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August 28, 2014

Supreme Court to Decide Application of First Sale Doctrine to Foreign-Made Copyrighted Works

The U.S. Supreme Court has agreed to hear a case involving “gray market” resale of copyrighted works and the defense of the “first sale doctrine.” The “first sale doctrine” in copyright law permits the owner of a lawfully made copy of a copyrighted work to resell or otherwise dispose of that copy without limitations imposed by the copyright holder. Kirtsaeng v. John Wiley & Sons, Inc., Docket No. 11-607 (Supr. Ct., April 16, 2012). Essentially the same issue was raised at the Supreme Court in 2010 but the Court ended up in a 4-4 split (with Justice Kegan recusing herself).

Textbook publisher John Wiley & Sons brought a copyright infringement suit against Kirtsaeng, a graduate student from Thailand. Kirtsaeng’s friends and family shipped him foreign editions of Wiley textbooks printed abroad by Wiley’s affiliate Wiley Asia, which Kirtsaeng then sold on commercial websites such as eBay for allegedly substantial profits. Wiley alleged that Kirtsaeng violated Wiley’s copyrights by unauthorized importation of textbooks only intended for a foreign market. Kirtsaeng attempted to proffer the “first sale doctrine” as a defense but the district court rejected the applicability of the defense to foreign editions of textbooks. A jury found Kirtsaeng liable for willful copyright infringement and awarded Wiley $600,000 in statutory damages.

On appeal to the Second Circuit, Kirtsaeng argued that the district court erred in holding that the first sale doctrine was not an available defense, but the U.S. Court of Appeals for the Second Circuit affirmed the district court (see IP Update, Vol. 14, No. 9). The 2d Circuit, reviewing § 109(a) of the Copyright Act, codification of the first sale doctrine, noted that the language limiting its application to works “lawfully made under this title” was ambiguous such that the statute neither compelled or foreclosed application of the first sale doctrine to works manufactured abroad. Therefore, the 2d Circuit then looked to § 602(a)(1) of the Copyright Act, which prohibits the importation of a work acquired abroad without the copyright owner’s authorization, and the Supreme Court’s guidance in Quality King Distributors, v. L’anza Research International. Quality King involved copyrighted works manufactured in the United States that were exported to foreign distributors, who then re-imported the works back into the United States for resale without the copyright owner’s permission. In that context, the Supreme Court unanimously held that the first sale doctrine limited the scope of § 602(a) and thus the foreign distributor who re-imported the works could assert the first sale doctrine as a defense. However, the Quality King Court did not rule on whether the first sale doctrine would apply to works manufactured outside of the United States, however. Nevertheless, the 2d Circuit in Kirtsaeng held that the first sale doctrine only applies to products physically manufactured in the United States. To find otherwise, the court reasoned, would nullify the protections of § 602(a)(1) in the vast majority of cases.

In granting certiorari, the Supreme Court order indicated it will consider whether such a foreign-made product can never be resold within the United States without the copyright owner’s permission; can sometimes be resold within the United States without permission, but only after the owner approves an earlier sale in this country; or can always be resold without permission within the United States, so long as the copyright owner authorized the first sale abroad. Oral arguments will be heard in the fall of 2012.

Practice Note: The grant of certiorari is significant because the Supreme Court’s 4-4 decision in Costco Wholesale Corp. v. Omega, S.A.. In that case Costco legitimately acquired Omega-brand watches through a company that bought and imported the watches from overseas at much lower prices than Costco would otherwise have paid. While copyright owner Omega had authorized the initial foreign sale of the watches, it did not authorize their importation into the United States or their resale by Costco. The U.S. Court of Appeals for the Ninth Circuit held that the first sale doctrine did not apply to purchases made outside of the United States, and an equally split Supreme Court agreed. The Supreme Court’s decision in Kirtsaeng should resolve the question of how the first sale doctrine and § 602 apply to copies of copyrighted works made and legally acquired abroad and then imported into the United States. It is expected that this decision will be of particular importance to importers, distributors and retailers of copyrighted goods produced abroad.  

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