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International Reach Given to First Sale Doctrine in Kirtsaeng Deals a Blow to Copyright Owners




by:
Adam R. Bialek
Kerianne Losier
Wilson Elser Moskowitz Edelman & Dicker LLP - New York Office

 
March 28, 2013

Previously published on March 21, 2013

In a decision likely to have broad implications on international consumerism and alternative markets, the Supreme Court, in Kirtsaeng v. John Wiley & Sons, articulated the contours of the Copyright Act’s first sale doctrine and by extension curtailed the exclusive distribution right granted to copyright owners under the Act.

In Kirtsaeng (decided March 19, 2013), the Court considered whether the owner of a copy of a copyrighted work lawfully manufactured abroad and subsequently imported and sold in the United States could invoke the protection of the first sale doctrine set forth in section 109(a) of the Copyright Act. In a 6-3 decision authored by Justice Breyer, the Court’s answer was clearly “Yes” as it held that the first sale doctrine applies to copies of copyrighted works lawfully manufactured outside of the United States. In so holding, the Court effectively brought such copies within the “lawfully made under this title” language provided by section 109(a), thereby precluding a copyright owner’s ability to control the importation and distribution of these copies within the United States, as long as it had authorized the initial manufacture.

Background
At issue in Kirtsaeng was the conduct of petitioner Supap Kirtsaeng, a citizen of Thailand who, by virtue of a Thai government scholarship, completed his undergraduate and Ph.D. studies at educational institutions in the United States. At his request, family and friends of Kirtsaeng residing in Thailand purchased copies of foreign-edition English-language textbooks in Thai stores, which they shipped to Kirtsaeng in the United States. Kirtsaeng would thereafter sell these less-expensive copies in the United States via eBay.com, making a profit from the difference in prices between the domestic and foreign versions.

The publisher of these academic textbooks, and the relevant copyright owner for purposes of the Kirtsaeng decision, was respondent John Wiley & Sons, Inc. (Wiley). Wiley, as is the practice of many publishers, frequently assigns the right to publish, print and sell its English-language textbooks outside the United States to its wholly owned foreign subsidiary. The American and foreign versions of Wiley’s textbooks are essentially identical, save for the advisories appearing in the copies manufactured and sold abroad that purport to confine authorized sales of the textbooks to certain stated territories outside of the United States.

After learning of Kirtsaeng’s relatively modest resale operation, Wiley initiated a copyright infringement suit in the U.S. District Court for the Southern District of New York in 2008 pursuant to 17 U.S.C. § 501, alleging that Kirtsaeng’s acquisition and subsequent sale of the copyrighted works amounted to an unauthorized importation prohibited by 17 U.S.C. § 602(a)(1) as well as a violation of Wiley’s exclusive distribution right under 17 U.S.C. § 106(3). Both the District Court and a split Second Circuit panel agreed, rejecting the notion that the first sale doctrine may be invoked by a purchaser who imports and resells copies of copyrighted works in the United States, which, though printed with the American copyright owner’s authorization, were initially manufactured abroad.

The Court’s Holding and Rationale
Rejecting the invitation to geographically confine section 109(a)’s “lawfully made under this title” language as suggested by the Second Circuit Court of Appeals, the Supreme Court departed from the rationale articulated by the lower courts and held that the Copyright Act’s first sale doctrine applies to all copies made in compliance with the Act, whether domestically or abroad. The Court explained that a contrary holding would do a disservice to the constitutional objectives that have historically underpinned U.S. copyright law as well as the contemporary free market system consistently perceived as benefiting consumers.

With the constitutional imperative of the “promot[ion] [of] the Progress of Science and useful Arts” as a frame of reference, the Court offered several practical examples that clarify the extent to which a geographical interpretation of the first sale doctrine would inhibit not only artistic and scientific pursuits but also a range of consumer activities in nearly all fields.

From a practical standpoint, the Court noted that devices from mobile phones to laptops, routinely manufactured abroad with the authorization of the U.S. copyright holder, either require copyrighted software programming for their successful operation or are packaged in copyrighted materials. A limitless array of consumer goods, from “floor cleaners and health and beauty products to breakfast cereals,” are similarly contained in copyrighted packaging or bear copyrighted labels. Confining the first sale doctrine to only those items manufactured domestically would effectively prohibit the resale of any of these items in the absence of authorization from each copyright holder. At the urging of libraries and art museums, the Court acknowledged the transaction costs that would likely accompany a geographical reading of the doctrine, requiring such institutions to seek out and obtain authorization from a copyright owner prior to distribution or display of a work. These “intolerable consequences” coupled with the “absurd” notion “that the copyright owner can exercise downstream control even when it authorized the import or first sale” that a geographical reading of the first sale doctrine lent further support to the Kirtsaeng holding, which ultimately permitted the doctrine to shield Mr. Kirtsaeng’s importation and resale operation from infringement liability.

As conceded by the Court, this decision will surely inhibit the ability of publishers such as Wiley to maintain the desired division between foreign and domestic markets, which facilitates charging a different price for an identical item to different purchasers purely by virtue of geography. However, market segmentation, and the financial gain that often accompanies such division, was not a right the Court was willing to accord copyright owners under existing domestic copyright law.

The Court’s holding that the “lawfully made” language of the first sale doctrine is to be perceived through a geographically neutral lens so as to encompass any manufacture authorized by the copyright owner, wherever it occurs, is an interpretation seemingly compelled by the practical reality of today’s market, which, by virtue of the Internet, largely operates without geographical restriction. U.S. consumers are now decidedly free to take advantage of the worldwide platform the Internet provides in making purchase decisions related to lawfully manufactured copyrighted works without the threat of exposure to infringement litigation. Whether the concomitant expense to the rights of U.S. copyright owners is too extreme remains to be seen.

There are currently several patent cases pending before the Supreme Court that could be impacted by this decision. Patent owners are now watching the Supreme Court to see whether the rationale articulated in Kirtsaeng will be extended to the context of patent exhaustion, thereby impacting the ability of owners to control the resale of patented goods made outside the United States.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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