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April 23, 2014

Does the First Sale Rule Apply to Works Manufactured Outside the United States?

Under the Copyright Act, copyright owners are granted the exclusive right to prevent the unauthorized sale or distribution of copies of their works to the public.1 The first sale doctrine creates an exception to this rule by cutting off the copyright owner’s exclusive sales/distribution rights after the first sale of that copy.2 Essentially, this means a person who buys a copy of a book (or receives it as a gift) can dispose of the physical copy of the copyrighted work however she wants, whether for resale, giving the book away as a gift, or even destroying it, without violating the copyright owner’s rights. 

It has been determined that the first sale doctrine applies to works created and sold in the United States, but courts have struggled with how to apply the first sale doctrine to works manufactured and sold in a foreign country. The three circuit courts that have ruled on the issue have reached three different conclusions. However, at the end of October, the Supreme Court heard the case of Kirtsaeng v. John Wiley & Sons, Inc.3 to finally determine under what circumstances the Copyright Act and the first sale doctrine apply to works made in a foreign country. Kirtsaeng presents a unique situation in which a copy was legally made and legally acquired abroad but then subsequently imported into the United States and resold online without the consent of the copyright owner. 

In Kirtsaeng, the defendant attempted to subsidize the cost of his education in the United States by importing and reselling textbooks purchased by his family back in Thailand. The plaintiff, textbook publisher John Wiley & Sons, sued for copyright infringement and alleged that the import and sale of its cheaper foreign editions (with the same content) in the United States infringed its copyrights on the more expensive American editions. Both the district court and the Second Circuit found the defendant liable for copyright infringement because the courts held the first sale defense was inapplicable to works manufactured outside of the United States. 

The language of the Copyright Act, specifically language regarding the Act provisions for works “lawfully made under this title,” suggests the first sale doctrine should not apply to works manufactured overseas, as the Copyright Act only governs copyrights in the United States. The Copyright Act’s legislative history suggests that Congress was concerned with protecting people who purchase domestically manufactured and sold works instead of policing the sale of works outside the United States. Wiley argued that the defendant inKirtsaeng was attempting to abuse the first sale doctrine by attempting to stretch United States copyright law beyond its intended boundaries. 

There are good public policy reasons why Congress limited the first sale doctrine to copies made in the United States under the Copyright Act, including not allowing the prices for a particular work in a foreign market to dictate the price in the United States. Expanding the first sale doctrine to foreign markets would be problematic for many industries, including the motion picture and software industries, where the sale and distribution of a work is potentially controlled by different entities overseas than in the United States. The Second Circuit’s ruling that the first sale doctrine does not affect works manufactured overseas is an appropriate ruling that protects the rights of publishing industries and copyright owners. 

Whatever the Supreme Court’s ruling on Kirtsaeng, the decision is likely to be close. In 2010, the Supreme Court analyzed a similar case in Costco Wholesale Corp. v. Omega, S.A.regarding watches bearing a copyrighted design that were made overseas and then sold in the United States.4 With Justice Kagan recusing herself, the court affirmed the Costco case in an even 4-4 split. As several scholars have noted, there are a number of ways in which the Supreme Court may rule on this issue but it is hard to appropriately speculate as to what the outcome will be with such a divided court. However, no matter the final ruling, the Supreme Court’s decision should provide helpful and relevant guidance to copyright owners seeking to protect their works manufactured in a foreign country and subsequently imported into the United States.


1 See 17 U.S.C. §106(3). 

2 See 17 U.S.C. §109(a). 

3 Kirtsaeng v. John Wiley & Sons, Inc., 654 F. 3d 210 (2d Cir. 2011), cert granted, 132 S.Ct. 1905, 2012 U.S. LEXIS 2905 (Apr. 16, 2012). 

4 See Costco Wholesale Corp. v. Omega, S.A., 131 S.Ct. 565 (2010).

© 2013 Dinsmore & Shohl LLP. All rights reserved.

About the Author

Associate

Jennifer’s practice revolves around non-patent intellectual property issues, such as trademarks, copyrights, social media, privacy and internet law, licensing, advertising and trade secrets. She works with her clients to protect and enforce their trademark, copyright and other intellectual property rights from misuse and infringement on various technology platforms. She also regularly advises clients regarding the use and registration of new trademarks, and has experience conducting trademark searches, as well as filing and prosecuting applications to register trademarks with the...

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