Let's say a relative gave you an imported Omega watch over the holidays. It's a nice piece, but it's not exactly your style, so after agonizing over the issue for the appropriate number of months, you decide to sell it over eBay.

Not so fast. Thanks to a decision by the Ninth Circuit Court of Appeals, that might not be so easy. In fact, the store that sold it, Costco, shouldn't have sold it in the first place, the court recently ruled, because the doctrine of "First Sale" has limits. Section 109 of the Copyright Act says that a copyright owner of a product has the sole initial right to distribute it. Then the subsequent buyers have the right to "to sell or otherwise dispose of the possession of that copy"—in other words, sell it again.

But now the Ninth Circuit says this doesn't necessarily apply to items in which a company's copyrighted logo was inscribed on a product made abroad, as in this case. The Public Knowledge advocacy group calls this decision "a terrible idea," and has filed an amicus brief with the Supreme Court, which is reviewing the case.

"What happens to Netflix, Amazon and eBay," PK's Anjali Bhat worries, "if they have to find out where each item was made, whether it has a copyrighted logo made outside the US (if the item itself isn't a copyrighted work), and then buy licensing rights from the copyright owner if the item was made abroad? That's an enormous economic burden to put on businesses who follow that model."

Quality King

Costco didn't directly buy these logoed watches from Omega. Instead, it purchased them at a bargain price via the so-called "gray market"—from distribution companies authorized to sell the items overseas. A company called ENE Limited bought them up and sold them to Costco, which put them up for sale at its stores in California. When Omega found out about this activity, it sued Costco for infringement.

Standing in the way of the company's complaint was the Supreme Court's 1998 Quality King Distributors decision, which put limits on this sort of litigation. In that case, California hair care product maker L'anza sued Quality King for illegal distribution of L'anza products. These US-made items came to Quality King via a similarly circuitous route. The company bought them extra cheap from a distributor in Malta, which had purchased them with affixed copyrighted labels from L'anza's United Kingdom wholesale outlet.

L'anza charged that because King bought its products outside the US, Section 109 protections didn't apply. Those protections were said to be overruled by Section 602, which prohibits unauthorized importation of copyrighted works acquired outside of the country. But the High Court saw it otherwise, contending that the First Sale principle "is applicable to imported copies."

602's "literal text is simply inapplicable to both domestic and foreign owners of L'anza's products who decide to import and resell them here," the Supremes declared at the time.

Lawfully made

So Omega ran a new line of argument past the Ninth Circuit in this latest dispute. Even though the Omega Globe Design logo is a US copyright, "the watches bearing the design were manufactured and first sold overseas." That makes this case different, the company's lawyers contended.

The Ninth concurred. "We hold that Quality King did not invalidate our general rule that § 109(a) can provide a defense against" unlawful importation claims "only insofar as the claims involve domestically made copies of US-copyrighted works." Thus, the First Sale doctrine doesn't apply in this instance.

What's the precise logic here? Let's go back to the exact language of Section 109. We've added italics to the key phrase:

"The owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord."

The Ninth interprets the "lawfully made under this title" phrase to mean, "legally made and sold in the United States."

An interconnected world

The Electronic Frontier Foundation (EFF), which joined the amicus brief, calls this logic "outrageous" and a "bogus copyright theory," as does Public Knowledge. "There is no textual support for this interpretation of 'lawfully made under this title'," writes PK's Bhat. "'Under this title' usually isn't synonymous with 'in this country'."

As the brief argues, if Congress had actually wanted the statute to apply to works made "within the United States," why didn't it explicitly say so, as it has in thousands of other instances within United States code?

And does this mean that now all a company has to do is manufacture its products abroad, stamp them with a copyrighted image logo that costs less than $50 to register, and the company can suddenly dictate the terms of redistribution long after the products are first sold?

"Under the Ninth Circuit's ruling, a manufacturer would obtain the right to control its product even after the first sale," the groups warn, "and would maintain this right until it authorizes the product's sale within the United States. Buyers, in contrast, are left without the first sale doctrine to protect their subsequent disposition of the good."

The implications of this decision are huge, creating potential liabilities for anyone who distributes anything en masse: libraries, booksellers, or your local DVD or video game rental store.

"In an increasingly interconnected world," the amicus brief concludes, "where the manufacturing of tangible products and knowledge goods can be distributed easily and widely, consumers should be confident that they retain the same rights to their belongings regardless of where those goods or their labeling were produced."