The Deeper Implications Of The Pending Kirtsaeng Case

There was a very stimulating discussion yesterday via conference call on the Kirtsaeng case which will be argued in the U.S. Supreme Court next Monday.  I wrote about the case last week, mostly in the context of the law of the case and a potential effect on libraries.  The central issue in the case concerns the application of the first sale doctrine to foreign made goods.  I won’t repeat the specific facts at issue here.  They are in the earlier post.

The panel consisted of the following individuals:

• Marvin Ammori, Bernard L. Schwartz Fellow, New America Foundation and Affiliate Scholar, Stanford Law School Center for Internet & Society
• Hillary Brill, Global Policy Counsel for eBay Inc.
• Mark J. Griffin, General Counsel for Overstock.com, Inc.
• Joseph Marion, President of the Association of Service and Computer Dealers International (ASCDI)
• Alfred Paliani, President of the American Free Trade Association and General Counsel of Quality King Distributors, Inc.
• Vailey Oehlke, Director of Libraries for Multnomah County, Oregon
• Betsy Wilson, Dean of Libraries at the University of Washington
• Moderator:  Andrew Shore, Executive Director of the Owners’ Rights Initiative

The discussion brought out some of the implications of a decision upholding the Second Circuit’s ruling that the first sale doctrine does not apply to imported goods.  The context in this case is the resale of imported books but the impact could be much broader in a world with increasingly globalized trade.  One of the examples the panel used is technology.  Our electronic devices are typically manufactured outside of the United States.  If not the devices themselves, the parts they contain likely contain foreign-manufactured parts.  Technology built in cars is a perfect example.

It may seem absurd to suggest that one couldn’t resell a car because the radio it contains was manufactured at an Asian facility and the manufacturer refused permission for the resale.  I agree it would be absurd.  However, a ruling that limits first sale doctrine application would create another level of rights that can be negotiated.  This would likely result in higher prices for producers of finished goods and ultimately consumers. 

One of the suggestions at yesterday’s panel was that domestic manufacturers who might want to limit their products in secondary markets could easily manufacture their goods overseas as limit on distribution.  If this also sounds absurd, consider that Universal Music Group sued an individual for reselling promotional CDs on eBay.  The Ninth Circuit ultimately ruled that the “license” terms limiting resale ran afoul of the first sale doctrine.  The case (UMG v. Augusto, 628 F.3d 1175 (2011)) could have a different outcome under an affirmed Kirtsaeng.  All UMG would have to do is make their promotional CDs outside of the United States and make that make that notice of geography prominent.

The same thought could occur to any publisher who would rather sell new copies of books, music, and movies by limiting resale.  Consumers would not be the target of suits as such (though Troy Augusto was a targeted consumer in the UMG case).  Legitimate resale businesses, however, used book and music stores, could easily be targets to enforce a copyright regime.  As a consumer I’m just as happy to buy a used DVD copy of a Doctor Who episode at Reckless Records in Chicago for a very reasonable $6.99.  I’m sure Warner Bros. and the BBC would prefer I pay a much higher new price for the privilege.  Consumers will suffer if the law will allow cutting out these resale opportunities either by limiting the channel for used goods or by mandating higher prices for the privilege of buying something used.

Libraries in the United States lend books.  Betsy Wilson, Dean of Libraries at the University of Washington estimated that slightly more than half of the books in the system’s collection were imported.  It would be a nightmare to mine collection information to determine which books can be loaned and which could not.  Those supporting the lower court ruling in Kertsaeng say this is nothing more than drama on the part of libraries.  Really?  Have any publishers stepped up in writing that they wouldn’t enforce their importation rights if Kirtsaeng is affirmed?  I only ask this possibly dumb question because there is a track record in place for publishers on the distribution of e-books.  Libraries can only get them with ridiculous DRM and/or contract terms that severely limit their use.  Can we ever say that will not happen with print copies if the law allows it?

I understand what a “parade of horribles” is in the context of a legal argument.  Kirtsaeng won’t unleash the worst possible results if the Court affirms the Second Circuit, at least not immediately.  However, all bets will be off once business considerations start interacting with the decision.  And as several panelists noted, the Court’s decision won’t be the final word.  Congress will be treated to an expensive expansive round of lobbying from both sides to preserve or overturn the decision.  That effort will probably spill over into fair use if the HathiTrust and Georgia State reserve cases stand.  Kirtsaeng is about much more than whether an enterprising student can import textbooks for resale against Wiley’s wishes.    

More information on the coalition to overturn the Second Circuit is available at the Owners Rights Initiative.  [MG]