Second Circuit Holds First Sale Doctrine Inapplicable to Foreign-Made Goods

Considering for the first time whether the first sale doctrine provides a defense to copyright infringement claims where a defendant sells goods containing copyrighted material in the U.S. that have been manufactured abroad, the Second Circuit joined the Ninth Circuit in holding that the first sale defense does not apply to goods manufactured outside the United States. John Wiley & Sons, Inc. v. Kirtsaeng, Case Nos. 09-4896-cv (2nd. Cir., Aug. 15, 2010) (Cabranes J.) (Murtha, J. dissenting).

The defendant was a U.S. graduate student from Thailand who subsidized the cost of his education by importing into the United States and reselling on eBay foreign editions of textbooks produced by plaintiff John Wiley & Sons (Wiley) through friends and family in Thailand. The foreign editions of the textbooks were intended for use only in foreign markets and contained labels explicitly prohibiting importation into the United States. Wiley sued the defendant for infringement, and the jury ultimately found Supap Kirtsaeng liable for willful copyright infringement of all eight works.

On appeal, Kirtsaeng argued that the district court erred in holding that the first sale doctrine was not an available defense and in failing to advise the jury of the defense. The first sale doctrine in copyright law, codified at 17 U.S.C. §109(a), permits the owner of a work “lawfully made under this title” to resell it without limitations imposed by the copyright holder. The court addressed a conflict between the first sale defense and 17 U.S.C. §602 (a)(1), which provides that importation, without the owner’s permission, of a copyrighted work acquired abroad is an act of infringement.

The 2d Circuit acknowledged that §109(a)’s language specifying that it applied to work “lawfully made under this title” neither compelled or foreclosed an application of the first sale doctrine to works manufactured abroad. Acknowledging this ambiguity, the court looked to §602 (a)(1) and the Supreme Court’s guidance in Quality King Distributors, Inc. v. L’anza Research International, Inc. holding the first sale defense does not apply to products manufactured abroad. The court noted that application of §602 (a)(1) would be nullified in the vast majority of cases if the first sale doctrine were interpreted to apply to works manufactured abroad. The Supreme Court’s dicta in Quality King, likewise supported the 2d Circuit’s interpretation.

Although, in Quality King the Supreme Court held that the first sale doctrine does apply to works imported into the United States that are made in this country, exported abroad and then reimported, its dicta suggests that copies “lawfully made” under the copyright title do not encompass works made “under the laws of foreign country.” Therefore, the 2d Circuit affirmed the judgment of the district court. Judge Murtha filed a dissenting opinion concluding that the first sale doctrine should be applicable to works manufactured abroad, because the statutory text does not refer to a place of manufacture. Judge Murtha also noted that economic concerns supported his interpretation. He noted that the majority’s interpretation will impose high transaction costs and lead to uncertainty in the secondary market. Additionally, he did not believe that Congress intended to provide an incentive for U.S. copyright holders to manufacture copies of their works abroad.