Red Baron-Franklin Park, Inc. v. Taito Corp.

Taito Corporation (defendant) was a Japanese company that sold video games, including Double Dragon. Taito had registered Double Dragon with the US Copyright Office. Red Baron-Franklin Park, Inc. (Red Baron) (plaintiff) operated publicly accessible video-game arcades where patrons could pay to play on various video-game units, including units fitted with the circuit boards needed to play Double Dragon. Red Baron had not purchased the Double Dragon circuit boards from Taito and had not been licensed by Taito to use the circuit boards. Rather, Red Baron had obtained the circuit boards on the so-called “gray market,” through which Red Baron (1) purchased used circuit boards that Taito had originally sold to other entities in Japan and (2) then imported the circuit boards into the United States without Taito’s consent. Taito asserted that when Taito originally sold the circuit boards, each board contained a restrictive notice indicating that the game was for use in Japan only and that selling, exporting, or operating the game outside of Japan could violate international copyright or trademark law. Red Baron sued Taito in federal district court, seeking a declaratory judgment that Red Baron had not infringed Taito’s copyright rights. The district court ruled in Red Baron’s favor, holding that Taito’s initial sale of the Double Dragon circuit boards in Japan had extinguished Taito’s rights under the copyright laws. The district court based its conclusion on the first-sale doctrine, codified at 17 U.S.C. § 109(a), which provides that if someone legally purchases a copy of a copyrighted work, the copyright holder may not limit the purchaser’s sale or disposition of that copy. Taito appealed, arguing that although the first-sale doctrine might have given Red Baron the right to purchase, import, and sell the Double Dragon circuit boards without interference by Taito, Taito had a separate right to perform Double Dragon publicly and had not conveyed that right to Red Baron. Taito thus asserted that Red Baron was infringing Taito’s copyright with respect to the performance right by making the Double Dragon boards available to the arcade patrons.