Combatting Gray Markets: A Copyright-Protected Distribution Right or a Sherman Act Violation?

At one time, the prospect of stating legal claims against gray market importers looked bleak.  Product manufacturers tried trademark protection, but trademark law proved disappointingly unsuccessful.  One company has now turned to copyright protection, and this company obtained a Ninth Circuit decision that found a store using a gray market importation scheme unable to raise a defense to copyright infringement.  The company is Omega S.A., a Swiss luxury watch manufacturer known for producing the Seamaster line of watches appearing in many James Bond films, and the case is Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982 (9th Cir. 2008). In spite of Omega’s favorable Ninth Circuit judgment and opinion,  market-wide legal questions about Omega’s distribution practice remain.  Regardless of whether or not a manufacturer could state a claim for copyright infringement against gray marketers, infringement defendants may answer back by counterclaiming an antitrust violation.  And if an antitrust counterclaim can halt copyright enforcement, then Omega’s win at the Ninth Circuit would end up a hollow victory at best or an academic stroll through the Copyright Act at worst.

Here are the facts of Omega v. Costco.  Omega maintains a tight grip on its authorized distribution channels.  Omega attempted to gain control of its watches’ distribution by engraving a design on the back of its watches (pictured below) and registering this design at the U.S. Copyright Office. Omega sold watches with these designs to their authorized distributors.  Somewhere along the distribution line, however, the watches ended up in the hands of distributors outside of Omega’s authorized channels abroad.  As the Ninth Circuit recognized, this is a paradigm gray market importation scheme, in which products meant to be sold in one territory are imported into another, usually for cheaper prices. One of Costco’s suppliers based in New York imported watches from these unauthorized distributors and eventually transferred the watches to Costco, which then sold these watches to its customers in California. One of those purchasing customers turned out to be a plant employed by Omega.

Omega then sued Costco for violating their exclusive right to distribute  its copyrighted works and for importing them without Omega’s authorization.  Costco asserted the first-sale defense, arguing that Omega’s right to control the distribution of its watches under both the distribution and importation statutes ends with its first transfer to its authorized distributors.  Costco v. Omega’s ending at the Supreme Court was a bit anticlimactic, with the U.S. Supreme Court evenly divided 4-4 (Justice Kagan didn’t take part in the non-decision).  This led to a summary affirmance of the Ninth Circuit’s decision below and no rule from the Supreme Court resolving the statutory tension in the Copyright Act.

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SCOTUS Takes Another Case on Right to Counsel in Collateral Proceedings

For the second time this month, the Court has granted certiorari in a case dealing with the right to counsel in collateral proceedings.  The first case, Martinez v. Ryan (see my post here), concerns a potential constitutional right to counsel in a collateral proceeding in state court.  The new case, Martel v. Clair (No. 10-1265), deals with a potential statutory right to counsel in a federal habeas case.

Here’s what happened.  Convicted of murder and sentenced to death in state court, Clair filed a federal habeas petition.  After discovery and an evidentiary hearing, Clair complained to the district court regarding the quality of his appointed federal public defender.  It seems that Clair and his lawyer then patched up their relationship, but a couple months later Clair again wrote to the district court and asked for the appointment of substitute counsel to pursue new leads supporting an innocence claim.  The district court denied the request in a brief order and, on the same day, denied all of the claims in the underlying petition.  On appeal, the Ninth Circuit then vacated the judgment below on the ground that the district court had abused its discretion by failing to conduct further inquiry into Clair’s complaints about his public defender.  The Supreme Court granted the state’s petition for certiorari yesterday.

At one level, the Ninth Circuit’s decision seems a very modest one that hardly warrants Supreme Court review.

 

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The Right to Violent Video Games

This week, the U.S. Supreme Court struck down a California law banning the sale of violent video games to children.  In Brown v. Entertainment Merchants Association, 564 U.S. 1 (2011), the Court held that the First Amendment right to free speech protects the video games.  As I predicted last November in a blog post on the oral argument in this case, Justice Scalia did not favor upholding the law, and indeed he wrote the majority opinion, which was joined by Justices Kennedy, Ginsburg, Sotomayor, and Kagan.  Justice Alito and Chief Justice Roberts wrote a separate opinion, concurring in the judgment, while only Justices Thomas and Breyer dissented.

So what’s to like – or at least protect – about violent video games?  The opinion is clear that video games are protected by the First Amendment.  Although the Court notes that the Free Speech Clause exists primarily “to protect discourse on public matters,” it has long been “recognized that it is difficult to distinguish politics from entertainment, and dangerous to try.”  The Court notes that there are plenty of examples of political commentary or even propaganda to be found in fiction.  The Court goes on to state that last term’s opinion in United States v. Stevens controls.  Stevens struck down a statute that criminalized the creation, sale, or possession of specified types of depiction of animal cruelty, and Scalia summarized the holding thusly: “new categories of unprotected speech may not be added to the list by a legislature that concludes certain speech is too harmful to be tolerated.” (564 U.S. at 3)  Here, the California legislature tried to characterize the regulation of violent video games as dealing with a type of obscenity, and the majority states that violence is different from obscenity, and therefore it is irrelevant that Ginsberg v. New York allowed the state to apply an age-adjusted standard for its restriction on the sale of obscene materials to minors.  The Court says that California tried “to create a wholly new category of content-based regulation that is permissible only for speech directed at children.”  “That,” says the Court “is unprecedented and mistaken.” (564 U.S. at 7)

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