Grey Market Transaction, First Sale Doctrine, and Ownership
The yard sale, a horrible scene of carnage and tie-dye, is an American economic tradition. Behind a table, a husband sobs as his beloved Collector’s Edition Big Mouth Billy Bass is sold to a snickering teenager. The wife gleefully collects the $1.50. This is a secondary sale, a physically staked Craigslist and eBay. This is not the easily defined black market. No, these three innocents of a seemingly simple transaction have just crossed over into the Grey Market.
The Grey Market differs from the black market simply by way of legality. Selling your Big Mouth Billy Bass to an individual in Mexico is the Grey Market. Selling it to an individual in Iran is the Black Market. One transaction is allowed and the other is not. As long as the Big Mouth Billy Bass was acquired legally and sold to an eligible buyer, then it is a legal transaction. So Iranians missed out on the cultural significance of the Big Mouth Billy Bass. The First Sale Doctrine enables these grey transactions.
The First Sale Doctrine simply terminates a trademark/copyright holders rights to a particular item or good once it is sold legally. The buyer of that item can resell that good and keep all the money from that transaction without fear of reprisal from the trademark holder. Buying the good does not grant you the same rights as the trademark holder, it simply lets the buyer use and dispose of that purchased item. The item does not even have to be resold as the same kind of good as when it was purchased. Turning old iMacs into aquariums or engines into coffee tables is still part of the Grey Market.
The Supreme Court’s recent trips into the Grey Market and the First Sale Doctrine tend to involve mass purchases and reimportation. For example, in the 2008 Omega v. Costco case, Costco purchased Omega watches made outside the United States and then brought them into the United States. Omega believed the importation of the watches violated their rights. The Supreme Court issued a 4-4 decision, which had the effect of upholding the 9th Circuit’s decision in favor of Costco, but their decision only applies in the 9th Circuit, primarily the western United States. More recently, in Kirtsaeng v. John Wiley & Sons, the Supreme Court said college textbooks manufactured and purchased legally anywhere in the world can be resold in the United States.
The right to resell goods is a significant factor in the economy and not just for neighborhood yard sales. The used market for video games, DVDs, and other goods has entire chains and franchise stores of its own. Items that may have ended up in garage sales, pawn shops, or flea markets may now find international customers via sites like eBay and Craigslist. However, the digital and electronic uprising has ushered in the age of the EULA, the End User License Agreement, most famous for page upon page of limiting what a consumer can or, most likely, cannot do with his/her digital media purchase.
The EULA monster sits on the wing of the Grey Market airplane removing purchaser’s rights here and there. Everyone inside the plane is perfectly calm, except for William Shatner, the one person who has actually read the EULA. Shatner is scared. But the EULA monster has been kept in check by consumers as well as the courts. Outrage from gamers over Microsoft’s conditions on the sale of used games for its new Xbox One console forced the company to backtrack on those restrictions.
As with many legal matters, the First Sale Doctrine and the Grey Market are not solidly defined. Instead, to borrow from Doctor Who, they are more like a big ball of wibbly wobbly legally wegally stuff. Courts and markets constantly expand, shape, and limit rights allowed in the First Sale Doctrine and the Grey Market. But this is just the reality of an economic universe and legal battlefield strewn with Beanie Baby corpses, abandoned Apple Newtons, and decaying Hootie and the Blowfish concert shirts. At some point, you will unlock the door to the Grey Market.