Cost Effective Use of Copyright to Stem Gray Market Goods

In light of the recent Supreme Court affirmance of the limitations placed on the first sale defense by the Ninth Circuit in Omega S.A. v. Costco Wholesale Corp.1copyright owners who manufacture and sell goods abroad which contain a copyrightable image such as packaging artwork or other subject matter may wish to consider the following cost effective protection strategy to discourage the importation of these foreign manufactured and destined goods into the United States.

In Omega, the Ninth Circuit held that the first sale defense did not apply to copyrighted images made abroad, first sold by the copyright holder abroad and then subsequently imported into the United States by a third party.  Importantly, these images were the logos and other artwork present on a manufactured good.  Given the previous decision in Quality King that considered product packaging protectable copyright, foreign manufacturers may wish to protect their U.S. distributorships by registering copyrights to their packaging.

A copy right registration confers two important benefits that are absent from an unregistered copyright:

(1) the right to obtain statutory damages (ranging from $750 to 150,000) and

(2) the right to attorneys fees.

Absent a registration, a copyright holder is entitled to injunctive relief, a costly form of relief against what are often small retailers.  Typically, injunctive relief is valuable against large volume consistent infringers.  On the other hand, the threat of actual financial harm, in the form of statutory damages and attorney’s fees, can be very persuasive against a stubborn infringer who would otherwise ignore a cease and desist demand.  The time limits to perfect a registration in order to pursue a claim are particularly onerous, namely a mere 1 month after learning of the infringement.  Therefore registration of package art before there is a problem is the safest route.

Copyright registration is a relatively simply straightforward process, costing on average $300 per registration.  Thus pound for pound, it can constitute some of the most effective intellectual property protection for non U.S. manufacturers who seek to stem the flow of gray market goods into the U.S.

1. 541 F.3d 982 (9th Cir. 2008) (aff’d 2010).