Copyright Law and the Screwing of American Consumers

A friend on Facebook had a link to an article on The Atlantic about a new interpretation of existing copyright law, and it has serious ramifications for everyone.

The Doctrine of First-Sale (something that’s been around since 1908) means that a copyright holder only has control over the first sale of their item. For instance, it’s illegal for you to make a copy of my book and sell it to someone else; you’re selling a first copy, and that money belongs to me. However, you can buy my book and then sell that copy; that constitutes a second sale, which doesn’t belong to me.

The problem that’s going up before the Supreme Court is that some manufacturers are gouging the U.S. public and are now angry that people have found ways around it. For instance, it’s widely-known that American drug companies sell the same drugs in Canada and other countries for less than they sell them in America. They’re angry when Americans cross the border or go online to buy drugs in other countries for much less than they pay for them in America, and they have been trying to make that illegal–even though people have a valid prescription and are buying from licensed pharmacies who have the legal right to dispense said drugs.

Then there’s this ongoing case:

John Wiley & Sons, a textbook publisher, sells expensive versions of the textbooks here and less expensive versions abroad. Supap Kirtsaeng, a foreign graduate student at University of Southern California, decided to help pay for his schooling by having relatives buy him copies of the foreign versions abroad, send them to him, whereupon he’d sell those books on eBay to willing students. He’d make money, the students would save money, but Wiley might have fewer sales of its pricey American versions. The [lawsuit against him] is styled Kirtsaeng v. John Wiley & Sons.

That’s classic American capitalism being shot in the foot. In a free-market economy, yes, you have the right to charge whatever price the market will bear, but other people also have the right to undersell you.

And another case:

Omega, the Swiss maker of fancy watches, sued Costco, a major retailer, for selling real Omega watches that had a copyrighted logo underneath the watch face. A distributor bought the Omega watches abroad and eventually Costco bought them to sell at a price still lower than what you would pay at an Omega store here in the U.S.

To ensure that Americans pay more for Omegas than people in other parts of the world, Omega sued Costco. That court decided that anything manufactured abroad and authorized only to be sold abroad, not in the U.S., is not subject to the first-sale doctrine in the U.S. The Supreme Court decided to review the Costco v. Omega case back in 2010, but deadlocked at four votes against, four in favor, with Justice Elena Kagan having to sit out the decision because of previous government work on the case.

So, here’s the way it shakes down at the moment. If you buy something that was made in the U.S., then the Doctrine of First-Sale applies and you can resell it however you want. If, however, you bought something outside of the U.S., and it’s not marked for resale in the U.S. (like the books I brought back from Ireland), then under the Omega case, it may be illegal to sell that item. And the Supreme Court will soon hear arguments and render a decision on whether an item which is manufactured outside the U.S. for sale inside the U.S. falls under the Doctrine of First-Sale, or if subsequent sales are copyright-protected.

If the Supreme Court decides “yes, reselling foreign-made objects is illegal,” then you will not control your property (because, let’s face it, almost nothing is made in America anymore); the original copyright holder will control their physical property in perpetuity. Rather than owning a book or an iPad or a television set, it will merely be leased to you. If you no longer want the item, you will have to give it back to the copyright owner; you will not be able to sell it to someone else.

And given that copyright law applies even when things are not sold (it’s illegal to make copies of my book and give them away–even if you make no profit or lose money on the transaction), it would probably be illegal for you to give your child your old iPhone when you upgrade. Giving your kids’ used clothes to your sister’s kids (or Goodwill) might also be illegal. And what about cars? While almost all cars are manufactured in the U.S., many of the parts are not. If a majority of a car’s parts are foreign, will the non-American copyright rule apply to it, even if it’s assembled in America? (If that sounds far-fetched, think again; such a law already applies to certain types of guns.)

Not only does this law take away your rights to own damn-near everything, but it will also be the final death-knell for American manufacturing because everyone’s going to want to manufacture their things overseas so they can take full advantage of this law. Apple and Sony and other manufacturers of high-end consumer items are going to love having your ship your old iPad and blue-ray DVD player back to them so they can turn around and sell it used and reap the profits of the used market. I’m sure they’ll offer trade-in credits to you, so it will be presented as a plus. “Send us your old gadget and get $50 credit towards the purchase of your next gadget!” What they fail to mention is that if you were legally able to sell it on Craigslist, you could get $75 cash for it.

As a history major, I can’t help but be reminded of the old Golden Triangle profit loop: African slaves to the Caribbean; Caribbean sugar (produced on the backs of said slaves) to the U.S.; U.S. knives, beads, and trinkets back to Africa (to buy more slaves).

And the new Golden Triangle: goods manufactured overseas sold to American consumers; old items collected from American consumers and resold in America; old, old items collected from American consumers and resold in other parts of the world used or for parts recycling.

Not only does this kill manufacturing in America, but as used clothes sales in Africa has shown, it kills local manufacturing in other parts of the world, too. Why should someone in Kenya operate a clothing mill when people there can get used American clothes for cheaper?

Poor people in other countries will manufacture everything we use, then after we get tired of it, it will be sent back to them to be used until it dies. Then it will go into their landfills.

Ugh, it also reminds me of The Hunger Games: outlying areas kept in poverty, capable of producing only one thing, while the bulk of their produce is shipped to one  decadent, self-indulgent paradise that does nothing but consume. (This same system also has historical precedence: Rome.)

It’s enough to give you an upset stomach. Now, I must be off to change the copyright notice in my book to specifically says that it follows the Doctrine of First-Sale, so even if it’s not printed in the U.S. (right now it will be, but who knows about the future?), my buyers will have the guaranteed right to sell their copies if they want to.

2 comments on “Copyright Law and the Screwing of American Consumers

  1. Wallace says:

    I read your post about the questions to the Doctrine of First-Sale (DFS) and thought: this is complete nonsense, the court could never overturn the DFS since it would be impossible to enforce and automatically make nearly every American a criminal. If you buy an item, then it’s yours, and you are free to sell it to anybody you want.

    But a little thought on the matter and I’ve decided that DFS really only applies to end consumers and not to manufactures, wholesalers, and retailers. If the Supreme Court finds this way, then they’ll only be upholding long standing legal and contract law and American consumers will still keep their non-criminal status, or at least as much as they had before.

    As an example, if you hold the patent or copyright on an item, but lack the money or resources to manufacture it yourself, which is usually the case, then what you do is sign a manufacturing and distribution contract with some company to make and sell the item in the US. The contract gives that company the sole right to manufacture and sell that item in the US. You can then go on to sign exclusive contracts with a company in Brazil and the EU and so on. Each of those companies manufacture and sell your product and pay you a royalty for each item they sell. They profit, you profit, and the citizens of that country get to buy and use your product.

    Now, let’s say the franchise in Brazil is selling the item at $25 since they have much lower parts and labor charges, while the US franchise holder is selling them for $100 because the US franchise holder pays higher wages to the Americans building the product. And, according to their contracts, the US company can only sell in the US and the Brazilian company can only sell in Brazil. But then some person goes to Brazil, buys up thousands of the items, loads them in containers, and ships them to the US to sell at $50 an item. This is completely legal in Brazil since the person bought them in Brazil, what he does with them next is no concern to the Brazilians.

    But it is of great concern to the US franchise holder since the person is importing thousands of the items into the US and selling them at half the price of the US franchise holder. If the importer is allowed to do this, then the US franchise is worthless since the US manufacturer will soon be out of business. This would also be in direct violation of the contract the copyright holder and the US franchise holder signed since that contract gives the US franchise holder the exclusive rights to sell the item in the US. It would mean the US franchise holder would have lost all the money he paid for the franchise and all the money he spent building his US production facilities. It would also mean the US copyright holder would lose all of his royalties from the US sale of his product. He would still get the royalties from the Brazilian sales of his product, but since they are sold at one fourth the price, he would only get one fourth the royalties.

    In order to prevent this and to uphold existing contract law, the importer would not be allowed to buy the Brazilian copies of the item and then resell them in the US since, by US contract law, the only legal retailer of the item is the US franchise holder. If the importer had only bought one copy in Brazil for personal use, the same as you or I might do, then it would be perfectly legal for him to bring it into the country, and even sell it later if he wanted. When he went from buying one copy for personal use to buying thousands for resale, he went from being a consumer to a retailer and therefore violated the rights of the US franchise holder.

    This is exactly the case of the Omega watches and Costco. Costco imported hundreds or thousands of Omega watches that were not authorized for sale in the US since the US already had a licensed Omega watch importer and Costco illegally bypassed that importer by buying the watches overseas and importing them into the US for resale. You or I as consumers could go overseas and buy an Omega watch and bring it into the country, but Costco, as a retailer, could not simply bypass the authorized US representative of Omega and import the watches.

    In a similar way, the student who had his relatives buy lots of cheap overseas copies of textbooks, ship them to him, and then sell those copies on eBay, was also in violation of the law. If he had bought one copy for himself, then he would be a consumer. When he bought dozens of the books for resale, he became a retailer of the books and was buying and selling copies of the books not authorized by the book’s publisher and copyright owner. John Wiley & Sons had the copyright and exclusive contract to sell the books in the US and they entered into contracts with bookstores to sell those new books. By selling lots of copies of the books, Kirtsaeng in effect became an unauthorized retailer of the books. If he had bought the US editions used, or directly from JW&S, then he would have been OK. But by importing unauthorized copies of the books and selling them, he violated JW&S franchise of exclusive sale of those books in the US, something that would have been OK if he had bought one copy for personal use, but not OK when he bought dozens of copies for resale.

    Strangely enough, he could have legally got away with the scheme if he had done it differently. If, instead of importing the books himself, he had simply told his friends and fellow students that they could buy cheap copies of the books from his relatives, it would have been OK. Then each of the students could have bought one copy of the textbook from his relatives, perfectly legal since each student was only buying one for their own personal use, and then the relatives could have simply send him the profit they made from the book sales. In this way he wouldn’t be a retailer, but would still get the money he needed. This might make his relatives retailers, but they would be subject to the laws of their own country, not the US, and most countries have no problem with their citizens selling items for export.

    And as for the third point about the status of items manufactured outside the US for sale inside the US, this clearly falls under the DFS since it happens all the time right now. Every car imported from Europe or Asia is built to comply with the US EPA and DOT regulations and is legal for sale in the US. Contrary to what you might think, nearly every car sold in the US is either manufactured out of the country or contains a high proportion of foreign made parts. Even US brands like GM or Ford have a large number of their cars built in Canada or Mexico, and the ones assembled here have a large percentage of foreign sourced parts.

    The cars from Germany or Japan or wherever fall under the DFS as much as anything else. You can buy them new, use them all you want, and then sell them to whoever you want. The only restriction is that cars made after 1967 have to comply with DOT and EPA regulations, something that most cars built for sale outside the US don’t do. You can import a non-compliant car, get it federalized by yourself or a third party, and then get it tested for EPA and DOT compliance. Something that used to be possible back in the ’60s and ’70s when it only meant fitting seatbelts and a catalytic converter, but with the more stringent pollution and impact standards of today’s cars, it means completely disassembling the car to retrofit impact structures, something that is completely unrealistic. These days, if a company doesn’t build a US spec car, you just have to go without.

    In my opinion, the Supreme Court will uphold the DFS for consumers since any other decision will be unenforceable, but restrict it for manufactures and wholesalers and retailers since that would only be continuing the existing practices of legal and contract law. If someone has a contract to be the exclusive importer of a product, then any other manufacturer or wholesaler or retailer who tried to import the same items that were made for exclusive use in another country is already in violation of US law, this decision would only clarify and define existing law.

    • Keri Peardon says:

      What you say is highly logical. But given the stuff that government has been trying to get away with lately (two–or was it three?–attempts to regulate the internet, and a law so vague that it could allow the detention of Americans without trial) I don’t expect logical anymore.

      And you forget that big business wants to overturn the current system. Not to mention it’s an election year, which means all our politicians are up for sale. Let’s just hope the Supreme Court hasn’t been bought.

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