We are often reminded that the basis for U.S. copyright law is the short provision of the Constitution giving Congress the “Power…To Promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” [Art. 1, Section 8]
This constitutional source says that the “monopoly” granted must be temporary, and that the restraints (under copyright and patent law) should serve a particular purpose, the promotion of knowledge and art.
Still, over the years, the duration of those “temporary restraints” (exclusive rights) has been increasing. It is also not apparent that the constitutional purpose is a consistently observed guiding principle.
Some argue there is too fierce a trend currently toward expanding copyright and its enforcement. At the same time, increased copyright vigilance has been regarded by others as a necessity given the ready distribution and easy duplication afforded by digital technology.
Some instances of “copyright expansion” that users have found onerous: the user who backs-up or switches to a new computer loses music files he or she had paid for and assumed were “owned;” an entire website is taken down because a putative owner claims that a small component infringes its copyright; the case-by-case nature of “Fair Use” leaves documentary filmmakers wondering what material they can use without risking a lawsuit; esoteric, historical materials are carefully archived and preserved, but remain unavailable online due to “rights concerns.” Given the currency of complaints about over-bearing copyright enforcement, it’s surprising that the copyright “misuse” defense is not more frequently invoked. In fact, many have not even heard of it. A recent Ninth Circuit case may change that trend.
Copyright misuse is a defense in a copyright infringement action that bars the enforcement of a copyright because the copyright holder has engaged in abusive, over-reaching or other improper imposition of its copyrights. Its early explicit use was in a 20 year-old Fourth Circuit action where a software manufacturer had conditioned licenses to its copyrighted die-making software on the customers’ agreement not to create, develop or assist in developing any kind of computer-assisted die-making software. This meant, the Fourth Circuit Court of Appeals noted, that any licensing company was forced “to forego utilization of the creative abilities of all…its employees in the area of CAD/CAM die-making software.” More worrisome to the Court, these creative abilities were “withdrawn from the public” by Lasercomb’s license requirements. Lasercomb America v. Reynolds, 911 F.2d 971, 978 (1990). The Lasercomb court drew its inspiration for a copyright misuse defense from early twentieth century development of the patent misuse defense: Both copyright and patent rights “seek to increase the store of human knowledge and arts by rewarding inventors and authors with exclusive rights for a limited time…[still] “the granted monopoly power does notextend to property not covered by patent or copyright.” Morton Salt Co. v. G. S. Suppiger Co., 314 U.S. 488 (1942). In Morton Salt, the Supreme Court allowed a defense of patent misuse to prevent a patent holder from imposing a patent infringement claim against a competitor with respect to products not protected by the patent. Suppiger Company held a patent for a salt tablet “depositing machine” used in the canning industry. Suppiger required its licensees to purchase all their salt tablets (which were not patent protected) from Suppiger, thus depriving Morton Salt and others of that market. When Morton Salt began selling its own salt depositing machine, Suppiger sued for infringement. The Supreme Court did not, however, reach a conclusion about whether or not Morton Salt had not infringed Suppiger’s device patent. Rather, it found that Suppiger attempted, contrary to the purposes of patent law, to over-extend the power of its patent with the salt tablet requirement to suppress competition.
Patent misuse became the model for a similar defense to excessive copyright enforcement. The initial efforts based the defense on a presumed “constitutional balance.” When a copyright owner uses the copyright monopoly grant in a way that undermines copyright’s underlying public policy of promoting knowledge and art, courts may deny the copyright holder relief for an actual infringement. This was the rationale in Lasercomb America, where the court criticized the plaintiff’s aim through its copyright license agreement to stifle creativity by preventing the development of competing software.
These are relatively rare cases; more prevalent are those where the courts have rejected the misuse defense and limited its availability.[1] In MGM Studios, Inc. v. Grokster, 545 U.S. 913 (2005), the Grokster party complained that the major music distributor’s refusal to license works to its music file sharing platform was over-reaching copyright misuse. The Ninth Circuit pointed out that the right to refuse to license a work is consistent with a copyright holder’s rights to prevent others from copying or distributing their protected works.The Ninth Circuit cited the purpose behind a copyright misuse defense, which it said was missing in the Grokster situation: “there is no reason to think that musicians and filmmakers will be prevented from engaging in creative activity because Plaintiffs refused to grant a distribution license to Grokster.” Id.
Given its rare application, a recent decision in the Central District of California, accusing Omega of copyright misuse, met with surprise and has been criticized as “an unprecedented expansion of the copyright misuse doctrine.” In this suit, Senior U.S. District Judge Terry J. Hatter Jr. awarded $397,000 in attorneys’ fees to warehouse club retailer Costco in its 8-year defense to an action brought by the Omega watch company. Omega S.A. v. Costco Wholesale Corp, No. CV-04-05443-TJH (C.D. Cal., June 20, 2012).
Beginning in 2004, Switzerland-based Omega sued Costco for selling watches that carried a small copyright-protected picture on their reverse side. Omega had not intended the watches to be imported into the U.S., and Costco obtained them through unauthorized foreign sellers. Omega conceded that it had not secured trademark status (an indicator of the source of goods and quality) for its tiny (3 millimeters) ocean image on the back of the watch. Rather, Omega introduced the small, hidden engraving—unannounced—on its “Seamaster” watches, in order to have a way of controlling importation and sales of the product through copyright enforcement.
Costco had not received permission to sell the copyrighted work (the small picture) in the U.S. and, hence, was charged with violating Omega’s copyrights, specifically the right to distribute the copyrighted ocean image. In its first decision in 2007, the court cited the First Sale Doctrine to grant summary judgment for Costco, ruling that Omega’s initial foreign sale of the watches with the image barred infringement claims related to the later sales (re-sales) of the very same products. The Ninth Circuit reversed, ruling that the First Sale doctrine applied only to copyrighted matter made in the U.S., not goods originating abroad. As Omega continued its copyright infringement action, Costco again sought summary judgment, and, in November 2011, Hatter again ruled for Costco, this time saying that Omega misused a “barely perceptible” design affixed to the back of a line of watches to enforce its copyright solely for importation control purposes. It was not so much the importation control that bothered the court, but that Omega was not, through its copyright, providing creative works to the general public. Instead the hidden ocean design was imprinted only for purposes outside of the lauded constitutional aim. A copyrighted work was affixed only in order to catch those who might infringe the copyright.
Hatter forced Omega to pay Costco’s attorneys’ fees for opposing Omega and based the award on Costco’s long and successful defense as well as, “the need to deter improperly motivated infringement lawsuits.” Hatter characterized Omega’s infringement action as “arguably unreasonable and frivolous.”
Some lawyers active in trademark, copyright and unfair competition law were surprised by this recent decision. They explained that it is common practice for brand owners to use available copyright and trademark enforcement mechanisms to prevent importation of gray market goods.Is the copyright misuse doctrine designed to prevent this extra-constitutional use? Why exactly was Omega’s little image considered to be so markedly different from works that merit copyright protection—because it was too small, and unnoticed by the public? The Court wasn’t clear about this.
A misuse defense may well be a welcome tool in Goliath v. David situations where an over-reaching and creativity-stifling license is imposed on potential competitors, but if it becomes a ready defense to any odd or aggressive use of copyright, the defense will become criticized as itself over-broad. Will courts now routinely examine the motives behind the protection sought by particular copyright holders to determine whether or not their actions track constitutional purposes, and, hence, whether their rights should be enforced? There was no showing in Omega v. Costco that the rights holder’s enforcement of its copyright constrained creativity or was itself counter to the constitutional purposes of encouraging artists and inventors. Could the Omega v. Costco misuse defense become a precedent for denying the enforcement of copyrights when used for import control or for any purpose other than strictly constitutional principles?
Lizbeth Hasse
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