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Supreme Court Holds the First Sale Doctrine Applicable to Parallel Importation

Copyright Patent
Kirtsaeng v. John Wiley & Sons, Inc. By Sarah Jeong – Edited by Alex Shank Kirtsaeng v. John Wiley & Sons, Inc., No. 11-697 (U.S. Mar. 19, 2013) Slip opinion   [caption id="attachment_3080" align="alignleft" width="150"] Photo By: - CC BY 2.0[/caption] The Supreme Court held in a 6-3 decision that the “first sale” doctrine applies to copies of copyrighted work lawfully made abroad, reversing the judgment of the Court of Appeals for the Second Circuit. The case involved the resale in the United States of approximately 600 copies of textbooks that originally had been bought in Thailand at relatively inexpensive prices. On remand, the Supreme Court ordered that the Second Circuit conduct further proceedings consistent with the Court’s opinion. The unauthorized importation of copyrighted material is barred by § 602 of the Copyright Act of 1976 (17 U.S.C. § 602), and John Wiley & Sons’ (“Wiley”) right to distribute is protected by § 106(3). However, the first sale doctrine of § 109(a) extinguishes the copyright owner’s interest in a particular copy after the first sale to a consumer. At issue in Kirtsaeng was whether § 109(a) applies to goods of “foreign manufacture”—more specifically, whether the phrase “lawfully made under this title” applied to goods like the Asian editions of the Wiley textbooks. In holding that the first sale doctrine also extends to these goods, the Supreme Court removed the geographical limitations to the first sale doctrine placed by the Ninth Circuit in Omega S. A. v. Costco Wholesale Corp., 541 F.3d 982 (9th Cir. 2008). Furthermore, the holding undercuts distributors’ attempts to divide regional markets and practice economically efficient price discrimination. The Los Angeles Times provides an overview of the case. Professor James Grimmelmann of New York Law School discusses the case in Publishers Weekly, calling the issues in the case “significant.” Ars Technica also comments on the decision, celebrating it as a “vindication” of the first sale doctrine. JOLT Digest previously reported on the Second Circuit’s holding in favor of Wiley, affirming the decision of the District Court for the Southern District of New York. JOLT Digest also previously commented on the future of the first sale doctrine after Quality King, a case heavily relied on by the Supreme Court in Kirtsaeng. Supap Kirtsaeng asked his family to buy English language textbooks in bookstores in Thailand and to send them to him in the United States. He then resold them in the United States, mostly on eBay. He reimbursed his relatives and kept the profits, which were considerable, as Wiley sold its textbooks at much lower prices in Asia than it did in the United States. Kirtsaeng sold over 600 copies. At trial, the textbook company’s lawyers said that they had counted about $1.2 million in receipts for Kirtsaeng. The books in question contained a copyright notice that claimed, “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. . . . Printed in Asia.” Kirtsaeng at 4. However, this notice seemed to bear little weight. The Supreme Court opinion hinged on the statutory interpretation of the words “lawfully made under this title” in § 109(a). Wiley argued that since the books were printed and distributed in Asia (and therefore not protected by U.S. law), they were not “lawfully made” under the Copyright Act, and, therefore, the first sale doctrine in § 109(a) did not apply to them. Justice Breyer, writing the majority opinion, noted that even though the Copyright Act did not protect such copies, this “does not mean the Act is inapplicable to copies made abroad.” Id. at 10. The majority found no textual clues or legislative history that was persuasive enough to adopt Wiley’s interpretation of the key phrase. The majority opinion also pointed to the possible ill effects of a territorially limited first sale doctrine, as testified to by libraries and art museums (“Museums, for example, are not in the habit of asking their foreign counterparts to check with the heirs of copyright owners before sending, e.g., a Picasso on tour.” Id. at 23.), and attacked the notion that the Copyright Act should protect the practice of regional price discrimination (“the Constitution’s language nowhere suggests that its limited exclusive right should include a right to divide markets or a concomitant right to charge different purchasers different prices for the same book, say to increase or to maximize gain.” Id. at 32.). Justice Kagan wrote a separate concurrence, in which Justice Alito joined. She acknowledged that the decision substantially narrowed the § 602(a)(1) prohibition on unauthorized importation but concluded that the court was bound by a previous decision, Quality King Distributors, Inc. v. L’anza Research Int’l, Inc., 523 U.S. 135 (1998), which held that § 109(a) limits § 602(a)(1). Justice Ginsburg, joined by Justice Kennedy and joined in part by Justice Scalia, dissented in favor of the Second Circuit holding. The dissent preferred to adopt Wiley’s interpretation of “lawfully made under” and decried the majority opinion for reducing the § 602(a)(1) ban on unauthorized importation to “insignificance.” Ginsburg’s dissent pointed towards supportive dicta in Quality King, the same decision that Kagan saw as the true “culprit” for the narrowing of § 602(a)(1). The dissent further argued that the majority opinion was incompatible with the stance that the United States often takes on the issue of interterritorial exhaustion in international trade negotiations, in which it supports the right of domestic copyright owners “to prevent the unauthorized importation of copies of their work sold abroad.” Kirtsaeng at 21 (Ginsburg, J., dissenting) (citing an amicus brief submitted by the United States government in Quality King). As Grimmelmann points out, Kirtsaeng creates serious consequences for publishers by undermining territorial differential pricing. He notes that this issue may be addressed in future copyright reform, as proposed by Register of Copyrights Maria Pallante. This issue may also be addressed through international law, as hinted at by Justice Ginsburg in her dissent. The 2011 US proposed text for the Trans-Pacific Partnership Agreement requires signatories to ban the kind of parallel importation (Art. 4.2) featured in the Kirtsaeng case.