First Sale Doctrine: Foreign Manufactured Goods

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On July 3, the Library Copyright Alliance filed an amicus brief with the Supreme Court as a result of their decision to review the Second Circuit’s decision in John Wiley & Sons v. Kirtsaeng. The decision interpreted the first-sale doctrine, which allows legal owners to resell, lend, or dispose of copyrighted works after purchase, to apply only to works manufactured in the United States. As a result, foreign manufacturers have greater control over their products under U.S. law. Many organizations like libraries and museums have submitted amicus briefs urging the Supreme Court to reject this interpretation since they depend on the first-sale doctrine to operate.

In December 2010, the Supreme Court faced a similar issue in Costco Wholesale Corp. v. Omega. In that case, the Supreme Court held that the first-sale doctrine only applied to U.S. manufactured works. The unwritten ruling was based on a 4-4 split by the court. Justice Elena Kagan did not take part, since she was involved in the issue as the Solicitor General. When Kirtsaeng reaches the Supreme Court next year, however, she could be the deciding vote that finally determines the issue.

In the Kirtsaeng case, the Second Circuit upheld a jury award of statutory damages to John Wiley & Sons, after Supap Kirtsaeng sold foreign copies of their books on eBay. Kirtsaeng’s family and friends mailed him books purchased abroad, which he sold on eBay to U.S. customers. Relying heavily on the Supreme Court’s Costco ruling, the Second Circuit ruled that the first-sale doctrine did not apply since the books were manufactured abroad and that Kirtsaeng could be held liable.

While the outcome of the case certainly has important implications for public services like libraries and museums, many companies or businesses that deal in foreign-made goods, including CostCo Wholesale Corp. and the National Association of Chain Drug Stores, have also submitted briefs to the court urging them to overturn the decision. The Supreme Court’s decision has a great impact on the lawful, yet unofficial, sale and trade of goods. Also known as the gray market, these unofficial sales are a $63 billion industry. The court’s decision could cripple the industry’s ability to avoid liability for a variety of unauthorized transactions by the owners of legal copies. Much like the Library Copyright Alliance, these businesses could be exposed to litigation due to extra rights afforded to foreign manufacturers under the Second Circuit’s decision.

The libraries maintain that the decision effectively outlaws the way they operate by taking away their ability to lend any foreign books. It does not make sense, they argue, for the law to differentiate between owners’ rights merely based on the location their legitimate copies were produced. Under the Second Circuit’s interpretation, the law would also reward and incentivize sending publishing or production to other countries. The libraries believe Congress would never have intended this kind of reward for outsourcing.

According to a press release by the American Library Association, U.S. libraries currently contain over 200 million books from foreign publishers that would be in jeopardy if the decision is upheld. Even more books from U.S. publishers may have been printed elsewhere, and libraries would be in danger of copyright liability if they lent out any books that did not indicate they were printed in the U.S. While it’s unlikely that copyright holders would bring claims, the libraries do not want to engage in unlawful conduct just because the chances of getting caught are low.

The libraries would like the Supreme Court to overturn the decision and find that the “lawfully made” language in Section 109 of the Copyright Act applies to all works protected under it, but that would protect Kirtsaeng from liability under the first-sale doctrine. If the court chose not to accept this approach, the libraries urge them to adopt the Denbicare exception. The Denbicare exception, from a 1996 Ninth Circuit case, allows parties to assert a first-sale defense if foreign copies are authorized for domestic sale. This interpretation would likely result in liability for Kirtsaeng since he was not authorized to sell the books in question by John Wiley & Sons.