
Speak Out Against Copyright Holders Destroying True Property Rights - iProject
http://www.techdirt.com/articles/20120622/14185719439/speak-out-against-copyright-holders-destroying-true-property-rights.shtml
======
tptacek
Count on Techdirt to thoroughly botch coverage of any legal issue it smears
its pixels onto.

At issue in the case Techdirt is alluding to isn't the long-term prospect of
the first-sale doctrine. Nor is it about whether you can "resell a book you
bought abroad"; at least, well, here, let's just dive in:

What happened in this case is that a Cornell student noticed that textbooks
are sold at a lower price in some countries abroad. This is because if you
sold textbooks at the US price in those countries, you might as well not sell
them at all. So the student first consulted "Google Answers" for legal advice,
and then arranged to import cheap textbooks and resell them in the US. He made
something like 1.2 million dollars.

The problem with this scheme is that it constitutes "parallel importation",
and the US is very weird about parallel importation. To wit: retailers luv
parallel importation (it allows Costco to import huge numbers of Omega watches
to sell way below US MSRP), every other business interest pretty much hates
parallel importation (for obvious reasons), many countries outright ban
parallel importation, but the US does _not_.

Instead, a hodgepodge of different statutes are used to retard parallel
importation (think: drugs from Canada). Among them is US Copyright law, which
ostensibly (but not completely clearly) provides (a) the exclusive right to
distribute and sell copyrighted works to Copyright owners, and (b) under US
import law, forbids imports of copyrighted material without the permission of
the owner.

The First Sale doctrine says that once you've purchased a good, you're free to
resell it without restriction. But obviously, having purchased a copyrighted
good, you don't then obtain all the rights of the original copyright holder.
For instance, you cannot then yourself make copies of the good for resale. So,
while there's a tension between First Sale and "Infringing Importation", it's
not a hard one to resolve: black --- or very dark grey --- letter law says you
can't import copyrighted material without the permission of the copyright
holder.

What seems to have happened in this case was that a District Court came to the
proper conclusion by way of the wrong reasoning. Specifically: the District
Court held that a parallel import was unlawful... but it was unlawful because
the First Sale doctrine doesn't apply overseas (? WAT?). It's not clear why
they even needed to go there, but now SCOTUS needs to fix things.

~~~
_delirium
How is it not about whether you can "resell a book you bought abroad"? Afaict,
the rightsholders here aren't arguing that there is a dollar threshold or
level of commercial organization he exceeded that turned it into parallel
importation, or that it's the _importation_ that's illegal. Rather, they argue
that any sale of their book in a jurisdiction where they didn't authorize its
sale is illegal. So, even someone who moved would need the copyright holder's
authorization to sell their personal book collection, if it included any books
that had not already been authorized for sale in the United States.

The European approach, despite being more restrictive in a way, makes more
logical sense to me, since it separates legality of importation from legality
of sale. Thus customs can hassle you if you're importing a bunch of stuff in
violation of the state's trade policies, but if you've legally imported a book
(e.g. as a personal effect), you can resell it.

~~~
tptacek
First, I think we agree about what's happening and how things should shake
out.

Secondly, I knew I wasn't going to navigate the semantic waters of "reselling"
vs. "importation" and had hoped that describing a 1.2MM/yr business of
importing textbooks would illustrate the distinction.

The trouble, as I see it, is that a lower court found recourse to halt a
parallel import practice in the contours of the First Sale doctrine, rather
than simply applying straightforward import law. Since that lower court's
interpretation of First Sale has far-reaching and (probably) unwanted
consequences, it's hitting SCOTUS.

The trouble I have with the Techdirt piece, I mean besides the fact that it
explains none of these complexities, is that it once again paints a genuinely
interesting legal dispute as yet another effort by "MAFIAA" (or whatever we're
calling it these days) to sieze the pillowcases of the American consumer on
the auspices of having copyrighted the color blue. That's not at all what's
happening here.

Fair warning: I did a lot of reading on this, but the armature of my
understanding of this case comes from two other HN commenters who batted this
back and forth a few weeks ago.

~~~
ericingram
The detail you add here is interesting, but not substantial to the point
Techdirt is making.

Regardless of how much money this guy made by parallel importing, no one
should have the ability to control the sale or distribution of physical
property rightfully owned by someone else. He did not steal the property
before re-selling it (did he?) -- so your point adds no critical dimension to
the problem at hand.

Unless of course you believe that some times some people should be able to
control others' physical property, you know, for the good of us all, of
course.

------
antiterra
"Made lawfully under this title" is the wording that mattered in Omega v
Costco and lower court decisions in Kirtsaeng v John Wiley. In 17 USC §109
which limits copyright holder rights and is the codification of the first sale
doctrine, all of the limitations listed apply only to works subject to that
phrase.[1]

In a nutshell: One interpretation is that "lawfully made under this title"
simply means a work that does not infringe on other copyrights, as per Title
17. Another implies that the work must be made in the jurisdiction of US Law
for the limitations to apply.

I cannot see how first sale in all its forms would not be threatened by the
latter interpretation. If you go out of the US and buy a book that is not
produced in the US, you would have no codified right to resell it in the US.

[1]<http://www.law.cornell.edu/uscode/text/17/109>

------
briandear
Besides the hyperbole of the title, this article is flawed in that products
sold within the US must comply with US law. If a copyright holder hasn't given
permission for usage of their copyright in a specific country or territory,
than products bearing that copyright can't be sold within that country.
Otherwise, copyright would offer no protection since I would simply have to
set up a factory in Mexico and I could infringe all I wanted and then sell
those products in the US with impunity.

These are the same laws that prevent counterfeiting. If I own a copyright or a
trademark for something I created, then how is it fair to me that my work be
stolen? For example, if I record a great song and spend thousands of dollars
in the studio, how is it fair that others can profit from that work without me
getting compensated?

Don't misunderstand, I'm not talking about fair use, I am talking about people
receiving money (i.e. commercial gain) by stealing the labors of others.
That's straight up theft.

~~~
_delirium
What IP holders are arguing here is considerably stronger: that I need their
permission to sell a product in a country _even if_ it is a legitimate, non-
ripoff product that I myself own. This is not about unlicensed, counterfeit
products, as in your Mexico hypothetical, but about licensed products that
were produced with authorization of the rightsholder and then legally
purchased. The question is if, once that purchase has taken place, the new
owner needs to go back and get permission a _second_ time from the
rightsholder if they want to do something with their property.

IP holders are arguing that if I buy a Nike shoe in Japan, and then want to
sell it on eBay in the United States, I need Nike's permission, because they
never licensed me to distribute their trademarked shoe _in the USA_. But I own
the shoe! And it's a genuine Nike shoe, not a ripoff! They licensed its
production, then authorized its sale to me, and at this point the shoe should
be _my_ property, and they should not be in the picture anymore.

This is essentially in non-book form what the first-sale doctrine put an end
to in books: the rightsholder trying to control resale of the goods for their
entire lifetime, past the initial sale. Which of course makes a mockery of the
idea of "property". If I can't sell my shoes without getting permission of the
shoemaker, I "own" my shoes in a sense considerably weaker than the
traditional definition of property.

~~~
antiterra
> This is essentially in non-book form what the first-sale doctrine put an end
> to in books:

The case SCOTUS will rule on, Kirtsaeng v. John Wiley actually is "in book
form."

Also, be careful to not mix up trademark and copyright. Omega v. Costco
occured because "the watches included a small copyrighted design on the back
surface."[1] The cases were not based around an argument that involved
trademark at all, only copyright.

[1] [http://www.patentlyo.com/patent/2010/12/supreme-court-
does-n...](http://www.patentlyo.com/patent/2010/12/supreme-court-does-not-
decide-costco-v-omega-intl-exhaustion-case.html)

------
TheAmazingIdiot
Companies routinely lay off staff and hire in cheaper countries (China,
India..).

Companies routinely source materials to cheaper countries as to undercut
everyone else.

Companies are also willing to move the business to locales that provide
cheaper (or free) taxation. If you're really lucky, you get a rebate of tax
from that government for 'stimulating jobs'.

Yet we people cannot 'legally' buy movies and music from other countries
unless the copyright owner blesses us to do so ?!

We cannot legally bought, import goods from out of country areas because that
same company sells them more expensively here?!

As to the comment from the guy who was importing and selling legally bought
textbooks for a cheaper price.... Well, isn't that being a good
business(wo)man? You find where something is being sold cheap and sell where
it is high. Is that not providing a much needed service?

So, companies extract much gain by playing regions against regions. Why can't
we?

~~~
czr80
Because then the rational response for companies would be to stop selling the
product cheaper in other countries, denying people in poorer countries access
to products at prices they can afford.

~~~
TheAmazingIdiot
These compains are still making profit. They just aren't making as much as
they would selling to Americans.

And that still doesn't answer my question as why companies can use price
arbitrage yet we people cannot.

~~~
czr80
Example: Company sells 100 million of a product in the US + 10 million at
lower price in poorer country (assume same number of units for simplicity).
Total revenue: 110 million.

Somebody starts to buy in the poor country and re-sell in the US. US consumers
are happy because they can now get the product for a tenth of the price. Sales
in the US collapse to 10 million. Total revenue: 20 million

Company looks at the situation and reasons - if I raise the price in the poor
country to the US price I can get back my lost revenue in the US, at the risk
of losing my sales in the poor country. I'm going to do that. Sales in the
poor country go to 0, sales in US back to normal. Total revenue: 100 million.

Governments look at this situation - hey, we would like consumers in the poor
country to get access to the product too. How about we pass a law making it
illegal to import products destined for a different market? Company - ok,
great - starts selling product at lower price in poor country.

Who benefits from these laws? 1\. US consumer - mostly neutral (pay similar
price anyway) 2\. Poor country consumer - positive (pay much less) 3\. Company
- positive (earn incremental revenue)

Now this is a highly stylised example and the actual situation is very
complicated, as this is governed by a patchwork of different laws and treaties
and industry lobbying. I also certainly don't mean to suggest that the
situation is uniformly optimal.

However, this is the basic intuition behind these types of laws that you need
to understand, otherwise I fear none of this will make any sense to you.

~~~
Variance
>However, this is the basic intuition behind these types of laws that you need
to understand, otherwise I fear none of this will make any sense to you.

This is also exactly why those types of laws are wrong. They're done by
politicians and not by economists, and politicians are relegated to using the
same faulty intuitive reasoning that you did.

In aggregate, prices tend towards a supply-demand equilibrium that maximizes
profits globally. This is constructed through the price mechanism. If a
company sells product X in country A for $300 and country B for $100, and
someone goes to country B and buys some X and brings it back to country A,
assuming zero transportation costs, the price in country B will increase and
the price in country A will decrease. This will continue until the prices
equalize in both countries.

Now, demand in country B will decrease and in country A it will increase. The
key here is the proportional change. Assuming supply and demand curves that
are perfectly linear, the company will now sell 3/2 as much volume at $200 in
country A than it did at $300 if volumes sold are the same. It'll sell half as
much in country B due to the price doubling. If both markets sold the same
volume, the net effect is that we now have 1.5x200+.5x00=400 instead of
1x100+1x300=400.

That is, the total revenue doesn't change and the company makes the same
profit. The volume also stays constant. This still isn't the total reality,
but it's a much more apt description than your calculation.

Importantly, parallel importation promotes price efficiency this way and
increases competition. If governments want the poor to have access to a good,
they can subsidize poor people purchasing it for personal use. They shouldn't
ban parallel importation.

A key analogy here is that by your logic, we should also make it illegal to do
parallel importation between the many states of the USA. In reality, all
you're doing is restricting price efficiency.

What I've described above are "the basic economic laws" that override your
"basic intuition". There are more subtleties, of course, but in aggregate and
with market efficiency, reality tends toward the case described.

~~~
czr80
You're not wrong in the confines of the model you're operating in (perfect
competition), but be careful about assuming that that model is a complete
description of the world. Especially in this case, reality is complicated. So
complicated, in fact, that I'm not going to try to address your points at all,
but if you are curious to follow up on it I can recommend the following
article: <http://jurisonline.in/2008/09/parallel-imports/>. Scroll down to the
section labelled (Economic causes of Parallel Imports) and read from there.

~~~
Variance
>What I've described above are "the basic economic laws" that override your
"basic intuition". There are more subtleties, of course, but in aggregate and
with market efficiency, reality tends toward the case described.

It's a little silly that you would say that when you were just doing back-of-
the-hand calculations to justify banning parallel imports, don't you think?
I've already covered your response in my previous comment.

I'm not "curious" about parallel imports either, they're a well-defined
economic case that has been the subject of plenty of research. There's a great
discourse on the subject, since some of the primary variables in analyses of
parallel import policy are price elasticity and regulatory effects. The
modeling of simple example goods with perfect elasticity, like I was doing
there, is not really a question. You only get more interesting results when
you take goods that are exotic for having huge fixed production costs or price
inelasticities, or markets that are highly asymmetric in the parallel
importation context. Pharmaceuticals make for a great case, one which has
really taken off in recent years. The Maskus paper that your article mentioned
like a citation but then failed to cite for some reason provides a good
jumping-off point. Kanavos et al. [1] then provide some real-world
considerations with data from the EU; and Grossman and Lai [2] provide a
revised viewpoint that considers regulatory factors in better focus.

[1]:
[http://archives.who.int/prioritymeds/report/append/829Paper....](http://archives.who.int/prioritymeds/report/append/829Paper.pdf)

[2]:<http://www.princeton.edu/~grossman/ParallelImports.pdf>

But I don't want to be getting too deep into a discussion about exotic cases
here--those are just interesting instances of them. My primary point is that,
like I originally said, the intuitive reasoning that politicians and people
use to justify banning parallel imports is just speculation in the face of
legitimate economic considerations. There's real economics behind issues of
parallel importation that needs to be respected, and I'd like it if people
would understand that before arguing in favor of anti-parallel-importation
laws.

