SCOTUS considers copyright's first sale rule

Caroline B. Ahn, The Daily Record Newswire

In copyright law, the first sale doctrine permits the owner of a lawfully purchased copy of a copyrighted work to resell it without the limitations imposed by the copyright owner. For example, one who lawfully purchases a copy of the latest John Grisham novel is free to sell or give that copy away without any authorization from the copyright owner. The first sale “exhausts” the copyright owner’s rights with regards to the further dissemination of that particular copy. Section 109(a) of the Copyright Act codified this doctrine by allowing “the owner of a particular copy … lawfully made under this title … to sell or otherwise dispose of the possession of that copy[.]”

The definition of the phrase “lawfully made under this title” as set forth in Section 109(a), has been hotly debated in the recent years. Specifically, this phrase is being defined to determine whether first sale doctrine applies to copies of copyrighted goods legally made overseas. Most recently, the U.S. Supreme Court heard oral arguments concerning this issue in John Wiley & Sons, Inc. v. Kirtsaeng, on Oct. 29.

Background

Supap Kirtsaeng, a Thai national, came to the U.S. to pursue higher education at Cornell University and later at the University of Southern California. During his stay in the U.S., Kirtsaeng discovered that the international versions of certain textbooks were considerably less expensive than the versions available in the U.S. As a means to earn money to help pay for his tuition and expenses, Kirtsaeng embarked on an entrepreneurial venture. With the help of his friends and family in Thailand, Kirtsaeng acquired international versions of various textbooks and sold those copies in the U.S. on commercial websites.

John Wiley & Sons, Inc. found about Kirtsaeng’s sales of copies of its international editions, and commenced a lawsuit against Kirtsaeng in September 2008, in the District Court for the Southern District of New York, alleging copyright infringement and other claims.

The parties are in dispute as to whether the first sale doctrine can be claimed as a defense. Kirtsaeng argues that the first sale doctrine pursuant to section 109(a) of the Copyright Act is applicable in the case — after all, Kirtsaeng acquired textbooks through legitimate purchases. Wiley, on the other hand, argues that the first sale defense does not apply here because the textbooks at issue were made abroad, to be used abroad, but Kirtsaeng imported the textbooks into the U.S. without Wiley’s consent.

Adding to the mix is the interplay between Section 109(a) and Section 602(a)(1) of the Copyright Act. Section 602(a)(1) prohibits the importation into the U.S. of copies of copyrighted works acquired abroad without the authorization of the copyright holder. Thus the courts are faced with determining whether the rights granted to the lawful purchaser to dispose of his or her copy of a copyrighted work without copyright owner’s further consent or authorization under Section 109(a), is independent of or limited by the language of Section 602(a)(1) that gives the copyright owner the power to prohibit the importation of copies into the U.S. of foreign made works.

Both SDNY and Second Circuit held that first sale doctrine does not apply

The district court was hesitant about setting a bright-line rule about the application of Section 109(a) to the situation. Noting the ambiguity in the plain language definition, the court noted that the phrase “lawfully made under this title” could be read either as “(1) the goods must be made in a way that is consistent with the authorization called for in the Act, in which case the goods may be manufactured either domestically or internationally, or (2) the goods must be made within the control of U.S. law, that is, domestically only.”

Ultimately, the district court ruled that section 109(a)’s coverage is limited to goods manufactured in the U.S. and prohibited Kirtsaeng from raising the first sale defense.

On appeal, the Second Circuit engaged in statutory interpretation of Sections 109(a) and 602(a)(1), and noted that “lawfully made under this title” could plausibly be interpreted to mean any number of things, including: (1) “manufactured in the United States” (2) “any work made that is subject to protection under this title” or (3) “lawfully made under this title had this title been applicable.”

While acknowledging that this is “perhaps a close call,” the Second Circuit affirmed the lower court’s ruling and held that “the phrase ‘lawfully made under this Title’ in § 109(a) refers specifically and exclusively to copies that are made in territories in which the Copyright Act is law, and not to foreign-manufactured works.”

Oral arguments before SCOTUS
The Supreme Court granted certiorari and heard oral arguments on Oct. 29 to determine whether the first sale doctrine applies to foreign manufactured goods. In 2010, an evenly divided Supreme Court had affirmed the Ninth Circuit decision in Omega S.A. v. Costco Wholesale Corporation, which involved the importation of Omega-brand watches into the U.S. by unidentified third parties without the permission of Omega and the watches were ultimately purchased and resold by Costco.

In that case, the Ninth Circuit held that first sale doctrine did not apply to foreign manufactured copies unless they had previously been imported and sold with the copyright holder’s authorization. The court once again faces this issue.

Wiley’s position is to define “lawfully made under this title” to mean lawfully made in the U.S. Under Wiley’s position, a U.S. copyright owner will have greater control over the downstream sales and distribution of the copies of copyrighted goods that were manufactured overseas.

During the oral argument, the Justices posed hypotheticals to Wiley’s counsel — the “horribles” as Justice Breyer called them — should Wiley’s position become the rule. Would museums be liable for infringement for displaying foreign made paintings and lending their works to other galleries? Will libraries be liable for infringement for importing foreign made books? Could a consumer who purchases a Toyota vehicle, equipped with various copyrighted goods made abroad, face infringement if the consumer sold the car without seeking the authorization from each copyright holder to resell the vehicle?

Wiley’s counsel attempted to evade the specifics, explaining that fair use and other doctrines would be applicable in such circumstances, and that the case at issue did not need to address all of these hypotheticals. The court, however, demanded to know the consequences that could arise under the rule suggested by Wiley.

On the other hand, Kirtsaeng focuses on the “lawfully made” aspect and argues that it does not matter where the goods were made, so long as the goods were lawfully made. If Kirtsaeng’s position is adopted, then the copyright owner’s control over the copies of its copyrighted works manufactured overseas will be significantly limited. It may also present difficulties for the copyright owner to differentiate between domestic and foreign markets, and thus limiting market segmentation.

Kirtsaeng’s counsel also voiced the concern that should Wiley’s position be adopted, the copyright owners will be incentivized to take its manufacturing overseas, since the copies made abroad will be subject to more control than domestically made copies.

The Supreme Court is cognizant of the wide impact that its decision and opinion will have, not only on the copyright holders, but to various industries and entities engaged in the display,
manufacture, sale and distribution of copyrighted goods. The oral arguments did not give any clear indication as to how the Supreme Court may rule on the issue, but the policy considerations will likely play a big factor.

—————

Caroline B. Ahn is an associate with the intellectual property law firm of Heslin Rothenberg Farley & Mesiti PC. She can be reached in Rochester at (585) 288-4832, in Albany at (518) 452-5600, or via email to cba@hrfmlaw.com.

Comments

  1. No comments
Sign in to post a comment »