Daniel Fisher has a post at Forbes recapping the Costco v. Omega case I previously mentioned here. As I said then, this case has the potential to have extremely important implications for the doctrine of first sale, and hence for books and possibly e-books. The Supreme Court heard arguments on Monday in the case, and IP Watchdog has a detailed writeup of how the arguments went.
The stakes are high on both sides. Fisher points out that if Omega wins, it gives companies a license to ignore first sale simply by moving their manufacturing operations overseas. If Costco wins, it will “undermine the whole concept of price discrimination, in which companies determine the best price for a product given what a local market is willing to pay.”
Price discrimination is what underlies territorial protection schemes like DVD’s region controls and, to a lesser extent, e-book territorial restrictions. Media producers (and, indeed, manufacturers in general, such as Omega) don’t want people buying from wherever the good is cheapest (as CostCo did, snapping up bargain-priced watches in Switzerland to sell in the USA where prices are higher). This is why DVDs were supposed to be unplayable on players from outside the individual disc’s region of release—and that unplayability was protected by the anti-circumvention provisions of the DMCA.
The whole reason the DVD consortium had to go through this complicated dance is that, legally, there’s nothing preventing people from ordering physical goods from overseas vendors. (For personal use, anyway; you can get in trouble for reselling foreign versions of movies that someone else has licensed locally.) I’ve done it quite a lot myself, ordering region-locked European DVDs from amazon.de and amazon.fr, and ordering native Hong Kong DVDs from DDD House. So the movie studios turned instead to trying (unsuccessfully, as it turned out) to make the ordered discs unplayable.
But the reason I ordered them was not so much price as it was availability at all. The DVDs I ordered simply couldn’t be bought from American stores, and this is one of the problems inherent in territorial rights protection schemes—and the big source of complaints about territorially-restricted e-books, which can’t be bought outside their licensed regions. The Omega case runs the risk of making physical goods more like e-books in terms of marketing restrictions.
This is one of those damned-if-you-do, damned-if-you-don’t cases that is going to be tricky for the Supreme Court to decide. IP Watchdog thought the Supreme Court was leaning toward Costco in this case, but we won’t really know until the court comes down with a final ruling, which could take months. It’s going to be very interesting to see how the ruling unfolds.
Omega won. SCOTUS split 4-4, with Justice Kagan recusing herself. Consequently, the 9th Circuit Court’s ruling in favor of Omega stands.