Quality King Distributors, Inc. v. L’Anzaresearch International, Inc.

PETITIONER:Quality King Distributors, Inc.
RESPONDENT:L’Anzaresearch International, Inc.
LOCATION:Knowles’ Car

DOCKET NO.: 96-1470
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 523 US 135 (1998)
ARGUED: Dec 08, 1997
DECIDED: Mar 09, 1998

ADVOCATES:
Allen R. Snyder – Argued the cause for the petitioner
Lawrence G. Wallace – Argued the cause for the United States, as amicus curiae, by special leave of court, supporting the respondent
Raymond H. Goettsch – Argued the cause for the respondent

Facts of the case

L’anza Research International, Inc., a California based manufacturer and seller of hair care products, has copyrighted the labels that are affixed to its products. Compared to domestic markets, the price of L’anza products in foreign markets is substantially lower. L’anza’s distributor in the United Kingdom arranged for the sale of L’anza products, affixed with copyrighted labels, to a distributor in Malta. The Malta distributor then sold the products to Quality King Distributors, Inc., who imported the products back to the U.S. and sold them at discounted prices to unauthorized retailers. In its suit, L’anza alleged that Quality King violated L’anza’s exclusive rights under the Copyright Act of 1976 to reproduce and distribute the copyrighted material in the U.S. Rejecting Quality King’s defense based on the “first sale” doctrine, the District Court ruled in favor of L’anza. The Court of Appeals affirmed.

Question

Is section 602(a) of the Copyright Act of 1976, which gives the copyright owner the right to prohibit the unauthorized importation of copies, limited by the “first sale” doctrine?

William H. Rehnquist:

We’ll hear argument first this morning in Number 96-1470, Quality King Distributors v. L’anza Research International.

Mr. Snyder.

Allen R. Snyder:

Mr. Chief Justice, and may it please the Court:

The Members of Congress in 1976 who enacted the copyright law of 1976 would be quite surprised to learn from the Ninth Circuit’s decision below that Congress allegedly intended section 602 of that law to override the longstanding and fundamental principle in copyright law known as the first sale doctrine and thus to allow a manufacturer to control the import and the subsequent resale of particular copies of goods that the manufacturer itself had already sold.

This Ninth Circuit decision is inconsistent not only with the statutory language but also with the legislative history and, indeed, Congress simply has not addressed either in the copyright law or elsewhere respondent’s efforts to curtail parallel imports–

Sandra Day O’Connor:

Well, Mr. Snyder, the Government has come in and urged us to rely on the section that… 602, dealing with infringing importation of goods, and they tell us that the United States has entered into treaties on the assumption that that provision governs.

What do we do with that argument made by the Government?

Allen R. Snyder:

–Justice O’Connor, I believe the issue before the Court is what did Congress say and what did Congress intend in a statute.

Sandra Day O’Connor:

Yes, I think so, but I would be very interested to know how you evaluate the extent to which this country has relied on some other interpretation, as the Government argues.

Allen R. Snyder:

I believe that the Government has shown that in several bilateral trade agreements that were never submitted to Congress either for consideration or for action, the Government has asserted the position in dealing with the Governments of Cambodia, Trinidad and Tobago, and several other countries, that it is the executive branch’s position that parallel imports of the kind at issue here should be curtailed.

We believe that, to the extent the Government is relying on copyright law for that position, that it is up to Congress to pass the law and set the policy, and it is up to this Court to interpret that position of Congress and what Congress said and meant.

Sandra Day O’Connor:

Do we owe deference to any Government agency in interpreting these laws before us?

Allen R. Snyder:

I believe not, Justice O’Connor.

This is not a case where the Government has even alleged Chevron deference.

This is not a case where the Government has been assigned by Congress any duty under 602(a).

There are no regulations.

There is no role for the Copyright Office or any other agency of the executive branch to administer 602(a).

It is solely a private right of action, and under those circumstances we think there is no deference to be accorded.

The executive branch is free to take whatever position it wishes in bilateral negotiations, but if their positions conflict with the position of Congress, we submit they should go to Congress for a change in the law.

Sandra Day O’Connor:

Let me ask you one more question, since I have you interrupted, and then I’ll leave it alone.

Section 501, dealing with infringement of copyright, says anyone who violates any of the exclusive rights of the copyright owner covered by sections 106 through 118, or who imports copies into the United States in violation of section 602, is an infringer.

Under your theory, that section wouldn’t be needed, I suppose, insofar as it refers to section 602.

Allen R. Snyder:

I think it’s correct that that particular language could have been omitted.

However, it would have raised questions where, in… for courts to interpret the language, since section 106 obviously deals with distribution to the extent we’re discussing it here, and we all agree that importation is not literally the same thing as distribution, Congress chose to make importation part of the distribution right.

Had section 501 not specifically referred to importation, someone could have argued that the reference there to distribution or to section 106 didn’t necessarily cover things that were actually dealt with in 602 but not literally in 106.

I think it was a situation where Congress appropriately tried to be sure that their intention was crystal clear.

Ruth Bader Ginsburg:

Mr. Snyder, I–

–Of course, one of the things they… just on this point.

One of the things they wanted to make sure of, perhaps, is that 602 was kept intact as an independent provision, because 602 says, under their reading, that it is an independent act of infringement to import without the consent.

Allen R. Snyder:

Well, it is an act of infringement.

Allen R. Snyder:

However, I think it’s not totally independent in the sense that the language of 602 specifically made importation a violation of the distribution right under 106, so as we interpret the language, Congress was saying that we wish to make importation a separate type of violation of the distribution right.

Ruth Bader Ginsburg:

But Mr. Snyder, if you’re right about that, wouldn’t it have been more logical to say, in the first part of 501(a), exclusive rights, section 106 through, including the right, the 602 right, instead of making it conjunctive, as… instead of making it separate?

Your argument would fit very well if Congress had said 602 belongs with 106A, but it makes it separate, and in that light, going back to Justice O’Connor’s point about the representations this Nation has made, the Government isn’t making them in the air.

It does point to this 501(a), and if that’s a plausible reading, even if we don’t owe Chevron deference, don’t we owe some… don’t we give some weight to the representations our Government has made to other Governments?

Allen R. Snyder:

Well, first of all, Justice Ginsburg, 501 obviously is not the section that specifically was dealing with either the distribution right or the importation issue, and I think to determine Congress’ intent, the first place that I would urge the Court to look would be the statutes directly on point, including 109, but I take your point that it could have been phrased in a different way.

However, I would suggest respectfully to the Court that by referring in 602 to the rights under 106, Congress was doing something that really made quite a bit of sense, and that is that all of the panoply of conditions and exceptions to distribution rights that are contained within 106 and its cross-referenced sections thereby were applied here.

Section 106 begins by saying, subject to sections 107 through 120, quote-unquote, there will be certain exclusive rights, including the distribution right.

Those exceptions include such things as the fair use doctrine, which is a quite fundamental element of American copyright law.

By… by making 602 a part of the 106 right and cross-referencing it the way Congress did, it included the fair use doctrine, the first sale doctrine, the other exceptions, into the importation rules just as they’re in all the other parts of the copyright law.

Section 501 simply provides for the enforcement mechanism for all of the rights, and I would respectfully suggest that, because it lists importation as an additional word in 501, it really doesn’t negate, I don’t believe, the intent of Congress in the operative sections.

And obviously one of the key operative sections here is section 109, and 109, which is the current codification of the first sale doctrine, which is a doctrine that goes back well over 100 years in copyright law, section 109 says that if someone is the owner of a particular copy that was lawfully made under this title, that that owner can sell or otherwise dispose of that copy.

And we believe that that is about as broad language as Congress could use and in fact follows a… quite a lengthy history of broad language in the statutes, the predecessor statutes, and in the legislative history, all of which have made clear that Congress intended to say that once a particular copy that’s lawfully made under the U.S. copyright law has been sold, the copyright owner’s rights cease, and that’s the actual language in the legislative history of the ’76 act.

The rights cease, of the U.S. copyright owner, as to that particular copy.

We think that the first sale doctrine, there is nothing in the language of the statute that suggests that the first sale doctrine was being overridden, or that Congress intended to change it, there’s nothing in the legislative history where Congress was talking about changing the first sale doctrine, and we think the more natural reading of all of these sections together, including section 501, the more natural reading, to try to follow the congressional intent, not the policy arguments that each side can make, not the positions that the executive branch might wish to take as a matter of policy or as a matter of bilateral negotiations, we think that the fairer way to read the actual language of Congress is the way we’ve set forth.

The treaties… excuse me.

They’re not treaties, actually.

They’re bilateral agreements that the Government has cited.

They represent positions that the executive branch has taken.

I might add that they’ve taken that position in multilateral negotiations and the international community has so far rejected them, but Trinidad and Tobago and several other countries, and you have the lodgings in front of you, have agreed to the U.S. position.

However, there is no liability on the part of the United States if the U.S. position is wrong.

If there’s a violation of those agreements, there is an obligation for consultation.

There is no arbitration, there is no financial liability, and we would respectfully suggest that if the executive branch wishes to curtail parallel imports beyond the language of existing statutes, then if they wish to rely on copyright law or any other congressional enactment, they should go to Congress.

John Paul Stevens:

Mr. Snyder, can I ask you another question.

I haven’t quite figured out the answer.

If your position is correct, what is the function of the three exceptions to the statute?

Allen R. Snyder:

The 602 exceptions, Justice Stevens, we believe apply on their terms to very limited situations where people are importing or bringing property in for personal use or for noncommercial use.

Each of the exceptions, library use, Government use, do not apply to commercial distributions, and they apply generally to very limited numbers.

In other words, you can bring in one copy or bring in a copy in your baggage.

We think those are very different situations from the first sale doctrine that deals with sales.

John Paul Stevens:

Why wouldn’t those exceptions already be protected by the first sale doctrine if it applied?

John Paul Stevens:

That’s what I’m not quite clear.

Allen R. Snyder:

Justice Stevens, they are not because the language of the 602 exceptions is not limited to copies that are lawfully made under this title.

In other words, one of the paradigm situations that the copyright considerations were looking at was where property is copyrighted under a foreign copyright, and this happens very frequently.

This is a quite common situation, and it was discussed at length in the deliberations leading up to the statute.

If an author gives the British copyright to his or her book to a British company, and the U.S. copyright to his or her book to a U.S. copyright holder, the U.S. copyright holder obviously wishes to avoid having the unrelated British copyright holder ship 1,000 copies of the book here because the U.S. copyright holder has no control over the independent entity, has not been paid anything for those copies, et cetera.

That was discussed in the deliberations leading up to the statute, and the phrase in 109, lawfully made under this title, we submit means copies that are made under the U.S. copyright law or made with the authorization of the U.S. copyright holder, whereas, Justice Stevens, under 602, if I’m traveling in Britain, and I pick up a copy of a British book that’s been British-copyrighted and I put it in my baggage, I can come home with it.

Sandra Day O’Connor:

Or, if you’re traveling in some other country and you pick up a totally unauthorized copy of a phonograph, a CD or some… or a book, totally unauthorized, you’d be protected as a traveler if you bought it and brought it back in–

Allen R. Snyder:

Yes, Justice O’Connor.

Sandra Day O’Connor:

–under the 602 exceptions.

Allen R. Snyder:

That’s correct.

Sandra Day O’Connor:

But it would not be protected under 106, presumably.

Allen R. Snyder:

We agree with that, and we think that is a very significant distinction between the two statutes.

John Paul Stevens:

Maybe I’ll reveal my ignorance about that.

I just want to be sure I understand.

In other words, if the author gave the British copyrights to a separate company from the publisher, the American publisher, the British company then sells to some person in Britain, abroad, a bunch of copies, those are not protected by the first sale doctrine?

Allen R. Snyder:

As… not as we interpret the statute, although this has not been addressed in any of the decisions that I’m aware of precisely.

But the lawfully-made-under-this-title language of the first sale doctrine in 109, the Government agrees with us on this point that that means it’s made with the authorization of the U.S. copyright holder, in other words, made under U.S. copyright law.

John Paul Stevens:

Yes, but if the U.S. copyright… oh, I see.

The U.S. copyright holder could be a licensee of the author, and you have a different copyright holder who’s also a licensee in Britain.

Allen R. Snyder:

That’s correct.

It’s quite common for property–

John Paul Stevens:

So British copies would not be lawfully made under this title, within the meaning of 109, in your view.

Allen R. Snyder:

–That is our understanding, and that is exactly the parallel or analogue to what this Court held in the K Mart case, which obviously arose under customs laws and trademark law, but in K Mart the Solicitor General then argued that the first sale doctrine in the trademark law should protect a U.S. mark holder from competition from a totally unrelated entity, such as the kind we’re talking about now, but should not protect the U.S. mark holder if the U.S. mark holder is a parent or a subsidiary of the foreign mark holder.

That was the position the Government took then, and this Court was unanimous… while it… the Court split on several other of the various alternative cases dealt with in K Mart, the case 1 and the case 2A situations that I’ve just referred to, the Court was unanimous on that.

The position we are taking is exactly the same under copyright law as this Court found Congress had authorized under the trademark law, and we think it makes good sense in terms of the interests that are at stake and, most importantly, it follows the language of the statute.

David H. Souter:

Does the U.S. copyright holder have to have specific authorization from the author to manufacture abroad in order to avoid a violation of 602?

Allen R. Snyder:

Well, we do not believe that 602 limits the question of where you manufacture, and there’s a BMG decision from the Ninth Circuit that we cite in our brief that seems to say the opposite, but that decision’s been criticized by a number of other courts, including the Ninth Circuit in a later case.

We don’t think the language of Congress makes anything turn specifically on where you manufacture.

Now, to fully answer your question, Justice Souter, there could well be contractual limitations.

If the author divided up the worldwide rights in a certain way, where it’s manufactured–

David H. Souter:

But if the contract is silent, your answer is the geography of manufacture is irrelevant.

Allen R. Snyder:

–I think that’s correct, but I… I’m not certain.

Stephen G. Breyer:

Am I right in my understanding of your answer to Justice Stevens that (1), (2), and (3) are exceptions from 602?

They all deal with, let’s imagine a human being who comes to the border.

That human being who comes to the border got his book, for example, some way or other.

If the way he got that book was subject to the first sale doctrine, then under your theory you wouldn’t need (1), (2), or (3), but if it was not, you do need (1), (2), or (3), and whether that category, not, is big or little or medium-sized is beside the point.

It’s not the null set.

Allen R. Snyder:

I think that’s correct, Justice Breyer.

Stephen G. Breyer:

Is that right?

Allen R. Snyder:

There could… there are cases I think where there could be some overlap between the 109 protection and 602, but there are a great number of cases where there’s not overlap.

Stephen G. Breyer:

I mean, there might be a lot of people who have those books coming to the border who didn’t buy them.

Allen R. Snyder:

Correct.

Stephen G. Breyer:

In which case there’s no first sale doctrine under anybody’s theory.

Allen R. Snyder:

Well, if they don’t own them–

There was no sale.

Allen R. Snyder:

–If they don’t own them, there might not… there wouldn’t be a first sale doctrine.

You actually… you don’t have to have bought them, I believe.

It could have been a gift or other situation.

Stephen G. Breyer:

Where there are other… yes.

Allen R. Snyder:

There also could be situations where the property wasn’t… was made under U.S. law or wasn’t made under U.S. law.

There could be cases where the traveler took it with him or her when they went abroad and then brought it back.

So there are a variety of hypotheticals.

I agree with you they’re not totally separate.

The two statutes have some overlapping situations, I agree.

Ruth Bader Ginsburg:

There’s one other language point that the Government makes in addition to its 501 argument.

It refers to the later provision, the one in the… what is it, the chip, the 905 and 906, and that 906 includes… 906(b) refers not simply to otherwise dispose, but includes the word, import, and the argument is, and when Congress… Congress knows there’s a difference between importing and otherwise disposing.

Allen R. Snyder:

Well, Justice Ginsburg, I think it’s fair to say that this statute, as many other congressional enactments, probably could have been phrased in different ways, some of which would have made our job easier.

But, for example, 106A, which we cite, is a statute that specifically says that that provision is an exception, is… that the first sale doctrine, the other exceptions don’t apply to that one.

In other words, in 106A Congress made it very clear they were enacting a provision that wasn’t going to include the exceptions in 106 that we’ve relied on, so you know, we’ve made the assertion that if… that Congress knows how to make it clear that something is not subject to the exceptions.

They did it in 106A.

Allen R. Snyder:

I think you’re correct, the Government is correct that there are other ways that Congress could have phrased several of these provisions that probably would have made them a little bit clearer, but I don’t think there’s anything in the sections that you just cited, Justice Ginsburg, that’s inconsistent with our position.

They simply made that section a little clearer than they made 602 and 106.

I think it’s undisputed by everyone that there is no specific reference in the legislative history to the interplay between 106… I’m sorry, between 602 and 109.

In other words, no Congress Member ever addressed how these two should go together.

We believe that the best way to deal with that, given the language that’s in the statutes at issue here, the most relevant statutes, 602 and 109, is to say Congress just hasn’t addressed the matter.

Congress obviously is free to address it, and the Government can either submit the bilateral agreements that it’s negotiated to Congress for review, or it can go in with a statute on parallel imports.

There actually have been quite a number of proposed bills to curtail parallel imports.

Anthony M. Kennedy:

What is your response to the argument… I recall it was part of the Ninth Circuit’s opinion… that the predecessor of 602 was worded in a way which would cover many of the examples you gave, and yet they added the terms, acquired outside the United States, so it seems that your arguments give very little weight or significance to the changes between the two… between the predecessor statute and 602 as now written.

Allen R. Snyder:

I think the predecessor statute only applied to pirated goods, Justice Kennedy, and the Government and the respondent have both made the… have both referred to the fact that the new statute in ’76 was clearly intended to cover more than just pirated goods, but so-called lawfully made goods as well.

We agree with that, and that’s exactly the case that I referred to that’s analogous to the K Mart situation.

In other words, goods that are lawfully made under foreign copyright laws but not under the U.S. law we think are covered by 602, and the fact that 109 is limited to lawfully made goods under this title we think draws the line between goods made under U.S. copyright law and goods made under foreign copyright law, and we’ve laid out in our brief quite a number of situations where the new 602 does have meaning, because it applies, for example, in the case where an unrelated foreign copyright holder has produced the good, it applies to many other cases.

Basically, our position is that 109 applies in the importation situation just as it applies to all other aspects of the distribution right, and 109 limits the distribution right to some extent, and we think the importation rules in 602 have become part of the distribution right, and 109 applies to those as well.

Sandra Day O’Connor:

Well, to prevail, do we have to think that importation is a form of distribution?

Allen R. Snyder:

No.

I do not believe it is literally a form of distribution.

If it were, there would be no need for the 602 statute.

But Congress, we believe, intended to subsume 602 within the distribution right.

We think that’s what it meant by saying that an unauthorized importation is a violation of the right under 106, that Congress was simply declaring it to be a… for legal purposes a form of distribution, even though linguistically it may not be precisely that.

If I may, Mr. Chief Justice, I would like to reserve the balance of my time for rebuttal.

William H. Rehnquist:

Very well, Mr. Snyder.

Mr. Goettsch, we’ll hear from you.

Raymond H. Goettsch:

Mr. Chief Justice, and may it please the Court:

I think it’s important at the outset to note that we believe that the K Mart v. Cartier case is not apposite to this case at all.

In that case, the Court addressed section 526 of the Tariff Act of 1930, and under section 526, a U.S. entity can record its U.S. trademark with the Customs Service to prevent unauthorized importation of goods, even those with a genuine trademark.

The protection, however, extends only to goods of foreign manufacture, and the issue before the Court was whether the Customs Service’s regulations were based upon a reasonable interpretation of that statute, and a majority of the Court found the phrase, foreign manufacture, to be ambiguous and then as a result found that some of the regulations of the Customs Service were reasonable.

But to the extent that the K Mart case dealt with trademark law, it’s important to remember that, as this Court recognized in the Sony v. Universal Studios case, the… there’s a difference between the scope and scheme and purpose of the trademark law as opposed to the copyright law, and the courts are not to take principles or doctrines from trademark law and extend them to copyright law.

John Paul Stevens:

May I ask, since you’ve cited the Sony case, which dealt in part with fair use, how, under your reading of the statute, does the fair use doctrine protect the importation of foreign-made goods?

Raymond H. Goettsch:

Well, I think that in enacting section 602(a) Congress made a decision that the limitations under Chapter 1 of the Copyright Act, which would include the fair use under section 107 as well as the first sale defense under section 109(a), did not apply to section 602(a).

John Paul Stevens:

Oh, so your view is there is no fair use defense in this… for imported goods.

Raymond H. Goettsch:

Yes, except to the extent that we think that the three exceptions that Congress did set out expressly to section 602(a) do have a fair use element to them.

Raymond H. Goettsch:

The question, of course, before this Court is whether section 109(a) of the Copyright Act is a defense to copyright infringement under section 602(a) for unauthorized importation of copies acquired outside the United States.

The answer to this question should be purely a product of statutory interpretation.

Prior to the enactment–

William H. Rehnquist:

Mr. Goettsch, you don’t question the contention of petitioners that there is no need to give any deference to the negotiation… negotiating position of the United States in trade agreements?

Raymond H. Goettsch:

–Well, I don’t… no, we do not agree with that.

First of all, I think it’s important to recognize that–

William H. Rehnquist:

Well, then you say that there is some… I thought you just said that we just pay attention to the language used by Congress, but you’re saying, though, that that language should be interpreted through the prism of the executive branch deference?

Raymond H. Goettsch:

–No, I’m not saying that.

What I’m saying is that… first of all, I don’t think that the Court needs to reach that issue to interpret this statute.

I think the statute is unambiguous on its face.

However, if the Court were to consider legislative intent, since the Copyright Office was very much involved in the writing of the 1976 Copyright Act, then I would simply say that its interpretation of that act corroborates–

William H. Rehnquist:

It has no duties under this section, does it?

I mean, it doesn’t administer this act.

Raymond H. Goettsch:

–No.

Unlike 602(b), where Customs is required to prohibit or bar the import of piratical copies, under section 602(a) it’s up to the copyright holder to enforce the bar to entry of unauthorized importation.

Antonin Scalia:

Well, on your interpretation of the statute, actually, that it’s sort of an import violation rather than a distribution violation, it really ought to be the Customs Service to whom we might defer rather than the Copyright Office.

Raymond H. Goettsch:

Well, that could be.

The–

Antonin Scalia:

But I don’t understand your argument that just because the Copyright Office had much to do with the drafting of this provision we give them deference.

I mean, we certainly don’t give General Motors deference if they have had substantial participation in the drafting of a particular provision.

Raymond H. Goettsch:

–Well, I think what I meant by deference, and probably my choice of words was not particularly apt, what I meant was that if the Court is going to look at legislative intent, which I don’t think the Court needs to do, that the Copyright Office’s role in the writing of the statute is corroborated… is evidence of intent, and its current interpretation corroborates the legislative intent.

Antonin Scalia:

Okay.

You don’t… you do not contend that we owe them deference.

Raymond H. Goettsch:

Not in that sense, just in the sense that this is corroborative evidence of legislative intent if the Court needs to reach that.

John Paul Stevens:

Will you… just concentrating on the language for a minute, will you explain how you get out of the box that the right that’s been infringed is the exclusive right to distribute copies under section 106, a right which is otherwise qualified as a first sale doctrine, fair use doctrine and others.

Why, if it’s the right granted by 106, why isn’t that right qualified by the other provisions between 107 and 119?

I don’t quite understand your answer to that.

Raymond H. Goettsch:

Well, there are several reasons.

First of all, if section 109(a), the first sale defense, applied to section 602(a), then the three exceptions that Congress expressly identified–

John Paul Stevens:

Well, I understand.

John Paul Stevens:

As… you’re saying… I understand that argument, but initially, if it’s just the 106 right, which has already been curtailed by the first sale doctrine, how can you say it’s more… I don’t understand.

You say the 106 right has two different scopes, one for most infringement cases, and then a broader right under 602(a), is that right?

Raymond H. Goettsch:

–Well, section 106, subparagraph (3), which provides for the copyright holder–

John Paul Stevens:

Subject to 107 through 120, yes.

Raymond H. Goettsch:

–Right, but that gives the copyright holder the right to control the exclusive distribution of a copy, is not exhausted unless there is a sale, and importation does not denote a sale, so the distribution right under section 106 is complementary but separate from the importation right under section 602(a).

John Paul Stevens:

Well, but the importation right is treated as though it were an infringing sale, and to be an infringing sale, it has to get by all the things like the fair use doctrine, the first sale doctrine, and so forth.

Maybe I just don’t quite–

Raymond H. Goettsch:

No, I don’t think it is Justice Stevens, I don’t think it is treated as an infringing sale.

The importation, the act of unauthorized importation of copies acquired outside of the United States itself is copyright infringement, as recognized separately in section 501(a) of the act.

Sandra Day O’Connor:

–But, of course, the argument on the other side is, there’s no infringement, obviously, if there’s been a first sale, because 109 applies.

I mean, that’s the argument, and I don’t… it’s kind of odd that you’re here arguing, all you have to do is look at the statute, it’s so clear.

The other side is saying the same thing.

Frankly, I think the other side has the better argument on looking at the statute and seeing what it means, so I’m concerned about what, if any, deference is owed to anybody here.

What about the Government’s position on these bilateral trade agreements?

How much does that concern us?

Is this something Congress can fix, if they’re worried about it?

Is it not odd that we would find in the middle of the copyright statute some effort to control importation of some kind of goods?

I mean, it just doesn’t fit comfortably under the copyright law, does it?

Raymond H. Goettsch:

Well, I don’t agree, Justice O’Connor, because prior to the enactment of the 1976 Copyright Act section 602 prohibited the importation of piratical goods, meaning unauthorized copies, and Congress… by enacting section 602(a), Congress intended to extend that protection to the copyright holder beyond piratical goods to the unauthorized importation of authentic copies.

Sandra Day O’Connor:

Well, of course, that gets us to the issue.

May I ask this, do you agree that there was a distinction which… and again, I don’t know the answer to this by any means, but is there a distinction between piratical goods on the one hand and goods lawfully manufactured pursuant to a British licensee of an American author?

Isn’t it… he relies heavily on that distinction.

Is there such a distinction?

Raymond H. Goettsch:

I don’t think so.

John Paul Stevens:

You would say that the piratical goods encompass lawfully made goods pursuant to a license from the original author–

Raymond H. Goettsch:

Well–

John Paul Stevens:

–in the other… the British copyright.

Raymond H. Goettsch:

–Justice Stevens, if you’re asking, prior to the enactment of section 602(a) was the provision with respect to piratical goods applicable to that situation, then I think it was.

Ruth Bader Ginsburg:

You think it was?

It was.

Ruth Bader Ginsburg:

Well, what were all those experts who testified saying they needed 602 for, including Ms. Harriet Spilpellan, Horace Man–

Raymond H. Goettsch:

Well, it wasn’t… there was no case law that expressly said that, and I think that Congress, by enacting section 602(a), wanted to make it very clear that the unauthorized importation of authentic copies was copyright infringement.

Stephen G. Breyer:

–That makes sense, but I don’t see how it helps you.

I mean, they wanted to say, suppose that I bring in some books from England, and really they are perfectly legitimate, but if I were to distribute them in the shop it would violate the distribution right of the copyright holder.

Well, 602 says, stop them at the border.

I mean, nothing in that theory tells you whether they are or are not subject to the first sale doctrine.

It wouldn’t hurt if they were, wouldn’t hurt if they weren’t.

Raymond H. Goettsch:

Well–

Stephen G. Breyer:

If there’s been a first sale, no more reason to… no more reason, if there’s been a first sale, to stop them than if there’s been a first sale in the United States.

It’s the same problem.

Raymond H. Goettsch:

–Well, of course–

Stephen G. Breyer:

Do you want to apply a first sale doctrine to copyrighted books or not?

If the answer is yes, why distinguish them where the first sale was abroad?

If the answer’s no, treat them all alike.

Raymond H. Goettsch:

–Well, because the first sale is intended to reflect the fact that the copyright holder has exhausted its exclusive distribution right and has received the full value of its copyright, and a sale abroad, a sale outside the United States, since the Copyright Act operates territorially, the sale outside of the United States does not exhaust–

Stephen G. Breyer:

No, but he’s been paid for it, hasn’t he?

I mean, if they’re legitimate and not pirated, he’s been paid for that.

Raymond H. Goettsch:

–Well, under the facts of this case, which is true in many situations where copyright holders sell the copyright goods abroad, they’re sold at a discount, a significant discount.

If those copies are allowed to come back into the United States and compete with the copies–

Stephen G. Breyer:

They would like… the copyright holder, I take it, would like to have a vertically imposed territorial division, as would many manufacturers.

Normally we control that through the antitrust laws.

Sometimes you can do it, sometimes you can’t.

Why, to repeat Justice O’Connor’s question, would this antitrust issue of vertically imposed territorial restrictions suddenly be brought into the copyright law when it isn’t brought into the trademark law or most other laws?

I mean, wouldn’t you have to have a fairly clear expression of congressional intent to find it, rather than the other way around?

I mean, that’s basically my underlying question in this case.

Raymond H. Goettsch:

–Well, the concern is that if the copies acquired outside the United States at a discount come back into this country, then they compete with the copyright holders–

Stephen G. Breyer:

Yes.

That’s also true when you sell to California.

It’s also true when you sell to Maine.

Raymond H. Goettsch:

–No–

Stephen G. Breyer:

If you decide to sell at a discount, it would be nice to do that often, and many manufacturers feel that way.

Raymond H. Goettsch:

–Well–

Stephen G. Breyer:

You can’t sell at a discount to Maine, and you won’t be able to to France.

Raymond H. Goettsch:

–Well, if the sale were in the United States, then the copyright holder would have exhausted the right under 106(3) to control the exclusive distribution, and then section 109(a) would apply, but if the sale is outside of the United States, then the right to control distribution has not been exhausted.

John Paul Stevens:

May I ask… just to comment very briefly on one aspect of the case that I just can’t quite get out of my head, it’s easy to follow the arguments when you’re talking about books and records and so forth, but when you’re talking about the label on a product that is not itself patented or copyrighted, the label is controlling the distribution of the product, is that relevant at all in the case?

Raymond H. Goettsch:

No, because the Copyright Act does not recognize classes of copyrights.

There’s no first class copyright for a book or play and a second class copyright for–

John Paul Stevens:

For a label.

Raymond H. Goettsch:

–a product label or a product design.

If–

William H. Rehnquist:

Thank you, Mr. Goettsch.

I think you’ve answered the question.

Raymond H. Goettsch:

–Thank you.

William H. Rehnquist:

Mr. Wallace, we’ll hear from you.

Lawrence G. Wallace:

Thank you, Mr. Chief Justice, and may it please the Court:

One very important component of the text of the statute which I believe has been overlooked in the discussion thus far is 602 itself.

What is set forth in the appendix to the petition for certiorari on the very last page, E-3, is not all of section 602.

It is section 602(a), which is in substance the new part of section 602.

Section 602 also contains a subsection (b).

Sandra Day O’Connor:

Where do you want us to be reading?

What brief, and what page?

Lawrence G. Wallace:

Well, subsection… the 602(a)–

Yes.

Lawrence G. Wallace:

–is set forth in the appendix to the petition for certiorari.

Sandra Day O’Connor:

Yes, but you’re referring us to something else.

Where do we find the something else?

Lawrence G. Wallace:

It’s not set forth in any of the briefs, the text of it.

It’s the very–

John Paul Stevens:

And yet it’s the most important part of the case.

Lawrence G. Wallace:

–Well, I–

Stephen G. Breyer:

What is actually–

[Laughter]

Lawrence G. Wallace:

–I say that it’s been overlooked.

Stephen G. Breyer:

It’s on page 2 of the appendix in the amicus brief that Mr. Olson filed.

Well, isn’t it on page 2 of the red brief?

Raymond H. Goettsch:

Yes.

Lawrence G. Wallace:

All right.

It’s on page 2 of the red brief, then.

I’m sorry.

In any event, the very first sentence carries forward what had been in existence in somewhat different words in the 1909 Copyright Act, that importation of piratical copies is prohibited, and the Customs Service is given authority to stop those at the border.

That was always true.

What is added in 602(a)–

John Paul Stevens:

May I ask right there, Mr. Wallace… it’s quite important to me… did that section cover copies made pursuant to the… an authorized British copyright?

Lawrence G. Wallace:

–Piratical copies are copies that are not legitimate in the country where acquired, and not–

John Paul Stevens:

So you’re answer is no.

Lawrence G. Wallace:

–My answer is no.

John Paul Stevens:

And so his response to the argument you’re developing as well, this… the big change in this statute was, it covers that universe.

Lawrence G. Wallace:

The authority that has been given in 602(a), the new authority, allows the owner of the copyright to prevent without… if it doesn’t have his permission, to prevent importation of legitimate copies as well as piratical copies, but the piratical copies are prohibited from entry separately as well, under 602(b).

Therefore, the exceptions listed in 602(a) cannot be exceptions to allow the entry of piratical copies because their importation is already prohibited by the companion provision.

It can… they can only be exceptions to allow the importation of copies that were legitimate copies authorized by the copyright holder where acquired.

John Paul Stevens:

Or by the British copyright, right?

Lawrence G. Wallace:

However… but it–

John Paul Stevens:

It would have permitted those.

Lawrence G. Wallace:

–Right.

John Paul Stevens:

I want to be sure we understand what it does apply to.

There are three categories of goods, piratical goods, stuff made pursuant to the British copyright, and stuff made pursuant to the American copyright.

It picks up the middle category.

Lawrence G. Wallace:

Of course, we have–

John Paul Stevens:

Do you agree with that?

Lawrence G. Wallace:

–Yes, but we have agreements with these countries so that there’s reciprocal recognition of copyright rights, and the British copyright is very apt to derive from the American copyright, or vice versa, depending on where the original copyright is, so that we’re not really separating out very much.

John Paul Stevens:

Is there a substantial reduction of copyrighted goods, pursuant to copyrights in Trinidad and these other countries, that these agreements are made with?

Tobago… yes.

Lawrence G. Wallace:

There… the goods are marketed in these countries, and our concern in negotiating these agreements has been in protecting the distributors from gray market imports that would undermine the distribution of the American made works in these other countries.

Antonin Scalia:

Briefly, you want to assure that the Americans can sell cheaper in that country than they do at home, right?

Lawrence G. Wallace:

Well–

Antonin Scalia:

Briefly put.

Lawrence G. Wallace:

–there… that is part of the reason why we have been–

Antonin Scalia:

We don’t even do that at home.

We… you know, we generally don’t… don’t make sure that people can sell in Maine cheaper than they can sell in California.

Why do we want to do it for Tobago?

Lawrence G. Wallace:

–There are reasons why we’ve been espousing this, because in order to market copyrighted works, and the whole point of copyright is to give incentives to created copyrighted works and to protect their… the ability of the authors to market them–

Antonin Scalia:

We’re talking about shampoo here, aren’t we?

I mean, these people don’t care about the labels.

They’re trying to piece out the market for shampoo.

Lawrence G. Wallace:

–The statutory issue is going to apply to motion pictures, sound recordings–

Antonin Scalia:

But it’s also going to apply to shampoo.

Lawrence G. Wallace:

–When the label that is affixed to it qualifies for copyrighting.

This is a venerable part of the copyright law, but I think it would be a mistake to let that drive this case, because–

William H. Rehnquist:

Well, is it your position that in construing the statutory language we should give some sort of deference to the position that our Government has taken in negotiating with Trinidad and Tobago?

Lawrence G. Wallace:

–We have not asked for deference, nor do we think deference is the right approach to this.

We do believe that the Court was entitled to be informed about this.

We–

William H. Rehnquist:

Well, if there’s no deference, why… I’m sure we’re entitled to be informed about it, but why do you take up your time informing us about it?

[Laughter]

Lawrence G. Wallace:

–Well, because of the very reason that the Court gave.

We… just 2 years ago in the case of Vimar Seguros… we quoted on page 25 of our brief one sentence from the opinion.

The very next sentence is what we think is pertinent here, and the very next sentence starts out–

William H. Rehnquist:

The sentence that you didn’t quote?

Lawrence G. Wallace:

–That we didn’t quote, and the very next sentence starts off, that concern counsels against construing the act differently.

That’s all it does.

Lawrence G. Wallace:

It is a factor to take into consideration–

Stephen G. Breyer:

Well, should we look, for example–

Lawrence G. Wallace:

–as the Court said.

Stephen G. Breyer:

–Is it the case… I’m not certain at all about this.

I’ve a recollection, though, that the European Court of Justices found a first sale right, a similar kind of thing, through imports from one country to another.

Are those relevant, too?

Am I supposed to look at those cases to see which way they come out?

Lawrence G. Wallace:

Well, they have not been brought to my attention, and we’re talking here about construing an act of Congress, and–

Stephen G. Breyer:

So why is the Government… normally the Government takes the position, with what I consider here… you can see the analogy to territorial restrictions imposed by a manufacturer.

Normally the Government wants those viewed under a rule of reason and is often hostile.

Why, in this case, is the Government willing to forego the rule of reason and just saying, well, they’re okay across the board?

Lawrence G. Wallace:

–Well, there are trade restraints in copyrighted and patented materials that are not permitted elsewhere, and they’re permitted under statutes that Congress has enacted.

We really think the answer to this case is in the statutes that Congress has enacted–

Ruth Bader Ginsburg:

Mr. Wallace, since it’s obvious that there is some ambiguity here, room for different views, since the Government was taking this position in its representations to other nations, why didn’t it ask Congress for a clarifying amendment so that there would be no doubt about how the statute should be read?

Lawrence G. Wallace:

–Well, I’m not privy to reasons that… why it did not.

It took 15 years to do the revision in 1976.

It started off at the very beginning of the 1960’s with a series of studies by Congress and the committee and they heard from a great many people.

Ruth Bader Ginsburg:

I’m talking about once this problem surfaced.

Now, we have the Ninth Circuit with one opinion, the Third Circuit with a different one, so that this particular problem has been known for a while, and as far as I know there hasn’t been any effort to get Congress to spare the judiciary this kind of decision.

Lawrence G. Wallace:

Well, this is not a problem that arises in Government litigation.

It’s not just the Government that might have come forward.

In fact, we’re talking now about the rights between two non-Government parties.

We looked in connection with another case pending before this Court and didn’t find a single pending case in which the United States has… a single reported case in which the United States has sued anyone for copyright infringement.

We’re not usually involved in this litigation, so we’re not necessarily the ones who would come forward with requests for an amendment that might clarify something.

We are faced–

Ruth Bader Ginsburg:

Then you’re saying this is not a very important issue for the Government, however important it is for private–

Lawrence G. Wallace:

–Well, it–

Ruth Bader Ginsburg:

–participants.

Lawrence G. Wallace:

–We do think it’s important because it bears on positions we’ve been taking in international negotiations.

It’s important to the Government in that way.

Anthony M. Kennedy:

Mr. Wallace, I’ve been reading subsection (b) and I’m curious, could you just help me with the second sentence?

The first sentence, the one you pointed to, repeats the prohibition against pirated… piratical works.

The second sentence says, in a case where copies were lawfully made the Customs Service has no authority to prevent their importation unless the provisions of 601 are applicable, and 601 has to do with English literary works or something.

What do I do with–

Lawrence G. Wallace:

Well–

Anthony M. Kennedy:

–Why doesn’t the second sentence describe this case?

Lawrence G. Wallace:

–It’s… it does describe this case for purposes of what the Customs Service is authorized to do.

Congress in section 602 did not expand the authority of the Customs Service to prevent importations.

That is still limited to piratical copies.

It added 602(a) to give the copyright owner ability to move against copies that were legitimate in the country in which they were acquired, but that would be too difficult for the Customs Service to try to distinguish between goods that may or may not be violating contractual restrictions on their distribution, so the Customs Service still has the same authority in substance that it had before.

Antonin Scalia:

That just emphasizes, it seems to me, the statement in (a) that importation is not a violation of any importation restriction.

Importation is only a violation of the right to distribute.

That sentence just–

Lawrence G. Wallace:

The right–

Antonin Scalia:

–doubles up on that statement.

Lawrence G. Wallace:

–The right to distribute is covered in section 106B, a separate section in a separate chapter of this provision, and something was added here to stand alone in a different chapter, and there are a series of exceptions listed which the petitioner in substance is saying can be explained because they would allow piratical copies in, but they would not allow piratical copies in.

John Paul Stevens:

No, not piratical copies, legitimate copies made under a different copyright, under a different licensee.

That’s… he says that takes care of the British copyright situation.

I don’t think you’ve responded to that.

Lawrence G. Wallace:

But that–

John Paul Stevens:

You keep referring to piratical.

Lawrence G. Wallace:

–But that limits very… most of these importations that are listed here as exceptions would have been ones where a first sale of a legitimate copy occurred.

It would not be… would not–

Sandra Day O’Connor:

Well, what about the personal right of a traveler in their baggage.

You can bring in anything, piratical or otherwise, if it’s in your luggage.

Lawrence G. Wallace:

–There’s nothing in the copyright law that allows a piratical copy to be brought in.

Sandra Day O’Connor:

Well, 602(a) now has a specific little provision for somebody arriving at Customs with an illicit book–

Lawrence G. Wallace:

But the point I’ve been–

Sandra Day O’Connor:

–in their baggage.

Lawrence G. Wallace:

–The point I’ve been trying to make, and perhaps I haven’t explained it, is that 602(b) separately prohibits that.

Stephen G. Breyer:

Is 602… can you–

Lawrence G. Wallace:

It prohibits the import of any piratical copy.

Stephen G. Breyer:

–Can you correct this, which I’m about to say: 602(a) says, the act of importing is an act of distribution.

602(b) says, if what you’re importing is a pirated copy, i.e., one that would have been unlawful had the laws of the United States applied there, you can seize it, Customs person.

If it’s not a piratical copy, you can’t seize it.

You just notify.

So (b) is explicating (a).

Now, what’s wrong with what I just said, if anything?

Lawrence G. Wallace:

Because (a), (a) has–

Stephen G. Breyer:

(a) is covering both.

(b) says, if at the border it’s a pirate, you can seize it.

If not, you can’t.

You notify.

Lawrence G. Wallace:

–It doesn’t… what is wrong for a starter is that 602(a) says that importation is an infringement of the exclusive right to distribute.

Right.

Lawrence G. Wallace:

It doesn’t say it’s a distribution.

No, no–

Lawrence G. Wallace:

What is a distribution is in 106(3), and importation is treated separately from distribution in provision after provision of the act, as we’ve set out in our brief.

William H. Rehnquist:

–Thank you, Mr. Wallace.

Mr. Wallace, our records reflect that this is your 141st appearance before the Court.

You have now eclipsed the 20th Century record of 140 arguments accumulated by John W. Davis, who was a former Solicitor General, so on behalf of the Court I extend to you our appreciation for your many years of advocacy and dedicated service during your 30 years in the Solicitor General’s Office.

Thank you.

Lawrence G. Wallace:

Thank you very much, Mr. Chief Justice.

It’s been a great privilege.

William H. Rehnquist:

Mr. Snyder, you have 5 minutes remaining.

Allen R. Snyder:

Thank you, Mr. Chief Justice.

Mr. Wallace said at one point that we are

“talking here about interpreting an act of Congress. “

We agree with that, and we think that’s the key issue before the Court, and in our view the position of the U.S. Government in bilateral negotiations or bilateral agreements doesn’t by itself change what Congress intended.

And I would point out to the Court that in one of the lodgings that the Solicitor General has provided the Court is a 1990 telegram that includes the Government’s legal position and argument before most of these bilateral agreements were negotiated.

Allen R. Snyder:

In that memorandum the Government lawyer cites the Sebastian decision from the Third Circuit, which was at the time the only court of appeals decision on this issue anywhere.

The Government was aware that the law, as set forth by the court of appeals, was contrary to their position.

We believe they could have come to Congress for a clarifying change.

They still can.

There is no reason why the Government can’t ask Congress to change the law, but we believe there has been nothing cited today or otherwise that suggests that Congress in the copyright statute was making the kind of broad, antiparallel imports rule that the Congress… that the respondents and their amici are now suggesting.

All of the amici for respondents, including the Solicitor General, have been really quite candid in saying that a big part of what’s at issue here is that many manufacturers do charge more for U.S. made goods in the United States than those U.S. manufacturers charge for the same U.S. made goods in foreign countries.

The Solicitor General has argued that somehow that’s good for our economy.

That’s a policy argument we don’t agree with, but we do not think that that is an issue for this Court to decide or for us to opine on.

If the Congress wishes for U.S. consumers to pay more for U.S. goods than foreign consumers, that is a legitimate issue for Congress to deal with as a matter of policy, parallel import–

Antonin Scalia:

You could put it more kindly.

You could say they want foreigners to pay less.

That seems more generous.

[Laughter]

Allen R. Snyder:

–I will accept that, Justice Scalia, although I don’t agree with the ultimate decision.

Ruth Bader Ginsburg:

Well, they do say that the foreigners have to advertise it on their own, they have to service it, it doesn’t come with a warranty, so there is–

Allen R. Snyder:

Well–

Ruth Bader Ginsburg:

–There’s a justification for the differential.

Allen R. Snyder:

–They do say that, Justice Ginsburg.

I would point out that, in the recording industry amicus brief that they filed here, they pointed out that videotapes cost as much as six times more in the United States than the same U.S. videotape is sold for in certain foreign countries.

I don’t think anyone contends that the marketing cost is 600 percent of the price.

The Government has been quite candid in saying that they believe there are certain foreign policy values in promoting underdeveloped countries, some other economic issues.

There may be antitrust issues at stake.

Whatever those considerations are, we don’t think in the copyright law Congress addressed them, and while I agree, Justice Stevens, that copyrights can apply to labels sometimes, I think the tail is wagging the dog here, and that Congress certainly didn’t intend the result that’s at issue here.

We would also point out that the respondent–

Ruth Bader Ginsburg:

But you wouldn’t have any problem if you just changed the label, right?

I mean, you could… you could do everything and not have any problem about importing if you just made a different label.

Allen R. Snyder:

–There might be some issues of tampering with goods if we were to take off the label of someone else’s product, but I’m not prepared to say what the State law issues there are.

Certainly, the copyright law itself wouldn’t, I think, address that, I agree, but there may be some other tort issues that might come into play.

The respondent has acknowledged that under his theory the fair use doctrine of section 107 doesn’t apply to imported goods.

We think that is an extremely important point, because the logic of their position is that none of these exceptions apply, including fair use.

Allen R. Snyder:

When the owner of the London Times gives authority to import multiple copies of the London Times to sell in the United States, under the respondent’s theory the owner of the London Times copyright cannot bring in his own newspaper if there is a book review in the London Times that quotes from someone else’s book in what normally would be considered fair use, because the fair use doctrine that allows scholarly books, treatises, book reviews to quote someone else’s work, it only allows that under 107.

Under their theory, 107 is simply inapplicable to imports.

It would be a quite major change in the law of this United States.

We think their entire argument, getting rid of the first sale doctrine, also is a major change.

We have in our country–

William H. Rehnquist:

Thank you, Mr. Snyder.

Allen R. Snyder:

–Thank you, Mr. Chief Justice.

William H. Rehnquist:

The case is submitted.