How The US Trade Rep Is Trying To Wipe Out Used Goods Sales With Secretive TPP Agreement

from the trade-for-thee-but-not-for-me dept

Here is where the aid of the U.S.T.R. in negotiating the Trans-Pacific Partnership Agreement (TPP) would come in, nullifying any potential adverse ruling by the Supreme Court while concurrently protecting against liability for copyright misuse. After all, if our own treaties require us to allow copyrights to be used to suppress price competition, it can hardly be a misuse of the copyright to do just that. The current draft would require the parties to codify the outcome from the 9th Circuit’s self-maligned interpretation. And, if the U.S.T.R. is successful, even if the Supreme Court were to reverse the Kirtsaeng holding, Congress would have an international obligation to amend Section 109(a) to apply only to copies either made in the U.S. or authorized by the U.S. copyright holder for sale here – authorized, no doubt, only at a minimum resale price rather than the true market price.



The current draft of the TPP has a provision that the major college textbook publishers could not have drafted any better themselves, as it mirrors the outcome advocated in their briefs. It would require treaty parties to codify the Ninth Circuit’s damaging ruling, thereby creating a huge loophole for U.S. copyright holders to take control all secondary markets for their works, as well as to control primary markets, by requiring all retailers to obtain a copyright owner’s “license to sell” in addition to outright ownership of noninfringing copies – if those copies are made abroad.

The iPhone, for example, comes pre-loaded with copyrighted computer programs, making it a noninfringing “copy” of many works, lawfully made in China (albeit by the U.S. copyright owner). Under the Ninth Circuit ruling, you may lend you iPhone to a friend without the copyright owner’s consent, because Apple sold it here (assuming Apple is the owner of all of the copyrights) in pre-installed works. Under the Second Circuit ruling, you cannot, simply because the copies were all made in China. Under the proposed TPP provision, the outcome might differ depending on whether there is a market for iPhones without the operating system (iOS) and related application software.

If a copy is not “lawfully made” under the U.S. Copyright Act solely because the Copyright Act does not apply abroad, then the other part of the exclusive right in Section 106(1) – to “authorize” the reproduction of the work into copies or phonorecords – would be limited to the exclusive right to authorize reproductions in the United States alone. In other words, anyone in the United States would be free to authorize reproductions abroad without infringing upon the U.S. copyright owner’s exclusive right to authorize reproductions.

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For a while now, we've been covering the gradual legal assault on the First Sale doctrine and beyond. The First Sale doctrine, of course, is what lets you resell a legally purchased book without having to first obtain permission from the copyright holder. Of course, copyright holders generally hate the First Sale doctrine, because it often means that their products have to compete against "used" versions of their own products as well. Of course, this view is very shortsighted and economically ignorant. A healthy used or resale market has been shown to increase the amount people will pay for new items -- because they recognize that there's a secondary market and they can recoup some of what they paid for the original. Thus a healthy secondary market, contrary to what some believe, can often improve the health of the primary market.But, there have been a few very questionable lawsuits that are chipping away at the first sale doctrine, starting with the infamous Omega case , in which the watchmaker exploited the phrase "made under this title" to argue that any goods made outside the US were not subject to first sale rights under copyright law, because they were not "made under this title." That 9th Circuit ruling (which remains in place after the Supreme Court split down the middle -- with Kagan abstaining due to her earlier involvement in the case) was one thing, in that there were some limitations. But then the 2nd Circuit went to loony town in suggesting that some books that were legally purchased in Asia could not be resold in the US without permission (i.e. an expensive license). While the district court who reviewed the Omega case on remand recently rejected Omega's claim as copyright misuse , there is a lot of fear over this issue as the courts sort things out.The risk of the Omega case goes even further, since it could wipe out the used goods market not just for "content," but for physical goods as well. That's because Omega didn't just exploit the "under this title" part of the law, it exploited copyright law itself. Remember, it sells watches. What do watches have to do with copyright? Absolutely nothing. But Omega's trick was to create a little design drawing, which it then got a registered copyright on... and then engraved that drawing in a tiny tiny spot on the back of the watch where almost no one will ever notice it. It serves absolutely no purpose... other than to make a physical object subject to the crazy excesses of copyright law. Thankfully the district court saw through that and recognized it was copyright misuse, but who knows what the higher courts (or other circuits) will say.Of course, all this fighting in the courts over this might be moot if the Trans Pacific Partnership Agreement (TPP) is approved. We've been covering the incredibly secretive negotiations over that agreement, including last year's leaked draft of the IP section. However, we didn't quite realize the extent to which the US Trade Representative (USTR) and the big industry interests were seeking to use the TPP process to wipe out the used goods market.In a fantastically detailed post, John Mitchell walks through how the USTR is seeking to effectively neuter any used goods sales by more or less locking in these rulings that makes it effectively against the law to resell copyrighted goods that were legally bought abroad back into the US without purchasing a new license to do so. He goes through (in much more detail than I did above) the history of first sale, as well as the two key cases above, but then digs into what the USTR is trying to do according to the leaked draft:The fear, then, is that as companies recognize how this works, they can effectively ban almost any resale, just by having some of the product "made" outside the US. Mitchell highlights the case of the iPhone:There is also a flip side to all of this which Mitchell only briefly touches on. Copyright holders might not want to be so excited about arguing that works made outside this country are not subject to US copyright law... because that could mean that all of these US copyright holders might not be able to make use of their copyrights abroad:Of course, I'm sure they would argue against that, or in a cognitively dissonant manner, seek to make use of the fact that various countries have agreed to recognize each others' copyrights to argue that when abroad, those copyrights are automatically converted to the local copyrights within those countries (just don't ask why first sale doesn't then apply too...).Either way, this is yet another reason to be quite worried about the USTR and TPP, and how seemingly "simple" changes to these rules and "international obligations" could havemarket-changing impact.

Filed Under: copyright, first sale, tpp, used goods