Buyer beware! No, not really. But maybe…
On March 19th, the Supreme Court decided in Kirtsaeng v. John Wiley & Sons, Inc. that the first sale doctrine of the U.S. Copyright Act applies to copies of a copyrighted work made abroad, so long as the copies are made in accordance with the Copyright Act. In its 6-3 decision, the Supreme Court made it clear that the Copyright Act is not here to protect your price discrimination business models or your bottom line.
In this case, Kirtsaeng, a foreign math student, re-sold copies of foreign edition English language textbooks, first purchased at Thai shops where they sold for lower prices, and retained the profit from the U.S. sales. Textbook publisher John Wiley & Sons, Inc. sued Kirtsaeng for copyright infringement, claiming that Kirtsaeng’s unauthorized importation of its books and later resale amounted to infringement of Wiley’s exclusive right to distribute.
The question before the Court was whether the first sale doctrine applied to protect the purchaser of a foreign-manufactured copy made with the copyright owner’s permission. At issue were two provisions of the Copyright Act: Section 109, the first sale doctrine, which provides the owner of a copy of a copyrighted work that is “lawfully made under this title” with the right to resell or dispose of that copy after a lawful sale; and Section 602(a), the importation provision, which prohibits importing a copy into the United States without the copyright owner’s permission. These two provisions are linked by Section 106(3), the exclusive right to distribute; the first sale doctrine is an exception to the exclusive right, and Section 602 outlines a violation of the exclusive right.
Both the District Court and Second Circuit held that the first sale doctrine did not apply to goods or copies of American copyrighted works manufactured abroad. However, the Supreme Court, relying on plain English, precedent, and common law found that the first sale doctrine imposes no geographical limitation on the words “lawfully made under this title,” thus the first sale doctrine would apply to foreign-manufactured copyrighted works as long as their manufacture met the requirements of U.S. Copyright law. In the Court’s words, “’lawfully made’ suggests an effort to distinguish copies that were lawfully made from those that were not, and ‘under this title’ sets forth the standard of lawfulness, being that US Copyright Act.“
The Supreme Court’s decision left many music industry insiders divided, with the National Association of Recording Merchandisers (NARM) claiming victory, leaving the RIAA, along with MPAA, to take the stance that the Court’s decision will hinder American business.
Unpack the Court’s reasoning and you’ll find that the real issue in Kirtsaeng is the protection of the economic exploitation of the copyright. The Court is clearly divided over how far the Copyright Act should go to protect the bottom line. The majority made it clear that it found no precedent to suggest a legal preference for a copyright statute interpretation that provides for market divisions. The majority acknowledged that publishers may find it difficult to engage in price discrimination—charging different prices for the same work in different geographic markets—but that the limited exclusive right provided in the Copyright Clause of the Constitution neither suggests the inclusion of an exclusive right to divide markets nor an exclusive right to charge different purchasers different prices for the same work to maximize gain. On the other hand, in the dissent, Justice Ginsburg believes that Congress intended to grant copyright owners permission to segment international markets by enacting Section 602(a)(1).
The effect of this decision will likely have real impact on the manner in which copyrighted works are licensed for domestic and global use. There is a concern from copyright owners that grey market importation could continue to undermine legitimate publishing businesses and that this decision could allow, if not encourage, the scenario presented in this case to become a legitimate business model—purchasing works in less expensive foreign locales and reselling them domestically, so as to undercut the costs of the domestic versions, while providing the purchaser with a potential profit.
The burden of this opinion will fall upon transactional attorneys, who will need to draft new language to better protect the copyrights in these works. Here, the Court implicitly found that the language currently used by Wiley was not sufficient enough to protect Wiley’s books from the first-sale doctrine exhaustion (“Copyright © 2008 John Wiley & Sons (Asia) Pte Ltd[.] All rights reserved. This book is authorized for sale in Europe, Asia, Africa, and the Middle East only and may be not exported out of these territories. Exportation from or importation of this book to another region without the Publisher’s authorization is illegal and is a violation of the Publisher’s rights. The Publisher may take legal action to enforce its rights. .). This change could be as simple or as complex as copyrighting the foreign language versions of works under foreign copyright law, instead of under U.S. Copyright law; but in the least, requires a better understanding of international copyright law protection, as well as an increased call for harmonization and globalization of international copyright law.
It should also be noted that Kirtsaeng is the second recent case to test the boundaries and applicability of the first sale doctrine; in Capital v. ReDigi, the Southern District of New York court is deciding the issue of whether an online marketplace for pre-owned digital music can re-sell a digital music file after a lawful purchase. Both the Kirtsaeng and ReDigi cases serve as a reminder of the challenges that the current patchwork of copyright law faces in dealing with the trade customs and social norms in today’s marketplace—an issue that Maria Pallante, Register of Copyrights, recently acknowledged.