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Supreme Court to review discount retailers’ ‘gray market’ sales


The case promises to be one of the top business and consumer cases in the court term that starts in October, affecting sales on eBay and at stores including Costco and Wal-Mart.

WASHINGTON — The Supreme Court said Monday it will consider whether discount retailers violate copyright laws by selling tens of billions of dollars in “gray market” products after buying them overseas at a reduced price.

The case promises to be one of the top business and consumer cases in the next court term, which starts in October, affecting sales on eBay and at stores including Costco and Wal-Mart.

It will pit supporters of the gray market — retailers, distributors and consumer advocates — against publishers and manufacturers that say their U.S. sales are being illegally undercut.

Gray-market products are genuine goods sold by U.S. retailers outside official distribution channels to exploit the lower prices manufacturers sometimes charge for their products overseas.

Imports of those products to the United States costs manufacturers as much as $63 billion in sales a year, according to a 2009 Deloitte analysis.

It “represents a multibillion-dollar benefit to American consumers,” according to a brief urging Supreme Court review filed by the Retail Industry Leaders Association, whose members include Wal-Mart Stores, Target and Costco Wholesale. eBay filed a separate brief asking the court to take the case.

The justices Monday said they will hear an appeal from Supap Kirtsaeng, who was ordered by a jury to pay publisher John Wiley & Sons $600,000 for violating the company’s copyrights when he imported foreign-edition textbooks from his native Thailand and sold them in the U.S. for a profit.

The case poses a question that deadlocked the court 4-4 in a 2010 clash between Costco and Swatch Group’s Omega unit over discounted watches.

Justice Elena Kagan didn’t take part because of her involvement in the case as an Obama administration lawyer. Kagan now stands to cast the deciding vote on the issue.

The legal dispute concerns the first-sale doctrine, which says a copyright holder can profit only from the original sale of a product.

In 1998, the Supreme Court unanimously said the doctrine applies to U.S.-made products sold overseas, meaning purchasers can bring those goods back into the U.S. through unauthorized channels even if the copyright holder objects.

The question is whether that same reasoning applies when companies manufacture goods abroad.

The 2nd Circuit ruled it doesn’t, siding with publisher John Wiley and upholding the jury award.

Kirtsaeng contends the 2nd Circuit ruling would have “astounding” consequences. He argued in court papers that, under the 2nd Circuit’s reasoning, movie producers could “demolish” rental services, including Netflix, by manufacturing DVDs in Mexico.

The lower-court ruling “affords copyright owners not just one opportunity to sell their works at a bargained-for price but perpetual control,” Kirtsaeng argued in his appeal.

Wiley urged the Supreme Court to reject the appeal without a hearing. The publisher said its case is different from the movie example because its foreign-edition textbooks weren’t authorized for sale in the U.S.

In a brief filed jointly with a Pearson unit involved in a similar case, Wiley contended Congress intended to let copyright holders charge less for their products overseas.

“Market segmentation creates many benefits for consumers and producers,” Wiley and Pearson argued. “Among other things, it permits the copyright holder to license the printing of lower-priced editions in foreign countries, including developing countries, without, in effect, losing U.S. copyright protection for, and profits on, their higher-priced U.S. works.”

via Supreme Court to review discount retailers’ ‘gray market’ sales | Business & Technology | The Seattle Times.

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About Bob Innes

Who am I and what I do best! I am a skilled Sales and Marketing team player known for performing behind the scenes miracles that increase base distribution, improve customer relationship management, exceed annual sales volume,and profitability for Consumer Packaged Goods companies. And I've been doing it for over 15 years. My successful contributions include such clients as Kraft Foods, Mars, Bumble Bee Foods, Unilever, Johnson and Johnson and SC Johnson, and JM Smuckers.

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