October 15, 2012
Supreme Court To Hear Case On Applying The First Sale Doctrine To Foreign Goods
One of the more interesting cases the Supreme Court is taking up this term is Kirtsaeng v. John Wiley & Sons, Inc. (11-697). The case is set for argument on October 29 [Corrected. Original Post said the 22nd]. Here are the questions presented:
This case presents the issue that recently divided this Court, 4-4, in Costco Wholesale Corp. v. Omega, S.A., 131 S. Ct. 565 (2010). Under § 602(a)(1) of the Copyright Act, it is impermissible to import a work "without the authority of the owner" of the copyright. But the first-sale doctrine, codified at § 109(a), allows the owner of a copy "lawfully made under this title" to sell or otherwise dispose of the copy without the copyright owner's permission.
The question presented is how these provisions apply to a copy that was made and legally acquired abroad and then imported into the United States. Can such a foreign-made product never be resold within the United States without the copyright owner's permission, as the Second Circuit held in this case? Can such a foreign-made product sometimes be resold within the United States without permission, but only after the owner approves an earlier sale in this country, as the Ninth Circuit held in Costco? Or can such a product always be resold without permission within the United States, so long as the copyright owner authorized the first sale abroad, as the Third Circuit has indicated?
The case has some implications for libraries that may be purchasing foreign books through third parties, or potentially limiting what a library may do with these books. There are all kinds of possibilities, practical or otherwise depending on the outcome of the case. It may seem absurd to suggest a library may not place a de-accessioned book into a sale bin without permission of the publisher, but that could indeed be a result. Consumers may be affected by this decision as well.
The first sale doctrine certainly applies to items manufactured in the United States, but the decisions by the Ninth, Second, and Third Circuits noted above make this an open question. The facts in the case before the Supreme Court are best expressed in the Second Circuit’s opinion:
Defendant Supap Kirtsaeng ("defendant" or "Kirtsaeng") moved to the United States from Thailand in 1997 to pursue an undergraduate degree in mathematics at Cornell University. According to Kirtsaeng, he later moved to California to pursue a doctoral degree.
B. The Instant Action
To help subsidize the cost of his education, Kirtsaeng allegedly participated in the following scheme: Between 2007 and September 8, 2008, Kirtsaeng's friends and family shipped him foreign edition textbooks printed abroad by Wiley Asia. In turn, Kirtsaeng sold these textbooks on commercial websites such as eBay.com. Using the revenues generated from the sales, Kirtsaeng would reimburse his family and friends for the costs that they incurred during the process of acquiring and shipping the books and then keep any remaining profits for himself. Kirtsaeng claims that, before selling the textbooks, he sought advice from friends in Thailand and consulted "Google Answers," a website which allows web users to seek research help from other web users, to ensure that he could legally resell the foreign editions in the United States.
The evidence showed that Kirtsaeng had about $1.2 million in PayPal revenues from his textbook business. I’ll mention somewhat parenthetically that when seeking advice on setting up an import business, Google Answers and advice of friends may not offer the best information or substitute for competent legal advice. The trial court in Kirtsaeng held that the first sale doctrine did not apply to goods manufactured outside of the United States. The Second Circuit agreed, holding that the right of foreign manufacturers to control their distribution granted under §602 of the Copyright Act would have no meaning if the first sale doctrine in §109(a) applied. A summary of the Second Circuit Opinion is in 16 Intell. Prop. L. Bull. 95 (2011).
The Third Circuit said quite the opposite in Sebastian Intern., Inc. v. Consumer Contacts (PTY) Ltd., 847 F. 2d 1093 (1988):
The Supreme Court would have answered the question as to whether the first sale doctrine applies to foreign manufactured goods in the Costco case but for the 4-4 split due to Justice Kagan’s recusal. The United States has filed an amicus brief supporting Wiley’s position. The argument transcript in the Costco case is here for those looking for a preview of the Kirtsaeng case. Justice Kagan’s questions should be particularly interesting, assuming the other Justices haven’t changed their position since last year. [MG]
Section 602(a) does not purport to create a right in addition to those conferred by section 106(3), but states that unauthorized importation is an infringement of "the exclusive [section 106(3)] right to distribute copies." Because that exclusive right is specifically limited by the first sale provisions of § 109(a), it necessarily follows that once transfer of ownership has cancelled the distribution right to a copy, the right does not survive so as to be infringed by importation. The preliminary injunction was granted on the basis of an erroneous reading of the law and therefore must be vacated.