Case: 16-56234, 08/23/2017, ID: 10554655, DktEntry: 46, Page 1 of 75
`
`Case Nos. 16-56234, 16-56235 & 16-56252 (Consolidated)
`
`UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
`CHUCK CLOSE and LADDIE JOHN DILL,
`Plaintiffs and Appellants,
`vs.
`SOTHEBY’S, INC.,
`Defendant and Appellee.
`THE SAM FRANCIS FOUNDATION, ET AL.,
`Plaintiffs and Appellants,
`vs.
`CHRISTIES, INC.,
`Defendant and Appellee.
`THE SAM FRANCIS FOUNDATION, ET AL.,
`Plaintiffs and Appellants,
`vs.
`EBAY INC.,
`Defendant and Appellee.
`Appeal from the United States District Court for the Central District of California
`Nos. 11-cv-8604 JHN (FFMx), 11-cv-8605 JHN (FFMx), 11-cv-8622 JHN (PLAx)
`The Honorable Michael W. Fitzgerald
`
`APPELLANTS’ REPLY TO (1) JOINT BRIEF OF APPELLEES
`CHRISTIE’S, INC. AND SOTHEBY’S, INC. AND (2) ANSWERING BRIEF
`OF DEFENDANT-APPELLEE EBAY INC.
`
`ERIC M. GEORGE
`MICHAEL A. BOWSE
`IRA IBBERO
`BROWNE GEORGE ROSS LLP
`2121 Avenue of the Stars, Suite 2800
`Los Angeles, CA 90067
`Tel.: (310) 274-7100; Fax: (310) 275-5697
`
`Attorneys for Plaintiffs-Appellants
`The Sam Francis Foundation, Chuck Close;
`Laddie John Dill; and all others similarly situated
`
`917411.1
`
`

`

`I.
`
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`TABLE OF CONTENTS
`
`Page
`
`2.
`
`THE JUDGMENT SHOULD BE REVERSED: THERE IS NO –
`AND DEFENDANTS HAVE NOT DEMONSTRATED THERE IS
`ANY – TENABLE BASIS FOR UPHOLDING THE DISTRICT
`COURT’S PREEMPTION DETERMINATION............................................2
`A.
`Defendants’ Contention That the CRRA Conflicts With the
`First Sale Doctrine Found in §109(a) of the Copyright Act
`Fundamentally Misstates That Doctrine in Order to Invent a
`Conflict That Does not Actually Exist..................................................2
`The Supreme Court’s Recent Lexmark Decision, as Well
`1.
`as Multiple Preceding Authorities, Conclusively
`Disprove Defendants’ First-Sale Theory. ...................................2
`As Binding Precedent From This Circuit Correctly
`Establishes, the CRRA Is Not in Conflict With the First
`Sale Doctrine in §109(a) of The Copyright Act: There Is
`Not a Word in the Copyright Act That Precludes a
`Copyright Owner From Reserving or Being Afforded a
`Right to Receive Future Income From Sales Occurring
`After the First Sale......................................................................7
`a.
`There Is Not a Word in Section 109(a) of the
`Copyright Act That Precludes a Copyright Owner
`From Asserting Claims to Enforce State-Based
`Entitlements Arising After the First Sale. ........................8
`Binding Ninth Circuit Precedent Compels a
`Conclusion That There Is No Conflict Between the
`CRRA and the First Sale Doctrine. ................................13
`(i) Morseburg Considered and Expressly Held
`That the CRRA Does Not Conflict With the
`First Sale Doctrine................................................13
`(ii) Defendants’ Criticisms of Morseburg Are
`Baseless ................................................................13
`(iii) Morseburg Has Not Been Superseded by
`Subsequent Decisions...........................................16
`
`b.
`
`917411.1
`
`i
`
`

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`TABLE OF CONTENTS
`(Continued)
`
`Page
`
`b.
`
`B.
`
`3.
`
`2.
`
`3.
`
`Defendants Grossly Distort the Meaning of the Cases on
`Which They Rely. .....................................................................19
`a.
`The Cases Defendants Cite Accurately Are
`Consistent With And Support Our Position. ..................19
`Defendants Cite Other Cases Misleadingly; When
`Honestly Read, These Cases Support Our Position,
`Not Defendants’ Position................................................22
`Defendants Express Preemption Argument Is Meritless: It Is
`Based on a Misunderstanding of the Distribution Right and of
`the First-Sale Doctrine and It Is Refuted by Controlling
`Precedent .............................................................................................27
`1.
`Section 301(a) Preempts Only Those State Law Rights
`That Are “Equivalent” to Those in Section 106 .......................28
`An Artist’s Right to a 5% Royalty Under the CRRA Is
`Not Equivalent to Any Right Afforded By The Copyright
`Act.............................................................................................28
`Defendants’ Invitation to Ignore Morseburg Should Be
`Rejected: Morseburg Cannot Be Ignored Unless It Is
`Overruled by the Supreme Court or an En Banc Panel. ...........34
`THE DISTRICT COURT CORRECTLY FOUND THAT THE
`CRRA DOES NOT AFFECT AN UNCONSTITUTIONAL
`“TAKING” ....................................................................................................37
`A.
`The CRRA is Entitled to a Presumption of Constitutionality.............37
`B.
`Defendants Lack Standing to Challenge the CRRA as an
`Improper “Taking”. .............................................................................38
`Even if the Owners of The Artwork Were Parties to This
`Action, a Takings Argument by Them Would Still Fail.....................41
`1.
`A Mere Obligation to Pay Money Does Not Qualify As
`A “Taking”................................................................................41
`The Money the CRRA Requires to Be Paid to Artists Is
`Not Specific, Identifiable Property ...........................................43
`
`II.
`
`C.
`
`2.
`
`917411.1
`
`ii
`
`

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`TABLE OF CONTENTS
`(Continued)
`
`Page
`
`3.
`
`III.
`
`The CRRA Does Not Burden Sellers’ Ownership of
`Artwork .....................................................................................45
`EBAY’S SEPARATE ARGUMENTS SHOULD ALSO BE
`REJECTED....................................................................................................46
`A.
`The District Court Permitted Plaintiffs Leave to Amend Their
`Complaint as to eBay; eBay Offers No Reason why Plaintiffs
`Should Be Denied That Right .............................................................46
`The CRRA Is Made Expressly Applicable to eBay and Other
`Auction Houses ...................................................................................48
`1.
`The California Legislature Made the CRRA’s
`Requirements Applicable to eBay and Others Who
`Operate Auctions.......................................................................48
`The Complaint Specifically Alleges That eBay Sold
`Artwork at Auctions It Conducted in California; eBay’s
`Effort to Dispute That Allegation Here Is Improper. ...............51
`eBay Must Comply With the CRRA Because It Is an Agent of
`Its Sellers .............................................................................................53
`1.
`The Complaint Sufficiently Alleges That eBay Has Been
`an Agent in Connection With Sales of Artwork.......................54
`eBay’s Effort to Dispute Its Status as an Agent of Sellers
`Hinges on Assertions of Fact That Are Improper at This
`Stage of the Proceedings...........................................................56
`eBay’s Complaint That It Has Structured Its Business in
`a Way That Would Make Compliance With the CRRA
`Difficult Is Neither Relevant Nor Persuasive. ..........................60
`IV. CONCLUSION..............................................................................................61
`
`B.
`
`C.
`
`2.
`
`2.
`
`3.
`
`917411.1
`
`iii
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`

`

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`
`TABLE OF AUTHORITIES
`
`Page
`
`FEDERAL CASES
`Adams v. U.S.,
`391 F.3d 1212 (Fed. Cir. 2004) ..........................................................................44
`
`Adobe Sys. Inc. v. Christenson,
`809 F.3d 1071 (9th Cir. 2015) ............................................................................21
`
`Apple Inc. v. Psystar Corp.,
`658 F.3d 1150 (9th Cir. 2011) ............................................................................25
`
`Ashcroft v. Iqbal,
`556 U.S. 662 (2009)................................................................................54, 55, 56
`
`Atlas Corp. v. United States,
`895 F.2d 745 (Fed. Cir. 1990) ............................................................................42
`
`Bel-Bel Int’l Corp. v. Cmty. Bank of Homestead,
`162 F.3d 1101 (11th Cir. 1998) ..........................................................................44
`
`Bell Atl. Corp. v. Twombly,
`550 U.S. 544 (2007)............................................................................................55
`
`Big Eagle v. Andera,
`508 F.2d 1293 (8th Cir. 1975) ............................................................................39
`
`Bingham v. Holder,
`637 F.3d 1040 (9th Cir. 2011) ............................................................................52
`
`Block v. eBay, Inc.,
`No. C 11-06718 CRB, 2012 WL 1601471 (N.D. Cal. May 7, 2012).................59
`
`Bobbs-Merrill Co. v. Straus,
`210 U.S. 339 (1908)............................................................................................35
`
`Chevron W. Virginia CWP Fund v. Stacy,
`671 F.3d 378 (4th Cir. 2011) ........................................................................ 41-42
`
`County Court of Ulster County v. Allen,
`442 U.S. 140 (1979)............................................................................................39
`iv
`
`917411.1
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`

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`TABLE OF AUTHORITIES
`(Continued)
`
`Page
`
`Crow v. Wainwright,
`720 F.2d 1224 (11th Cir. 1983) ..........................................................................14
`
`Davis v. Dept. of Labor and Indus.,
`317 U.S. 249 (1942)...................................................................................... 37-38
`
`Day v. Apoliona,
`496 F.3d 1027 (9th Cir. 2007) ............................................................................18
`
`Eastern Enterprises v. Apfel,
`524 U.S. 498 (1998)......................................................................................41, 42
`
`Ewert v. eBay, Inc.,
`No. C-07-02198RMW, 2008 WL 906162 (N.D. Cal. Mar. 31, 2008)...............53
`
`Ezell v. City of Chicago,
`651 F.3d 684 (7th Cir. 2011) ..............................................................................18
`
`FDIC v. Main Hurdman,
`655 F. Supp. 259 (E.D. Cal. 1987) .....................................................................39
`
`Geophysical Serv., Inc. v. TGS-NOPEC Geophysical Co.,
`850 F.3d 785 (5th Cir. 2017) ................................................................................9
`
`Goldstein v. California,
`412 U.S. 546 (1973)............................................................................................14
`
`Greenberg v. Sala,
`822 F.2d 882 (9th Cir. 1987) ..............................................................................54
`
`Hart v. Massanari,
`266 F.3d 1155 (9th Cir. 2001) ............................................................................15
`
`Hong Kong Supermarket v. Kizer,
`830 F.2d 1078 (9th Cir. 1987) ............................................................................41
`
`917411.1
`
`v
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`

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`TABLE OF AUTHORITIES
`(Continued)
`
`Page
`
`Horne v. U.S. Dep’t of Agric.,
`750 F.3d 1128 (9th Cir. 2014), rev’d on other grounds, 135 S.Ct. 2419
`(2015)............................................................................................................40, 41
`
`Houston v. Roe,
`177 F.3d 901 (9th Cir. 1999) ..............................................................................39
`
`Impression Prod., Inc. v. Lexmark Int’l, Inc.,
`137 S. Ct. 1523, 198 L. Ed. 2d 1 (2017)......................................................passim
`
`In re Cal Farm Supply Co.,
`110 B.R. 461 (Bankr. E.D. Cal. 1989)................................................................55
`
`Int’l Longshore & Warehouse Union v. ICTSI Oregon, Inc.,
`863 F.3d 1178 (9th Cir. 2017) ............................................................................47
`
`Kirtsaeng v. John Wiley & Sons, Inc.,
`568 U.S. 519 (2013).....................................................................................passim
`
`Koontz v. St. Johns River Water Management Dist.,
`133 S. Ct. 2586 (2013)..................................................................................42, 43
`
`Lair v. Bullock,
`697 F.3d 1200 (9th Cir. 2012) ................................................................18, 32, 34
`
`Laws v. Sony Music Entm’t, Inc.,
`448 F.3d 1134 (9th Cir. 2006) ............................................................................36
`
`Lee v. City of Los Angeles,
`250 F.3d 668 (9th Cir.2001) .........................................................................52, 57
`
`LifeScan Scotland, Ltd. v. Shasta Techs., LLC,
`734 F.3d 1361 (Fed. Cir. 2013) ............................................................................4
`
`M/V Am. Queen v. San Diego Marine Const. Corp.,
`708 F.2d 1483 (9th Cir. 1983) ............................................................................52
`
`917411.1
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`vi
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`

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`TABLE OF AUTHORITIES
`(Continued)
`
`Page
`
`Maloney v. T3Media, Inc.,
`853 F.3d 1004 (9th Cir. 2017) ............................................................................29
`
`McCarthy v. City of Cleveland,
`626 F.3d 280 (6th Cir. 2010) ..............................................................................42
`
`McGowan v. State of Md.,
`366 U.S. 420 (1961)............................................................................................39
`
`McIntyre v. Bayer,
`339 F.3d 1097 (9th Cir. 2003) ............................................................................44
`
`MDY Indus., LLC v. Blizzard Entm’t, Inc.,
`629 F.3d 928 (9th Cir. 2010) ..............................................................................28
`
`MK Hillside Partners v. Comm’r of Internal Revenue,
`826 F.3d 1200 (9th Cir. 2016) ......................................................................14, 34
`
`Morseburg v. Balyon,
`621 F.2d 972 (9th Cir. 1980) .......................................................................passim
`
`Murphy v. DirecTV, Inc.,
`724 F.3d 1218 (9th Cir. 2013) ............................................................................59
`
`Omega S.A. v. Costco Wholesale Corp.,
`776 F.3d 692 (9th Cir. 2015) ..............................................................................25
`
`Parella v. Ret. Bd. of the R.I. Employees’ Ret. Sys.,
`173 F.3d 46 (1st Cir. 1999).................................................................................42
`
`Parfums Givenchy, Inc. v. Drug Emporium, Inc.,
`38 F.3d 477 (9th Cir. 1994) ................................................................................26
`
`Perfect 10, Inc. v. Visa Int’l Serv. Ass’n,
`494 F.3d 788 (9th Cir. 2007) ........................................................................ 29-30
`
`Phillips v. Washington Legal Found.,
`524 U.S. 156 (1998)............................................................................................44
`
`917411.1
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`vii
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`

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`TABLE OF AUTHORITIES
`(Continued)
`
`Page
`
`Pisciotta v. Teledyne Indus., Inc.,
`91 F.3d 1326 (9th Cir. 1996) ..............................................................................47
`
`Quality King Distributors, Inc. v. L’anza Research Int’l, Inc.,
`523 U.S. 135 (1998)..................................................................................9, 17, 20
`
`Ruckelshaus v. Monsanto Co.,
`467 U.S. 986 (1984)............................................................................................40
`
`Ryan v. Editions Ltd. W., Inc.,
`786 F.3d 754 (9th Cir. 2015) ..................................................................28, 31, 32
`
`Sam Francis Found,
`784 F.3d 1320 (9th Cir. 2015) ............................................................................17
`
`San Antonio Ind. Sch. Dist. v. Rodriguez,
`411 U.S. 1 (1973)................................................................................................37
`
`Schneider v. California Dep’t of Corr.,
`151 F.3d 1194 (9th Cir. 1998) ............................................................................40
`
`Serra v. Lappin,
`600 F.3d 1191 (9th Cir. 2010) ............................................................................47
`
`Stop the Beach Renourishment, Inc. v. Florida Dep’t of Envtl. Prot.,
`560 U.S. 702 (2010)............................................................................................43
`
`Swierkiewicz v. Sorema N.A.,
`534 U.S. 506 (2002)............................................................................................54
`
`Swisher Int’l, Inc. v. Schafer,
`550 F.3d 1046 (11th Cir. 2008) ..........................................................................42
`
`U.S. v. Lopez,
`514 U.S. 549 (1995)............................................................................................17
`
`U.S. v. Wise,
`550 F.2d 1180 (9th Cir. 1977) ..............................................................................6
`
`917411.1
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`

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`TABLE OF AUTHORITIES
`(Continued)
`
`Page
`
`United States v. Lawson,
`925 F.2d 1207 (9th Cir.1991) .............................................................................43
`
`United States v. Middleton,
`231 F.3d 1207 (9th Cir. 2000) ............................................................................53
`
`United States v. Moore,
`604 F.2d 1228 (9th Cir. 1979) ......................................................................23, 24
`
`United States v. Sperry Corp.,
`493 U.S. 52 (1989)........................................................................................ 44-45
`
`United Transp. Union v. BNSF Ry. Co.,
`710 F.3d 915 (9th Cir. 2013) ..............................................................................57
`
`Unity Real Estate Co. v. Hudson,
`178 F.3d 649 (3d Cir. 1999) ...............................................................................42
`
`USA, Inc. v. Bronster,
`363 F.3d 846 (9th Cir. 2004) ..............................................................................42
`
`Usery v. Turner Elkhorn Mining Co.,
`428 U.S. 1 (1976)................................................................................................38
`
`Veazie v. Williams,
`49 U.S. 134 (1850)..............................................................................................55
`
`West Virginia CWP Fund v. Stacy,
`671 F.3d 378 (4th Cir. 2011) ..............................................................................42
`
`Williams v. Gerber Prod. Co.,
`552 F.3d 934 (9th Cir. 2008) ..............................................................................56
`
`STATE CASES
`Craig v. Godfroy,
`1 Cal. 415 (1851) ................................................................................................55
`
`917411.1
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`TABLE OF AUTHORITIES
`(Continued)
`
`Page
`
`Gattuso v. Harte-Hanks Shoppers, Inc.,
`42 Cal. 4th 554 (2007) ........................................................................................50
`
`Haigler v. Donnelly,
`18 Cal. 2d 674 (1941) .........................................................................................45
`
`Lonely Maiden Prods., LLC v. GoldenTree Asset Mgmt., LP,
`201 Cal. App. 4th 368 (2011) .............................................................................59
`
`Nichols v. Arthur Murray, Inc.,
`248 Cal. App. 2d 610 (1967) ..............................................................................59
`
`Patterson v. Domino’s Pizza, LLC,
`60 Cal. 4th 474 (2014) ........................................................................................59
`
`People v. Hacker Emporium, Inc.,
`15 Cal. App. 3d 474 (Ct. App. 1971)..................................................................53
`
`Riverside Cty. Sheriff’s Dep’t v. Stiglitz,
`60 Cal. 4th 624 (2014) ..................................................................................49, 50
`
`FEDERAL STATUTES
`
`17 U.S.C.
`§ 106.............................................................................................................passim
`§ 106(3)........................................................................................................passim
`§ 109(a) ........................................................................................................passim
`§ 301(a) ........................................................................................................passim
`§ 301(b)(3) ..........................................................................................................28
`STATE STATUTES
`Cal. Civ. Code
`§ 986(a) ...................................................................................................29, 38, 45
`§ 986(a)(1) ...................................................................................................passim
`§ 986(b)(2) ..........................................................................................................33
`§ 986(b)(4) ..........................................................................................................33
`§ 986(b)(6) ..........................................................................................................33
`§ 986(c)(2) ..........................................................................................................33
`§ 2295............................................................................................................48, 57
`
`917411.1
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`x
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`

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`TABLE OF AUTHORITIES
`(Continued)
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`Page
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`Cal. Comm. Code § 2103.........................................................................................48
`
`Cal. Corp. Code § 27002(a) .....................................................................................53
`
`CONSTITUTIONAL PROVISIONS
`
`U.S. Const., amend V...............................................................................................14
`
`OTHER AUTHORITIES
`
`7A Cal. Jur. 3d Auctions and Auctioneers §11........................................................56
`
`California Resale Royalties Act as A Test Case for Preemption under the
`1976 Copyright Law, 81 Colum. L. Rev. 1315 (1981).......................................12
`
`H.R. Rep. 94-1476 (1976)......................................................................10, 11, 29, 36
`
`917411.1
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`In the discussion that follows, we will further demonstrate why the
`
`arguments advanced by defendants Sotheby’s, Christie’s and eBay (“defendants”)
`
`should be rejected and why the judgment should be reversed. We will do this in
`
`the following sequence: In Part I, we will show why defendants’ arguments in
`
`support of the district court’s determination that the California Resale Royalty Act
`
`(“CRRA”) is preempted by the Copyright Act have no merit; in Part II, we
`
`demonstrate why defendants’ Takings Clause arguments are meritless; and in Part
`
`III we establish the reasons why the separate arguments made in eBay’s answering
`
`brief (“EAB”) as to eBay only are groundless.
`
`For the reasons advanced in our opening brief and here, the judgement
`
`should be reversed.
`
`917411.1
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`1
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`

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`I.
`
`THE JUDGMENT SHOULD BE REVERSED: THERE IS NO – AND
`
`DEFENDANTS HAVE NOT DEMONSTRATED THERE IS ANY –
`
`TENABLE BASIS FOR UPHOLDING THE DISTRICT COURT’S
`
`PREEMPTION DETERMINATION
`
`A.
`
`Defendants’ Contention That the CRRA Conflicts With the First Sale
`
`Doctrine Found in §109(a) of the Copyright Act Fundamentally
`
`Misstates That Doctrine in Order to Invent a Conflict That Does not
`
`Actually Exist.
`
`1.
`
`The Supreme Court’s Recent Lexmark Decision, as Well as
`
`Multiple Preceding Authorities, Conclusively Disprove
`
`Defendants’ First-Sale Theory.
`
`Defendants’ foundational defense of the district court’s finding of conflict
`
`preemption is that the first sale doctrine, codified in §109(a) of the Copyright Act
`
`of 1976, prohibits creators of copyrighted works from possessing any financial
`
`interest in sales of those works that occur after the initial sale – that the only
`
`consideration a creator can ever receive from a sale is that received on the first
`
`sale. (JB1 1 [“. . . the first sale doctrine gives the creator of a copyrighted work the
`
`1 All “JB” references are to the Joint Brief of Appellees Christie’s, Inc. &
`Sotheby’s, Inc., filed June 20, 2017.
`
`917411.1
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`2
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`right to receive fair market value from an initial sale, but precludes the creator
`
`from . . . receiving further compensation for such sales”], 15 [“all remuneration for
`
`creating the work is obtained in the first sale; once the creator sells a copyrighted
`
`item, the creator cannot attempt to . . . receive additional reward from any future
`
`sales”].)
`
`Defendants’ position is unsupported. Not only have they failed to cite a
`
`single case that holds in accordance with their position (see discussion in Part
`
`I.A.3, infra,), their contention has repeatedly been refuted by numerous authorities,
`
`such as those cited in our opening brief (AOB2 36-38), cases which hold that
`
`creators can lawfully possess future economic interests in sold works even after
`
`there has been a first sale, as, for example, by reserving such interests by contract.
`
`Now, there is even more proof – indeed, dispositive proof – compelling that
`
`defendants’ core position must be rejected. That proof is provided by the United
`
`States Supreme Court in its very recent decision in Impression Prod., Inc. v.
`
`Lexmark Int'l, Inc. (“Lexmark”), 137 S. Ct. 1523, 198 L. Ed. 2d 1 (2017). Though
`
`defendants repeatedly cite and quote this decision, they never even acknowledge,
`
`let alone come to grips with, its holdings. Here are the Lexmark holdings that
`
`defendants ignore:
`
`2 All “AOB” references are to Appellants’ Opening Brief, filed March 8, 2017.
`
`917411.1
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`3
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`First: Lexmark holds that the first sale doctrine, like its twin in patent law
`
`(the “exhaustion doctrine”),3 simply means that the copyright holder’s federally-
`
`granted monopoly right to control a work’s distribution terminates upon the first
`
`sale of that work and, thus, a copyright holder cannot bring a federal copyright
`
`infringement suit for conduct occurring after the first sale. As Lexmark holds:
`
`“What a patent adds—and grants exclusively to the patentee – is a limited right to
`
`prevent others from engaging in those practices. Exhaustion extinguishes that
`
`exclusionary power.” (id. at 1534 [citation omitted]); “[t]he sale terminates all
`
`patent rights to that item.” (Id. at 1531 [quotation omitted]); “the exhaustion
`
`doctrine is not a presumption about the authority that comes along with a sale; it is
`
`instead a limit on the scope of the patentee's rights,” (id. at 1534 [quotation
`
`omitted]).
`
`Second: While the first-sale doctrine terminates the right to bring a federal
`
`copyright infringement suit once there has been a first sale, it does not undermine
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`or terminate other rights possessed by the copyright holder regarding subsequent
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`3 Lexmark makes clear that the exhaustion doctrine in patent law and the first-sale
`doctrine in copyright law are essentially the same so that decisions addressing the
`exhaustion doctrine are highly informative of the meaning and effect of the first
`sale doctrine. (Lexmark, 137 S. Ct. at 1536 [“differentiating the patent exhaustion
`and copyright first sale doctrines would make little theoretical or practical sense:
`The two share a strong similarity ... and identity of purpose” (citation and
`quotation omitted); LifeScan Scotland, Ltd. v. Shasta Techs., LLC, 734 F.3d 1361,
`1375 & n. 9 (Fed. Cir. 2013) [“The Supreme Court has frequently explained that
`copyright cases inform similar cases under patent law.”].)
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`917411.1
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`4
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`sales, such as contract rights negotiated in connection with the first sale. As
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`Lexmark repeatedly declares, contract rights can be enforced (albeit not by a
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`copyright infringement claim) even though there has been a first sale: the rights
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`between a patent holder and a purchaser “can be addressed through contract law,”
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`as opposed to a patent infringement claim (id. at 1538); “[w]hen a patentee chooses
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`to sell an item, … [he] is free to set the price and negotiate contracts with
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`purchasers, but may not, by virtue of his patent, control the use or disposition of
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`the product after ownership passes to the purchaser” (id. at 1531 [emphasis in
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`Lexmark]); “[o]nce sold, the [products] passed outside of the patent monopoly, and
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`whatever rights Lexmark [the patent holder] retained are a matter of the contracts
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`with its purchasers, not the patent law,” (id. at 1533); contractual restrictions may
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`be “clear and enforceable under contract law, but they do not entitle Lexmark to
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`retain patent rights in an item it has elected to sell” (id. at 1531.)
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`These holdings, and those in the predecessor cases we have cited (AOB 32-
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`33, 36-38), completely destroy defendants’ assertions that the first-sale doctrine
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`precludes the copyright owner from possessing and enforcing economic
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`entitlements after the first sale.
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`Defendants do not dispute that contract rights to future entitlements can be
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`enforced even though a first sale has occurred and, thus, they implicitly concede
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`917411.1
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`that their central argument is meritless. (JB 27.4) This is so because, if it were true
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`(as defendants incorrectly contend), that the first-sale doctrine really precluded a
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`copyright holder from possessing a viable financial or other interest in sales
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`occurring after the first sale, then the contract rights that they concede exist would
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`be preempted. But, as Lexmark and the other cases we have cited hold, such rights
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`are not preempted; they are unimpaired by the first sale doctrine.5
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`Based on Lexmark and the other authorities we have cited (AOB 36-38), an
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`artist could lawfully enter into a contract with the first-sale purchaser that
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`guarantees the artist a right to receive 5% of any resale and the artist could
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`thereafter enforce that right, not through a federal copyright infringement action
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`barred by the first sale doctrine, but through a straightforward contract action for
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`money due. And, since contract entitlements are not preempted by the first-sale
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`4 While not disputing that contract rights can be asserted notwithstanding a first
`sale, defendants claim the contract entitlements would be limited by contract
`principles, such as lack of privity. (JB 27.) But, this proves nothing in terms of
`preemption. That a state contract-law defense may or may not exist to a contract
`claim does not alter the basic principle that contract rights can be asserted and,
`thus, are not preempted. That is the controlling principle here. That contract
`defenses might be available is irrelevant to the preemption issue.
`5 None of the cases describe the ability to possess or enforce contract rights after
`the first sale as a special exception to the first sale doctrine. Not one case holds
`that the first sale doctrine invalidates all interests in a work after its first sale except
`when those interests are obtained by contract. On the contrary, the decisions
`explain that, under the first sale doctrine, when a copyright holder sells a copy of
`his work, he loses his exclusive statutory authority over the distribution of that
`copy, while his other rights “remain unimpaired”. (U.S. v. Wise, 550 F.2d 1180,
`1187 and n.10 (9th Cir. 1977))
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`doctrine, there is no rational reason why a state legislature, like the California
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`legislature, could not enact a statute, like the CRRA, that affords the artist an
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`identical 5% right.6
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`The bottom line, established by Lexmark and its predecessors, is that
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`copyright holders can lawfully assert entitlements arising after a first sale and that
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`claims seeking to enforce such entitlements are not preempted by the Copyright
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`Act.
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`2.
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`As Binding Precedent From This Circuit Correctly Establishes,
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`the CRRA Is Not in Conflict With the First Sale Doctrine in
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`§109(a) of The Copyright Act: There Is Not a Word in the
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`Copyright Act That Precludes a Copyright Owner From
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`Reserving or Being Afforded a Right to Receive Future Income
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`From Sales Occurring After the First Sale.
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`The CRRA does not conflict with the first-sale doctrine. The first-sale
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`doctrine is narrow: It merely cuts off the copyright holder’s right to bring a federal
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`copyrig