The Supreme Court of the United States has agreed to hear Kirtsaeng v. John Wiley & Sons, Inc., a case involving “gray market” resale of copyrighted works and the defense of the “first sale doctrine.” In copyright law, the “first sale doctrine” 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. The Supreme Court’s decision will resolve whether the first sale doctrine applies to works manufactured outside of the United States that are imported and resold in the United States, and therefore is of particular importance to importers, distributors and retailers of copyrighted goods produced abroad.
U.S. textbook publisher John Wiley & Sons brought a copyright infringement suit in the Southern District of New York against Kirtsaeng, a University of Southern California 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 Kirtsaeng violated Wiley’s copyrights by unauthorized importation of textbooks only intended for a foreign market. Kirtsaeng attempted to proffer the defense of the “first sale doctrine,” but the district court prohibited him from raising the defense and 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.
Kirtsaeng appealed, arguing the district court erred in holding that the first sale doctrine was not an available defense. Last year the U.S. Court of Appeals for the Second Circuit affirmed the district court. (IP Update, Vol. 14, No. 9). Reviewing §109(a) of the Copyright Act, which codifies the first sale doctrine, the Second Circuit noted that the language instructing that the defense applies to works “lawfully made under this title” was ambiguous such that §109 itself did not compel or foreclose the application of the first sale doctrine to works manufactured abroad. Therefore, the Second Circuit 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, Inc. v. L’anza Research International, Inc. 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. The Supreme Court did not rule on whether the first sale doctrine would apply to works manufactured outside of the United States, however. Relying on Quality King, the Second Circuit in Kirtsaeng held that the first sale doctrine only applies to products physically manufactured in the United States. To find otherwise, the Second Circuit reasoned, would nullify the protections of §602(a)(1) in the vast majority of cases.
Among other reasons, the grant of certiorari is significant because the Supreme Court issued a rare 4-4 decision in a similar case in 2010, Costco Wholesale Corp. v. Omega, S.A. In that case Costco legitimately acquired Omega-brand watches through a New York company that bought and imported the watches from overseas at much lower prices than Costco would 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 Ninth Circuit held that the first sale doctrine did not apply to purchases made outside of the United States, and the Supreme Court agreed in a split decision. Due to the split, caused by the recusal of Justice Elena Kagan who filed an amicus brief in the case in her previous position as Solicitor General, the ruling is only binding on the Ninth Circuit. Therefore, the Supreme Court’s decision in Kirtsaeng should resolve the outstanding question of how the first sale doctrine and §602 apply to copies of copyrighted works made and legally acquired abroad, then imported into the United States.
In granting cert, the Supreme Court order indicated it will consider whether such a foreign-made product (1) can never be resold within the United States without the copyright owner’s permission; (2) can sometimes be resold within the United States without permission, but only after the owner approves an earlier sale in this country; or (3) 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 (2012).