Kirtsaeng: Copyright’s “First Sale” Doctrine and Foreign Manufactured Goods, 1213 COBJ, Pg. 69
| Author | J.D. Schneider |
Articles
Intellectual Property Law
Kirtsaeng: Copyright’s “First Sale” Doctrine and Foreign Manufactured Goods
J.D. Schneider
Intellectual Property Law articles are sponsored by the CBA Intellectual Property Section. They provide information of interest to intellectual property attorneys who advise clients on protecting and exploiting various forms of intellectual property in the marketplace.
Coordinating Editors
K Kalan, Denver, Administrative Patent Judge—(720) 480-1500, kmkalan@yahoo.com; William F. Vobach, Denver, of HolzerIPLaw, PC—(720) 204-5673, bvobach@holzeriplaw.com
About the Author
J.D. Schneider is a term law clerk for the Honorable Michael J. Watanabe of the U.S. District Court for the District of Colorado. Before joining Magistrate Judge Watanabe, he clerked for the Honorable Stephen E. Howard in Colorado’s Eighth Judicial District. He graduated from the University of Denver Sturm College of Law in 2010, and received a BS in computer science from Colorado State University in 2003. Before attending law school, he was employed as a software engineer for a Fortune 500 company—jd.schneider@outlook.com.
In Kirtsaeng v. John Wiley &Sons, Inc., the U.S. Supreme Court held that the "first sale" doctrine is applicable to copies of American copyrighted works lawfully manufactured abroad. This article provides an overview of the first sale doctrine, explains the Supreme Court's opinion, and details some of the commentary made following the decision.
On March 19, 2013, the U.S. Supreme Court issued its opinion in Kirtsaeng v. John Wiley & Sons, Inc.,
1 holding that the "first sale" doctrine is applicable to copyrighted works manufactured outside the United States. Using various methods of statutory interpretation, the Court focused its attention on § 109(a) of the Copyright Act, which sets forth the first sale doctrine.2 Specifically, the Court considered whether the limitation " lawfully made under this title, " is geographical or nongeographical in nature.
As explained in more detail in this article, the first sale doctrine acts to ensure that, after the lawful sale of a copyrighted work, the owner of that particular copy of the work is entitled to dispose of the copy as it sees fit. The owner may, for example, resell it, rent it, give it away, or destroy it. The doctrine prevents copyright owners from restraining the free alienability of goods.
Previously, the circuit courts were split as to whether the first sale doctrine protected a buyer of a copyrighted work that was lawfully manufactured abroad and subsequently brought into the United States for sale without the copyright holder's permission.3 In Quality King Distributors, Inc. v. L'anza Research Int'l, Inc., [4] the Court held that the first sale doctrine applied to copies purchased abroad but originally manufactured in the United States. The Court, however, had not addressed the applicability of the doctrine to goods manufactured abroad.
Before the Court's decision, Kirtsaeng received significant attention from various companies and groups concerned with its possible implications. Namely, manufacturers of copyrighted works expressed concern that the common business practice of "geographic market segmentation, " whereby copies are sold at different prices depending on location, would become unsustainable if the Court found that the first sale doctrine applied. On the other hand, libraries, used-book dealers, technology companies, consumer-goods retailers, and museums argued that an opposite holding would be at odds with "basic constitutional copyright objectives, in particular '[promoting] the Progress of Science and useful arts.'"5
Ultimately, the Court held that the first sale doctrine did not include a geographical limitation, and thus was applicable to copies manufactured outside the United States. There has been significant commentary following the Court's controversial decision.
The First Sale Doctrine
Among the exclusive rights afforded an owner of a copyright is the right "to distribute copies ... of the copyrighted work to the public by sale or other transfer of ownership."6 However, this right is limited by, among other things, the first sale doctrine. As codified in the Copyright Act, 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.7
In other words, the copyright owner's exclusive right to distribution no longer exists after the copyright owner transfers ownership of a particular legal copy of a work to another. As such, the first sale doctrine may be used as a defense to copyright infringement.
The common-law origins of the first sale doctrine extend back to the 15th century.8 The first application of the doctrine by the U.S. Supreme Court took place in 1908 in Bobbs-Merrill Co. v. Straus.9 In Bobbs-Merrill, the plaintiff book publisher included language in its books, limiting future sales of each particular copy to the full retail price.[10] The Court held that the copyright holder could not impose "a limitation at which the book shall be sold at retail by future purchasers, with whom there is no privity of contract."11 Soon thereafter, the first sale doctrine was incorporated into the Copyright Act of 1909, and has been included in each subsequent revision of the Act.
The Importation Provision
Since Bobbs-Merrill, the Court has further defined the contours of the first sale doctrine on several occasions. The Quality King case, heavily cited in the Court's Kirtsaeng decision, involves the first sale doctrine and its intersection with the "importation provision."
The importation provision of the Copyright Act states that unauthorized importation into the United States "of copies or phonorecords of a work that have been acquired outside of the United States" infringes the exclusive right to distribution.12 Quality King involved the authorized first sale and export of copies made in the United States, and later the unauthorized attempt to import those copies back into the country for resale.[13]
The Court held that the importation provision did not prohibit importation of the copies back into the United States for resale. The Court reasoned that because the provision "merely provides that unauthorized importation is an infringement of [the exclusive right to distribution] under § 106, " and because that right is limited by the first sale doctrine, it follows that one cannot violate the importation provision after the first sale has been made.14 The Court's holding in Quality King was limited to copies lawfully manufactured in the United States, and thus does not directly answer the question before the Court in Kirtsaeng. However, a statement included in the Quality King dictum would figure rather prominently in the Kirtsaeng opinion.
The Kirtsaeng Opinion
Sunpap Kirtsaeng moved from Thailand to the United States in 1997 to study mathematics at Cornell University.15 Over the next twelve years, Kirtsaeng finished his undergraduate work at Cornell and completed a PhD program in mathematics at the University of Southern California.16 Kirtsaeng's industrious nature, however, was not limited to academic pursuits.
Starting sometime in 2007, Kirtsaeng had family and friends ship him English language, foreign edition textbooks purchased in Thailand.17 Taking advantage of the market segmentation pricing strategy employed by the books' publishers, Kirtsaeng would sell the books on the Internet to individuals in the United States, for a profit.[18] By the time Kirtsaeng ceased his textbook selling enterprise in September 2008, he had collected somewhere between $900, 000 and $1.2 million in revenue.19 Among the textbooks imported and sold by Kirtsaeng were at least eight copies published by John Wiley & Sons, Inc. (Wiley).20
In September 2008, Wiley sued Kirtsaeng for copyright infringement in the Southern District of New York. Wiley's wholly owned foreign subsidiary, Wiley Asia, publishes, prints, and sells Wiley's English language textbooks abroad.21 Included in Wiley's foreign edition textbooks is contractual language indicating that the copy is to be sold only in a particular country or geographical region outside the United States.[22] Wiley claimed "that Kirtsaeng's unauthorized importation of its books and his later resale of those books" was an infringement of Wiley's exclusive right to distribution and a violation of the importation provision.[23]
Kirtsaeng asserted the first sale doctrine as a defense against Wiley's claims, contending that the textbooks were "lawfully made" and that "he had acquired them legitimately."24 However, before the start of trial, the district court entered an order prohibiting Kirtsaeng from asserting the first sale doctrine as a defense. Specifically, the court found that the first sale doctrine did not apply to foreign-manufactured goods.[25] The jury found in favor of Wiley and Kirtsaeng was assessed statutory damages of $600, 000, at a rate of $75, 000 per work.26 Kirtsaeng appealed to the Second Circuit Court of Appeals.
Interpreting the "lawfully made under this title" language, the Second Circuit affirmed the district court's finding that the first sale doctrine did not apply to foreign-manufactured goods.27 In other words, the Second Circuit held that the first sale doctrine is limited "to particular copies 'made in territories in which the Copyright Act is law'"—that is, it is limited to copies made in...
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