SCOTUS: “First Sale” Doctrine Also Applies to Copyrighted Works Lawfully Manufactured Abroad

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In arguably the most important copyright case of the past decade, the Supreme Court of the United States, in a 6-3 decision, held that the “first sale” doctrine protects the right to import and sell gray market goods.  Gray market goods are copyrighted works that were lawfully made abroad, but imported to the United States without the copyright holder’s authorization.  The case before the Court, Kirtsaeng v. John Wiley & Sons, Inc., No. 11-697 (U.S. Mar. 19, 2013), involved a mathematics student from Thailand, Supap Kirtsaeng, who moved to the United States to further his education.  To help fund his education, Kirtsaeng asked his friends and family in Thailand to purchase English-language textbooks from Thai book stores, where they sold at low prices, and send them to Kirtsaeng in the United States so that he could resell them for a substantial profit on eBay.  The books in question were printed by John Wiley & Sons, Inc.’s wholly owned foreign subsidiary, Wiley Asia, for the limited purpose of distribution in Europe, Asia, Africa and the Middle East.

 

In 2008, Wiley & Sons brought a federal lawsuit against Kirtsaeng for copyright infringement.  In its complaint, Wiley & Sons argued that the copies printed by Wiley Asia were made under an assignment solely granting rights to print and sell copies abroad.  According to Wiley & Sons, by reselling these copies in America, Kirtsaeng had imported a copy made abroad without the copyright owner’s permission in violation of §106(3) of the Copyright Act.  Furthermore, because each copy created by Wiley Asia contained an explicit disclaimer that they are not to be imported into the United States without permission, Wiley & Sons contended that Kirtsaeng had also violated §602, which prohibits infringing importation of protected works.

 

In response, Kirtsaeng argued that the books were lawfully made and obtained, and that under the “first sale” doctrine codified in §109(a), he was permitted to resell the books without Wiley & Sons’ authorization.  However, the District Court held that the “first sale” doctrine did not apply to copies that were manufactured by the copyright holder abroad.  As a result, the jury found that Kirtsaeng had willfully infringed upon Wiley & Sons’ copyright, and awarded $600,000 in statutory damages.  The Second Circuit Court of Appeals affirmed the District Court’s ruling.

 

The Supreme Court granted certiorari to review the apparent conflict between the “first sale” doctrine, on the one hand, which protects the right to resell a legally obtained copy of the protected work, and §106(3) and §602, on the other hand, which protects a copyright holder’s distributions rights.  To put it another way, the Court reviewed whether the “first sale” doctrine applies to gray market goods.

 

In reversing the Second Circuit, the Court found that the purchaser of a legitimate product has full ownership rights, including the right to resell the product without geographic limitation.  The Court’s opinion raised concerns that a ruling in Wiley & Sons’ favor could lead to “intolerable consequences.”  For example, the Court pointed to the fact that library collections throughout the country contained more than 200 million books, which were published abroad as a cost-saving measure, and that an adverse ruling would call into question whether they would have to first seek permission from the copyright holder before circulating these books.  Similarly, the Court opined that museums may be precluded from displaying artwork of foreign artists without having first obtaining prior consent.  Moreover, the Court found that such absurd results would conflict with the “ever-growing importance of foreign trade to America.”

 

This decision will not only be seen as a victory to small resellers like Kirtsaeng, but also to online marketplace operators such as eBay and Amazon in that it protects the right to buy and sell authentic goods regardless of where they were created.  Furthermore, the Court’s ruling may have the effect of reducing the common practice of price discrimination by companies that sell identical goods in different markets for different prices.  However, the ruling does not erase the possibility that publishers could devise ways to avoid the effect of this ruling.  For example, publishers could release different versions of their textbooks that would differ enough such that editions sold abroad would not be compatible with American versions.  Not to mention, as the publishing industry continues transitioning into electronic formatted works, the protection offered by the “first sale” doctrine may shrink in the future.

 

A link to the Supreme Court’s decision can be found here.

 

Topics:  Copyright, Copyright Infringement, First Sale Doctrine, Manufacturers, The Copyright Act

Published In: General Business Updates, Intellectual Property Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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