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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1998
- **Citation:** 523 U.S. 135

## Text

No. 96-1470

IN THE CLERK
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1997

QUALITY KING DISTRIBUTORS, INC.,

Petitioner,

d.

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.

i

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.
Copyright Owner Sells To A Foreign
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
D Tee Perry eee ee Te ee 6
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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e ee eee ll 20
r. ee eee e eee 20
e. ...e ese 20
A tcc concbececéecenededeseeur 20
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.

2

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.

3

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.

4

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).

5

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.

6

ARGUMENT

I.
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

7

countries adhering to the Berne Convention and Universal

Copyright Convention, as well as in other foreign nations.
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
5
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.
Copyright Act the copies will be “lawfully made under
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
copyright law. However, although genuine copies, they
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

9

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

10

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.

11

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

12

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
Copyright Act of 1976; its roots are far more deep:

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
copyright after said proprietor has made the first
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

— — — —— =

13

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.

14

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
copyright monopoly for authors gives way to the policy
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

15

(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
copyright.

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”’).

16

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

17

(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-

18

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.
Copyright.

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.

19

if it occurs abroad, has legal consequences under the
Copyright Act.

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);

20

© Priorities between conflicting transfers of copy-
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

21

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

22

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.

23

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

24

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
copyright owner received on a transaction somewhere
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

25

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

26

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

Counsel for
National Association of
Chain Drug Stores

RICHARD KELLY
KELLY LUCAS MOHEN
& PACIFICO
186 Birth Hill Road
Locust Valley, NY 11560
(516) 676-6262

Counsel for
National Association of
Catalog Showroom
Merchandisers

MICHAEL D. SANDLER

(Counsel of Record)

SANDLER AHERN

& McCONAUGHY PLLC
1221 Second Avenue
Suite 410
Seattle, Washington 98101
(206) 346-1751

Counsel for
Costco Companies, Inc.

ROBERT J. VERDISCO
Morrison G. CAIN

INTERNATIONAL MASS

RETAIL ASSOCIATION
1700 N. Moore Street
Arlington, Virginia 22209
(703) 841-2300

Counsel for
International Mass

Retail Association

Additional Counsel Listed on Next Page

HARRY SULLiVAN SALLIE STROUD
GEORGE GREEN Assistant General Counsel
THE FOOD MARKETING WAL-MART STORES, INC.
INSTITUTE 702 S.W. 8th
800 Connecticut Ave., N.W. Bentonville, AR 72717
Washington, D.C. 20006 (501) 273-4505
(202) 429-8259 Counsel for

Counsel for Wal-Mart Stores, Inc.
The Food Marketing
Institute

Rosert G. SYKES
Vice President, General
Counsel and Public
Affairs Officer

TARGET STORES
33 South 6th Street

is, MN 55402
(612) 304-5777

Counsel for
Target Stores

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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

2a

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.

3a

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

4a

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.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0058%3A11. Public record. Not legal advice.