You are on page 1of 6

Jnl.

Intellectual Property Law and Practice Advance Access published September 18, 2009
Journal of Intellectual Property Law & Practice, 2009 ARTICLE 1 of 6

Copyright exhaustion in India and the USA: a


comparative critique
Navajyoti Samanta, and Shameek Sen*

Controversy and confusion arise when an IP owner


tries to control or restrict the use or movement of Key issues
goods containing his IP after it has been sold for the There are variations in the extent of copyright
first time in the market, invoking the contentious prin- exhaustion in jurisdictions across the world, and
ciple of exhaustion or first sale doctrine.1 The ration- so it would be important to juxtapose the laws
ale is that the IPR owner, having sold the product, has of two diverse countries on the issue of copy-
obtained the benefit of exclusive commercial exploita- right exhaustion.
tion rights bestowed by the IPR regime and should no
longer control its distribution beyond the first sale2 Copyright exhaustion stops anti-competitive
since that would lead to anti-competitive effects.3 effects and at the same time ensures that the
Other relevant concepts are international exhaustion creator of the IP does not get adversely affected;
(distribution of a work, after the first sale of a particu- however, recent court rulings are tilting the
lar copy, anywhere in the world) and parallel importa- balance slowly towards the creator of IP.
tion (where a non-counterfeit product is imported This article reviews the current judicial stand on
without the permission of the IP owner). The first-sale copyright exhaustion in the USA and compares
doctrine rejects post-sale restrictions on IP or down- the legislative position of India and the USA on
stream marketing and has been predominantly a court- the same issue, thereby trying to bring forth an
developed doctrine with little or no positive statutory analysis as to the differences and similarities of
framework. It stipulates that the first authorized laws, and thus ventures into the probable cause
vending of an article within the scope of a patent extin- for such disparity.
guishes any right to subsequently assert the patent
against that article.4
This article offers a comparative jurisdictional analy- of a purchaser in the ordinary channels of trade, and
sis of the content and controversy surrounding the full consideration paid therefor and whether an IP
principle of exhaustion in various fields of IPR, revol- owner can, merely by a license notice attached to a
ving around the moot issue as to whether the owner device made under the patent, and sold in the ordinary
of an IP can, by means thereof, restrict the use made of channels of trade, place an enforceable restriction on
a device manufactured under the patent or any other the purchaser thereof as to the use to which the pur-
IP, after the device/product has passed into the hands chaser may put the device.5

* Navajyoti Samanta is a Research Assistant and Shameek Sen is an compensation provided by the principal sale. See M Barrett, The United
Assistant Professor in the National University of Juridical Sciences. Email: States doctrine of exhaustion: parallel imports of patented goods (2000)
navajyoti86@gmail.com 27 N Ky L Rev 911, 913 914. Subsequent sales are presumed to be
1 The long-standing doctrine of patent exhaustion provides that the initial outside of the creators view.
authorized sale of a patented item terminates all patent rights to that 3 Dissenting opinion of Justice Black in General Talking Pictures Corp. v
item, as mentioned in Quanta v LGE, 76 USLW 4375. Western Electric Co., Inc., 305 US 124 (1938).
2 T Papadopoulos, The First-sale doctrine in international intellectual 4 United States v Univis Lens Co., 316 US 241, 250 (1942).
property law: trade in copyright related entertainment products (2003) 2 5 General Talking Pictures Corp. v Western Electric Co., Inc., 305 US 124
(Summer) Entertainment Law 50. This idea was succinctly put forward in (1938), where the court said: . . . neither question should be answered.
Motion Picture Patents Co. v Universal Film Mfg. Co., 243 US 502, 511 For we find that, while the devices embody the inventions of the patents
(1917), where the Court noted that the primary purpose of patent laws in suit, they were not manufactured or sold under the patents and did
is not the creation of private fortunes for the owners of patents but is to not pass into the hands of a purchaser in the ordinary channels of trade.
promote the progress of science and useful art. The concept of an Thus the judges created a contractual exception to overrule patent
appropriate amount of compensation is based on the idea that IP exhaustion against which Justices Black and Reed vigorously dissented.
creators invest their time and money with an eye toward obtaining the

# The Authors (2009). Published by Oxford University Press. All rights reserved.
2 of 6 ARTICLE Journal of Intellectual Property Law & Practice, 2009

Part I: Copyright exhaustion: the (b) in the case of a computer program,(i) to do any
of the acts specified in clause (a); (ii) to sell or give on
bare law commercial rental or offer for sale or for commercial
Copyright offers some basic protection to authors of rental any copy of the computer program: Provided: that
an original intellectual creation or a work of art. The such commercial rental does not apply in respect of com-
exclusive rights generally made available to owners of puter programs where the program itself is not the essen-
copyright are its reproduction in various forms, such tial object of the rental.
(c) in the case of an artistic work,(i) to reproduce the
as printed publication or sound recording; its public
work in any material form including depiction in three
performance, as in a play or musical work; recordings dimensions of a two dimensional work or in two dimen-
of it, for example, in the form of compact discs, cas- sions of a three dimensional work; (ii) to communicate
settes or videotapes; its broadcasting, by radio, cable or the work to the public; (iii) to issue copies of the work to
satellite; its translation into other languages, or its the public not being copies already in circulation; (iv) to
adaptation, such as a novel into a screenplay.6 In the include the work in any cinematograph film; (v) to make
USA, the Copyright Act 1976, section 106 provides rel- any adaptation of the work; (vi) to do in relation to an
evant copyright protection to the owner of copyright: adaptation of the work any of the acts specified in relation
to the work in sub-clauses (i) to (iv);
The owner of copyright has the exclusive rights to do and (d) in the case of a cinematograph film,(i) to make a
to authorize any of the following: (1) to reproduce the copy of the film, including a photograph of any image
copyrighted work in copies or phonorecords; (2) to forming part thereof; (ii) to sell or give on hire, or offer for
prepare derivative works based upon the copyrighted sale or hire, any copy of the film, regardless of whether such
work; (3) to distribute copies or phonorecords of the copy has been sold or given on hire on earlier occasions; (iii)
copyrighted work to the public by sale or other transfer of to communicate the film to the public;
ownership, or by rental, lease, or lending; (4) in the case of (e) in the case of a sound recording(i) to make any
literary, musical, dramatic, and choreographic works, pan- other sound recording embodying it; (ii) to sell or give on
tomimes, and motion pictures and other audiovisual hire, or offer for sale or hire, any copy of the sound recording,
works, to perform the copyrighted work publicly; (5) in regardless of whether such copy has been sold or given on
the case of literary, musical, dramatic, and choreographic hire on earlier occasions; (iii) to communicate the sound
works, pantomimes, and pictorial, graphic, or sculptural recording to the public.
works, including the individual images of a motion picture Explanation: For the purposes of this section, a copy
or other audiovisual work, to display the copyrighted work which has been sold once shall be deemed to be a copy
publicly; and (6) in the case of sound recordings, to already in circulation
perform the copyrighted work publicly by means of a
digital audio transmission.
However, whatever rights have been guaranteed to the
The corresponding Indian provision can be found owner are in the intellectual creation and does not
under section 14 of the Indian Copyright Act, 1955: limit any other right of the copyright owner outside
the ambit of the statutory provision to owners of
copyright means the exclusive right subject to the pro-
visions of this Act, to do or authorise the doing of any of copies of the IP. This is the baseline of the doctrine of
the following acts in respect of a work or any substantial first sale, which allows the purchaser to transfer, sell, or
part thereof, namely, give away a particular lawfully made/obtained copy of
(a) in the case of a literary, dramatic or musical work, the copyrighted work without permission once it has
not being a computer program,(i) to reproduce the been obtained.7 Thus the copyright owner will not
work in any material form including the storing of it in have any control over the downstream movement of an
any medium by electronic means; (ii) to issue copies of the article incorporating his IP beyond the first sale.
work to the public not being copies already in circulation; While lack of control is statutorily provided under
(iii) to perform the work in public, or communicate it to
the US Copyright law, section 109, in India we can
the public; (iv) to make any cinematograph film or sound
recording in respect of the work; (v) to make any trans-
infer it from a harmonious reading of the explanation
lation of the work; (vi) to make any adaptation of the to section 14 together with sections 14(a)(ii) and
work; (vii) to do, in relation to a translation or an adap- 14(c)(iii), which states that rights provided to the
tation of the work, any of the acts specified in relation to copyright owner include the right to issue copies of
the work in sub-clauses (i) to (vi); artistic work, literary, dramatic, or musical work, not
6 WIPO Copyright Treaty at http://www.wipo.int/copyright/en/faq/faqs. or any person authorized by such owner, is entitled, without the
htm#rights (last visited on 25 July 2009). authority of the copyright owner, to sell or otherwise dispose of the
7 As understood from studying 17 USC 109 which operatively states the possession of that copy or phonorecord.
owner of a particular copy or phonorecord lawfully made under this title,
Navajyoti Samanta and Shameek Sen . Copyright exhaustion in India and the USA ARTICLE 3 of 6

being a computer program, but that the copyright Next came Sony Corp. v Universal City Studios, Inc.11
owner has no control over copies already in circulation. (the Betamax case). By the mid-1970s, Betamax video
However, sections 14(d)(ii) and 14(e)(ii) allow the tape recorders (VTRs), patented by Sony, allowed users
copyright owner of cinematograph film and sound to copy television programmes. Universal alleged that
recordings to sell or give on hire, or offer for sale or that some individuals had used Betamax VTRs to
hire, any copy regardless of whether such copy has record copyright-protected works that had been exhib-
been sold or given on hire on earlier occasions. In this ited on commercially sponsored television and con-
instance, therefore, Indian copyright law does not allow tended that those individuals had infringed the
the doctrine of first sale to take effect and copyright copyrights. Universal further maintained that Sony was
exhaustion in India would apply only for artistic liable for the copyright infringement allegedly com-
works, literary, dramatic, or musical works, not being a mitted by Betamax consumers following Sonys market-
computer program, but not for cinematograph films ing of the Betamax VTRs.
and sound recordings. Copyright exhaustion in India Universal sought no relief against Betamax consu-
does not affect non-commercial rights such as moral mers. Instead, they sought money damages and an
rights.8 equitable account of profits from Sony, as well as an
injunction against the manufacture and marketing of
Betamax VTRs. Many users of the VTR had compiled
Part II: The judicial pronouncements libraries of recorded TV programmes and Universal
Numerous US judicial pronouncements have enhanced argued that there was a high probability of further
the ambit and depth of copyright exhaustion in the copyright infringement in future.
USA.9 Also, since the realm of copyright, which initially The District Court held that copying for private pur-
covered only printed material and phonorecords, poses is covered by fair use and that, if the persons
gradually increased to embrace first cinematograph who had copied the programmes later wanted to sell
films and later on computer software, any case analysis the tapes, they could do so on the basis of exhaustion
of the US position would lead us through several dis- of rights after first broadcast by Universal. The court,
tinct areas of copyright law. declining to hold Sony liable, held that
The first case where the US Supreme Court upheld
[s]elling a staple article of commercee.g., a typewriter, a
the validity of the doctrine of copyright exhaustion was
recorder, a camera, a photocopying machinetechnically
Bobbs-Merrill Co. v Straus. 10 In this case, the appellant contributes to any infringing use subsequently made
sold books to the respondent at wholesale prices. Those thereof, but this kind of contribution, if deemed sufficient
books contained a notice: as a basis for liability, would expand the theory beyond
[t]he price of this book at retail is $1 net. No dealer is precedent and arguably beyond judicial management. . . .
licensed to sell it at a less price, and a sale at a less price Commerce would indeed be hampered if manufacturers of
will be treated as an infringement of the copyright. staple items were held liable as contributory infringers
whenever they constructively knew that some purchasers
The respondent sold the books below the notice price; on some occasions would use their product for a purpose
the appellant brought an action both for copyright which a court later deemed, as a matter of first impression,
infringement and for breach of licence. The court held to be an infringement.
that
After the Court of Appeals reversed the District Courts
[i]n our view the copyright statutes, while protecting the
owner of the copyright in his right to multiply and sell his
findings on fair use and exhaustion, Sony appealed to
production, do not create the right to impose, by notice, the Supreme Court, where the majority refused to
such as is disclosed in this case, a limitation at which the impose vicarious liability on Sony for contributory
book shall be sold at retail by future purchasers, with copyright infringement. That court further held that
whom there is no privity of contract. time-shifting is not necessarily copyright infringement.
The majority judgment remained silent on the issue of
8 Indian Copyright Act, 1957, 57. F. Supp. 208 (EDNY 1994), Krause v Titleserv, Inc. 402 F.3d 119 (2d Cir.
9 Bobbs-Merrill Co. v Straus 210 US 339 (1908), Sony Corp. v Universal City 2005), Softman Prods. Co. v Adobe Sys. Inc. 171 F. Supp. 2d 1075 (N.D.
Studios, Inc. 464 US 417 (1984), Vault Corporation v Quaid Software Cal. 2001), Novell, Inc. v Network Trade Ctr., Inc. 25 F. Supp. 2d 1218 (D.
Limited 847 F.2d 255, Step-saver Data Systems, Inc. v Wyse Technology and Utah 1997), Quality King Distribs., Inc. v LAnza Research Intl, Inc. 523
the Software Link, Inc. 939 F.2d 91 (1991), United States v Wise 550 F.2d US 135 (1998).
1180, 1187 (9th Cir. 1977), Adobe Sys. Inc. v One Stop Micro, Inc. 84 10 Above note 9.
F. Supp. 2d 1086 (N.D. Cal. 2000), Novell v Stargate Software 216 11 Above note 9.
F. Supp. 2d 1051, Microsoft Corp. v Harmony Computers & Elecs. Inc. 846
4 of 6 ARTICLE Journal of Intellectual Property Law & Practice, 2009

exhaustion by broadcasting to a paying audience where which provided that the box-top licence was the final
no notice or restrictive licence was issued. The dissent- and complete expression of the terms of the parties
ing opinion held that copying of copyright work is an agreement. The box-top licence concluded:
infringement of copyright, be it for home use or a [o]pening this package indicates your acceptance of these
single copy, or anything else. It also held that time- terms and conditions. If you do not agree with them, you
shifting is not fair use as it inversely affected potential should promptly return the package unopened to the
market for the Studios copyright works. The dissent- person from whom you purchased it within fifteen days
ing opinion also agreed with the Court of Appeals that, from date of purchase and your money will be refunded to
if off-the-air recording infringed, Sony had induced you by that person.
and materially contributed to the infringing conduct of
Betamax owners. The dissenting opinion also did not Step-Saver wanted to recover damages caused by mal-
mention anything about exhaustion. Thus, although functioning TSL software, while TSL claimed that the
the future of copying devices was secured, the court licence agreement gave it immunity. On the facts, the
missed an opportunity to widen the ambit of copyright court concluded that TSL did not clearly express its
on programmes viewed once by paid audiences. unwillingness to proceed with the transactions unless
The next wave of copyright exhaustion cases came in its additional terms were incorporated into the parties
the mid-1980s, in the early days of the information tech- agreement. The box-top licence did not, therefore, con-
nology boom. In 1988, in Vault Corporation v Quaid stitute a conditional acceptance. However, the court
Software Limited,12 the Federal Circuit court held that did not give any outright opinion as to whether such
transient copies on a random access memory would not limiting licence agreements are valid under the US
infringe copyright. As software was increasingly sold Uniform Commercial Code.
over networks, the courts found it increasingly difficult By the early 1990s, after most software IP litigation
to evolve with the restrictive licence agreements.13 A and debate shifted to the domain of patents, copyright
pioneer case on the legality of boxwrap, shrinkwrap, and exhaustion came to be dominated again by copyright
browsewrap contracts was Step-Saver Data Systems, Inc. in items such as printed material and CDs, which had
v Wyse Technology, and the Software Link, Inc.14 There physical existence. Then, in 2008, a significant question
the court had to determine the validity of a box-top on software resale right arose in Timothy Vermor v
licence, which was purportedly entered into when Step- Autodesk 15 before the District Court of the Western
Saver obtained several copies of the Multilink Advanced District of Washington, Seattle, as a copyright rather
program from Wyse (TSL). The box-top licence than a patent issue. In this case, Vermor had lawfully
required the customer to confirm that he had not pur- acquired legal copies of software produced by Autodesk
chased the software itself, but merely obtained a per- from a previous lawful owner. Like USC 17, section
sonal, non-transferable licence to use it, disclaiming all 109, which stipulates copyright exhaustion post-first
expressed and implied warranties except for a warranty sale, section 11716 provided for exhaustion in computer
that the disks contained in the box were free from software. However, most of the software was sold with
defects; it further provided that the sole remedy avail- a licence to use that was very restrictive. The ninth
able to a purchaser of the program was to return a defec- circuit faced conflicting opinions on the issue. While in
tive disk for replacement; the licence excluded liability MAI Sys. Corp. v Peak Computer, Inc.,17 Triad Sys. Corp.
for damages, direct or consequential, caused by the use v Southeastern Express Co.,18 and WallData Inc. v Los
of the program. It also contained an integration clause, Angeles County Sheriff s Dept 19 the court had held that
a restrictive licence is no sale, in United States v Wise 20
12 Above note 9. unlicenced repair service infringed copyright. In a single footnote,
13 DR Cahoy, Oasis or Mirage?: Efficient breach as a relief to the burden of without analysis or explanation, the court declared that [S]ince MAI
contractual recapture of patent and copyright limitations 17 Harv JL & licensed its software, [its] customers do not qualify as owners of the
Tech 135. software and are not eligible for protection under 117 at 519 n 5.
14 Above note 9. 18 64 F.3d 1330, 1333 (9th Cir. 1995), the court assumed that licencees
15 Case no. C07-1189RAJ, in Seattle District Court. could not invoke 117. The panel conceded that customers to whom the
plaintiff had sold its software outright could rely on 117, but implied
16 Notwithstanding the provisions of 106 [17 USCS 106], it is not an
that licencees could not. Id (finding licences, not sales, in contract
infringement for the owner of a copy of a computer program to make or
banning duplication of software or use by third parties and in contract
authorize the making of another copy or adaptation of that computer
requiring users to pay a fee on selling their software copies).
program provided [that the owner meets two conditions].
19 447 F.3d 769, 785 (9th Cir. 2006) ([I]f a software developer retains
17 991 F.2d 511 (9th Cir. 1993), the court considered a software licence that
ownership of every copy of software, and merely licenses the use of those
controlled the use of the software, and declared that any possession of
copies, 117 does not apply).
the software not expressly authorized under this License is prohibited, at
517 n 3. The court considered whether use of the software by an 20 Above note 9.
Navajyoti Samanta and Shameek Sen . Copyright exhaustion in India and the USA ARTICLE 5 of 6

it was held that mere restrictive licensing does not amount in aggressive marketing in the USA, while
per se exclude the question of sale, but depends on there was no or little marketing in the EU. The price in
the nature of such a licence; even if there are restric- the EU was 40 per cent less than that in the USA.
tive conditions but salvaging rights and/or right to Quality King imported several tonnes of LAnza
destroy are provided and no question or requirement shampoo from Malta, whereupon LAnza sued for
of return is provided, then it is sale. In Vermor, the copyright infringement and violation of USC 17
AutoCAD software had in their licence agreement a section 602(a). Justice Stevens, delivering the unani-
salvaging clause,21 and so the District Court applied mous opinion of the court, said:
Wise and refused to apply Mai trio. 22 Across the USA,
several other circuit courts are laying their own stan- It is significant that this provision [USC 17 602(a)] does
dards. Many reach results favourable to Autodesk like not categorically prohibit the unauthorized importation of
Adobe Sys. Inc. v One Stop Micro, Inc.,23 Novell v copyrighted materials. Instead, it provides that such
Stargate Software,24 and Microsoft Corp. v Harmony importation is an infringement of the exclusive right to
Computers & Elecs. Inc.25 Many others reach results distribute copies under section 106. Like the exclusive
that favour Vernor like Krause v Titleserv, Inc.,26 right to vend that was construed in Bobbs-Merrill, the
Softman Prods. Co. v Adobe Sys. Inc.,27 and Novell, exclusive right to distribute is a limited right. The intro-
ductory language in 106 expressly states that all of the
Inc. v Network Trade Ctr., Inc.28 But all agree that
exclusive rights granted by that sectionincluding, of
valid post-sale restrictions can be implemented
course, the distribution right granted by subsection (3)
through licensing and in all the cases the final are limited by the provisions of 107 through 120. One of
decision, whether the transfer is a sale, is determined those limitations, as we have noted, is provided by the
by an analysis of the licence agreement. Vermor also terms of 109(a), which expressly permit the owner of a
lays down that a licence agreement will not bind sub- lawfully made copy to sell that copy [n]otwithstanding the
sequent buyers after the first sale, as no such term provisions of section 106(3).30
has been mentioned in the licence agreement.
Next we address the problem of parallel importa-
tion in copyright products in the USA. USC 17 section Thus the court concluded that importation by Quality
602(a) provides that King was not illegal as USC 17 accepts the concept of
international exhaustion.31
Importation into the United States, without the authority In India, there has been no case on general copy-
of the owner of copyright under this title, of copies or
right exhaustion except for certain cases on parallel
phonorecords of a work that have been acquired outside
the United States is an infringement of the exclusive right
imports, where some booksellers have tried to export
to distribute copies or phonorecords under section 106, Student Price Editions to US/EU markets, but most
actionable under section 501 . . . . of the cases are settled outside court.32 The doctrine
of copyright exhaustion in India is limited by moral
A literal reading of this section leads us to believe that rights of authors as guaranteed under section 57 of
parallel importation is not permissible under US law. the Copyright Act 1957. Although the legislative
However, the US Supreme Court in Quality King Dis- intent was to protect distortion or mutilation of orig-
tribs., Inc. v LAnza Research Intl, Inc. 29 gave that pro- inal works, courts in India have greatly widened the
vision a dynamic interpretation. LAnza, a shampoo ambit in Amar Nath Sehgal v Union of India 33 where
manufacturer, supplies its products across the USA and the right to destroy of the owner of the work has
exported them to the EU. They also invested a huge been curtailed.
21 The AutoCAD licence agreement required to destroy the software in the 30 Above note 27 at 144.
event that the consumer purchased a software upgrade. 31 The US Supreme Court reached a similar decision in K mart Corp. v
22 Mai Trio refers to a group of three cases namely MAI Sys. Corp. v Peak Cartier, Inc., 486 US 281 (1988).
Computer, Inc. (1993), Triad Sys. Corp. v Southeastern Express Co. (1995) 32 John Wiley & Sons Inc. & others v Modern Exports & Others CS (OS) 840
and WallData Inc. v Los Angeles County Sheriff s Dept (2006) where the of 2007.
Ninth Circuit had consistently held that a restrictive licence is no sale. 33 (2005) 30 PTC 253. Amar Nath Sehgal was a sculptor who was
23 Above note 9. commissioned by the Union of India to make a mural, which was
24 Above note 9. exhibited in Vigyan Bhavan, a conference hall. However, during
25 Above note 9. modernization of the hall, the mural was transferred and kept in a
26 Above note 9. storehouse. During storage, the mural got damaged and the sculptor filed
a case for moral right violation. Court ordered Union Govt. to return the
27 Above note 9.
mural and pay compensation of Rs. 5 lakhs to Amar Nath.
28 Above note 9.
29 Above note 9.
6 of 6 ARTICLE Journal of Intellectual Property Law & Practice, 2009

The inexplicable difference only the former two are covered by copyright exhaus-
tion in India, additional restrictions being imposed by
This article has, in the course of discussing the intri-
a moral rights regime that is somewhat abstract and
guing issue of exhaustion of IPRs, sought to emphasize
subjective to start with, often approaching arbitrariness.
the difference in approach that one needs to take when
It is this differential treatment between different kinds
exhaustion of different kinds of IPRs is concerned. The
of products of intellectual labour that this article dis-
legal frameworks in these different types of IPRs differ
cusses. The authors find absolutely no justification as
in the treatment of exhaustion. The reason for this dis-
to why the principle should apply with respect to
harmony may be attributed to, among other things, the
certain kinds of works and should not apply to the
nature of the subject matter of each of these types of
rest. Thus the authors have expressed the view that the
IPRs. While it is typically artistic or literary works,
principle should be brought into line with the US pos-
having not so much of an industrial value, that are
ition, consolidated and fortified by a wealth of relevant
protected under copyrights, patents deal with new
case law, serving as a ready reference to Indian judges
inventions or innovations with industrial potential
and lawmakers to follow, so that a harmony of
which may justify differential treatment.
approach towards the different constituent subjects, a
However, it seems inexplicable why there is a differ-
very basic determinant of consistency of the particular
ence in approach between India and the USA when it
law in question, can be achieved.
comes to the issue of copyright exhaustion. While in
the US copyright exhaustion applies to artistic, literary,
doi:10.1093/jiplp/jpp156
cinematographic works as well as sound recordings,

You might also like