L'Anza Research Intern., Inc. v. Quality King Distributors, Inc.

Citation98 F.3d 1109
Decision Date22 October 1996
Docket NumberNo. 95-56447,95-56447
Parties, 65 USLW 2293, 1997 Copr.L.Dec. P 27,666, 96 Cal. Daily Op. Serv. 7755, 96 Daily Journal D.A.R. 12,803 L'ANZA RESEARCH INTERNATIONAL, INC., Plaintiff-Appellee, v. QUALITY KING DISTRIBUTORS, INC., a New York Corporation, Defendant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

Melodie K. Larsen, Rintala, Smoot, Jaenicke & Rees, Los Angeles, California, for defendant-appellant.

Raymond H. Goettsch, LaTorraca and Goettsch, Long Beach, California, for plaintiff-appellee.

George W. Nowell, Law Offices of George W. Nowell, San Francisco, California, for amicus curiae American Free Trade Association.

Deborah M. Lodge, Patton Boggs, L.L.P., Washington, DC, for amicus curiae Beauty and Barber Supply Institute, Inc.

Appeal from the United States District Court for the Central District of California, J. Spencer Letts, District Judge, Presiding. D.C. No. CV-94-00841-JSL.

Before: D.W. NELSON, T.G. NELSON, and THOMAS, Circuit Judges.

D.W. NELSON, Circuit Judge:

This case involves a copyright infringement claim brought by L'anza Research International, a manufacturer and distributor of hair care products, against Quality King Distributors pursuant to 17 U.S.C. § 602(a). Section 602(a) prohibits the importation of U.S. copyrighted goods acquired outside of the United States without the authorization of the copyright owner. Quality King appeals the district court's order specifying issues existing without substantial controversy and granting summary judgment in favor of L'anza. It also appeals the district court's order granting a permanent injunction prohibiting Quality King from importing and selling certain L'anza hair care products in the United States. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

L'anza manufactures and distributes hair care products. In order to establish and maintain its reputation for selling high quality products, L'anza requires that its U.S. distributors sell L'anza products only to authorized vendors such as beauty salons and colleges. L'anza also sells its products abroad through "master distributors," who may sell L'anza products within defined geographical areas outside of the United States. These overseas distributors pay approximately 35 to 40% less for L'anza products than do domestic distributors because they do not receive the benefit of L'anza's extensive advertising and promotional activities conducted in the United States but rather, must market the products themselves. L'anza asserts that it has never authorized any distributor to import into the United States L'anza products that have been sold abroad.

In February, 1994, L'anza discovered that a number of its products were being sold at Vessey Drugs, in Carmel, California. Because in every shipment some L'anza bottles are marked to allow tracing, L'anza was able to determine that the products being sold at Vessey Drugs had been purchased from a distributor in Malta, L. Intertrade, and imported (without L'anza's authorization) by Quality King Distributors. Originally, the products had been manufactured in the United States and then sold through L'anza's distributor in the United Kingdom, Planetary Eco, to L. Intertrade. L'anza sold the products at a substantial discount with the understanding that they would be distributed in Malta, and possibly Libya. Instead, L. Intertrade sold the products to Quality King Distributors, which purchased in their entirety the three shipments that had been sent to the United Kingdom 1 and imported the products back into the United States without The record indicates that a L'anza representative purchased the following products from Vessey Drug: Styling Foam, Multi-Mist, Super Quatre Spray, and Remede Shampoo. However, the shipments that Quality King purchased from L. Intertrade and imported to the United States also contained a number of other L'anza products. L'anza owns the copyright for the labels on many of these products, the registration for which was issued on January 7, 1994 (Copyright Registration TXU 593-178). Copyright Registration TXU 593-178 lists the following products: Super Quatre, Multi-Mist, Lavenda, Biotane, Vitro, Remede, Curls & Color Moisturizing Treatment, Re-Balance Leave-In Conditioner, Re-Balance Shampoo Plus, Re-Balance Styling Foam. L'anza also requests that the court take judicial notice of copyright registrations issued July 21, 1995 for the same products as are listed in Copyright Registration TXU 593-178 plus Curls & Color Moisturizing Shampoo.

L'anza's permission. It then sold them to a number of buyers, including Vessey Drug.

L'anza filed a complaint against Quality King and others who were selling L'anza products that they had purchased from Quality King alleging that they had violated § 602(a) of the 1976 Copyright Act by importing products to which L'anza owned the copyright without L'anza's permission. 2 Quality King responded by denying that it had violated L'anza's copyright and raising two affirmative defenses: 1) the first sale doctrine of 17 U.S.C. § 109(a); and 2) unclean hands arising from L'anza's intent to sell the products at issue to Libya in violation of the Libyan trade embargo.

L'anza then moved for an order specifying issues without substantial controversy and sought summary judgment on Quality King's first sale defense as well as a determination that L'anza owned all right, title and interest in copyright registration No. TXU 593-178. Id. The district court granted L'anza's motion on May 4, 1995. On July 25, 1995, the district court also granted L'anza's motion for a permanent injunction enjoining Quality King from importing and selling the following L'anza products that had been sold previously outside of the United States: Multi-Mist, Lavenda, Biotane, Vitro, Remede, Curls & Color Moisturizing Shampoo, Re-Balance Leave-In Conditioner, Re-Balance Shampoo Plus and Re-Balance Styling Foam. Finally, on September 29, 1995, the district court entered judgment in the amount of $132,616 in damages (stipulated by the parties to avoid trial) in favor of L'anza.

On appeal, Quality King challenges the district court's judgments on a number of grounds, asserting that: 1) the district court erred in rejecting Quality King's first sale defense and declining to adopt the Third Circuit's holding in Sebastian Int'l Inc. v. Consumer Contacts, Ltd., 847 F.2d 1093 (3d Cir.1988); 2) the district court erred in finding that L'anza had provided adequate evidence to show that Quality King had acquired the L'anza products outside of the United States and without L'anza's authorization, both prerequisites of § 602(a); 3) the district court erred in rejecting Quality King's unclean hands defense; 4) the district court erred because L'anza does not own the copyright to some of the products that Quality King imported, and therefore does not have standing to bring copyright claims for all of the products that are the subject of its lawsuit; 5) the district court's injunction should be vacated because it is overbroad in that it enjoins lawful as well as unlawful behavior and because it does not provide Quality King with adequate notice of when it is violating the injunction.

STANDARD OF REVIEW

A grant of summary judgment is reviewed de novo. Jesinger v. Nevada Federal Credit Union, 24 F.3d 1127, 1130 (9th Cir.1994). We review a district court's determinations as to party standing de novo. Barrus v. Sylvania, 55 F.3d 468, 469 (9th Cir.1995). The scope of injunctive relief is reviewed for an abuse of discretion or application of erroneous legal principles. Dexter

v. Kirschner, 984 F.2d 979, 982 (9th Cir.1992).

ANALYSIS
I. The First Sale Doctrine and Section 602(a)

Quality King asserts that the district court erred in holding that L'anza's claim under § 602(a) of the 1976 Copyright Act is not barred by the first sale doctrine of § 109(a). Section 602(a) provides in relevant part, that:

Importation into the United States, without the authority of the owner of copyright under this title, of copies or phonorecords of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies or phonorecords under section 106, actionable under section 501.

17 U.S.C. § 602(a). Section 602(a), thus, gives the copyright owner a distribution right under § 106. Section 106 provides in relevant part, that:

Subject to sections 107 through 120, the owner of copyright under this title has the exclusive rights to do and to authorize any of the following:

...

3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease or lending;

17 U.S.C. § 106(3). The first sale doctrine, however, limits the rights embodied in § 106(3), providing that:

Notwithstanding the provisions of section 106(3), the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.

17 U.S.C. § 109(a). From the text of the 1976 Copyright Act, it is unclear whether § 602(a) creates a right that is distinct from § 106(3) and therefore is not limited by § 109(a), or alternatively, whether § 602(a) is merely an extension of § 106(3) and therefore is limited by § 109(a).

In resolving the question of whether the first sale doctrine applied in this case, the district court was faced with an issue of first impression. The Ninth Circuit has held that the first sale doctrine does not bar an action under § 602(a) where there has been a lawful sale abroad of foreign manufactured U.S. copyrighted goods. Parfums Givenchy v. Drug Emporium, 38 F.3d 477, 480-481 (9th Cir.1994), cert. denied, 514 U.S. 1004, 115 S.Ct. 1315, 131 L.Ed.2d 197 (1995); see also BMG Music v. Perez, 952 F.2d 318, 319 (9th...

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