each manufac.

tured and previously sold by L’anza, the U.S. copyright

owner. If one of the bottles had been previously exported

but the second bottle had only been sold domestically,

the retailer would be liable for selling the former but not

the latter. Unless it is given some accurate means of dis-

tinguishing the two (such as lot numbers and data on

where individual lots were sold), the retailer sells both

bottles at its peril. This is precisely the type of burden

I The Court has invoked national policy favoring competi-

tion to limit overly broad claims under both the copyright and pat.

ent laws. A court may not “enlarge the scope of respondents’

statutory monopolies . . beyond the limits of the grants author-

ized by Congress.” Sony, 464 U.S. at 421 (copyright). [I] his

Nation's historical antipathy to monopoly and of repeated con-

gressional efforts to preserve and foster competition” are grounds

not to “expand patent rights. Deepsouth Packing Co. v. Laitram

Corp., 406 U.S. 518, 530-31 (1972) (patent). Statutory monopo-

lies under the patent and copyright laws should be “strictly con-

1908. Sears Roebuck & Co. v. Stiffel Co., 376 US. 225, 230

that both the good faith purchaser rule, and the first sale

doctrine, were intended to avoid.

These are not theoretical concerns. Almost any con-

sumer product is capable of including a label with some

copyrighted design element. Most retailers vary their

inventory and purchase from distributors or jobbers who

are not the U.S. copyright owner. In today’s international

economy, where goods are purchased from multiple

sources and distributed in free trade areas pursuant to

treaties like NAFTA, it will not be uncommon for retail-

ers to purchase imported products where the U.S. copy-

right owner or its designee is not the importer. Being

sued for selling such genuine merchandise will burden

commerce, affect prices, and create the problems of

source identification that we have discussed.

Nowhere has Congress expressed any intent to impose

these anti-commercial and anti-consumer results, or to do

away with established rules that encourage the free

transferability of goods. To the contrary, as discussed

earlier (supra at 12-15), Congress’ perpetuation of the

first sale doctrine was intended to avoid such restraints on

the free alienation of genuine products. In sum, if the

Court believes Section 602(a) may be violated by the act

of “importation” in the Case 1 scenario, which we dis-

pute, it should make clear that liability cannot extend to

non-importing merchants that are good faith purchasers.

CONCLUSION

For the above reasons, the judgment of the court of

appeals should be reversed, and the case remanded with

a direction to enter judgment for petitioner.

RESPECTFULLY SUBMITTED, this 6th day of

August, 1997.

PETER J. KADZIK

DICKSTEIN SHAPIRO

MORIN & OSHINSKY, L.L.P.

2101 L Street, N.W.

Washington, D.C. 20037

(202) 775-4704

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National Association of

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TARGET STORES

33 South 6th Street

is, MN 55402

(612) 304-5777

Counsel for

Target Stores

* RB

APPENDIX

MEMBERS OF

NATIONAL ASSOCIATION OF

CHAIN DRUG STORES

ABC Stores Div. MNS Ltd.

Albertson’s, Inc.

American Drug Stores, Inc.

Andorra Neighborhood Pharmacies

Arbor Drugs, Inc.

Ark Drugs

The Arrow Corporation/Arrow Prescription Centers

Arthur Drug Stores Inc.

The Bartell Drug Company

Brooks Pharmacy

Buffalo Pharmacies

CRX Pharmacy

CVS Pharmacy, Inc.

Carr Gottstein Foods Company

City Drug Stores Inc.

City Drugs

Cobom’s, Incorporated

Concord Drugs, Inc.

Costco Wholesale

D & W Food Centers, Inc.

Davidson Drugs, Inc.

Discount Drug Mart, Inc.

Downeast Pharmacy, Inc.

Drug Emporium, Inc.

Drug Fair Stores of NJ

Drug World Pharmacies

Drugtown Drugstores

Duane Reade

Eckerd Corporation

Emm-Dee Drug Corporation

Farmacias El Amal

Fedco Professional Pharmacies

Fedco, Inc.

Fred’s Inc.

FreeCorp Peabody dba Freedom Drug

Fruth Pharmacy

Genovese Drug Stores, Inc.

Giant Eagle, Inc.

Giant Food Inc., Pharmacy Div. Giant Discount Drug

Grand Union Company

The Great Atlantic & Pacific Tea Co., Inc.

(A&P Supermarket)

Gresham Drugs, Inc.

H-E-B Foods/Drugs Inc.

Hannaford Bros., Co.

Happy Harry’s Discount Drugs

Harco Drug, Inc.

Harmon Discount Stores

Hartig Drug Stores

Health Care Professionals

Hi-School Pharmacy, Inc.

Horton and Converse Pharmacies

K&B Services, Incorporated

Keitsch Bros. Inc.

Keystone - Medicine Chest Pharmacies

Kinney Drugs, Inc.

Kmart Corporation

Knight Drugs Inc.

Kopp Drug, Inc.

The Kroger Co.

Lewis Drugs, Inc.

Longs Drug Stores

Marc Glassman Inc.

Marah Drug Stores, Inc.

May’s Drug Stores, Inc.

McKay Drugs

Med-X Corporation

Medic Drug

Medicap Pharmacies, Inc.

Medicine Shoppe International, Inc.

Meijer, Inc.

Monahan Pharmacy Inc.

Navarro Discount Pharmacies

NeighborCare Pharmacies

Nelson’s Drug Stores

Nortex Drug Distributors Inc.

dba Drug Emporium

Osborn Drugs, Inc.

Owl Drug Stores Inc.

Parkway Drugs

Pathmark Stores, Inc.

Pelton’s Drug Stores

The Penn Traffic Company

Phar-Mor, Inc.

Pharmhouse Corp.

Price-Less Drug Stores, Inc.

Publix Super Markets, Inc.

Quick Chek Food & Pharmacy

Randalls Food & Drugs, Inc.

Retired Persons Services, Inc.

Revco D.S., Inc.

Ricky’s

Rite Aid Corporation

Ritzman Pharmacies, Inc.

Rock Bottom Stores, Inc.

Rx Plus

RxD Pharmacies Inc.

Safeway Inc.

Sav-Mor Drug Stores

Sav-On Drugs

Savco Drugs, Inc.

Save Mart Supermarkets

Seaway Food Town, Inc.

Service Discount Food & Drugs Inc.

Shaw’s Supermarkets

Shelly’s Pharmacy, Inc.

Shopko Stores, Inc.

Smith’s Food and Drug Centers

Snyder’s Drug Stores, Inc.

Star Markets Company, Inc.

The Stop & Shop Supermarket Company

Super D Drugs Inc.

Super Save Drugs, Inc./Ow! Pharmacies

SUPERVALU Pharmacies, Inc.

Target Stores, a div. of Dayton Hudson Corp.

Thriftway Drugs

Thrifty White Stores

TOPS MARKETS, INC.

USA Drug

Valco Drug Stores

The Vons Companies, Inc.

Wakefern Food Corp./ShopRite

Wal-Mart Stores, Inc.

Walgreen Co.

Weatherwax Drug Stores

L.F. Widmann, Inc.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.