The first U.S. copyright statute gave the copyright proprietor "the sole right and liberty of printing, reprinting, publishing, and vending. ..." Cases involving the copyright proprietor's attempt to control the material object after it has been vended confirm that the first sale doctrine derives from the common law right of alienation of personal property.*

The first recognition of the separation of the exclusive right to vend from the material object appears to have arisen in 1852 in the case of Stephens v. Cady." In that case, a map engraver brought a copyright infringement action against the purchaser of engraving plates, which had been seized from the engraver to satisfy a debt, and sold at a sheriff's auction. While the purchaser's ownership of the engraving plates was not contested, the engraver asserted that the use of the plates to print maps for public distribution constituted infringement of his copyright in the maps. The Supreme Court agreed, and held that the copyright was "wholly independent of, and disconnected from, the engraved plate" and there was "no foundation for the defenses"...that the copyright "passed as appurtenant to sale and transfer of the property, in the engraved plate.

"6

Two years later, due to technical reasons, the issue was reargued before the Supreme Court in Stevens v. Gladding." The Court reaffirmed that the right to vend copies of the map did not pass with the sheriff's sale of the engraving plates.

The issue of validity of conditions against alienation was raised in Harrison v. Maynard, Merrill & Co. In that case, unbound pages of the plaintiff's copyrighted book were damaged in a warehouse fire. The pages were sold as salvage under an express condition that the pages were not to be resold. Despite this condition, an enterprising used book dealer purchased the pages, had them bound, and began selling copies of the books. The copyright owner brought an infringement action, citing the condition against resale. The Second Circuit concluded that the plaintiff had no remedy under the copyright law: 9

So long as the owner of a copyright retains the title to the copies of the book which he has the exclusive right to vend by virtue of the copyright, he can impose restrictions upon the manner in which and upon the persons to whom the copies can be sold.... This right to enjoy the benefit of the copyright statutes results from the fact that the owner has never parted with the title to the book or the copyright, although he parted with the possession of the book. But the right to restrain the sale of a particular copy of the book by virtue of the copyright statutes has gone when the owner of the copyright and of that copy has parted with all his title to it, and has conferred an absolute title to the copy upon purchaser, although with an agreement for a restricted use. The exclusive right to vend the particular copy no longer remains in the owner of the copyright by the copyright statutes. The new purchaser cannot reprint the copy. He cannot print or publish a new edition of the book; but the copy having been sold to him, the ordinary incidents of ownership in personal property, among which is the right of alienation, attach to it.

In perhaps the most famous early case on the first sale doctrine, Bobbs-Merrill Co. v. Straus, 10 the Supreme Court was asked to rule on the validity of a seller's restraint on the retail price of the copyrighted work. The copyright owner in this case chose to publish a novel with a notice requiring a retail price of one dollar. When Macys began selling the novel for 89 cents, a copyright infringement was brought. The Court concluded that the exclusive right to vend as established by the copyright law did not include "the right to impose, by notice... a limitation at which the book shall be sold at retail by future purchasers, with whom there is no privity of contract." 11 Accordingly, the copyright infringement action was dismissed. B. Statutory Developments.

3 Id.

See, Nolan, "All Rights Not Reserved After the First Sale," 23 Bull. Copyright Soc. 76 (1975). 55 U.S. (14 How) 528 (1852).

•Id. at 532.

758 U.S. (17 How) 447 (1854).

861 F. 689 (2nd Cir. 1894).

Id at 690-91 (italic added).

10 210 U.S. 339 (1908). 11 Id. at 350.

1. The exclusive right to vend.

Although the first copyright statute contained no provision that established a first sale doctrine, it did give the author the exclusive right to vend his or her work. 12 The 1909 Act gave the author the exclusive right to "print, reprint, publish, copy and vend the copyrighted work...," 13 and the 1947 codification used the same language.14

The current copyright law does not use the word vend in its listing of exclusive rights. Instead, section 106(3) grants a right of public distribution:

(3) To distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending.

One commentator has observed that elimination of the word "vend" and substitution of specific types of conveyances avoids the vague generality of the single word and extends these conveyances to rental arrangements not included as part of the previous vending monopoly.15

2. Codification of the first sale doctrine.

The first sale doctrine was originally added to the copyright statute in the 1909 Act. It provided:16

That the copyright is distinct from the property in the material object copyrighted, and the sale or conveyance, by gift or otherwise, of the material object shall not of itself constitute a transfer of the copyright, nor shall the assignment of the copyright constitute a transfer of the title to the material object; but nothing in this Act shall be deemed to forbid, prevent, or restrict the transfer of any copy of a copyrighted work the possession of which has been lawfully obtained.

The 1947 Act renumbered this provision as §27 but did not amend the contents of the provision itself.17

The first sale doctrine is now embodied in section 109 of the current copyright law. Section 202 (ownership of copyright distinct from ownership of material object) and section 204(a) (requirement of a writing to transfer copyright ownership) are related provisions.

C. Copyright Law Revision 1964-1976.

Until 1976, Congress did not make any change in the wording of the first sale doctrine. The first sale doctrine was revised in the 1976 Copyright Act principally to clarify that the copyright owner retains a right to control rentals if ownership of the particular copy is not transferred, as was generally the case in 1976 with theatrical motion pictures, for example, Outside of a failed effort by the Authors League to establish a public lending right, 18 there was little discussion of the first sale doctrine in the revision effort. As a result, the primary thrust of the 1976 Copyright Act was to preserve the first sale doctrine along the lines it had developed through the years. This general purpose was made clear by the respective Congressional Reports providing as follows:19

Section 109(a) restates and confirms the principle that, where the copyright owner has transferred ownership of a particular copy or phonorecord of his work, the person to whom the copy or phonorecord is transferred is entitled to dispose of it by sale, rental, or any other means. Under this principle, which has been established by the court decisions and section 27 of the present law, the copyright owner's exclusive right of public distribution would have no effect upon anyone who owns a particular copy or phonorecord lawfully made under this title and who wishes to transfer it to someone else or to destroy it.

D. Modifications in the First Sale Doctrine with respect to Sound Recordings and Computer Programs.

While the first sale doctrine went largely unchallenged during the lengthy copyright revision process, since 1976 copyright owners have been successful in limiting

12 Act of May 31, 1790, supra note 1.

13 Act of March 4, 1909, ch. 320, § 1, 35 Stat. 1075.

14 Act of July 30, 1947, ch. 391 § 1, 61 Stat. 652.

15 Note, "Copyright Reform and the Author's Right to "Vend": The Case of the Unpaid Manufacturer," 10 Ind.L.Rev. 507, 526 (1977).

16 Act of March 4, 1909, ch. 320 § 41, 35 Stat. 1084.

17 Act of July 30, 1947, ch. 391 § 1, 61 Stat. 652.

18 1965 Revision Bill with Discussions and Comments, Copyright Law Revision, Part 5, 61 (Comm. Print 1965).

19 H.R. Rep. No. 94-1476, 94th Cong. 2d Sess. 79 (1976); Sen. Rep. No. 94-473 71 (1975).

the first sale doctrine in instances where they demonstrated that commercial lending fostered illegal reproduction. As a result, the first sale doctrine has been statutorily curtailed with respect to commercial lending of sound recordings and computer programs.

1. The Record Rental Amendment of 1984.

Copyright owners were successful in securing passage of the Record Rental Amendment of 1984,20 because they made a convincing case that commercial lending of sound recordings was intended to foster unauthorized reproduction of sound recordings. On this point, the House Report provided as follows:21

At present, according to industry estimates, there are approximately 200 commercial record rental establishments in the United States. Testimony before this Committee's Subcommittee has indicated that these establishments rent phonorecords for 24 to 72 hours for fees of $.99 to $2.50 per disc. Frequently blank audio cassette tapes are sold in the same establishment. One such establishment advertised, "Never, ever buy another record."

The direct link between the commercial rental of a phonorecord and the making of a copy of the record without the permission of, or compensation to, the copyright owners was the economic and policy concern behind this legislation. The Subcommittee found that the nexus of commercial record rental and duplication may directly and adversely affect the ability of copyright holders to exercise their reproduction and distribution rights under the Copyright Act.

The amendment provided an exception to the first sale doctrine by inserting a new provision in section 109 of the copyright law providing as follows:

Notwithstanding the provisions of subsection (a), unless authorized by the owners of copyright in the sound recording and in the musical works embodied therein, the owner of a particular phonorecord may not, for purposes of direct or indirect commercial advantage, dispose of, or authorize the disposal of, the possession of that phonorecord by rental, lease, or lending, or by any other act or practice in the nature of rental, lease, or lending. Nothing in the preceding sentence shall apply to the rental, lease, or lending of a phonorecord for nonprofit purposes by a nonprofit library or nonprofit educational institution.

In addition, the amendment created a sunset provision providing for the termination of the prohibition against commercial lending of sound recordings after five years from the date of enactment. In 1988, Congress reaffirmed the prohibition by providing for termination of the provision after 13 years from the date of enactment,22 that is, 1997.

2. Computer Software Rental Amendments Act of 1990.

In 1990, the exception to the first sale doctrine was reconfigured to expand the prohibition to include commercial lending of computer programs.23 Again, copyright owners had successfully made the case that commercial lending of computer software fostered unauthorized reproduction.24 The reconfigured exception reads as follows:25

Notwithstanding the provisions of subsection (a), unless authorized by the owners of copyright in the sound recording or the owner of copyright in a computer program (including any tape, disk, or other medium embodying such program), and in the case of a sound recording in the musical works embodied therein, neither the owner of a particular copy of a computer program (including any tape, disk, or other medium embodying the program), may, for the purposes of direct or indirect commercial advantage, dispose of, or authorize the disposal of, the possession of that phonorecord or computer program (including any tape, disk, or other medium embodying such program) by rental, lease, or lending. Nothing in the preceding sentence shall apply to the rental, lease, or lending of a phonorecord for nonprofit purposes by a nonprofit library or nonprofit education institution. The transfer of possession of a lawfully made copy of a computer program by

20 Act of October 4, 1984, Pub. L. 98-450, 98 Stat. 1727 (1984).

21 H.R. Rep. 98-987, 98th Cong. 2d Sess. 2 (1984).

22 Act of November 5, 1988, Pub. L. 100-617, 102 Stat. 3194 (1988).

23 Computer Software Rental Amendment Act of 1990, Pub. L. 101-650, 104 Stat. 5089, 5134, (1990).

24 136 Cong. Rec. H 13314-15 (daily ed. Oct. 27, 1990) (statement of Rep. Kastenmeier). 25 Currently codified as 17 U.S.C. § 109(bX1XA).

a nonprofit educational institution to another nonprofit educational institution or to faculty, staff, and students does not constitute rental, lease, or lending for direct or indirect commercial purposes under this subsection.

The computer software amendments excluded from the prohibition against commercial lending the following: programs embodied in machinery that were incapable of being copied through ordinary operation or use;26 certain programs embodied in video games;27 and programs containing a warning of copyright that were lent by nonprofit libraries.28 The amendments continued the sunset policy by providing for the termination of the commercial lending prohibition on October 1, 1997.

The Act temporarily overturned the Fourth Circuit's decision in Red Baron-Franklin Park. Inc. v. Taito Corp.,29 which began as a first sale doctrine case. The court found infringement by violation of the public performance right. By amendment of section 109 in a new paragraph (e), Congress provided an exemption to the owner of a lawfully made copy of a video game for the public performance or public display of an electronic audiovisual game intended for use in coin-operated equipment. This exemption is in effect from December 1, 1991 until October 1, 1995.

III. THE UNITED SATES DISTRIBUTION RIGHT AND PARALLEL IMPORTATION

The United States case law regarding the exclusive right of distribution provided by the copyright law reflects the unique character of this right. It deals not with a copying, or reproduction, but with the disposition of tangible objects comprising copyrighted works. To this extent, it is an ancillary right to those that restrict copying, Parallel importation is the importation of goods in a country outside their normal channels of distribution. Such importation occurs in both copyright and trademark contexts.

In the United States, the courts have had some difficulty in applying the statutory law and legislative history involving the relevant provisions of the copyright statute-Section 106(3),30 the right of distribution; Section 109(a),31 the statutory limitation on the copyright owner's right of distribution following authorized first sale; and Section 602(a)32 the right of importation, the copyright owner's right to authorize the importation of copyrighted works acquired outside the United States.

The courts also recognize a broader context for copyright actions brought to restrict parallel imports. Owners of copyright property now seek to accomplish trademark objectives by preventing gray market products from entering unauthorized streams of commerce.33 This has become increasingly difficult on pure trademark grounds since the Supreme Court has not extended to trademark owners the right to exercise exclusivity in directing the trademarked products to certain markets.34 Columbia Broadcasting System, Inc. v. Scorpio Music Distributors, Inc., 35 the leading copyright case, holds the unauthorized importation of copyrighted works acquired outside the United States will constitute a copyright infringement under Section 602(a). The plaintiff charged that without its consent, Scorpio imported phonorecords that contained its copyrighted sound recordings. Defendant alleged that the phonorecords, manufactured in the Philippines by an authorized party, were lawfully made and thus did not infringe any reproduction right. The district court had found that the importation of these phonorecords infringed the U.S. copyright owner's exclusive right of distribution.

In its analysis, the Scorpio court reveals the interplay between the copyright owner's exhaustion of any further right to control distribution after first sale and the copyright owner's right to authorize importation of its copyrighted works. The legis

28 17 U.S.C. § 109(bX1XBXi).

27 17 U.S.C. § 109(bX1XBXii). 28 17 U.S.C. § 109(bX2XA).

20 883 F.2d 275 (4th Cir. 1989), cert. denied, 493 U.S. 1058 (1990).

30 Section 106 provides, as one of the exclusive rights in copyrighted works that: "Subject to sections 107 through 120, the owner of copyright under this title has the exclusive rights to do and to authorize any of the following: to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending."

31 This section provides: "(a) Notwithstanding the provision of section 106(3), the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of the copy or phonorecord."

32 Section 602(a) states that: "Importation into the United States, without the authority of the owner of copyright under this title, of copies or phonorecords of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies or phonorecords under section 106, actionable under section 501."

33 Neutroena Corp. v. U.S., 7 U.S.P.Q. 2d 1900 (D.S.C. 1988).

34K-Mart Corp. v. Cartier, 488 U.S. 281, 290 (1988).

36 569 F. Supp. 47 (E.D.Pa. 1983), aff'd mem. 738 F.2d 424 (3d Cir. 1984).

lative history bans importation of works acquired outside the United States in two separate situations-where copies or phonorecords are made without copyright owner authority and where copies or phonorecords are lawfully made but their distribution would infringe the U.S. copyright owner's exclusive rights.36

Defendant had pointed out the incongruence of sections 602(a) and 109(a), and urged the court to consider section 109 "perhaps in a manner that circumscribes the apparent intent of Congress as reflected by the express language of Section 602 and its legislative history." The court declined to construe the legislative history in the manner suggested by defendant, noting that such a construction would vitiate section 602, leaving it "virtually meaningless."

The court decided that the importer could be held liable for infringing importation because the language in section 109 "lawfully made under this title," means that copies or phonorecords were made and distributed in the United States. Since these phonorecords originated in the Philippines, the distributors were not entitled to claim a section 109 exemption and thus were infringing importers.

Scorpio held further than even if the defendants themselves had not brought phonorecords into the United States, but rather received the phonorecords as the importer's transferee, anyone in the chain of distribution could be held contributorily liable for the importation.

In CBS v. Casino Records Distributors,38 defendant was found guilty of willful copyright infringement. The court, acknowledging a parallel import problem, did not focus on whether or not the manufacture of phonorecords in Mexico was lawful, without interpreting the first sale doctrine, the court noted the sales of phonorecords in the United States without adequate business records by a 40-yearold business operation warranted the additional penalties for willful infringement. The celebrated case of Red Baron-Franklin Park, Inc. v. Taito Corp.,39 was ultimately decided on grounds other than the exclusive right of distribution. The district court was disinclined to follow Scorpio's precedent when Red Baron sued for a declaratory judgment to authorize its use of Double Dragon videogame circuit boards purchased in Japan and imported into the United States.

The district court believed that the initial sale of the circuit boards extinguished all rights that Taito had under copyright law, including the right of public performance. After a judgment in favor of Red Baron, Taito did not challenge the district court ruling regarding the purchase, sale and distribution of the copyrighted video circuit boards.40 Instead, Taito argued that its right of public performance had been infringed by performance in public arcades.

Taito's efforts were rewarded by the fourth circuit's reversal of the district court, but the result is inconclusive on the application of the first sale doctrine to the importation provision. The Red Baron decision was overturned by the Computer Software Rental Amendments Act of 1990, Public Law 101-650.

Sebastian International Inc. v. Consumer Contacts Ltd., refined the Scorpio precedent in the Third Circuit. Under Sebastian, the first sale doctrine obviates the need for the copyright owner's consent to import copyrighted works that the U.S. copyright owner manufactured and exported pursuant to a sale. In Sebastian, the copyright owner of labels on hair care products sought to exclude goods that it had manufactured, sold and exported to South Africa. Since the Supreme Court decision limiting trademark application to gray market goods, plaintiffs had been interested in developing alternative forms of relief. Here, the third circuit found that the plaintiff was barred by the first sale doctrine from preventing an unauthorized importation and vacated the district court's preliminary injunction.

The Sebastian court "confessed some uneasiness" with the previous appellate court decision in its construction of section 109, reasoning that Scorpio's confinement of the "lawfully made" exemption barring a copyright owner from establishing infringing importation where the copies or phonorecords were made in the United States does not fit comfortably within the scheme of the Copyright Act. The court noted that "when Congress considered the place of manufacture important, as it did in the manufacturing requirement of Section 601(a), the statutory language clearly expresses that concern.'

142

Instead of disturbing Scorpio's holding, Sebastian distinguished it from the "simple factual" situation Sebastian faced. In doing so, the later decision holds that

36 H.R. Rep. No. 1476, 94th Cong., 2d Sess. 169-70 (1976).

37 Scorpio, 569 F. Supp. at 49.

38 654 F.Supp. 677 (S.D.Fla. 1987).

39 883 F.2d 275 (4th Cir. 1989) cert. denied, 493 U.S. 1058 (1990).

40 Id. at 278.

41 847 F.2d 1093 (3d Cir. 1988).

42 Id. at 1098.