Supreme Court's <i>Kirtsaeng</i> Decision Fuels 'First Sale' Debate

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The right to resell lawfully purchased copies of copyrighted works has a long history in American copyright law. It is beyond controversy that U.S. copyright holders may profit from the “first sale” of a particular copy of their work, but they may not control the downstream sale of that copy once it has been legitimately acquired. Courts recently, however, have struggled with whether this “first-sale doctrine” applies to goods manufactured abroad and later imported into the United States. Publishers frequently charge different prices in foreign markets, and they have argued that allowing unrestricted importation threatens that practice. In March, the Supreme Court squarely addressed this issue for the first time in John Wiley & Sons Inc. v. Kirtsaeng, No. 11-697 (Mar. 19, 2013), and held that the first-sale doctrine does in fact apply to copies made overseas and, as a result, these copies could be purchased in foreign markets and legally resold in the United States.

Background

John Wiley & Sons, Inc. (“Wiley”) is an academic textbook publisher. Wiley often publishes foreign editions of its English-language textbooks abroad, and because it prices them differently in these countries, Wiley seeks to prevent their importation into the United States. Supap Kirtsaeng moved from Thailand to the United States to study mathematics. Recognizing the large differential in price between the English-language textbooks sold in Thailand and those offered in the United States, Kirtsaeng asked his friends and family to buy books in Thailand and mail them to him in the United States, where he would sell the textbooks at a substantial profit. Wiley filed suit in New York claiming Kirtsaeng's importation and resale of these books infringed Wiley's exclusive distribution right.

Parties' Arguments

Section 109 of the Copyright Act, which codifies the first-sale doctrine, states that “the owner of a particular copy or phonorecord lawfully made under this title ' is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.” Wiley argued, and the district court and Second Circuit agreed, that “lawfully made under this title” imposed a geographical limitation on the first-sale doctrine. In other words, copies manufactured abroad were not subject to the first-sale doctrine and thus Kirtsaeng's resale of Wiley foreign-edition textbooks in the United States was unlawful. Kirtsaeng argued that “lawfully made under this title” simply meant that the copies were made anywhere with the copyright holder's permission.

Wiley relied heavily upon the Supreme Court's prior decision in Quality King Distributors, Inc. v. L'anza Research International, Inc. , 523 U.S. 135 (1998), to support its interpretation. In Quality King, the Supreme Court addressed the relationship between ' 602(a), which bars the importation of copies “without the authority of the owner of copyright under this title,” and ' 109. The Court held that ' 109 applied to copies that were manufactured in the United States, sold overseas, and then later imported without the copyright holder's permission. The Court held that this series of events did not trigger the importation prohibition in ' 602 because this provision was limited by ' 109. In dictum, however, the Court hypothesized a situation where an author had granted exclusive American distribution rights to an American publisher and exclusive British distribution rights to a British publisher, noting: “presumably only those [copies] made by the publisher in the United States edition would be 'lawfully made under this title' within the meaning of ' 109(a).” Wiley argued that this language in Quality King endorsed the geographic limitation it was reading into ' 109.

Decision

The Supreme Court, in a 6-3 majority opinion authored by Justice Stephen G. Breyer, rejected Wiley's interpretation of ' 109, finding instead that the first-sale doctrine applied to copies made anywhere as long as they were manufactured with the copyright holder's permission.

First, the Court held that the plain interpretation of “lawfully made under this title” favored Kirtsaeng's non-geographic interpretation. “The first two words of the phrase, 'lawfully made,' suggest an effort to distinguish those copies that were made lawfully from those that were not, and the last three words, 'under this title,' set forth the standard of 'lawful[ness].'” In contrast, the Court noted, the geographic interpretation pressed by Wiley “bristles with linguistic difficulties.” The Court pointed out, for example, that the word “under” does not mean “where.” And, the Court questioned, “[w]here, precisely, is the Copyright Act 'applicable'?” Citing ' 104, which sets forth the works that are protected under the Copyright Act, the Court noted that “ordinary English permits us to say that the Act 'applies' to an Irish manuscript lying in its author's Dublin desk drawer as well as to an original recording of a ballet performance first made in Japan and now on display in a Kyoto art gallery,” thus supporting a non-geographic interpretation.

Second, the Court held that the historical context of ' 109 indicates that Congress did not intend to adopt a geographic limitation to the first-sale doctrine.

Third, the Court looked at the meaning of the phrase “lawfully made under this title” in different but related sections of the Copyright Act and concluded that Wiley's geographic interpretation would produce unintended consequences.

• Under ' 109(c), which provides an exception to the public display right, it “would mean that one who buys a copyrighted work of art, a poster, or even a bumper sticker, in Canada, in Europe, in Asia, could not display it in America.”
• Under ' 109(e), which provides an exception to the public performance right, it would mean “that an arcade owner could not ' perform or display arcade games (whether new or used) originally made in Japan.”
• Under ' 110(1), which provides exceptions for face-to-face teaching, it “would mean that the teacher could not ' use a copy of a film during class if the copy was lawfully made in Canada, Mexico, Europe, Africa, or Asia.”

Fourth, the Court looked at the previous common-law first-sale doctrine and concluded that there was never a geographical distinction.

Finally, the Court addressed a parade of horribles resulting from Wiley's interpretation that were cited by amici curiae associations representing libraries, used-book dealers, technology companies, consumer-goods retailers, and museums. For example, under a geographic interpretation:

• libraries could not circulate or display millions of books in their collections that were published abroad;
• tourists could not purchase copies of a foreign book for American friends while on a vacation overseas;
• a foreign car owner could not sell her used car with copyrighted automobile software;
• foreign trade of products with copyrighted packaging, logos, or labels would be disrupted; and
• art museums would require permission from foreign artists to display their works.

Wiley argued that these “horribles” were artificially invented, but the Court noted that “a copyright law that can work in practice only if unenforced is not a sound copyright law.” These problems, according to the Court, “are too serious, too extensive, and too likely to come about for us to dismiss them as insignificant ' particularly in light of the ever-growing importance of foreign trade to America.”

What About Quality King?

Turning to its prior decision in Quality King, and specifically its statement that “presumably only those [copies] made by the publisher of the United States edition would be 'lawfully made under this title' within the meaning of ' 109(a),” the Court noted that it was “pure dictum,” and “unnecessary dictum even in that respect.” In the most memorable line from the opinion, Justice Breyer noted: “Is the Court having once written dicta calling a tomato a vegetable bound to deny that it is a fruit forever after?”

The Court addressed the impact of its ruling on the importation prohibition in ' 602 that was at issue in Quality King. Because Quality King held that the importation ban does not reach any copies protected under the first-sale doctrine, the Court's present ruling eliminating any geographic limitation on the first-sale doctrine means that an owner of a copy made overseas can import it without the copyright holder's permission. While conceding that its interpretation of the first-sale doctrine caused ' 602 to have “less significance,” the Court noted that the geographic interpretation of ' 109 “limits the scope of that provision to a similar, or even greater, degree.”

Perhaps foreshadowing the ultimate resolution of this tension between ” 109 and 602, Justice Elena Kagan wrote a specially concurring opinion explaining that the constricted scope of ' 602 results “not from our reading of ' 109(a) here, but from Quality King's holding that ' 109(a) limits ' 602(a)(1).” She suggested a way forward: overrule Quality King and allow copyright holders to restrict imports irrespective of the first-sale doctrine. “If Congress thinks copyright owners need greater power to restrict importation and thus divide markets, a ready solution is at hand ' not the one John Wiley offers in this case, but the one the Court rejected in Quality King.”

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Andrew Pequignot is an attorney in the Atlanta office of Kilpatrick Townsend & Stockton LLP, where he focuses his practice on copyright and entertainment matters. He can be reached at [email protected].

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