Riaa Decries Top Court's 'imported Exports' Ruling

WASHINGTON, D.C.--A U.S. Supreme Court ruling on gray market goods and parallel imports may have a far-reaching effect on the music industry.
On March 9, the U.S. Supreme Court unanimously ruled that U.S. copyright law does not protect companies that export their products at discounted prices from having them shipped back for sale in the U.S. by another company.
The Recording Industry Assn. of America (RIAA) warns that the ruling, concerning only so-called "imported exports" gray market goods, will upset the marketing of U.S. product worldwide. The issue of parallel imports has been a contentious one throughout the world, most recently raising controversy in the Australian music industry (Billboard, March 14).
The gray market product problem is related to the parallel imports issue in that both practices affect domestic and international sales as well as marketing and publicity strategies. However, there is a key difference--with parallel imports, the imported goods are manufactured in another country.
In reversing the major copyright law case, Quality King Distributors Inc. vs. L'Anza Research International, the court found that a rule allowing copyrighted products to be resold without the copyright owner's permission applies to imported products.
The court was asked to decide which of two U.S. Copyright Act provisions held in the case. One prevents unauthorized imports. The other, contained within the First Sale Doctrine in Section 109 (a), allows the practice by stating that anyone who legally purchases a legal copy is entitled to dispose of possession of that copy without the authority of the copyright owner (Billboard, Dec. 20, 1997). The court unanimously ruled that the latter applied.
Although the case involved the distribution of copyrighted hair products, the ruling will have ramifications for all copyrighted U.S. products sold abroad at a discount, including sound recordings, according to the RIAA and other International Intellectual Property Alliance members that had filed amicus briefs in support of the position against unauthorized imports.
Cary Sherman, senior executive VP/general counsel for the RIAA, characterizes the decision as "unfortunate" and says that while the "imported exports" currently make up a small part of the industry's business, the decision by the court "ignores the established practices in copyright industries for marketing products worldwide" and sets a precedent for chaos and misunderstanding.
For example, he says, "in situations where there are different demand characteristics [for releases] in different countries, this could have a big negative impact."
Sherman also says that the ruling could affect many areas of the business, from pricing to release dates and publicity coordination, and that "other countries might not understand [the change] and lower their barriers."
Last year, the 9th U.S. Circuit Court of Appeals overturned the initial federal court ruling favoring the third-party goods buyer Quality King and sided instead with the manufacturer L'Anza, which had argued against the legality of unauthorized imports. Quality King appealed.
The similar issue of parallel imports--product manufactured in other countries, offered at lower prices, and then imported--is red hot in Australia. On Dec. 9, 1997, Australia's Senate rejected government copyright reforms that would relax existing import restrictions in order to foster lower prices for consumers. Earlier this month, the government paid $750,000 Australian ($500,000) to mount a publicity campaign to counteract claims by the music industry about the damaging repercussions. Lawmakers there have accused the industry of inflated CD pricing and have turned the subject into a pro-consumer issue, saying the public will benefit from the lower-priced imports.
The parallel-imports issue also looms in Norway, currently not a member of the European Union, where the Parliament was scheduled to debate the issue. If Norway legalizes the practice, insiders say, the decision could set a precedent for EU member companies.