The Supreme Court has recently heard arguments in the case of Kirtsaeng v. John Wiley & Sons. The opinion is expected soon, and regardless of how the court rules, it will have a large impact on intellectual property law.
This case deals with a Thai national who was subsidizing his college tuition in the U.S. by having his relatives in Thailand buy textbooks for cheap, shipping them to him in the US, and then selling the text books to Americans on sites such as eBay. He made about a $100,000 profit off this enterprise. Eventually, the publisher caught wind, and sued.
This enterprise is known as the “grey market”. Exploiting the price differential between the US and overseas can be quite profitable. The legality of this practice differs depending on the type of good being sold.
At trial, and on appeal to the 2nd Circuit, John Wiley & Sons, Inc. v. Kirtsaeng, 654 F.3d 210, (2d Cir. 2011), Kirtsaeng argued that the ‘first sale doctrine’ makes his actions legal. The “first sale doctrine” in copyright law permits the owner of a lawfully purchased copy of a copyrighted work to resell it. Once you buy a copy of something, you own that copy. You can do as you wish with it. This is codified at 17 U.S.C. § 109(a) of the Copyright Act of 1976. However, Congress also enacted 17 U.S.C. § 602(a)(1).That section provides that importing goods into the United States without the authority of the copyright holder is illegal. The Supreme Court will have to decide, as it often does, how these two contradictory laws interact.
The 2nd Circuit opinion in Kirtsaeng relied heavily on Quality King Distributors, Inc. v. L’anza Research International, Inc., 523 U.S. 135, (1998). In Quality King, L’anza Research International, a California shampoo company, sold to foreign distributors at rates which were 35% to 40% lower than the prices charged to its domestic distributors. Quality King Distributors, Inc. purchased shipments of L’anza’s products from one of L’anza’s foreign distributors and then reimported the products into the United States for resale. L’anza sued, alleging that Quality King’s actions violated its “exclusive rights under 17 U.S.C. §§ 602. The Supreme Court heard the case to decide the question of “whether the `first sale’ doctrine endorsed in § 109(a) is applicable to imported copies.” The Supreme Court held that § 109(a), does in fact limit the scope of § 602(a), and ruled for Quality King.
While this may seem like it is the exact same facts as Kirtsaeng, there was a key difference. In Quality King, the copyrighted items in question had all been manufactured in the United States. In Kirtsaeng, the books were printed overseas. Since these books were intended to be sold in Thailand, it was cheaper and easier for Wiley to print them over there.
The Supreme Court intended to rule on this distinction when they heard the case of Omega S.A. v. Costco Wholesale Corp, 541 F.3d 982 (9th Cir. 2008).That case involved the importation into the United States of Omega-brand watches. The watches were ultimately purchased and resold by Costco Wholesale Corporation. The Ninth Circuit had held that § 109(a) (First Sale Doctrine) does not apply to items manufactured outside of the United States. But, the Court’s ruling was 4-4 (with Justice Kagan recused), and therefore the opinion of the Ninth Circuit stands.
What this case may come down to is what the phrase “lawfully made under this title” in §109(a) actually means. Does ‘made’ mean where the book is written? Or does this mean where the book was printed? Does ‘under’ mean in the territory that the Copyright Code reaches? Or does it apply to whatever works were copyrighted in the US? If that term is understood by the Court broadly, then §109(a) will subsume §602(a) and the ‘first sale doctrine’ should apply.
If the Court rules for Wiley, as expected, then copyright holders would be protected from their foreign manufacturing hurting business in the US. There could be effect on outsourcing, product manufacturing for copyright holders, if one does outsource the printing of foreign editions, they will enjoy protections that domestic goods do not, under Omega. For average consumers, this would mean that you might not be able to legally resell your property, if you purchased it from overseas. In the digital age of e-commerce, this is becoming more common. For sites such as eBay, they could see potentially significant decline in goods for sale. For import/export companies in the ‘grey market’ businesses, this would be devastating.
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