Watch Out for This Supreme Court Case

Callum is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The Supreme Court is now in session

Another session for the Supreme Court is now underway, with several controversial cases on the docket, such as affirmative action and gay marriage. But one small part that is also under review is the First Sale Doctrine, which allows consumers to resell anything from a chair to a TV to an iPod, without the consent of the manufacturer. The case in question is Kirtsaeng v. John Wiley & Sons. The First Sale Doctrine has been recognized in the US since 1908, but the contention is the First Sale Doctrine doesn't cover products manufactured overseas. This means if you buy an iPhone, you can't resell it unless Apple (the copyright owner) gives you permission to do so. Personally, I think this is a ridiculous assertion; once you buy something you have every right to sell it once you no longer want that product. Nobody should have the power to be able to come in and say if you want to sell one of your products; not only do you have to contact them first, but you must also pay them a cut. Didn't you already do that when you bought the product in the first place?

Who will be affected?

All of us will be affected if the Supreme Court upholds an appellate court ruling which states that consumers must get the consent of a manufacturer in order to resell things that weren't made in America. If you buy a pair of shoes that were made in India, but they don't fit, you would have to call that shoe manufacturer to see if you have the right to sell those shoes. A company that would be hurt by this is eBay (NASDAQ: EBAY)’s marketplace division, which entire premise is to resell old goods. While I am bullish on eBay and think its PayPal division is the biggest reason to be bullish on eBay, this still worries me. If the appellate court ruling is upheld, then the marketplace division goes out of business overnight. Libraries will also get hurt, as over 200 million books in our libraries are foreign made. Thrift and pawn shops could also no longer exist, because what they do would be illegal unless they got consent for each and every product that they buy and resell. Ridiculous I know. Amazon (NASDAQ: AMZN) would also be affected, but not nearly to the extent that eBay would be. On Amazon's website you can resell your products for a small fee, but if this ruling is upheld that source of revenue disappears.

Tax Revenue

Most states have a sales tax, which means every time a good is sold the local government charges a 5-10% (usually) tax on top of that. If a used car is sold for $10,000 and the sales tax is 7.5%, the local government makes $750 that goes toward education, welfare, and other services offered by the state. But if this ruling goes into effect, second hand sales will plummet (depending on how hard the US cracks down on this) and state and local revenue will be adversely affected.

Local Stores

Antique stores would have to try and find ancient producers and manufactures of their old merchandise, which could cost tens of thousands of dollars in legal fees and result in numerous dead end searches as the manufacturers may have disappeared or merged with other companies. Some of those companies could have gone out of business hundreds or thousands of years ago. As I said before, pawn shops and thrift stores also would be adversely affected. Many, if not all of them, would go out of business as they would have to spend millions on legal fees just to operate. Now only would that kill jobs, but it would also hurt those who rely on pawn shops to scrape by during tough times. If you have a family, no cash, and need to buy food; you can go and pawn off some stuff you no longer need, but if this ruling is upheld you won't be able to legally. Plus, garage sales can't exist anymore. Sad times!

Ebay Shareholders, Amazon Shareholders, and the Common Public

If you own eBay shares I would recommend calling up your representatives and voicing your concerns about this absurd potential law, and if you aren't, I would still recommend voicing your concerns. I think we can all agree that this crosses the line and it is up to us to make sure this law doesn't go into effect. I would be worried if you are an eBay shareholder because I see this law being a major hindrance of eBay's profits, at least until the law is changed (assuming this passes). If you are an Amazon shareholder I wouldn't be as worried, but growth could slow down as it can no longer sell second hand goods.  

Final Thoughts

Personally I am disgusted that this could even be an issue. Once you buy a product you have every right to resell it as you wish. This isn't infringing on patents or hurting anyone. If you own a foreign car and want to resell so you can buy another car made in America, who gets hurt by that? If you are an eBay or Amazon shareholder I think you should pay close attention to this ruling, as it could hurt your investment.

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