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Shampoo ruling to affect high tech

The Supreme Court rules companies may not rely on copyright law to prevent their overseas goods from being imported and distributed by other firms.

In a ruling that is likely to have broad repercussions for the electronics industry, the U.S. Supreme Court ruled today that companies may not rely on copyright law to prevent their overseas goods from being imported into the United States and distributed by other firms.

The unanimous decision settles an issue in copyright law that has been in flux for some time. Although the case focused on the rights of a hair care company, today's decision will affect any company that attempts to use copyright laws to control distribution channels of its products. Software and semiconductor companies are just two examples of players in the electronics industry that may be affected by the ruling.

The case involved L'Anza Research International, a shampoo and conditioner manufacturer that markets its products throughout the world. In the United States, the company sold its goods in hair salons at a premium price. In foreign markets, however, L'Anza sold the same products for 40 percent less.

The company took issue with a U.K. distributor that shipped L'Anza goods destined for overseas markets back into the United States and sold them at a lower price. Relying on a common legal theory, L'Anza alleged that the federal law forbade the U.K. company from distributing its copyrighted boxes in the United States without permission.

The Supreme Court disagreed today, saying that "once the copyright owner places a copyrighted item in the stream of commerce by selling it, he has exhausted his exclusive statutory right to control its distribution."

Neil Smith, an intellectual property litigator at Limbach & Limbach, said the decision could have a broad impact on semiconductor and software makers, which may want to sell their products at a discount in markets outside the United States.

"Copyright law is really much more applicable to software, computer games, and the like, so it's really the tail wagging the dog to have a shampoo case having some application to these high-tech companies," Smith added. "There certainly are companies that are able to make [products] cheaper here and ship them out of the country. They really don't want that stuff coming back."

Rich Gray, an attorney representing high-tech clients, agreed, saying the high court today removed "an important intellectual property statute" relied upon by many companies.

"It's even more important now than it has been in the past to have licensing provisions that impose restrictions on overseas purchasers that will prevent domestic distribution," said Gray, a partner at Bergeson, Eliopoulos, Grady, & Gray.

He added that, following the decision, manufacturers "better carefully review their licensing restrictions and be thoughtful of what they impose in the future. What they do overseas can come back to haunt them."