Application of first sale doctrine to foreign-made products called into question by Supreme Court

December 13, 2010 3:35 PM

A very bad day for libraries: Today's Supreme Court deadlock casts Doctrine of First Sale into doubt for products made abroad. The Supreme Court today deadlocked on the question of whether Costco committed copyright infringement by selling Omega watches produced and purchased overseas. In effect, this deadlock upholds the 9th Circuit appeals court ruling that the First Sale doctrine does not apply to products produced outside the United States. Thinking of selling, lending, or transferring ownership of something originally produced overseas -- like, say, a book? This ruling calls the legality of such sales into question.

The shorthand tale: Omega, displeased that Costco was selling their watches below sticker price, added a copyrighted image to the watches and then accused the company of copyright infringement. Here's some background.

Costco, in turn, argued that the sale was protected by the First Sale Doctrine. "The doctrine allows the purchaser to transfer (i.e., sell or give away) a particular lawfully made copy of the copyrighted work without permission once it has been obtained."

Today, "the Supreme Court...upheld a lower court’s denial of a discount retailer’s right to buy overseas a consumer item that is protected by copyright — in this case, a Swiss watch — and then bring it back into the U.S. for re-sale without the copyright owner’s consent. Such an even split among the Justices has the effect of upholding the lower court decision at issue, without setting a nationwide precedent."

This ruling -- long awaited by nervous booksellers and librarians -- suggests that First Sale Doctrine may not apply to copyrighted works made abroad.

The implications are potentially staggering. Techdirt puts it succinctly: "Be careful if you buy a book that was first published outside the US. Technically, you may no longer have a legal right to sell it -- or even to lend it to to others, which is why librarians were reasonably worried about this decision."

Others argue that the ruling will also fuel further outsourcing and, of course, raise prices for domestic U.S. consumers on a variety of objects.

posted by artemisia (167 comments total)

Also, going forward, all payments at the company store must be made in company scrip. Please see your supervisor for more information. In the meantime, back in the hole.
posted by BitterOldPunk at 3:41 PM on December 13, 2010 [33 favorites]

So much for that invisible hand bullshit.
posted by punkfloyd at 3:42 PM on December 13, 2010 [12 favorites]

I truly believe that you should be able to sell objects you legally own.
posted by East Manitoba Regional Junior Kabaddi Champion '94 at 3:42 PM on December 13, 2010 [19 favorites]

The Copyright Act's section that deals with first sale rights (section 109(a) for those playing along with the home game) notes that it only applies to copies "lawfully made under this title." Omega's lawyers argued that the design on the watches does not count because the watchers were made outside of the US, and thus not covered by US copyright law and thus the design was not lawfully made under US copyright law.

Surely this explanation can't be doing justice to their argument, because this sounds like the most ridiculous kind of magical-words flag-fringe crap. Do they start going on about the 16th amendment in the next paragraph?
posted by enn at 3:42 PM on December 13, 2010 [3 favorites]

It was a 4-4, non-precedential decision. It has no implications beyond the fact that the 9th Circuit's decision was affirmed in this particular case.
posted by jedicus at 3:43 PM on December 13, 2010

I'll wait for the follow-up post on some Ninth Circuit judge's reaction when they try to get a foreign-published book through interlibrary loan.
posted by Halloween Jack at 3:46 PM on December 13, 2010

Isn't the Ninth Circuit supposed to be the usually sane one?
posted by kmz at 3:49 PM on December 13, 2010

If I am understanding this correctly, this implies that if there were a future lawsuit about libraries' rights to do what they do under Right of First salethat the court might not side with them but it doesn't directly affect anything libraries currently do, correct?
posted by jessamyn at 3:49 PM on December 13, 2010

Omega's lawyers argued that the design on the watches does not count because the watchers were made outside of the US, and thus not covered by US copyright law and thus the design was not lawfully made under US copyright law.

So does this mean I can freely pirate movies made overseas? Because, after all, they weren't made lawfully under US copyright law...
posted by sbutler at 3:51 PM on December 13, 2010 [7 favorites]

This makes no sense. If they're so concerned about sticker price they should stop selling it to others below the sticker price (ie. sell it themselves). If they're peeved that others can sell 'em cheaper, faster and still turn a profit, perhaps they should look at their own process and improve it.
posted by Nauip at 3:51 PM on December 13, 2010 [1 favorite]

Sorry, that was a stupid attempt at snark. Not really interested in serious analysis because I know the true answer is "I can only do what the corporations want me to do, not what they law says I can do"
posted by sbutler at 3:54 PM on December 13, 2010 [4 favorites]

If they're peeved that others can sell 'em cheaper, faster and still turn a profit, perhaps they should look at their own process and improve it.

Nauip, Omega is selling the watches for these lower prices in other countries where they've decided the market won't support US-level luxury-watch prices (the sticker price on a watch like this is far, far in excess of the cost of production, I would imagine). They just want to be able to keep charging the higher prices where there are people who are willing to pay them. They are basically trying to get the legal system to enforce their price discrimination scheme by not allowing a secondary market.
posted by enn at 3:56 PM on December 13, 2010 [16 favorites]

Isn't the Ninth Circuit supposed to be the usually sane one?

I'm having a hard time reading every comment after this one through the Diet Coke sprayed all over my monitor.
posted by The World Famous at 3:56 PM on December 13, 2010 [18 favorites]

Next up, home builders demanding a cut of any future sales.
posted by Old'n'Busted at 3:58 PM on December 13, 2010 [1 favorite]

So, uh... quick question. How will this apply to iPods, iPads, and petrol?
posted by Bathtub Bobsled at 3:58 PM on December 13, 2010

Such an even split among the Justices has the effect of upholding the lower court decision at issue, without setting a nationwide precedent.

To sum up: Meh.
posted by Sys Rq at 4:00 PM on December 13, 2010 [2 favorites]

Non-US publishers would have to accuse US libraries of copyright infringement for lending out books they had purchased first, and that's not going to happen, because US libraries are strong and reliable markets.
posted by Sidhedevil at 4:01 PM on December 13, 2010 [3 favorites]

Poking around, it may not all be legal mumbo-jumbo. It doesn't necessarily work the same way in other countries that it does in the U.S. A number of countries don't *use* first sale doctrine; Europe, for example, seems to tend to use droit de suite instead, which states that artists are entitled to receive a fee on the resale of their works of art.

So, say you create a work of art, and you copywrite it under a law that international agreements say the U.S. is supposed to respect. That law says, every time a copy of your work is sold, even a used copy, you get a fee.

Well ... how does it affect used bookstores in the U.S. if publishing companies start insisting this be honored for works published abroad? Or libraries? It doesn't seem clear-cut to me.
posted by kyrademon at 4:01 PM on December 13, 2010 [1 favorite]

I truly believe that you should be able to sell objects you legally own.

Kidneys? Virginity?
posted by Dr. Eigenvariable at 4:02 PM on December 13, 2010 [2 favorites]

I mean, who knows, but I can't imagine a publisher saying "Not going to sell books to US libraries anymore because they might lend them!" That's the point of libraries, after all.
posted by Sidhedevil at 4:04 PM on December 13, 2010

Next up, home builders demanding a cut of any future sales.

This is already happening.
posted by unSane at 4:06 PM on December 13, 2010

I mean, who knows, but I can't imagine a publisher saying "Not going to sell books to US libraries anymore because they might lend them!" That's the point of libraries, after all.

I could see publishers wanting a per lend fee every time for a book, CD, DVD, digital download, etc.
posted by Mister Fabulous at 4:09 PM on December 13, 2010

Next up, home builders demanding a cut of any future sales.

The phrase you're looking for is 'transfer fees'.
posted by anigbrowl at 4:09 PM on December 13, 2010 [3 favorites]

This isn't really news. Mamiya America has enforced this for years on grey-market cameras, with hilarious results.

(not really hilarious at all)
posted by scruss at 4:12 PM on December 13, 2010 [1 favorite]

I could see publishers wanting a per lend fee every time for a book, CD, DVD, digital download, etc.

That exists for books in some countries. But not in the US.

So the US libraries' answer would be presumably be, in general, "Forget about it, not buying your book printed in {country where lending fees are the norm}" and then the publishers would be out sales (and US patrons would be out access to info).

I mean, this case is about something very different--Omega wanted only authorized US dealers to be selling their watches at the prices Omega suggested, and not have Costco buying them and selling them at loss-leading prices.

With publishers and libraries, it's not like non-US publishers have much opportunity to retail their books directly to the US reading public, so they'd just be out the sales.
posted by Sidhedevil at 4:12 PM on December 13, 2010

transfer fees

Jeez, and I thought HOAs were bad. Homebuyers will just sign any old thing at all, won't they?
posted by enn at 4:13 PM on December 13, 2010 [2 favorites]

"I truly believe that you should be able to sell objects you legally own."

C'mon, everyone knows that you don't own a watch, you license time off of it!
posted by klangklangston at 4:15 PM on December 13, 2010 [17 favorites]

Non-US publishers would have to accuse US libraries of copyright infringement for lending out books they had purchased first, and that's not going to happen, because US libraries are strong and reliable markets.

Eh, so might makes right?

It does, of course. Don't get me wrong. But it goes down easier with the sugar coating.
posted by notyou at 4:15 PM on December 13, 2010

Every day we get closer to the reality predicted in "Snow Crash", where the bizarre legal claims of governments are just one of numerous factors one should take into account. Laws are only as important as the ability to enforce them.

I mean, really? You can't sell something you own at a price you wish? Time to just use the underground/casual economy. It will only get stronger from idiotic decisions like this.

To make it clearer. If I buy an Omega watch (not likely), due to their copyright claims, I can't resell it at a price of my choosing? In the real world, that will never stand. People will just exchange money and it will be off the books. Try to enforce that, governments. Maybe it won't be at Costco, but so be it. The government will simply lose the ability to "participate" (via taxes) in that transaction, except among the pathologically law-abiding.
posted by Invoke at 4:16 PM on December 13, 2010 [20 favorites]

Eh, so might makes right?

No, in this case, libraries are both right (lending out books is what they do, and what they are supposed to do) and have might (because they are the main US market for non-US publishers, who don't have much access to the direct retail market).
posted by Sidhedevil at 4:21 PM on December 13, 2010

the bizarre legal claims of governments

Omega sued CostCo. The government is not making any legal claims.
posted by anigbrowl at 4:21 PM on December 13, 2010 [2 favorites]

Omega sued CostCo. The government is not making any legal claims.

The courts are part of the government, last I checked.
posted by Invoke at 4:22 PM on December 13, 2010 [2 favorites]

If I buy an Omega watch (not likely), due to their copyright claims, I can't resell it at a price of my choosing? In the real world, that will never stand.

The ruling might have the effect of restricting sales on nationwide online marketplaces such as eBay and Craigslist. I know the former already yanks sales of used software; don't know about the latter. In either case, theoretically the seller's left to local markets with less chance of success.

My assumption is, of course, that the reselling-used-software situation is equivalent to the Omega decision.
posted by Jubal Kessler at 4:23 PM on December 13, 2010

I used to save hundreds of dollars per semester by purchasing less expensive "international editions" that were sold overseas at artificially low prices. I guess I wasn't really planning to sell my aerodynamics text anyway. Sucks for current students, though, since this ruling would presumably make such sales illegal.
posted by indubitable at 4:27 PM on December 13, 2010

(Sorry, I'll stop thread-sitting right now, or rather, right after this)

My assumption is, of course, that the reselling-used-software situation is equivalent to the Omega decision.

You are making my point. Yes, of course that is the implication, and of course it won't stand in the real world. The government is losing revenue to no net effect. You can't impose dumbass rules for something obviously "fair" to real people, without looking ridiculous and losing the ability to participate in the transaction. Of course I can sell my copy of Office. I don't give a whit about the convoluted legal stuff. The simple fact is that I bought it and I can sell it. If the gov't doesn't agree, I can *easily* use another avenue than the biggies like eBay who need to follow (for now) gov't rules. Thank you, internet.
posted by Invoke at 4:31 PM on December 13, 2010

The courts are part of the government, last I checked.

The courts assess the validity of the claims made before them, which is quite different from making claims of their own (eg when the executive branch in the person of the solicitor or attorney general argues on behalf of the United States as an interested party). Please, take a civics class.
posted by anigbrowl at 4:32 PM on December 13, 2010 [8 favorites]

Let me see if I got this scenario right.

1. OEM sells a product for $10 in India.
2. OEM sells the exact same product for $100 in USA.
3. Reseller buys the product in India and resells it in USA at a price below $100.

I am not seeing how this would set a precedent for what libraries do.
posted by vidur at 4:42 PM on December 13, 2010

I'm guessing this will be pretty tough to enforce. Sort of like going after sellers and stores who sell used books, CDs and DVDs. I can't imagine law enforement digging through eBay and finding stuff bought overseas and sold here. It would be sort of ridiculous. I think this particular case applies primarily to this particular case and in theory affects other cases. But I just don't see it being enforced against smaller sellers.
posted by Rashomon at 4:46 PM on December 13, 2010

Copyright law is so completely and thoroughly fucked in this country that I think there's no salvaging it.
posted by empath at 4:54 PM on December 13, 2010 [5 favorites]

IANAL, but AFAIK...

1. The First Sale doctrine has always been in doubt for products made abroad. That's not new.

2. Even if a precedent had been set, which it hasn't, it wouldn't apply to libraries unless said libraries were themselves importing copyrighted products they'd acquired directly from foreign publishers' foreign warehouses with the sole intent of reselling said products at retail prices below the minimum indicated in the contract of sale.

In short, Costco appears to have simply violated a contract. Don't do that, and you're fine.

(Again, I am not a lawyer, the above is not legal advice, and I shall not be held responsible for any damages arising either directly or indirectly from this comment.)
posted by Sys Rq at 4:59 PM on December 13, 2010

I am not seeing how this would set a precedent for what libraries do.

Because it relied on copyright? Omega claimed the watch was "Copyrighted".
posted by delmoi at 5:01 PM on December 13, 2010 [2 favorites]

IANAL but since this decision apparently has no precedential value, does it apply to the broader situation of libraries and foreign materials purchases at all? I'm not seeing this decision referred to on any of the librarian blogs/sites I normally try to keep up with either, but it may be that it's too soon. I'd really like to see more than several links to a couple of posts from Techdirt before I start worrying.
posted by blucevalo at 5:04 PM on December 13, 2010 [1 favorite]

punkfloyd: So much for that invisible hand bullshit.

You got it exactly backwards. In this case. Costco was seeing that Omega was charging too much in the US market, so they bought overseas and imported them cheaper.

The Supreme Court, by refusing to uphold this as perfectly legitimate, is in essence putting the invisible hand in cuffs. The market is trying to correct a price imbalance, and it's being prevented by government.
posted by Malor at 5:06 PM on December 13, 2010 [6 favorites]

> Because it relied on copyright? Omega claimed the watch was "Copyrighted".

But the libraries are not in the business of selling foreign-published copyrighted content at a price lower than that set by the authorized publisher in the USA, are they?

Can someone given an example of how a library might get sued because of this precedent (assuming it is a precedent)? Isn't there already a contract between a libraries and whoever sells books to the libraries?
posted by vidur at 5:10 PM on December 13, 2010

Our grandchildren won't know what we are talking about when we use phrases like "property rights." They'll just cock their head and ask "You didn't subscribe to your housing service for your home? How did you get new furniture?"
posted by TwelveTwo at 5:20 PM on December 13, 2010 [10 favorites]

Our grandchildren won't know what we are talking about when we use phrases like "property rights."

Psh. Very few people now know what the term "property rights means." In fact, as far as I can tell, the people who know what "property rights" actually means in the United States are pretty much restricted to about 20% of U.S. lawyers, some State and Federal judges, about half the people taking the bar exam every six months, and a handful of other people.
posted by The World Famous at 5:31 PM on December 13, 2010 [2 favorites]

the words you type make me sad
posted by TwelveTwo at 5:33 PM on December 13, 2010 [4 favorites]

The courts assess the validity of the claims made before them, which is quite different from making claims of their own (eg when the executive branch in the person of the solicitor or attorney general argues on behalf of the United States as an interested party). Please, take a civics class.

Wow, condescend much? Do you realize that this sort of argument doesn't persuade anyone, it just makes people who already agree with you say "nice slap down!" Boring, lazy, and ineffective.

Let me make it clearer for people like you. My point is "governments cannot enforce those rules, trying to do so undermines their authority and makes people more likely to assume the government should be ignored as idiots whenever they are obviously wrong. That's a bad precedent if you interested in maintaining rule of law."

I like rule-of-law, I just wish my government would abide by it. To the extent that the government, including the courts, ignores basic rights, they will experience increasing numbers of moderately-passive scoff-laws that they have little-to-no chance of successfully prosecuting. Over time, this is a problem, easily solved by stopping being dumbasses.
posted by Invoke at 5:39 PM on December 13, 2010 [4 favorites]

> artists are entitled to receive a fee on the resale of their works of art

California
posted by hank at 5:52 PM on December 13, 2010

I only acknowledge Hammer Time. 9th circuit court can't touch this.
posted by humanfont at 5:52 PM on December 13, 2010 [8 favorites]

(Again, I am not a lawyer, the above is not legal advice, and I shall not be held responsible for any damages arising either directly or indirectly from this comment.)

Sys Rq: I have copyrighted that above disclaimer. See you in court!
posted by Mister Fabulous at 5:59 PM on December 13, 2010

the pathologically law-abiding

What a great phrase. I know far too many people who fit that description.
posted by Marla Singer at 5:59 PM on December 13, 2010 [2 favorites]

This is not just a problem for libraries. Any company selling goods outside the US can stamp them with some throwaway image, copyright that, and poof! You can't sell that product on Ebay, Etsy, etcetera to anyone in the US.

Unless the 9th Circuit's holding is limited to goods produced and purchased abroad (and I don't think that is the case), this is the kind of thing that would eviscerate the First Sale doctrine if adopted by the Supreme Court.
posted by Grimp0teuthis at 6:04 PM on December 13, 2010 [1 favorite]

Wow, condescend much? [...] Let me make it clearer for people like you. My point is[...]

Your point is completely irrelevant to this case, which is civil , not criminal, and therefore does not involve any "prosecuting."

Over time, this is a problem, easily solved by stopping being dumbasses.

You first.
posted by Sys Rq at 6:12 PM on December 13, 2010

Wow, condescend much? Do you realize that this sort of argument doesn't persuade anyone, it just makes people who already agree with you say "nice slap down!" Boring, lazy, and ineffective.

What, the bit about taking a civics class? Yes, I do realize that. I feel the same way about your inaccurate handwaving. If you're talking about government agency in regard to legal claims, then you're just wrong.

To the extent that the government, including the courts, ignores basic rights

What 'basic rights'? You don't have any 'basic rights.' You have constitutional liberties and statutory rights. If you believe in the UN's legal authority, then you also have human rights. I can't stand these moralistic pronouncements that don't even bother to articulate what these rights are or what authority they are derived from. If you think you should have rights that you currently don't, well fine, I'd gladly agree the law is inadequate or mistaken in many respects and ought to be changed. If you say you already have rights whose mere mention is supposed to end the discussion, then you are expressing a religious belief.

Really, your whole argument here seems petty and self-serving. You don't like the court upholding Omega's argument because it limits your ability to buy a cheap watch, and you complain the government is infringing some nebulous right to do business. If you owned shares in Omega and the decision had gone the other way you'd be complaining the government was assisting CostCo to ride roughshod over your property rights, specifically the right of a property owner to attach conditions to the sale of property in the form of a contractual requirement.

Copyright law is so completely and thoroughly fucked in this country that I think there's no salvaging it.

If US copyright law applied here Omega would have no case against CostCo., because US law enshrines the notion of the first sale doctrine. Omega's entirely reasonable argument was that it sold watches elsewhere outside the US subject to the condition that they not be purchased for resale. Outside of the US, where the first sale doctrine does not apply, this is a perfectly legal choice for a merchant to make.

We may not always like the results, but are bound to acknowledge them in a US court if someone brings an action against a US person that relies on treaties to which the US is a signatory. We acknowledge the copyright law of other countries who are signatories to the same treaties as ourselves, because that is what we have to do for them to acknowledge US copyright laws when US-originated copyrights are infringed elsewhere.
posted by anigbrowl at 6:25 PM on December 13, 2010 [3 favorites]

Another thought: the whole point of copyright is to prevent copies. It has nothing whatsoever to do with controlling the behavior of purchasers. Once they own a legally-created copy of the goods, it's supposedly theirs to use or dispose of as they wish.

They're not making another copy, so copyright shouldn't apply, full stop.
posted by Malor at 6:28 PM on December 13, 2010 [1 favorite]

So....would it be ok to scratch out the name 'Omega,' substitute 'Malor,' and sell 'timepieces by Malor'? In bulk mind, not as one-off arty projects.
posted by anigbrowl at 6:43 PM on December 13, 2010

We may not always like the results, but are bound to acknowledge them in a US court if someone brings an action against a US person that relies on treaties to which the US is a signatory. We acknowledge the copyright law of other countries who are signatories to the same treaties as ourselves, because that is what we have to do for them to acknowledge US copyright laws when US-originated copyrights are infringed elsewhere.

Okay, true, but the Berne Convention only requires that its signatory nations grant works copyrighted in other signatory nations (at least) the same level of protection that they grant works made domestically. It doesn't require you to grant the works protection according to the letter of the copyright law in their nation of creation, which is why we get away with not recognizing all the moral rights provisions found in copyright statutes from nations whose copyright doctrine stems from less utilitarian justifications than ours.

I'm not totally clear on why this should apply differently to the doctrine of first sale, other than the use of the phrase "lawfully made under this title," but it seems like that could just as easily mean a copy that would be considered lawfully made under our code, e.g. not an infringing copy, rather than a copy that was lawfully made in some jurisdiction governed by our copyright code. But I haven't had the chance to read the opinion yet (is it available somewhere?), so they may explain some really good reason for this.
posted by cobra_high_tigers at 6:52 PM on December 13, 2010

They're not making another copy, so copyright shouldn't apply, full stop.

Agreed, but see also Vernor v. Autodesk (PDF), recently out of the Ninth Circuit, and possibly also the appeal on UMG v. Augusto...
posted by cobra_high_tigers at 6:54 PM on December 13, 2010

Omega SA v. CostCo Wholesale corp.9th circuit opinion, en banc, 07-55368/07-56206. It's pretty technical, referring to a lot of recent controversies.
posted by anigbrowl at 7:25 PM on December 13, 2010

So....would it be ok to scratch out the name 'Omega,' substitute 'Malor,' and sell 'timepieces by Malor'? In bulk mind, not as one-off arty projects.

Yes, it should be completely legal to do that. Why do you think it shouldn't be?
posted by odinsdream at 7:53 PM on December 13, 2010

So....would it be ok to scratch out the name 'Omega,' substitute 'Malor,' and sell 'timepieces by Malor'? In bulk mind, not as one-off arty projects.

But... that's not what they did. Why are you even... Oh, right, because you are trying to cloud the actual issue with unrelated bullshit.

The U.S. Government is bowing to the will of a corporation to suppress the global economy in the name of greater profits through enforced price discrimination. And I think it sucks.
posted by inparticularity at 7:54 PM on December 13, 2010

where the bizarre legal claims of governments are just one of numerous factors one should take into account

Like those leakeys imply, governments may be powerful but they are not omnipotent, and we are all just these little critters running around between the legs of these big blind stumbling giants, and if we're not lucky, then one of those big blind giants will scoop us up and squeeze us, and then we'll go: "Ack!"
posted by ovvl at 7:55 PM on December 13, 2010 [1 favorite]

So....would it be ok to scratch out the name 'Omega,' substitute 'Malor,' and sell 'timepieces by Malor'? In bulk mind, not as one-off arty projects.

Under copyright law, I wouldn't have a damn thing to say about it, because they're not making copies of something I created.

If I had it trademarked, I might be able to stop them, but only if they were in a market that was sufficiently similar to one I was already in. There would have to be the likelihood of confusion. That's why you have both Weber barbecues and Weber carbs.

I might possibly have a cause of action for calling them 'by Malor', if I could somehow prove that they A) meant me, and B) they were misrepresenting the truth. But if they called them Malor Timepieces, it would be very unlikely that I could do anything about it at all. But that's not related to copyright. In fact, I'm not sure what area of the law it would fall under.

Remember, it's copy right, not forcepeopletousemyproductsthewayIwantthemto right.
posted by Malor at 7:59 PM on December 13, 2010 [1 favorite]

So....would it be ok to scratch out the name 'Omega,' substitute 'Malor,' and sell 'timepieces by Malor'? In bulk mind, not as one-off arty projects.

Sounds like you're trying to confuse the public about the provenance of the watches, thereby diluting Omega's trademark. Not a copyright issue at all.
posted by one more dead town's last parade at 7:59 PM on December 13, 2010 [1 favorite]

That was poorly edited, sorry. I should have swapped the last two sentences in the third paragraph.
posted by Malor at 8:02 PM on December 13, 2010

Omega sued CostCo. The government is not making any legal claims.

Silly claims are filed every day. It's the frightening decisions we get concerned about.
posted by ChurchHatesTucker at 8:09 PM on December 13, 2010

Really, your whole argument here seems petty and self-serving. You don't like the court upholding Omega's argument because it limits your ability to buy a cheap watch, and you complain the government is infringing some nebulous right to do business. If you owned shares in Omega and the decision had gone the other way you'd be complaining the government was assisting CostCo to ride roughshod over your property rights, specifically the right of a property owner to attach conditions to the sale of property in the form of a contractual requirement.

It took me a moment, but I think I may have figured out the essential difference in our opinions. My opinion is based on a belief that there are limits on what is actually achievable via laws. When I say "basic rights", it *is* handwaving, because it is undefined. More specifically, while leaving it undefined, what I mean is "exceeding the rights people think they have." More precisely, "exceeding the rights people demand for themselves." Yours appears to be based on a belief that governments can legislate whatever they please so long as they are technically within the governments' constitutions.

Obviously, they *can*, whether they should is a different matter, and the one I am arguing.

From my perspective, I believe that arbitrary, unenforceable rulings such as this one are are foolish and doomed to fail. Look at Italy. It is so rule-bound that its underground economy is approximately 25% of its "straight" economy.

(http://www.econbrowser.com/archives/2010/05/inflation_taxat.html).

At a certain point, people simply find it easier and more profitable to simply use the underground economy to do transactions they feel are reasonable. I submit that most people think reselling a watch they own is reasonable, regardless of "contracts" the company wishes they would respect. Even in the face of legal (I admit it, they laws are "legal"), rulings to the contrary, people will do what they think is reasonable, especially when there is little-to-no chance of being caught.

I don't think a huge underground economy is a good thing for a country, and I do think that foolish court ruling like this encourages it.

Regardless of your disagreement, I ask you to please tone down the intellectual condescension. Even more so, I ask you to never again predict my opinion or put words in my mouth. The "if you owned shares..." argument is completely incorrect as to my predicted reaction, and I don't appreciate it.
posted by Invoke at 8:31 PM on December 13, 2010 [3 favorites]

The courts assess the validity of the claims made before them, which is quite different from making claims of their own (eg when the executive branch in the person of the solicitor or attorney general argues on behalf of the United States as an interested party). Please, take a civics class.

The courts definitely make claims of their own, in decisions. Here we see the Supreme Court engaged in a bit of clarification.

Case law is not limited to the court pointing at a claim made before it and saying, "yes, that's right".
posted by kenko at 9:00 PM on December 13, 2010

4-4.

Sure feels nice to have things hanging by a thread, huh.

I know, let's undermine the candidacy of a liberal president with a wild primary run!

That way who knows who'll be nominating replacements when the septuagenarian Scalia, Kenendy and Ginsberg decide to retire!

Whooooo!

_{Especially Ginsburg who's had two different cancers already.
Think she'll outlast the Romney administration?
Do you feel lucky?}
posted by clarknova at 9:01 PM on December 13, 2010

I can still buy imported Cadbury and not have to put up with that Hersey's made Cadbury nonsense, right? Right?!
posted by rh at 9:29 PM on December 13, 2010

vidur wrote: "Let me see if I got this scenario right.

1. OEM sells a product for $10 in India.
2. OEM sells the exact same product for $100 in USA.
3. Reseller buys the product in India and resells it in USA at a price below $100.

I am not seeing how this would set a precedent for what libraries do."

Yeah, you've got it. The dictionary definition of arbitrage. Something which makes markets more efficient by forcing prices closer to equilibrium. One of the foundations of capitalism. Thrown away like so much garbage.

Sys Rq, did Costco sign a contract with Omega?
posted by wierdo at 10:02 PM on December 13, 2010 [1 favorite]

Another thought: the whole point of copyright is to prevent copies. It has nothing whatsoever to do with controlling the behavior of purchasers

Some of the rights around a work are exclusive to the holder of the copyright, which is not in this case CostCo.

Some of the rights have exceptions which allow parties other than the holder of the copyright to do things that would otherwise be exclusive to the copyright holder, like the Doctrine of First Sale which permits someone other than the copyright holder to sell the work to others.
posted by zippy at 10:43 PM on December 13, 2010

Since it's a tie, does that mean Costco can sell these things anywhere out of the jurisdiction of the 9th circuit?

But the libraries are not in the business of selling foreign-published copyrighted content at a price lower than that set by the authorized publisher in the USA, are they?

Right they lend them out instead. Just because a book is not identical to a watch, and lending isn't identical to selling doesn't mean that the same legal rulings can't apply.

Try some abstract thinking.
posted by delmoi at 10:51 PM on December 13, 2010

It seems like the 9th Circuit Court is struggling with the following contradictions in case law and law.

1) The laws of a country determine whether acts in that country are lawful
2) Extending US laws to cover acts in other countries is almost always not allowed
3) Copyright can start with something that happens in another country
4) But the rest of the machinery of copyright law - the Doctrine of First Sale, for example - could contradict the law in effect in another country

So far, so good. But then the Court attempts to resolve this conflict.

... the application of [the First Sale Doctrine, 17 U.S.C.] § 109(a) to foreign-made copies would impermissibly apply the Copyright Act extraterritorially in a way that the application of the statute after foreign sales does not.   Under the latter application, the statute merely acknowledges the occurrence of a foreign event as a relevant fact.   The former application would go much further.   To characterize the making of copies overseas as “lawful under [Title 17]” would be to ascribe legality under the Copyright Act to conduct that occurs entirely outside the United States, notwithstanding the absence of a clear expression of congressional intent in favor of extraterritoriality....

I think this means that recognizing something is copyright is kosher, but recognizing events more specific than 'this item is copyright' when the item is produced in a foreign country, such as "this copyright holder sold the item lawfully and now the purchaser can resell it under the doctrine of first sale" is overstepping what's permissible. Copyright recognizes a fact, First Sale interprets through the lens of US law which is impermissible.

TL;DR version - reselling foreign-made, copyright works within the US in the 9th Circuit is now tricky. If you step on a company's toes like CostCo did to Omega, to the point that the aggrieved is willing to pay $400k in legal fees to go after you, you may now be cautious.

IANAL and welcome more informed analysis than mine
posted by zippy at 11:25 PM on December 13, 2010 [2 favorites]

The courts assess the validity of the claims made before them, which is quite different from making claims of their own (eg when the executive branch in the person of the solicitor or attorney general argues on behalf of the United States as an interested party). Please, take a civics class.

If you are going to condescend to people, at least make the effort to be right about things. Courts sometimes assess the lawyers' claims, sometimes they ignore them, and sometimes they make up their own arguments, and sometimes they even create new law. In fact, there's a whole phrase for just that kind of law! Please, take a law class.
posted by r_nebblesworthII at 5:20 AM on December 14, 2010 [2 favorites]

Differential pricing is theft. If you can sell it for ten bucks in India and make money, you can sell it to me for ten bucks in the USA.

Next up: Pfizer copyrights the Sildenafil molecule...
posted by localroger at 5:25 AM on December 14, 2010

/activates theBellman signal (an IP lawyer on here IIRC)
posted by r_nebblesworthII at 6:12 AM on December 14, 2010

See, FDR was right! We do need (at least) 10 SCOTUS justices so as to have alternates when regulars have conflicts. No more deadlocks!
posted by toodleydoodley at 7:07 AM on December 14, 2010

Is it just me or has Kagan recused herself from every single case?
posted by empath at 7:22 AM on December 14, 2010 [1 favorite]

Wired:

However, because there was no majority decision, Monday’s ruling solely affirms a lower court’s decision against Costco and does not adopt a nationwide precedent.

“It’s as if the court never took the case in the first place. We have to wait for another case like this to come along,” said Thomas Goldstein, the SCOTUSblog founder who has argued nearly two dozen cases before the high court.
posted by blucevalo at 8:06 AM on December 14, 2010

Differential pricing is theft

Hyperbolic commenting is homicide.
posted by callmejay at 8:19 AM on December 14, 2010

zippy wrote: "Copyright recognizes a fact, First Sale interprets through the lens of US law which is impermissible."

Yet the resale, which is what is alleged to violate foreign copyright law, happened in the US, not in India or whereever.
posted by wierdo at 9:12 AM on December 14, 2010

Yet the resale, which is what is alleged to violate foreign copyright law

I think it works like this, according to the ruling:

1) the First Sale Doctrine, 17 U.S.C.] § 109(a) is triggered on the first legal sale of the software, otherwise the buyer does not have the right to resell the item.

2) The First Sale happened in another country, so the court cannot say whether it was or was not legal under US law.

3) Without a legal US event to trigger the First Sale Doctrine, there owner of the watches does not have the right under US Copyright statutes to resell the item, as there was no legal purchase under US law to trigger the First Sale.

The court is saying, in other words, that absent guidance from the legislature, they will not apply a US law to a foreign transaction.

They will however apply a US law to a US transaction. And here they have Costco selling copyright items where First Sale is not triggered, therefore Costco does not have the right to sell the items.

Again, IANAL
posted by zippy at 9:20 AM on December 14, 2010 [1 favorite]

Zippy, that's pretty much right IMO (IAAL but not a copyright lawyer).

Interesting fact about this case: copyright law of infringement extends outside U.S. borders, but the first sale doctrine now does not (at least in the 9th Circuit). So an illegal copy of a movie made in China and imported is subject to copyright law, but a legal copy of a movie made in China and imported is not subject to the copyright defense of first sale doctrine. As a few of the judges pointed out in oral argument this gives the upper hand to foreign manufacturers, since they will be able to segment their buyer's markets more easily by preventing Costco-style importation and resale.
posted by r_nebblesworthII at 10:01 AM on December 14, 2010

1) The laws of a country determine whether acts in that country are lawful
2) Extending US laws to cover acts in other countries is almost always not allowed

The FCPA would beg to differ with both of those assertions.
posted by The World Famous at 10:10 AM on December 14, 2010

Yes, the FCPA is an exception created by the legislature. The court is OK with applying US law to foreign events where the legislature explicitly says it is OK. They say in this ruling that absent something from the legislature allowing it, the court will not extend a US law to a foreign event.
posted by zippy at 10:47 AM on December 14, 2010

The ruling here being the 9th circuit court's
posted by zippy at 10:48 AM on December 14, 2010

callmejay, it is not hyperbolic to call differential pricing theft. Let's say person A walks into my restaurant and I sell him a hamburger for one dollar. Next you walk into my shop and ask for a hamburger and I say, fine that will be ten bucks. When you protest I say "Sure, I can make money selling them for a dollar, but you drove up in a Bentley and you're wearing a thousand dollar suit." Would you be willing to not only pay the nine extra dollars but to justify what I'd just done to you to others?
posted by localroger at 10:52 AM on December 14, 2010

Very good point, zippy.
posted by The World Famous at 10:54 AM on December 14, 2010

Mister Fabulous: "I mean, who knows, but I can't imagine a publisher saying "Not going to sell books to US libraries anymore because they might lend them!" That's the point of libraries, after all.

I could see publishers wanting a per lend fee every time for a book, CD, DVD, digital download, etc."

Authors already get paid when their books are borrowed in Irish Public Libraries under the PLR scheme, and there are similar schemes in Britain & Australia and probably elsewhere too.
posted by Fence at 11:02 AM on December 14, 2010

"callmejay, it is not hyperbolic to call differential pricing theft. Let's say person A walks into my restaurant and I sell him a hamburger for one dollar. Next you walk into my shop and ask for a hamburger and I say, fine that will be ten bucks. When you protest I say "Sure, I can make money selling them for a dollar, but you drove up in a Bentley and you're wearing a thousand dollar suit." Would you be willing to not only pay the nine extra dollars but to justify what I'd just done to you to others?"

Sorry, that's a silly position. You can see that by inverting it — sliding scale is generally seen as a pretty ethical business decision, often more ethical than flat pricing. Likewise, if applied to, say, taxes, it would make flat taxes the only moral path. But given that people have different abilities to pay, then charging them based on their ability to pay can not only be acceptable but moral in some situations, which means that calling it theft is wrong.

(Similarly, I felt worse about one of my friends having to take a $15k bath on a vacation she planned, until she mentioned that she makes between $250k and $750k a year, at which point I realized that it's more like me getting screwed out of $300, which would be galling but not ruinous.)
posted by klangklangston at 11:05 AM on December 14, 2010

klangklangston, we are not talking about taxes. We are talking about decisions made by a business enterprise that is not answerable to the public. The government can be expected to use some kind of scale everyone agrees on to decide who can and can't pay. They actually do know how much money you have because you have to tell them on your tax return. The businesses which think it's OK to rip me off just because I'm an American are not doing that.

And the assumption companies like Omega use to justify this is just plain wrong; just because people in America generally make more than people in India does not mean we have it as disposable income, because there are lots of other things that legitimately cost more here and I might need my inflated American salary to pay for those.

You would not be allowed to charge me a different price because of my sex or race or physical handicap or lack thereof. Why should you be allowed to do so because you, in your own infinite wisdom and with no input on the matter from anyone who might be answerable to me, have decided that because I live where I do my wallet must be fatter?
posted by localroger at 11:31 AM on December 14, 2010

They actually do know how much money you have because you have to tell them on your tax return.

I don't know what kind of crazy-ass tax return you're filling out, but my tax return doesn't have anyplace to write how much money I have. What tax return are you talking about that asks you how much money you have?

The businesses which think it's OK to rip me off just because I'm an American are not doing that.

You're only getting ripped off if you buy their product. And if you're OK with buying it, then it is, in fact, OK for them to rip you off.

just because people in America generally make more than people in India does not mean we have it as disposable income, because there are lots of other things that legitimately cost more here and I might need my inflated American salary to pay for those.

Guess what? Reliable wristwatches are not one of the things that cost more in the United States than elsewhere. Omega charges Americans more because Americans are fat, stupid, rich, vain bastards who are willing to throw away their wads of cash or go into credit card debt so that they can have logo on their wrist. If Americans were unwilling to pay Omega's U.S. product price, Omega would lower the price.

Why should you be allowed to do so because you, in your own infinite wisdom and with no input on the matter from anyone who might be answerable to me, have decided that because I live where I do my wallet must be fatter?

That's not why Omega charges more for its watches in the U.S. It's not invidiously discriminating against Americans. It's charging the price that the market will bear.
posted by The World Famous at 11:50 AM on December 14, 2010

I truly believe that you should be able to sell objects you legally own.

Kidneys? Virginity?

Yes.
posted by coolguymichael at 12:40 PM on December 14, 2010

I've gone to sliding-scale dentists and doctors, both when I could pay more and when I couldn't. Likewise, a sliding-scale bike repair shop. All of them charged one party more than another party based on ability to pay. None of them were theft.

Try getting het up about something that matters next time.
posted by klangklangston at 12:48 PM on December 14, 2010

While it is true that there isn't a big need for luxury wristwatches and the option to not buy is always there, what is the pharmaceutical industry's excuse? When I pay $40 for a necessary prescription that sells profitably for USD$2.50 elsewhere, and I have to choose between paying the electric bill and paying for my prescription because my fat American salary also has to cover my fat American rent, utilities, and grocery bill, I think it's fair to say you are stealing from me.

Also, while your tax return may not indicate how much money you have, it most certainly does ask how much money you make, which is a pretty fair index. Omega and Pfizer don't even know that about me, so how dare they decide I should pay more?
posted by localroger at 1:46 PM on December 14, 2010

klangklangston, I work for an industrial supplier. When we sell something, we work up how much it costs us, we add an appropriate markup to cover our own costs, and that sets the price. It's the same price whether we're dealing with Exxon-Mobil or Frank's Garage. It's the same price if you are down the street or if you are in Angola. That is the way you do business. It is fair, it is honest, and if you do it any other way your competitors come in and underbid you on the people you're overcharging and you don't have those customers any more.

Differential pricing only works because there is no competition to do that, either because of a price fixing conspiracy or law.
posted by localroger at 1:50 PM on December 14, 2010

how dare they decide I should pay more?

What do you mean how dare they decide you should pay more? Are you arguing that the price of an Omega Seamaster Planet Ocean should be somehow based on your income? Or are you arguing that companies should charge the same price in every market for every product, regardless of what the consumer is willing to pay?
posted by The World Famous at 2:16 PM on December 14, 2010

It's a fucking watch. Buy or do not buy. There is no whine.
posted by unSane at 2:20 PM on December 14, 2010

When we sell something, we work up how much it costs us, we add an appropriate markup to cover our own costs, and that sets the price. It's the same price whether we're dealing with Exxon-Mobil or Frank's Garage. It's the same price if you are down the street or if you are in Angola. That is the way you do business.

Baloney. I simply do not believe that your company charges the exact same price to each one of its clients - without offering any special prices, any promotions, or any prices varying from the norm in order to get or retain a significant client. I do not believe that your company's sales staff has zero ability to haggle on price. That's not the way you do business.

we work up how much it costs us, we add an appropriate markup to cover our own costs, and that sets the price.

Yeah, that's just not true at all. You add an appropriate markup based on what you believe the market will bear and what will keep you competitive in that market.
posted by The World Famous at 2:22 PM on December 14, 2010

Differential pricing only works because there is no competition to do that, either because of a price fixing conspiracy or law.

Or because of a difference in perceived values of different products.

If you decide that a "time-telling wrist-wearable machine" would only be worth $10 to you, then by all means go ahead and buy ACME Watch Co.'s product. But please let me decide what such an object would be worth to me.
posted by vidur at 2:24 PM on December 14, 2010

Or because of a difference in perceived values of different products.

Aargh. I meant "difference in perceived values of the same product".
posted by vidur at 2:34 PM on December 14, 2010

The World Famous, we typically add 10% to 40% to our costs. There really isn't a lot of wiggle room. If we add too much our quote will be too high and a competitor will swoop in and get the order. If we add too little, we wouldn't be able to pay our own bills. We might sell at a slight loss if we think we'll make it back on regular service, but we don't even like to do that.

And the OP court case is pretty much about how differential pricing doesn't work. A good guide to whether you have crossed the line from giving an honest discount to ripping off your customers is that if it's worth somebody else's while to set up shop buying your product in market A and shipping it to market B to undersell you, you're probably unfairly overcharging the people in market B.

So that's what Costco did here; they noticed that it was worth their while to buy watches in India, ship them back to the USA, and sell them for less than the manufacturer was willing to. The manufacturer goes, oh noes! It turns out there is no legal protection for their cool overcharging scheme! So they enact what can only be called a legal dodge by embedding a "copyrightable" emblem on an object that is not normally subject to copyright law, and then overreaching on even the copyright protection by trying to yank one of the cornerstones, the doctrine of First Sale, right out from under our entire economic system.

This is a business practice which has personally cost me tens of thousands of dollars over the last few decades, and that's just on a few products where I know about it. So yes I do get het up about it because it does matter. I may live in the USA but I'm not rich, and I don't think it's fair that I should have to give Merck the equivalent of a nice restaurant meal every single month of my adult life just because I live in "a market that will bear it." If that bottle of pills really costs $20 for you to make and you're marking it up 100% to $40, and maybe you only mark it up $5 in Mexico, I"m woudn't complain about that. That's a reasonable reaction to a different market. But if it really costs you $1.50 and you're selling it for $2.50 in Mexico and $40 here, you are ripping me off, and if you're doing that on something I need rather than something that would just be nice like a luxury watch, then I think it is completely fair to call it theft.

I also think it's worth pointing out that by their own logic, Omega is probably shooting themselves in the foot here; the claimed logic is that differential pricing allows you to sell more units bringing overall production costs down so you can serve a larger market. I seriously doubt that someone who is buying their watch at Costco would be likely to go to the jewelry store and pay US list instead, so by pursuing this case they're undermining the logic that supposedly upholds the very thing they are wanting to do.
posted by localroger at 3:11 PM on December 14, 2010 [2 favorites]

localroger, I take back my previous comment. I didn't realize you were talking specifically about essential medicines.
posted by vidur at 3:19 PM on December 14, 2010

You keep saying things like "unfairly overcharging" people. What does that mean? What, in your opinion, is a "fair" price for an Omega Seamaster Planet Ocean watch? When you answer that question, please tell me how you determined that the price would be "fair."

I don't think it's fair that I should have to give Merck the equivalent of a nice restaurant meal every single month of my adult life just because I live in "a market that will bear it."

See, usually, I think "so move to another country" is a dumb answer to pretty much everything. But seriously, you do live in a market that will, apparently, bear a price that you don't want to pay. Your options are a) pay the price, b) don't pay it, or c) move to a market with a price you like more. Now, personally, I think pharmaceuticals are an example of a product that has numerous factors in addition to those of most products - that the externalities, transaction costs, and other factors throw off the market analysis such that the prices should be strictly controlled. So I really don't think pharmaceuticals are a good example in this discussion because they are "special."

I seriously doubt that someone who is buying their watch at Costco would be likely to go to the jewelry store and pay US list instead, so by pursuing this case they're undermining the logic that supposedly upholds the very thing they are wanting to do.

I suspect that Omega correctly believes that it will make bigger profits by selling fewer watches at a higher price than it will by selling more watches at a lower price, and that the presence in the United States of a lower-priced Omega will create competition against the Omega-priced Omega watches, effectively squeezing the higher-profit option out of the market. Omega's trying to make money. They make more by selling fewer units at a higher price.
posted by The World Famous at 3:20 PM on December 14, 2010

You keep saying things like "unfairly overcharging" people. What does that mean?

It means you are charging what the market will bear in the face of honest competition and without your pricing structure being propped up by laws that undermine the free market. Not all that complicated, really. We have laws that give a temporary monopoly to encourage innovation for a reason -- and they expire for a reason. What Omega is trying to do here is ignore economic reality; if Costco can make money by buying their product in India, shipping it half-way around the world, and selling it cheaper than Omega does, then by definition Omega (having the advantage of being the original manufacturer) should be able to make even more extra money than Costco is by selling for the same price. But they would rather pretend that they live in a world where ships and airplanes do not exist.

The situation with drugs is carefully calibrated because they are regulated. Thanks to the AIDS activists of the 80's you can, at least, bring back a 3 month supply, but unless you are on serious meds it's probably not worth your while to fly to San Diego every 3 months to realize the savings. OTOH if it was a year's supply only a fool would ever spend a dime in a US pharmacy on anything but one-off medications. And you better believe that's the exact reason for the 3 month limit.

I did go to Mexico to have my dental rehabilitation, because it would have been $40,000 in even the cheapest US markets and I was able to get the services of an expert with much experience in the very procedure I needed in Tijuana for $8,000. That's a bit unfair, because the US dentists generally aren't trying to rip me off; they are trying to cover their own higher in the US expenses, but the point is that it wasn't really a choice between spending $8,000 and $40,000 because the $40,000 wasn't there. It was a choice between the $8,000 and spending the rest of my life with rotten teeth.

What upsets me about this Omega case isn't that I can't get a cheap watch, it's that they want a protection for their little price-fixing scheme that doesn't and shouldn't exist and the Supreme Court is so toxically friendly to anything resembling a large business that they got it. The next company that decides to pull a similar stunt might be selling something I need instead of something that would just be nice to have.
posted by localroger at 4:01 PM on December 14, 2010 [3 favorites]

Wow, the cricket population seems to have exploded.
posted by localroger at 7:33 PM on December 14, 2010

> Regardless of your disagreement, I ask you to please tone down the intellectual condescension. Even more so, I ask you to never again predict my opinion or put words in my mouth. The "if you owned shares..." argument is completely incorrect as to my predicted reaction, and I don't appreciate it.

Fair enough, although if you jump into an argument about legal matters I think you have to kind of expect people are going to be picky about terms, such as the Court being part of the government, rather than synonymous with it. I can't understand your general argument, which seems at odds with the facts of the case, but I'll talk about that separately (the case, not your argument).
posted by anigbrowl at 10:23 PM on December 14, 2010

What, in your opinion, is a "fair" price for an Omega Seamaster Planet Ocean watch?

The amount charged for one in its cheapest market, plus whatever markup the cheapest reseller wants to add for importing the watches.

An artificial price differential between here and India is just a racket, and now a legally-protected one.
posted by Malor at 12:10 AM on December 15, 2010

We have laws that give a temporary monopoly to encourage innovation for a reason -- and they expire for a reason.

But those are patents, which have nothing to do with this situation. Omega doesn't have any kind of legal monopoly. It has a contractual relationship with wholesale distributors in India. Distributors usually want to be the exclusive supplier in a particular territory; the exclusivity offsets the cash-flow risks that go with buying in bulk. Omega agrees to give someone exclusive distribution rights in some part of India...in return for that distributor respecting the territories of other distributors.

Yes, it's a kind of price fixing. It means a manufacturer can sell their stuff for less in one territory than another. As a consumer, you can circumvent it by travelling elsewhere and buying something cheap. But if you're a wholesaler, you're bound by the terms of the distribution agreement you executed with the manufacturer, and the manufacturer can pick and choose who it sells to and who it grants import licenses to. It's their product. they have no obligation to sell it to you. Your drug example above is interesting, but in the case of drugs you can argue that there are duties transcending mere commercial gain.

But Omega has no obligation to sell you a watch at any particular price. If it chooses to sell them cheap in Bangalore and your travel plans don't take you that way, then too bad. So what if they are segmenting their market? That does not undermine the free market in the least. The freedom in the free market is your option to buy a watch made by somebody else. I bought a Casio watch the other day. The fact that it was about 1% of the price of a Rolex played a significant part in my decision. Is Rolex fixing its prices? Hell yes it is. Do they owe me a good deal? No, they don't know I'm alive, or care. Am I forced to buy a Rolex? No, so I bought someone else's watch at the price I wanted to pay.

What upsets me about this Omega case isn't that I can't get a cheap watch, it's that they want a protection for their little price-fixing scheme that doesn't and shouldn't exist and the Supreme Court is so toxically friendly to anything resembling a large business that they got it.

What.

1) Omega SA is part of the Swatch Group, which has a market cap of ~$24 billion. Costco Has a market cap of ~$31 billion. So this is a case of one large business vs. another large business. CostCo were in this to make money, not to make the world a fairer place.

2) They didn't get anything from the Supreme Court; by splitting 4-4 it left matters as they are, as the 9th circuit left them, and as they have been for the last 25 or so years. The Supremes declined to extend the (American) first sale doctrine to copyrighted goods produced outside the USA.

3) Copyright includes control over the distribution. You don't approve of their distribution/pricing strategy, then don't buy their product.

I appreciate your company works differently, and since you sell an industrial product you can't afford to engage in the same kind of price segmentation that manufacturers use to make as much money as possible from consumers. That's your problem. If Omega makes more money by flogging overpriced watches to uninformed buyers in segmented markets then maybe you're just in the wrong business.
posted by anigbrowl at 12:38 AM on December 15, 2010

An artificial price differential between here and India is just a racket,
So you're saying a manufacturer shouldn't be able to enter into binding contracts with a distributor? If a distributor signs a contract with the copyright holder, who has exclusive rights to control the distribution of their own product, those rights and the licensing contracts assigning some of those rights to wholesalers should be ignored?

and now a legally-protected one.
This was already the status quo. It's been settled law for nearly 30 years. did you even read the...oh never mind.
posted by anigbrowl at 12:45 AM on December 15, 2010

This was already the status quo.

What? If that was the case there would be no OP. The status quo was that if you buy something you own it and you can resell it wherever and to whomever and for however much you want. The whole purpose of this court case was to try to undermine that and they may have succeeded.
posted by localroger at 5:14 AM on December 15, 2010

Under the Berne convention, signed by the US in 1988, the copyright law which applies to a work is that of the country where it was copyrighted. Unlike the US, most countries do not have a 'first sale' provision granting resale rights built into their copyright law. Using a go-between doesn't alter that; if their importation and sale would infringe upon a foreign copyright, so would your purchase and resale.
posted by anigbrowl at 8:27 AM on December 15, 2010

The status quo was that if you buy something you own it and you can resell it wherever and to whomever and for however much you want.

That's the status quo for things under U.S. copyright bought within U.S. borders. This case fits neither of those criteria.

The whole purpose of this court case was to try to undermine that and they may have succeeded.

The whole purpose of this case was to ensure the law had been applied appropriately in the lower court's decision.

What? If that was the case there would be no OP.

"Would"? No. Should? Indeed.
posted by Sys Rq at 9:06 AM on December 15, 2010

Oh, wait, we're talking the other status quo. Yeah, it's that one.
posted by Sys Rq at 9:08 AM on December 15, 2010

(anigbrowl's one)
posted by Sys Rq at 9:11 AM on December 15, 2010

Regardless of the legal machinations, the effect of the 9th Circuit's ruling is that a US Court is enforcing one company's contract with a distributor in another country against a third party here in the US. And they did it by way of expanding copyright law to apply to logos on a product, which have historically only been protected by trademark law.
posted by wierdo at 9:22 AM on December 15, 2010 [1 favorite]

The Supremes declined to extend the (American) first sale doctrine to copyrighted goods produced outside the USA.

Seems more like they're preventing the sales of authorized copies, legally purchased, because the originating company doesn't like it. Which would be reducing the first sale doctrine.
posted by ChurchHatesTucker at 9:46 AM on December 15, 2010

That's what "declined" means, CHT.
posted by Sys Rq at 9:54 AM on December 15, 2010

Huh? The Supremes effectively let the lower ruling stand.
posted by ChurchHatesTucker at 10:08 AM on December 15, 2010

Yes. Exactly. The lower ruling also declined to extend the first sale doctrine.

They're not "reducing" the first sale doctrine so much as simply acknowledging its limits, in a way that is entirely consistent with Quality King Distributors Inc., v. L'anza Research International Inc. and Pearson Education, Inc. v. Ganghua Liu. Nothing has changed.

P.S. I fail to see what Diana Ross has to do with any of this.
posted by Sys Rq at 10:14 AM on December 15, 2010 [1 favorite]

Hrm. It looks like the abuse of the copyright monopoly goes back further than I realized. (Hair Care products?)

In a larger sense, this just reinforces the fact that corporations can engage in arbitrage of labor, etc. while customers cannot. That's not how a free market works.

(And "SCotUS" always sounded just wrong, somehow. Like it's something you'd catch.)
posted by ChurchHatesTucker at 10:31 AM on December 15, 2010

That's not how a free market works.

[The following is just a very small part of a rant that I work tirelessly to suppress anytime the term "free market" is brought up and especially anytime a conservative talks about economics. It's really not directed at you, ChurchHatesTucker, so I hope you won't take it that way. Here goes.]

You're right. But it is impossible for there to exist a free market in the real world. How a "free market works" is in a theoretical setting where very specific assumptions are made for the purpose of analyzing conditions that might exist if those assumptions were true. And, to the extent that those conditions are desirable, the role of policy should be to work to make reality as close as possible to those impossible assumptions.

In fact, I would argue that the assumptions underlying economic theory dealing with free markets are the whole point of the theory. And big problems arise when policymakers (and pretty much everyone else) confuse the economics term "free market" with what they assume to mean "unregulated market." A free market is one in which, among other conditions, there are no transaction costs, no externalities, and where all parties to every transaction have perfect information. It is not an "unregulated market." I won't go on and on here about economic theory of law, my opinions about Coase, and how even very intelligent, educated people seem to completely miss the entire point of economics. But I will say this: Whenever anyone says that they believe in free market economics, you can be 99.9999% certain that, regardless of how smart that person is in every other instance, they are the stupidest person in the world at that very moment.

Seriously, the main reason I never watch political shows other than Colbert and Stewart is that I'm afraid I'll end up in a rage throwing Law & Economics treatises and breaking the TV. In a perfect world, an iron fist would magically punch people in the face whenever they utter the words "free market." [Not you, though ChurchHatesTucker.] That's the sort of invisible hand I could believe in.
posted by The World Famous at 11:53 AM on December 15, 2010 [1 favorite]

The World Famous wrote: "But I will say this: Whenever anyone says that they believe in free market economics, you can be 99.9999% certain that, regardless of how smart that person is in every other instance, they are the stupidest person in the world at that very moment."

I disagree. That statement only applies if they say that they believe in an unregulated free market. I'm a strong believer in said market, but only if there are appropriate regulations in place to prevent abuses caused by monopolies and concealing relevant information.

Also, there are some products and/or services for which no free market can reasonably exist, again necessitating strong regulation. Last-mile telecommunications service is the one I think about most often. It's simply too cost-prohibitive to run more than a few wires to each household, and two or three competitors is simply not enough to let the free market work. This is why I'm strongly in favor of things like open access and/or government-owned FTTP, over which many providers can compete.

Similarly, I think that whenever possible, the best solution to most economic problems is a realignment of incentives in such a way as to bring free market competition to bear on the issue. There are exceptions (like health care, where duplicative administrative costs severely burden the system), but that's the general rule I have in my head when thinking about these things.

There may be a better way, but we humans haven't come up with one yet.
posted by wierdo at 12:22 PM on December 15, 2010

It looks like the abuse of the copyright monopoly goes back further than I realized.

Just one of the many perks of outsourcing production.

In a larger sense, this just reinforces the fact that corporations can engage in arbitrage of labor, etc. while customers cannot. That's not how a free market works.

Unfortunately, it's exactly how a free market works. That's why they call it free market and not free shoppers. Hence, on the one side you've got your Ron Paul (free market libertarian = "industries don't NEED any regulation or oversight from government; they can do it themselves in response to consumer demand"), and on the other side, your Ralph Nader (progressive consumers' advocate = "industries don't WANT any regulation or oversight from anyone; they'd never do it themselves").

This is exactly the fallacy of the free market. It's nice to think that industry would cave to consumer demand, but the fact is, consumers have no actual power whatsoever to force industry to regulate. The only power consumers do have is choice, but consumer's choice is limited by the choices available to them, and who chooses what's made available? Industry. Furthermore, industry won't voluntarily regulate itself, since not only does adherence to high standards result in higher costs and lower profit margins (cutting corners=cutting costs=more profit), but on top of that, self-regulation would itself be an additional expense, which would increase costs and reduce profits even more. To a corporation made up of shareholders whose only motivation for investing is monetary gain, profit is everything. In choosing between fiscal suicide and actual homicide, corporate industry has a natural tendency to pick the latter. That's why government regulation and oversight are absolutely necessary.

Now, in terms of the effects of this case upon the free market, it would appear that it has none. To quote the first sentence of the WikiPedia article on the subject, "A free market is a market in which there is no economic intervention and regulation by the state, except to enforce private contracts and the ownership of property." (Emphasis mine.) This case, which has everything to do with private contracts and the ownership of property, does not impinge on a free market. Besides, it is that very free market which allows Omega to gouge the hell out of American consumers in the first place, since retail price is dictated by what the consumer is willing to pay. In that way, if anything, the ruling could be said to be in favour of the free market.
posted by Sys Rq at 12:24 PM on December 15, 2010 [1 favorite]

I'd follow up on my comment and remark on weirdo's comment, but my computer is now broken and Ronald Coase and Guido Calabresi are mad at me for throwing them across the room at it.
posted by The World Famous at 1:35 PM on December 15, 2010

Hrm. It looks like the abuse of the copyright monopoly goes back further than I realized. (Hair Care products?)

I fail to see what's abusive about it, even though I intensely dislike the current state of copyright law - the repeated retroactive extensions to a term beyond the normal human lifespan is a Bad Thing, and seems to me to be the result of regulatory capture.

But that said, choosing to seek copyright rather than trademark protection does not strike me as an abuse - just unusual. There are tradeoffs: copyright is still technically time-limited, whereas trademarks may exist in perpetuity; infringement on the grounds of similarity means showing derivation rather than the looser trademark standard of dilution; Omega have seemingly refrained from using the graphical device in their marketing or advertising (although they admitted it doesn't really serve a distinct creative purpose, CostCo elected not to argue on that point); copyrights are vulnerable to limited parody and/or fair use limitations which trademarks are not. I find it hard to blame Omega for choosing the option that seems to offer the best protection for its investment, especially given the significant aesthetic aspect of the product.

In a larger sense, this just reinforces the fact that corporations can engage in arbitrage of labor, etc. while customers cannot. That's not how a free market works.

Look, your basic objection here is the diminution of consumer choice, right? You object to Omega segmenting their market and setting different price floors for a fancy watch in different parts of the world. there's a higher nominal cost for you to buy entry into the fancy watch club than there is in a poor country, so dollar for dollar some guy in India is getting a good deal at your expense.

But Omega does not have a monopoly on the sale of watches. If all you want to do is tell time, or indeed wear bling on your wrist, there is a wide variety of options available. You can choose another brand either on its own merits or because the manufacturer eschews such strategies and sells to all comers at the same nominal cost. Why do you think the manufacturer is obliged to offer you their best price? Consider another pricing strategy often used in the luxury market: limited editions. They cost the same to make, but are sold at higher prices because that serves an important social signalling function about wealth and possibly taste - at least, it's important to enough people to make it a viable strategy.

Should manufacturers be required to produce limited-edition pieces in greater numbers? Most people would say no. It would dilute the appeal of their brand, as well as their value to the people who bought them already. If you do not allow manufacturers to limit availability as a means of controlling pricing, then effectively imposing price controls, and a command economy. There are some contexts where this might be justifiable, eg medicines or other essentials of life, where the public has an existential interest in their availability. but if you apply it to private manufacturers, you're essentially commoditizing liberty. If everyone must be given access to the limited edition watch, it's non-mechanical value is quickly eroded. Should we force manufacturers to produce many small runs of watches, so that everyone can own something unusual? No, because to do so would be incompatible with the desire to maintain a minimum level of quality. For all discretionary rather than essential products, you're back to the command economy.

So when it comes to Omega watches and their global market segmentation, the only change here is that you are not getting the price you want. You still have the same choices that you had before: buy it here, buy something else instead, or go where it's cheap and buy it there. With some planning and research, the last options can work out quite well for consumers. It's when someone wants to make more money by arbitraging the difference that the restrictions become onerous. But if someone else is willing to pay Omega a good price for exclusive distribution rights in the USA, why shouldn't they have that freedom? Does CostCo have some moral right to be an Omega distributor? No, they'd have to pay. Do they have a right to a distribution contract even if they're outbid by another wholesaler? No, it's Omega's prerogative to sell for the best price they can get.

So what if CostCo can get it cheaper on the grey market, do they have that right? For products originating inside the US, yes. For those that do not, no. If they do so and Omega does nothing, then Omega's US distributor will sue Omega, arguing that what they paid for was the exclusive distributorship of Omega's product in the US market and that if Omega won't protect that exclusive arrangement, then they took the distributor's money under false pretenses. If the distributor has to compete on price within its territory, then they have no incentive to compete on price when bidding for the distribution rights, and you end up with a race to the bottom. This already happens in many markets; it's central to WalMart's strategy. Because they are so huge it's very very difficult for anyone to compete with them, so WalMart are able to drive supplier margins down to the bare minimum of profitability and treat their suppliers as essentially commodity providers. What they offer in return is possibility of sufficient sales volume to justify those slim margins. Increasing sales typically has much higher marginal costs for the manufacturer than increasing production does: it's a lot easier to satisfy the requests of one person and sell to every WalMart there is than to find and deal with 100 different buyers. CostCo leverages a somewhat similar strategy in a smaller but wealthier market.

Industry vs. The Public (as referenced by several different posters)

Frankly, it baffles me that people who are offended by this decision see, to think that CostCo is some selfless champion of their freedoms. I like CostCo, I shop there some of the time, they are a nice company to deal with. But their business model is to buy stuff at one price and sell it to me and other CostCo customers at a higher price, relying on economies of scale on the buy side and price/information asymmetries on the sell side. I am fine with this, because it meets many of my purchase needs at a low cost in time. But they're not 'on my side' or any such BS.

What's happened here is not some curtailment of rights or victory for industry over the little guy. A trading company tried to circumvent an industrial company's sales strategy for profit, the industrial company exercised its legal rights, and a court agreed it was entitled to sell its own products in the manner of its own choosing. If it had gone the other way then the industrial company would have lost to...a trading company. But because people know, shop at, and appreciate the retail offerings of the trading company, and because the industrial company is made up of arrogant swiss gnomes who demand high prices for their wares, a lot of people are cheering for the trading company. Well, it's true that the trading company in American and provides many jobs in the US, and that Americans in general are good traders and negotiators and salespersons that drive shrewd bargains. But the only people who are actually worse off because of this decision are CostCo shareholders and people who really, really wanted an Omega watch and are going to have to spend more to satisfy their desire this Christmas.

If anyone's idea of a free market is getting the best price in the world on the widest variety of products and with a minimum of friction, then I urge that person to get a job at Walmart - seriously, because such a job offers excellent career potential. These are exactly the skills required to be a commercial buyer, and coupled with enough product and market knowledge then you'll be in the position to negotiate tough deals, on criteria like price, manufacturing conditions, and product safety, and the buying public in the US and other countries will be the beneficiaries of your negotiating skills. This is the mindset required to be a successful commercial trader.

Me, I think we've taken retail as far as we can go, we no longer have a major competitive advantage in low-margin manufacturing, and we need to re-examine our economic and industrial models, as well as our perceptions of some other countries' strengths and weaknesses.
posted by anigbrowl at 4:35 PM on December 15, 2010 [2 favorites]

I think I get it! It's okay to steal a fancy watch from me by charging a price I can't afford even though you could, as you've proven in India, charge a price I can afford and make an honest profit, because a fancy watch isn't something I need.

It's not OK to steal drugs from me by charging more than I can afford when you could charge something I can afford and still make money because I might, like, die or something.

So the moral I will take from this is that when I want to steal something I will make sure it's a luxury item like a watch because then it's OK.
posted by localroger at 6:05 PM on December 15, 2010

It's okay to steal a fancy watch from me by charging a price I can't afford even though you could, as you've proven in India, charge a price I can afford and make an honest profit, because a fancy watch isn't something I need.

How is that stealing a watch from you? You haven't lost anything, and they haven't gained anything. No transaction has taken place. No transaction need ever take place. You can't buy the moon; is the sky stealing from you?

It's not OK to steal drugs from me by charging more than I can afford when you could charge something I can afford and still make money because I might, like, die or something.

Ethically speaking, that is correct. Legally speaking, not quite. And that's why there are social welfare programs like Medicaid.

So the moral I will take from this is that when I want to steal something I will make sure it's a luxury item like a watch because then it's OK.

what
posted by Sys Rq at 6:26 PM on December 15, 2010

(Also, if you need medication but you can't afford it, tell your doctor. They often have free samples and/or coupons, especially for the expensive brand name stuff that's still under patent.)
posted by Sys Rq at 6:31 PM on December 15, 2010

Sys Rq, nobody sold the moon to my neighbor for 1/4 the price they are willing to sell it to me. If you can't understand why that is wrong, I have to wonder what the hell is wrong with you.
posted by localroger at 6:49 PM on December 15, 2010

anigbrowl wrote: "Does CostCo have some moral right to be an Omega distributor?"

Does Omega have some moral right to prevent someone from selling a watch they bought overseas? I say no. Sadly, they apparently have the legal right to do so.

I'm going to be sad when I can no longer get camera gear at a significant discount from gray market suppliers. (some of whom are also authorized resellers, interestingly enough)

anigbrowl wrote: "Frankly, it baffles me that people who are offended by this decision see, to think that CostCo is some selfless champion of their freedoms."

Selfless? No. They do it because they can make money at it. Doing the world an economic good, yes. Arbitrage is great for everyone except those trying to sell things at a different price in different markets that are wholly unrelated to any difference in cost. My SO's mom used to play that game with video game consoles. At one time, it was significantly cheaper to purchase a game console here in the US than in South America, so she'd buy stacks of a particular console from Target or Wal-Mart or wherever and ship them down there and made a decent profit.

Similarly, it's a lot cheaper to buy granite in Brazil than it is here, so a fellow I know buys granite in Brazil and sells it here, again for a tidy profit. Another person I know used to do that with buses in Costa Rica, which were at the time much cheaper to buy here than from a dealer down there. It's a fun game that everyone with small tens of thousands of dollars or so can play and make money at.

Many of us complain about the content industries failing to adapt to changing realities. This is Omega failing to adapt a new, more interconnected, global economy.
posted by wierdo at 7:10 PM on December 15, 2010

But Omega does not have a monopoly on the sale of watches.

Obviously not.

But what we have here is specific goods (watches) being produced (copied) legally, with full approval of Omega. Subsequently they were sold (/transferred. Legally.) And then, within the jurisdiction of the USA, which has (or had?) a first sale doctrine were resold (thus, prior to recent decisions, legally.)

So, yeah, this is not nothing. There's a reason libraries are concerned.
posted by ChurchHatesTucker at 7:22 PM on December 15, 2010

I think I get it! It's okay to steal a fancy watch from me by charging a price I can't afford [...]

This better be part of a screenwriting assignment.
posted by anigbrowl at 7:37 PM on December 15, 2010

Sys Rq, nobody sold the moon to my neighbor for 1/4 the price they are willing to sell it to me. If you can't understand why that is wrong, I have to wonder what the hell is wrong with you.

I never said it wasn't wrong. I said it wasn't stealing, because it isn't stealing, because the consumer doesn't have to buy it. At worst, it's gouging. Just like a can of Sprite costs four dollars at the airport, even though it's fifty cents down the street. Don't like it? Don't buy it. It's entirely your choice. Or, hey, you could get one yourself from the cheap place. (Yes you can!) Is it shitty of them to do that? Of course it is. But it's entirely the seller's prerogative how much to charge for their wares. Many will even let you haggle.
posted by Sys Rq at 10:02 PM on December 15, 2010

Sys Rq, perhaps it's a difference in our backgrounds. The particular industry I work in is the scale industry, as in machines that weigh things. Scales are very tightly regulated; the power to do this is in the Constitution, as the Founders saw consistent weights and measures to be essential for smooth commerce, and one of the easiest ways to "make as much money as possible" is to use a cheating scale.

I have been approached at least once a year by customers who want me to make their scales lie. They are shocked, shocked I tell you when I tell them that not only is this illegal but it's a very old form of fraud. I like to tell people that human beings have been using scales for 5,000 years and trying to cheat them for 4,999.

Because it's so easy to make a scale lie it's illegal even to open up a scale used for commerce unless you possess a license from the state (which I do). The state comes behind me and checks my work to make sure I'm doing my job right. There is a chain of paperwork meant to ensure that a pound for you is the same as a pound for some guy in New York.

Deliberately miscalibrating a scale so that the pounds you buy are heavier than the pounds you sell is stealing. If you are caught doing it you will go to jail. I have twice had to testify in court as part of my job, and one of those was a Federal case against a local scrapyard which was accused of jiggering their weights. (They were acquitted, but it cost them over a million dollars in legal fees.) Since I write software that takes weight data, and that's a particularly easy way to make a scale lie, I'm especially sensitive about the potential for fraud. There are certain things I must never do and that I must be ready to justify to keep the license, the job, and my freedom.

So from that perspective, I see what Omega is doing here as stealing. It is no different than using a differently calibrated scale in India than in the US. It is something I would personally never do, and I consider anybody who would be willing to do it dishonest and untrustworthy, and I regard anybody willing to defend the practice as at best crazy in the way someone might be who is so in favor of laissez-faire caveat-emptor capitalism that they think the state shouldn't regulate scales. They do not understand the chaos they are inviting.
posted by localroger at 5:38 AM on December 16, 2010

It's not stealing. You think it is like stealing.
posted by unSane at 5:43 AM on December 16, 2010

unSane, you could say exactly the same thing about using a cheating scale -- and you'd be wrong as a matter of both custom and law.
posted by localroger at 9:42 AM on December 16, 2010

Seems to me it's more fraud than stealing, although it may be a distinction without a difference.
posted by ChurchHatesTucker at 10:02 AM on December 16, 2010

The mass of an item is an inherent property, and scales are regulated so that both buyer and seller have correct information on what it is they are buying and selling.

But how does this relate to whether a company can or cannot import an item for resale? I am fine comparing apples to oranges, but it seems like this is comparing apples to Ikea bathmats.
posted by zippy at 10:16 AM on December 16, 2010 [1 favorite]

A scale is used to ascertain a fact -- the weight of something. If it's wrongly calibrated, it's leading one party to believe something that isn't true. I've no idea why you think that's like someone overcharging for a watch, when you can check on the internet what it costs elsewhere. It doesn't even rise to the level of shifty, never mind stealing.
posted by unSane at 10:17 AM on December 16, 2010

Does Omega have some moral right to prevent someone from selling a watch they bought overseas? I say no.

I think it depends on the circumstances, doesn't it? I mean, if they have a contractual agreement, for example, do they not have the right to enforce the contract?

unSane, you could say exactly the same thing about using a cheating scale -- and you'd be wrong as a matter of both custom and law.

Show me the law that says that using a cheating scale is "stealing." You're using the word incorrectly and your insistence on that incorrect usage is causing communication problems in this discussion.
posted by The World Famous at 10:55 AM on December 16, 2010

A scale is used to ascertain a fact -- the weight of something.

Yes, and that is exactly why your analogy is bonkers. Price is not "fact" that can be ascertained by a set system of measurements; it's completely flexible, and subject to the whims of the seller. One has a reasonable expectation that a scale will adhere to a universal standard, but there is no expectation that price by weight should be the same everywhere.

You're saying that a store pricing grapefruit at $3/lb is the same as posting a price of $1.50/lb after tinkering with the scales so that everything appears to weigh twice as much. You are wrong. The former is 100% legit (even if the price is ridiculously high), while the latter is 100% fraud.

Are you advocating for universal price-fixing on all goods and services sold everywhere, or what?
posted by Sys Rq at 11:34 AM on December 16, 2010

("You" being localroger.)
posted by Sys Rq at 11:37 AM on December 16, 2010

The World Famous -- people keep bringing up this idea of contracts. That is totally irrelevant to the OP; Omega is not claiming that they have a contract from Costco, they are claiming that they have an absolute right to stop Costco from selling the watches in a way they don't like even though Costco has paid for them and taken delivery and by any standard use of the word "owns" them.

And the precise word used for scale fraud is, well, "fraud." But it's used in a sense most people consider interchangeable with "theft," to the extent that in a lot of places you see both words used (e.g. theft / fraud) to make the relationship plain.

And while it might be a rhetorical flourish to call what Costco is doing theft, it is a fairly precise way to describe the use of fraudulent scales. Let's say that I send you a tractor trailer full of sugar cane which I've agreed to sell you for one dollar a pound, and after you weigh it in and out of your plant you send me a nice piece of paperwork announcing that the load weighed 50,000 lb and a check for $50,000. But unknown to me, because you have jiggered your scale, the load actually weighed 55,000 lb. What happened to my $5,000? I'd say it's fairly precise to say you have stolen it, and if you look at the penalties and how these things are prosecuted the government pretty much agrees.

Now, people keep saying "but you don't have to buy." That is only sometimes true, a notable exception being the very similar universal practices by the pharmaceutical industry. So if it's not stealing because I don't have to buy, does it become stealing when I have to pay 40 times what a Mexican does for the same drug that is necessary for my health?

And if that is stealing, then it's also stealing when you rip me off on the watch, because the law doesn't say it's OK to pick my pocket if all you're taking is bling I don't need. Taking something from me on false pretenses is theft whether I need what you've taken or not. Selling to me at an inflated cost based on some lie about the quantity or nature of your product is theft whether I need your product or not.

And I'd say that Omega's racket here is at least partly based on false pretenses. They aren't the only company that represents their product as being so precious it's worth a fortune because of the elvish pixie dust their Swiss craftsmen use. If Rolex wants to charge ten thousand bucks for a watch, as you say I don't have to buy it. But if I do buy it I'm buying in part an image -- hey guys, this is a ten thousand dollar watch, it's powered by pixie dust and the CEO's daughter's virginity and I got one and you don't.

But AFAIK Rolex doesn't sell their watches at a steep discount in less affluent markets, just because they know people in the other market can pay more. They represent their watches as being worth ten thousand bucks, whether you're Indian or American, and you're free to take or leave that. But Omega is representing to their American buyers that this is a quality status product that's worth the high asking price for whatever reason, except that they then turn around and admit it isn't worth quite that much if you just happen to have a different mailing address.

In my mind -- and I have been doing this a long time -- that is exactly the same as putting my finger on the scale to make it lighter or heavier depending on the clothes my customers are wearing. And that's flatly illegal. It's not a little illegal, it's not kind of sort of like theft. It is theft. It doesn't matter if you're making up for the rich people you rip off by giving away to the poor. It's theft. If I am lying to somebody about what they are getting, and they pay me based on such a lie it's theft. And you might prefer to split hairs on some other word describing it, but you will go to the same jail as the guy who simply put his hand in your pocket and took your wallet if you do it and get caught.
posted by localroger at 11:42 AM on December 16, 2010

Are you also against Shell selling gas for $2.99 at one station and $3.39 by the airport?
posted by zippy at 11:58 AM on December 16, 2010

zippy, I'm against Shell selling gas for $2.99 to you and for $3.39 to me because

• One of us is white and the other is black
• One of us is a man and the other is a woman
• One of us is driving a VW bug and the other is driving a Mercedes
• One of us is handicapped and the other isn't
• One of us has the same religion as the owner and the other doesn't
• One of us has a Louisiana tag and the other has California
• Even though we're in Louisiana my car has California tags and they know the going price is $3.39 in CA
• One of us is pumping into a can and the other into the vehicle gas tank

I'm also against them telling me that as long as their gas is still in my tank they partly own my car and their license agreement doesn't allow me to drive out of state.

You might also note that several of the things on that list used to actually be done pretty commonly, until they were made illegal in the 1960's. Just because a disgusting behavior is legal doesn't mean it isn't disgusting or should be legal.
posted by localroger at 12:20 PM on December 16, 2010

The World Famous -- people keep bringing up this idea of contracts. That is totally irrelevant to the OP

Sorry. I thought, since your comments are totally irrelevant to the OP, my answer to your question with reference to contract law was germane.

Omega is not claiming that they have a contract from Costco, they are claiming that they have an absolute right to stop Costco from selling the watches in a way they don't like even though Costco has paid for them and taken delivery and by any standard use of the word "owns" them.

Actually, that's not what Omega is arguing. It's sort of a hyperbolic misunderstanding of the argument.

And the precise word used for scale fraud is, well, "fraud."

Exactly. And, while scale fraud is actually fraud, selling a product at a different price depending on the market is not even remotely similar to fraud in any way.

And while it might be a rhetorical flourish to call what Costco is doing theft, it is a fairly precise way to describe the use of fraudulent scales.

Well, no, actually. Calling what Costco is doing "theft" is not a rhetorical flourish - it's just incorrect. And "theft" is not a fairly precise way to describe the use of fraudulent scales - it's a rhetorical flourish at best. Fraud and theft are not the same thing. Period.

What happened to my $5,000? I'd say it's fairly precise to say you have stolen it, and if you look at the penalties and how these things are prosecuted the government pretty much agrees.

No. It's fraud. Fraud and theft are not the same thing.

So if it's not stealing because I don't have to buy, does it become stealing when I have to pay 40 times what a Mexican does for the same drug that is necessary for my health?

It's not stealing because it's not stealing under any definition of the word "stealing." Charging you more than you want to pay is not stealing - not matter what. Charging a higher price for a product in one market than in another is not stealing - no matter what the product is.

And if that is stealing, then it's also stealing when you rip me off on the watch

It's not stealing in either instance.

Taking something from me on false pretenses is theft whether I need what you've taken or not.

Neither the drug company nor the watch company is taking anything from you on false pretenses. They are selling a product at a price that you either are or are not willing to pay, with your willingness being influenced by your ability.

Selling to me at an inflated cost based on some lie about the quantity or nature of your product is theft whether I need your product or not.

What lie about the quantity or nature of the product?

But AFAIK Rolex doesn't sell their watches at a steep discount in less affluent markets, just because they know people in the other market can pay more. They represent their watches as being worth ten thousand bucks, whether you're Indian or American, and you're free to take or leave that. But Omega is representing to their American buyers that this is a quality status product that's worth the high asking price for whatever reason, except that they then turn around and admit it isn't worth quite that much if you just happen to have a different mailing address.

Rolex, if it is smart, charges the maximum price for its product that any given market will bear.

In my mind -- and I have been doing this a long time -- that is exactly the same as putting my finger on the scale to make it lighter or heavier depending on the clothes my customers are wearing.

I think you're missing the difference between representing what a product is worth (or the intrinsic properties of the product) and representing what the asking price is for the product. It is not theft for Honda to charge one person more for a car than it charges another person for the same car. On the other hand, it would be fraud for Honda to falsely represent to a customer what car they were buying - to charge for options that are not on the car, for example. When Omega tells American customers that the price of an Omega Seamaster is $2,500, it is not lying to the customer. That really is the price.
posted by The World Famous at 1:19 PM on December 16, 2010

TWF, I suspect we may have entered timecube territory.
posted by unSane at 1:35 PM on December 16, 2010 [1 favorite]

Localroger, I notice that none of your points about the Shell example are about selling gas for one price in market A, and another price in market B.

Like you, I am against companies setting prices based on race. I don't recall that being an issue with CostCo or Omega, though.

Also, I am personally against the interpretation of the First Sale doctrine that allows a copyright issue to prevent sale of an item purchased legally in another country.

But I don't think that either of us are against a company charging different prices in different markets, as in the Shell example where a gas station near the airport charges more than a gas station in town.
posted by zippy at 1:36 PM on December 16, 2010

Localroger, I notice that none of your points about the Shell example are about selling gas for one price in market A, and another price in market B

I guess you missed the one about charging CA rates because of my license plate even though I'm buying in LA?

Look, I'm tired of arguing about this. The whole derail about "stealing" vs "fraud" vs. whatever is irrelevant; if, at the end of the day, the effect is the same as if you had slipped a few hundreds out of my wallet while my back is turned, I reserve the right to call it theft even if the mechanism was more deviously complicated.

Speaking as someone who spends most of my time ensuring the fairness of other peoples' business transactions, and having met far too many people who do not see the problem with buying a 20 lb and 30 lb dial scale, switching the plates, and using one to buy and the other to sell, I see in this practice nothing but fraud and would consider anyone who would do it to be untrustworthy. I am appalled that so many people find the practice worth defending.

There is no absolute right for a company to set whatever price it wants; if you think there is, try doubling the price of your gasoline next time there's a hurricane evacuation going on and see how long it takes for the cops to notice you. Price caps cause other problems which is why there are issues of scale and intent at issue, but it's widely understood that there are limits on what companies are allowed to do and for good reason, because sometimes what makes a company the most people isn't what civilization as a whole really needs them to be doing.

I brought up scales because it was not so long ago that weight and measure fraud was considered relatively minor, in much the same way this sort of racket obviously is today. Changing that took several hundred years and some pretty drastic action. One reason the baker's dozen exists is that shorting was so rampant the only way the crown was able to suppress it was to apply the death penalty to get the merchants' attention. That was pretty harsh but it was a necessary step to make large scale long distance commerce practical.

The current pathological belief that the primary purpose of a company is to make as much money as possible by whatever method available is something else that is going to have to change or it is going to destroy our civilization. Practices like Omega's are a small symptom of a large sickness that was best laid out by the infamous Gordon Gecko speech in Wall Street. Yes, greed can be good but only up to a point. Yes, you can make more money with differential pricing, but as the very first essay I read on the practice lamented, "but one risk is that the customers paying the higher prices will be outraged if they find out." No duh. Look, fellas, if you can feel in your very cells that something is unfair, you shouldn't do it. If we have gained the ability to build a thousand dollar watch but we've lost the wisdom of a five year old, we have not improved our situation.

And that, frankly, is all I'm going to say about this because the whole thing disgusts me, the fact that people I respect for other opinions think this is worth defending disgusts me, and the fact that the highest court in the land couldn't see what a five year old can see disgusts me most of all and I'd rather think about something else.
posted by localroger at 3:50 PM on December 16, 2010

There is no absolute right for a company to set whatever price it wants; if you think there is, try doubling the price of your gasoline next time there's a hurricane evacuation going on and see how long it takes for the cops to notice you.

Generalizing from a good which is essential to survival in a time of emergency where there is a question of public order, to a luxury item like a watch is, quite frankly, bonkers.
posted by unSane at 4:04 PM on December 16, 2010 [1 favorite]

Psh. Don't even get us started on the moral implications of sale prices! Woot, we're coming after you next.
posted by The World Famous at 4:15 PM on December 16, 2010

If, at the end of the day, the effect is the same as if you had slipped a few hundreds out of my wallet while my back is turned, I reserve the right to call it theft even if the mechanism was more deviously complicated.

True. But this is not at all the case if you're voluntarily initiating a transaction in which you voluntarily exchange currency for nonessential goods and/or services. There is a word for that, but it's not "stealing." It's called shopping.

Besides, what did you do to acquire your money in the first place? Did you do long hours of hard labour for minimum wage, or did you make millions sitting on your ass all the livelong day? In the former scenario, $1000 is a fortune; in the latter, $1000 is a mere scrap of paper. The value of currency varies from person to person; charging on a sliding scale takes that into account.

If anything, between a sliding scale and a standard price, it's the standard price that's more like stealing.
posted by Sys Rq at 5:46 PM on December 16, 2010

Yes, you can make more money with differential pricing, but as the very first essay I read on the practice lamented, "but one risk is that the customers paying the higher prices will be outraged if they find out." No duh. Look, fellas, if you can feel in your very cells that something is unfair, you shouldn't do it.

I have absolutely no problem with it unless a company is deliberately misleading me to believe otherwise. If I owned an Omega watch, I would not feel it is worth less now just because it was sold for less somewhere else. The reason why is that I if there's different pricing in different markets, the question I ask myself is 'how long would it take me to earn the money to buy this thing in one place or the other?'.

Say I like a particular model, and the price it's sold at here is equivalent to one week's average income. OK, that's about 2% of my annual income, a goodly amount. Now I see it is sold at (say) half that price in India. But maybe people doing my job in India would need to work two weeks, instead of a week, to make the purchase, even at the reduced price. If so, it's relatively expensive in India - not in nominal dollars, but in terms of people's relative purchasing power. A person must work twice as hard over there to get the money to buy one of these things. The watch is sold for a lower amount, but the people in that market look at me in the US and think I am paid a staggeringly high amount of money compared to them. I seriously doubt India is full of Omega-wearers laughing up their sleeves about how much the Americans are getting screwed because the same watch is sold for a higher price here. Of course, it's not my fault or yours that Indians are paid much less than people in America for performing the same amount of work. But it's not Omega's fault either. In most cases, pricing strategy is about splitting the difference between the two markets so that the product will sell in about the same proportions relative to the population as it would elsewhere. That means a nominal discount for Indians, but the downside of this discount is that they have to be in India to get it, and India a country with a less developed economy by most people's standards.

From what I hear about India, your job may not even exist over there; since corruption is endemic, there may not be a very strong market for accurate weights. I suppose you could treat it as a business opportunity, and open your firm's first Indian office, if it doesn't have one already. Maybe a foreign company's reputation for accuracy would be valued at a premium. Then you could buy cheaper watches too.

I know it's priced differently and don't find that unfair. They're not hiding it from me or lying to me. I do not feel deceived because I do not treat price as a meaningful signal about anything except the amount the retailer is hoping to sell it for. When I go to the movies, I sometimes buy a soda. It costs an exorbitant amount. Do I think it's any way better than the soda I could buy at a corner store or the supermarket? No. I know it's laughably overpriced because of the convenience. Same with the beer at a baseball game - they're gambling I want the beer enough not to leave the stadium or go to the effort of sneaking it in. Sometimes they're right. I'm not being deceived when I know this before I pay, and I sure don't think I'm going to get better beer for the extra money. Usually I don't which means the people who have a beer at every game are subsidizing the cost of my ticket slightly.

Restaurants charge more for food or a beer than I could pay at the supermarket. Usually I'm OK with this too. If a restaurant surprises me by charging an uncommonly high price, then I'm annoyed unless it was very obvious at the time I ordered. In a case like that I express my unhappiness verbally or with a note to the manager, and don't go back for a very long time, or maybe ever. If they persist in charging excessively high prices to their customers, they'll probably go out of business once word gets around.

It baffles me how you insist that once someone buys a thing they should be able to do anything they want with it (as Costco argued), but then you say a company has no right to set the price it wants. The manufacturer owns a copyright because they created the thing they're selling. By law they have the right to make decisions about distribution because that is considered a fundamental element of copyright. And different countries have agreed to respect and uphold each others' copyright laws by treaty, even when they are somewhat different from ours. Courts in Switzerland will uphold copyright on a US work for the full 95 year term after the death of the author even though Swiss copyright only lasts 50 years. Tough luck for Swiss publishers of American IP, but there it is.

Republishing a work without permission is copyright infringement, and the government will step in to prevent you doing it. Redistributing a copyrighted work without authorization is also copyright infringement, unless it was created in the US and you purchased it legally. Not created in the US? Then US copyright law does not apply, and redistribution is an infringement, just like republication. What matters is not where you bought it, but where it was made. Nobody cares about this in regards to individual consumers who buy something in one place and sell it later somewhere else, but distribution is different, just like publication is different.

Why is this so hard to understand? For all your complaints about greed, why is it that Costco's choice to ignore the law is just fine, even though they're a considerably larger company than Omega?
posted by anigbrowl at 5:47 PM on December 16, 2010 [1 favorite]

I guess you missed the one about charging CA rates because of my license plate even though I'm buying in LA?

No, I didn't miss that, it just had nothing to do with the Shell example.

Shell sells gas for one price by the airport, another in town.

Is this example, without additional complexities or imagined scenarios, OK, or is it theft?
posted by zippy at 6:46 PM on December 16, 2010

Redistributing a copyrighted work without authorization is also copyright infringement, unless it was created in the US and you purchased it legally.

So, no more imported records, no more foreign books in the library, and no more overseas purchases.

Good thing this decision didn't really change anything.
posted by ChurchHatesTucker at 7:40 PM on December 16, 2010

Redistributing a copyrighted work without authorization is also copyright infringement, unless it was created in the US and you purchased it legally. Not created in the US? Then US copyright law does not apply, and redistribution is an infringement, just like republication. What matters is not where you bought it, but where it was made.

In this case, the issue was where the item was initially sold.

I think Omega could have manufactured the items in the US and then shipped them to a watch store in India for the initial sale, and CostCo would still be the loser; it's was the legal purchase - the first sale - and foreign jurisdiction over that event that gummed up the works.

Is there other case law that comes into play depending on where the item was manufactured?
posted by zippy at 7:54 PM on December 16, 2010

So, no more imported records, no more foreign books in the library, and no more overseas purchases.
Right. And because the rest of the world does not have the first sale doctrine, there are no libraries and everybody is afraid to ever buy anything from another country so nobody does that. Stores dealing in used books, CDs, etc. are forbidden and their owners are executed by sniggering bureaucrats.

Back in reality, EU directives have ironed out those differences by harmonizing resale and lending rights, in order to simplify compliance with the Berne Convention. The convention grants copyright holders a resale interest, but only for original works of art and manuscripts. There are special rules to protect distributor territories for movies and music sales and software. Swiss copyright law is being revised; mainly to make it compatible with the EU, but the process is somewhat slow because some want different rules that they say would benefit the Swiss art market. Most countries are in the Berne convention, or its antecedent, the Universal Copyright Convention, which allows resale, or have some kind of reciprocity arrangement with the US to facilitate the existence of after-sales or importation in the absence of a distribution arrangement - the few countries that don't either don't have diplomatic relations with the US or are not fully functioning states.

For the last time, the law has not suddenly changed. This is how things already were.

I think Omega could have manufactured the items in the US and then shipped them to a watch store in India for the initial sale

Well, as soon as goods leave a factory in exchange for money it'd be considered a sale, I think. Everyone seems to agree that roundtripping like this is not a true foreign importation, regardless of whether 'made' is interpreted to refer to manufacture or sale.
posted by anigbrowl at 1:18 AM on December 17, 2010

Well, as soon as goods leave a factory in exchange for money it'd be considered a sale, I think.

I should have been clearer in my example - I was thinking of an outsourced factory example, like Foxconn making computers for Apple.

I am way out of my depth here, but I imagine that the sale of the item from contractor to customer (factory to Omega subsidiary, as opposed to Omega to watch shop) doesn't trigger first sale for copyright purposes if the factory owner does not hold the copyright. I would imagine similar cases would hold for a company that does the printing of a book for a publisher.

In this fantasy example (which may or may not hold in reality, I have no idea) Omega could have the watches made in the US and ship them to Omega India for delivery to watch shops for sale to final customers, and the transfer from US to India itself wouldn't trigger the First Sale as the purchase (if any) was not made from the copyright holder.

Here, and under the ruling by the 9th circuit court, I think where the item is made doesn't matter, only where the first sale (from the copyright holder to another party) does.

But there may be other case law or statutes that do hinge on where the item was made.
posted by zippy at 2:02 PM on December 17, 2010

Oh, I see what you're driving at. I'm not sure because I have not studied much commercial law yet. My guess is that a wholly owned subsidiary manufacturer/subcontractor would be treated like a sales agent of the parent if it shipped direct to the buyer.

If goods went back to the parent and were always stored and shipped from there, never direct, then first sale might not apply. Maybe that would happen with some special industrial process not available anywhere but the US, and valid agreements between the owner, subcontractor and US distributor. That's called re-export or entrepot trade, usually it takes place in special duty-free zones. You can get a license for re-export but that's for compliance with technology export restrictions. As far as copyright goes, your guess is as good as mine.
posted by anigbrowl at 4:49 PM on December 17, 2010

zippy wrote: "I should have been clearer in my example - I was thinking of an outsourced factory example, like Foxconn making computers for Apple."

And if Foxconn sold "extras" to third parties, that would be an example of counterfeit goods. That's not what happened in the case we're discussing.
posted by wierdo at 5:20 PM on December 17, 2010

Stores dealing in used books, CDs, etc. are forbidden and their owners are executed by sniggering bureaucrats.

Wheaton's Law, dude.

I'm going to skip over how the Berne Convention is a game of ever-ratcheting leapfrog and just point you at the Amicus Brief (PDF) that three library associations filed in this case.

The tl;dr version is Amici library associations respectfully request the Court to reject the Ninth Circuit’s interpretation, and instead hold that copies “lawfully made under this title” means “copies manufactured with the law- ful authorization of the holder of a work’s U.S. re- production and distribution rights.” Which I would argue is the common-sense reading (and was entertained by the court in the Pearson ruling Sys Rq cited above.)
posted by ChurchHatesTucker at 5:27 PM on December 17, 2010

The moment someone creates something, they gain a copyright interest in it. That includes the work's US reproduction and distribution rights, which exist without any requirement to first register the work with the copyright office - a change to the way US copyright used to work, that helped to delay US ratification of the Berne convention until 1988. That doesn't mean US copyright now extends to every other signatory of the Berne convention, any more that it means every other signatory's legal code may be imported.

That amicus brief...look, I really don't want to spend 2 hours explaining everything I think is wrong with it on a Friday evening in a thread that's been running all week. I'll limit myself to the observation that the argument opens with a five-page paean to the history and importance of libraries in the United States, without once stopping to consider the fact that libraries exist in other countries too, and have existed since ancient times. Lending libraries existed in England before the United States even existed, and there was a nationwide public library system founded by law there decades before the American Library Association or modern Library of Congress came into legal existence. Europe has many beautiful libraries, some of which are centuries old. Somehow they have all managed to function despite the absence of the first sale doctrine without being buried under lawsuits from publishers. But reading this brief, you'd think the only libraries in the world were the ones that exist here. GMAFB.

It goes downhill from there. By page 20 the brief is arguing that even though there is a statutory guarantee that libraries can import books for library lending purposes, a court might interpret this to mean libraries which import a book for lending purposes might not be allowed to lend it after they import it. Yes, it continues, this would not make any actual sense, but a court might erroneously conclude that anyway. This is sycophantic flattery, nothing more.

By page 30 any attempt at subtlety has been abandoned and the brief is openly lobbying for Us copyright law to apply to anything that has ever been legally sold to an American buyer, although article 5.4 of the Berne convention states clearly that the copyright law governing a particular work is that of its country of origin, and the country of origin is wherever the work is published first. Any additional benefits arising out of reciprocation under that treaty provision accrue to authors or their assignees, not to consumers.

I don't know what to say. the guy who wrote this is super well-qualified and experienced, a lawyer of national standing, and other material of his that I've looked at is thought-provoking and interesting. I'm some nobody who hasn't spent a day in law school. I appreciate that his job in a brief is to make the strongest arguments he can think of to advance the interests of his clients, the various library associations who are worried about the implications of this case. I am totally unqualified to critique this man's work. But...what can I say, this is not very persuasive.
posted by anigbrowl at 6:45 PM on December 17, 2010

The moment someone creates something, they gain a copyright interest in it.

Well, since '78 anyway. Stupidest thing in copyright ever. That's when shit started to really go off the rails.

By page 20 the brief is arguing that even though there is a statutory guarantee that libraries can import books for library lending purposes, a court might interpret this to mean libraries which import a book for lending purposes might not be allowed to lend it after they import it.

The word you're looking for is transfer. That's what libraries do. That's why they're concerned.
posted by ChurchHatesTucker at 7:43 PM on December 17, 2010

In this brief, transfers are something that happens between copyright holder and territorial licensee, with no libraries in sight. What he actually wrote, which you think should be called a transfer:

Second, although the exception clearly permits a library to import five copies for “its library lending or archival purposes,” the exception by its terms does not actually permit the library to lend those copies. [...] It would make no sense for Congress to allow importation for the purpose of lending, but then not allow the lending itself. Nonetheless, a court might erroneously conclude that Section 602(a)(3)(C) does not explicitly permit the lending of the imported copies.

...I paraphrased fairly, I think. Plainly we are just not going to agree on this, but the remedy you and/or the amici seek is better sought from Congress than the Court.
posted by anigbrowl at 12:09 AM on December 18, 2010