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Client Alerts

Copyright Alert: No Geographical Limitation to The First-Sale Doctrine

March 21, 2013

Client Alerts

Copyright Alert: No Geographical Limitation to The First-Sale Doctrine

March 21, 2013

Copyright Alert: No Geographical Limitation to The First-Sale Doctrine
On March 19, 2013, in a 6-3 decision in Kirtsaeng v. John Wiley & Sons, the Supreme Court held that U.S. copyright owners may not prevent the importation of copyrighted content manufactured for overseas markets and first sold abroad.

The Issue:

A purchaser of a copy of a copyrighted work, such as a book, CD, or film, that was lawfully created in the U.S., may resell that copy to others without authorization from the copyright holder. This right has been a part of our culture and law for decades. It is known as the “first-sale” doctrine, which is codified in the Copyright Act at 17 U.S.C. §109(a) and allows “the owner of a particular copy” of a copyrighted work “lawfully made under this title. . .to sell or otherwise dispose of the possession of that copy.”

But what if that book, CD, or film was first sold by the copyright owner outside the U.S.? Is the foreign purchaser—who is the owner of the physical copy of the copyrighted work—free to resell it to someone in the U.S. under the first-sale doctrine? Many believed the answer to this question was an unequivocal “no,” despite the first-sale doctrine, because of Section 602 in the Copyright Act, which expressly provides that an “[i]mportation into the United States” without the authority of the copyright owner of copies of a work “acquired outside the United States is an infringement. . .” 17 U.S.C. §602(a).

The conflict created by Sections 109 and 602 has been the subject of a long-heated debate.

Impact:

The implications of the Supreme Court’s decision are far-reaching. It is a clear victory for resellers that sell traditional copyrighted content, for example, books and music. But the decision has an impact far beyond that, as it conceivably extends to any type of product that includes a copyrighted work, for example, a product bearing a copyrighted design or embodying copyrighted software. It also benefits U.S. consumers who seek to purchase foreign-made works at cheaper prices.

On the other hand, businesses that manufacture copyrighted works abroad and use different pricing structures for different geographic markets may have to revisit their overseas pricing models, as copyright can no longer be the basis to prevent importation into the U.S. of less expensive foreign-made works intended solely for markets outside the U.S. Accordingly, a rise in licensing programs may result, as licensing copies of certain copyrighted works, such as books and software, rather than selling copies outright, may help copyright owners avoid or reduce importation and resale through contractual terms.

Background:

In 1998, the Supreme Court considered whether hair care products bearing copyrighted labels that were manufactured in the U.S., sold abroad, and subsequently imported and resold in the U.S. without the copyright owner’s authorization, was infringement.[1] A unanimous Supreme Court found that it was not, explaining that the “whole point of the first-sale doctrine is 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.”[2] The Court did not specifically address the relationship between the first-sale doctrine and the importation of products manufactured outside the U.S.

Twelve years later, the Supreme Court faced this issue in Omega v. Costco. [3] In a 4-4 decision, the Court affirmed the Ninth Circuit, which found the first-sale defense inapplicable to copyrighted goods made and first sold abroad. As an evenly split decision, it set precedent only in the Ninth Circuit, not nationwide.

This brings us to Supap Kirtsaeng, a citizen of Thailand who moved to the United States in 1997 to earn an undergraduate degree at Cornell University and a Ph.D. at the University of Southern California. To subsidize his studies in the U.S., Mr. Kirtsaeng asked his family and friends in Thailand to purchase copies of a foreign-edition English language textbook, published in Asia by respondent’s wholly owned Asia-based subsidiary, at a price much lower than the price offered to consumers in the U.S. market. Once they purchased the textbooks, his family and friends would ship them to Mr. Kirtsaeng in the U.S., where he later resold them for a hefty profit. When the respondent, John Wiley & Sons, Inc., learned of this, it sued Mr. Kirtsaeng in a New York federal court for copyright infringement, arguing that Kirtsaeng’s unauthorized importation and resale of its books was an infringement of Wiley’s exclusive rights under the Copyright Act to distribute and prohibit importation. See 17 U.S.C. §§ 106(3); 602. Mr. Kirtsaeng raised the first-sale doctrine as a defense, but the district court held the doctrine inapplicable to copyrighted works published abroad. A jury awarded John Wiley $600,000 in statutory damages, and the Second Circuit affirmed the award.

The question before the Supreme Court was whether the phrase “lawfully made under this title” in Section 109(a) of the Copyright Act restricts the scope of the first-sale doctrine geographically. Wiley adopted the view of the Second and Ninth Circuits, arguing that “lawfully made under this title” refers only to works made in the United States and that the first-sale doctrine does not apply unless the copyrighted work is manufactured or first sold in the United States. Mr. Kirtsaeng, unsurprisingly, argued the opposite, claiming that the phrase “lawfully made under this title” has no geographical bar and that the first-sale doctrine applies to all works originally manufactured and sold with the copyright holder’s authorization, whether in the United States or abroad, such that he was free to purchase the foreign-made textbooks and resell them in the U.S.

The Supreme Court agreed with Mr. Kirtsaeng, holding that once copyright owners sell copies of their works lawfully, whether in the U.S. or abroad, they have exhausted their rights under U.S. copyright law.

Justice Breyer, writing for the majority, expressed the concerns of libraries, used-book dealers, technology companies, consumer-goods retailers, and museums. If the Supreme Court held in favor of Wiley, libraries would be unable to lend certain materials without a license from publishers, which could be, depending on the age of the work or other circumstances, nearly impossible to acquire. Students would be prevented from buying or selling used textbooks at lower, more affordable prices. Consumers would be unable to resell their foreign-manufactured and purchased automobiles because they incorporate copyrighted software. According to the majority, when Congress revised the Copyright Act in the 1970s, it did not intend to restrict resales or “downstream” uses of foreign-manufactured goods in such a severe way.

Justice Ginsberg dissented (joined by Justice Kennedy and Justice Scalia, in part). Ginsberg stated that the majority’s ” bold departure from Congress’ design is. . .stunning, for it places the United States at the vanguard of the movement for ‘international exhaustion’ of copyrights—a movement the United States has steadfastly resisted on the world stage.” To the dissent, the decision effectively shrunk the significance of the Copyright Act’s importation ban, which could be disastrous for copyright holders.

For questions, please contact:

Kristen McCallion
Principal
New York
(212) 641-2261
mccallion@fr.com

1  Quality King Distributors Inc. v. L’anza Research International Inc., 523 U.S. 135 (1998).
2  Quality King Dist., at 152.
3  See Fish’s Client Alert: “Buyer (and Reseller) Beware: The Copyright Act’s First-Sale Doctrine May Not Insulate a Reseller of Goods Manufactured Abroad,” Dec. 15, 2010.

 

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