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Is it the Twilight of a New Era for the First Sale Doctrine?

Posted in Copyright Law

By: Scott Plamondon

Imagine you just finished reading your favorite book series about vampires and werewolves, which you purchased at Costco at a significant discount.  Or perhaps you bought your favorite Dracula knockoff on eBay from an overseas retailer.  Finding no need to re-read the books, or re-watch the movies, you decide to recoup some of your hard-earned money by selling the books and movies on Craigslist.  Have you committed copyright infringement?  Possibly. 

The answer to this question may soon be understood when the United States Supreme Court rules on the matter of Supap Kirtsaeng d/b/a Blue Christine99 v. John Wiley & Sons, Inc. (”Kirtsaeng”).  In the Kirtsaeng case, the United States Supreme Court has been asked to define the limits of the First Sale Doctrine under United States Copyright Law.  The decision may have a far-reaching impact on the ability of so-called “gray market” retailers such as Costco and eBay to sell copyrighted goods at discount prices.

The First Sale Doctrine provides that, where an individual purchases a copyrighted work from a copyright owner, the purchaser receives the right to sell, display, or otherwise dispose of the purchased copy regardless of the interests or desires of the copyright owner.  Put another way, an individual may resell a lawfully acquired item even if it is covered by a valid United States Copyright Registration. 

Supap Kirtsaeng recognized an opportunity which existed based on the First Sale Doctrine, and set up an ingenious business plan in the form of a sort of college textbook arbitrage scheme.  While attending graduate school in the United States, Mr. Kirtsaeng determined that some of the textbooks used in his studies were manufactured in Thailand, where the same books were sold into the Thailand market at significantly lower prices compared to their selling price in the United States.  Kirtsaeng contacted his relatives in Thailand, asked them to purchase the discounted books and ship them to him in the United States.  Thereafter, he sold over $900,000 worth of textbooks intended for the Thailand market, yielding a profit in excess of $100,000.

Under section 602(a)(1) of the Copyright Act, it is impermissible to import a work “without the authority of the owner” of the copyright.  Yet, under the First Sale Doctrine (section 109(a) of the Copyright Act), the owner of a copy of a copyrighted work which was “lawfully made under this title” may sell or otherwise dispose of the copy without the copyright owner’s permission.  Kirtsaeng’s business model placed into conflict these two provisions of the Copyright Act, thereby creating a question as to how these competing provisions of the Copyright Act should be interpreted while still giving meaning to both. The Supreme Court is now considering whether a foreign-made product subject to a United States Copyright Registration can be lawfully resold within the United States without the copyright owner’s permission. When it decides, the Court will address and resolve a split among the Courts of Appeal.  The Second Circuit already has ruled that resale of foreign-made products can be resold only after a copyright owner approves and grants permission.  The Ninth Circuit has taken a slightly different view, permitting foreign-made products to be sold in the United States only after the copyright owner approved of some earlier sale within the United States.  Finally, the Third Circuit has taken the entirely opposite view, permitting resale of a foreign-made copyrighted article so long as it was lawfully purchased, regardless of where the purchase took place.

If the Supreme Court agrees with the Second or Ninth Circuits, the Court’s forthcoming decision will impact the availability of foreign-purchased, so-called “gray market” products commonly found in stores like Costco, or online on eBay.  Under the Second or Ninth Circuit views, Costco and other discount retailers may be precluded from importing copyrighted materials originally intended to be sold in foreign markets, resulting in the discontinuance of these goods from these kinds of retailers, or an increase in price.  Alternatively, if the Court agrees with the Third Circuit, copyright owners may reconsider whether to sell their copyrighted subject matter overseas.  The outcome of this case could have a broad impact.  Certainly it could significantly raise the price of certain textbooks.  However, copyright protection is not limited to books and DVDs, rather it attaches to any “original work of authorship fixed in a tangible medium.”  As a result, even devices containing copyrighted computer software may be affected.  Given the ubiquitous presence of modern microprocessors and the software instructions which operate in connection with them, it could soon be unlawful to resell devices such as mobile phones, MP3 players, or any other device which contains copyrighted code.

The Kirtsaeng case is fully briefed, and oral arguments were heard by the Court on October 29, 2012.