Supreme Court Makes Landmark Decision On Copyright Case

On Tuesday March 19, the Supreme Court released its anxiously-awaited decision in Kirtsaeng v. John Wiley & Sons, Inc. deciding one of the most important copyright cases in years. In its decision, the Court held that the so-called "first-sale doctrine" applies to copies of copyrighted works manufactured outside the United States. Though the result is tempered by other limitations on importation based in Trademark and Patent law, this decision could still have significant impact on U.S. commerce. As discussed below, it effects not just trade in the obvious things like books, videos and music, but also the market for electronic devices, cars, and, in fact, virtually any product.

The respondent in this case (originally the plaintiff) is a prominent publisher of math, science and engineering textbooks. These texts sell for rather high prices in the United States, which students in many poorer countries could not afford. Wiley, therefore, also publishes essentially-identical editions of the textbooks outside the U.S. which it prices far more cheaply to students in other countries. The copyright notices in the books prominently state that the books may not be exported from their target region without permission of the publisher. Appellant Supap Kirtsaeng (originally the defendant) was a Thai student who came to the U.S. to get his undergraduate and doctoral degrees in mathematics. While he was here, he had his family in Thailand purchase inexpensive copies of textbooks which they would ship to him so that he could sell them at a profit here. Wiley sued Kitrsaeng for violating its exclusive rights as the owner of the copyrights in the textbooks.

The owner of the copyright in a work is endowed with a variety of exclusive rights to control how the work is exploited, set forth in the Copyright Act. Central to these rights is the right, specified in Section 106(3) "to distribute copies . . . of the copyrighted work to the public by sale or other transfer of ownership." That is, only the owner of the copyright has the right to sell or give away copies of the work. If this were all the Copyright Act had to say about the matter, then it would be illegal (a violation of the copyright owner's rights) for you to sell or give away a book that you had bought after you were done reading it. You could not even loan it to a friend without the publisher's permission. All these acts would violate the copyright owner's exclusive right to control distribution.

What makes these acts legal is that the copyright owner's exclusive distribution right is limited by the "first-sale doctrine" set forth in section 109(a): "Notwithstanding the provisions of section 106 (3), the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord." That is, if you own a copy of the copyrighted work "lawfully made under this title" you are allowed to sell or give away that copy without the permission of the copyright owner. The copyright owner's first sale of the copy (to you or someone else) is said to have "exhausted" its right to control distribution of that particular copy.

The issue in Kitrsaeng was a longstanding disagreement among the circuit courts of appeal over what the phrase "lawfully made under this tittle" means. Historically, almost everyone assumed that it meant a legal, authorized copy as opposed to, say, a pirated copy. Some circuits believed, however, that this phrase had a so-called geographical interpretation, that it referred to copies made in the United States, since that is where the Copyright Act (the "title") applies. Under this reasoning, Wiley argued (and the Second Circuit agreed) that copies made abroad could not be re-distributed without its permission because the first-sale doctrine did not apply to such copies --- even though they were authorized copies, they were not "lawfully made under this title."

In its decision, the Supreme Court flatly rejected the geographical interpretation of the first-sale doctrine in Copyright and said that the former view was the correct one.

The implications of this view of the law go far beyond the obvious (and significant) secondary market in books, CDs, DVDs and other items that come to mind when you hear the term "copyrighted work." For example, nearly every electronic device includes a microprocessor that is controlled by "embedded software." That software, like any other computer program, is subject to copyright. If the Supreme Court had sided with Wiley and the Second Circuit, the manufacturers of such devices (which include everything from MP3 players to refrigerators to automobiles) would be able to restrict your ability to re-sell or even to donate the devices when you were done with them, if they were manufactured abroad. Indeed, almost every article of commerce includes some copyrighted material. (Consider, for example, the instructions and descriptive text on the back of a bottle of shampoo, the design of the pattern printed on the fabric of a shirt, or the sculptural design of a lamp base.) Simply by moving manufacturing off-shore, manufacturers would be able to limit your ability to re-sell or otherwise distribute nearly anything.

The Supreme Court has, however, now put the matter to rest and stated unequivocally that the phrase "lawfully made under this title" has its more natural, historically understood meaning and not a geographical one. eBay sellers, eBay itself, thrift store, libraries and pretty much every consumer can breathe a sigh of relief. Copyright holders, however, must now consider the difficulty of dividing and price-targeting international markets. They may take solace (and refuge) however in other areas of law. While the first-sale doctrine is statutorily derived in copyright, in other areas of law---Trademark and Patent in particular--- it is purely “judge-made” law. The circuit courts have given manufacturers extensive rights to ban re-importation based on trademark and patent rights and the Supreme Court has not addressed those restrictions. Indeed, in the weeks after it issued its decision in Kitrsaeng, the Supreme Court declined to take a re-importation case based in patent law, letting the lower court’s restriction on re-importation stand.