Client Alert - Supreme Court Holds That A Copyright Owner Controls Only The "First Sale" Of A Copy - Wherever That Sale Occurred
by Thomas Kjellberg
On March 19, 2013 the U.S. Supreme Court issued its decision in Kirtsaeng v. John Wiley & Sons. The Kirtsaeng case concerns the “First Sale Doctrine” of the U.S. Copyright Act: the right of the owner of a “particular copy” of a work that was “lawfully made under this title” to sell or dispose of that copy without the authorization of the copyright owner.
The application of the First Sale Doctrine is straightforward with respect to domestically manufactured copyrighted goods distributed in the United States. For instance, when a U.S. publisher sells 100 copies of its copyrighted textbook, manufactured in California, to a bookstore in Minnesota, the bookstore is free to sell or otherwise dispose of those copies without any control by the copyright owner. The same is true of the bookstore’s customers, who may sell or give away the copies they purchased like any other item of personal property. The publisher/copyright owner’s exclusive right to distribute those copies of the textbook was “exhausted” when the publisher made the first sale to the bookstore.
But what if that same U.S. publisher authorized its Asian affiliate to print copies of the textbook in Asia, for sale in Asia – and the Asian affiliate sold some of those copies to third parties who exported them to the United States, to be sold in direct competition with the publisher’s more-expensive U.S. edition? Then the publisher might assert its exclusive “importation right” under the Copyright Act, which provides that the importation of copies of a work without the authority of the copyright owner infringes the owner’s exclusive right to distribute copies.
That’s what happened here. Wiley publishes textbooks for sale both domestically and abroad. The content of the books is generally the same whether they’re intended for domestic or international sale. However, copies manufactured for the non-U.S. market often differ from the U.S. editions in printing materials, design, and the quality of photographs and graphics – and are priced considerably lower than the U.S. editions.
Supap Kirtsaeng came to the U.S. from Thailand in 1997 to study at Cornell and later USC. To finance his education, he had friends and family ship him copies of Wiley’s Asian-made, Asian-edition textbooks, which he sold on eBay. Wiley sued Kirtsaeng for copyright infringement in the Southern District of New York; a jury found Kirtsaeng liable for willful infringement, and awarded very substantial statutory damages. The Second Circuit affirmed.
The U.S. Supreme Court reversed in a six-to-three opinion. The Court’s opinion turned on its construction of the statutory language limiting the First Sale Doctrine to works “lawfully made under this title.” The Supreme Court rejected the lower courts’ interpretation of that language as limiting the First Sale Doctrine to copies that were made in the geographic territory of the United States. Instead, the Court adopted a “nongeographical interpretation” of the statute, under which copies of a work that were made and sold abroad with the authorization of the copyright owner were “lawfully made” under U.S. law. The First Sale Doctrine does apply to such copies, and the copyright owner’s right to control the distribution of those copies was exhausted when the first sale was made abroad.
For companies that have relied on the “importation right” to divide markets territorially, in order to maximize revenues from the worldwide exploitation of their copyrights, the Kirtsaeng decision has substantially altered the rules. As the Court’s opinion notes:
Wiley and the dissent claim that a nongeographical interpretation will make it difficult, perhaps impossible, for publishers (and other copyright holders) to divide foreign and domestic markets. We concede that is so. A publisher may find it more difficult to charge different prices for the same book in different geographic markets.
As Justice Kagan acknowledged in a brief concurrence, the Kirtsaeng opinion leaves the once-formidable importation right under the Copyright Act “diminish[ed]—indeed, limit[ed] to a fairly esoteric set of applications.” Post-Kirtsaeng, commercial operators in the global economy must turn to other legal disciplines, such as contract, customs and trademark law, to deter unauthorized importation and distribution of their products.
For further information, contact C.J. Erickson or Don M. Obert, of our Customs, International Cargo & Regulatory Compliance Group; or Thomas Kjellberg or Kieran Doyle, of our Intellectual Property Group.