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THE FIRST-SALE DOCTRINE AND FOREIGN MANUFACTURED GOODS: THE ANSWER IS FORTHCOMING

Posted in Copyright Law

By: Dale C. Campbell 

The United States Supreme Court heard oral argument last month in the Kirtsaeg v. John Wiley & Sons, Inc. case that may finally determine if the First-Sale Doctrine in copyright law applies to goods manufactured outside of the United States. 

The holder of a U. S. copyright has the “exclusive rights . . . to distribute copies . . . of the copyrighted work to the public by sale or other transfer of ownership . . ..”  (17 U.S.C. § 106(3).)  Importation of a copyrighted work into the United States without the authority of the owner of the copyright constitutes infringement.  (17 U.S.C. § 602(a).)  The First-Sale Doctrine is codified in section 109(a) and provides that, notwithstanding other provisions of the Copyright Act, “the owner of a particular copy . . . 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 . . ..”  The First-Sale Doctrine is based on the concept that, once the copyright owner consents to the first sale of a protected copy, the owner has exhausted its right to control the subsequent distribution or sale of those copies.

The Kirtsaeg case involves the resale of foreign editions of copyrighted textbooks.  A student realized that he could purchase foreign editions of United States textbooks in Asia for substantially less than the books were being sold for in the United States.  He then resold them on eBay, resulting in overall profits of approximately $100,000.  The copyright owner, Wiley & Sons, sued for infringement and Kirtsaeg raised the First-Sale Doctrine as a defense.  The Second Circuit Court of Appeals ruled in favor of Wiley & Sons, finding that the First-Sale Doctrine applies only to goods manufactured in the United States.  (654 F.3d 210 (2011).)  The Court interpreted the language “lawfully made under this title” to mean that the First-Sale Doctrine does not apply to copyrighted works manufactured outside of the United States.

The Supreme Court previously had the opportunity to resolve this exact issue in 2010 when the Court heard the appeal of the Ninth Circuit decision in Omega v. Costco 541 F.3d 982 (9th Cir. 2008), in which the Supreme Court deadlocked four-to-four, leaving the Ninth Circuit’s decision in place.  Justice Elena Kagan recused herself because she had participated in the case while she was the Solicitor General.  The government had supported the position of Omega.  The Ninth Circuit has long held that the First-Sale Doctrine does not apply to goods manufactured outside the United States.  One of the Circuit’s earlier characterizations of the rule was expressed in BMG Music in which the Court found that the First-Sale Doctrine only applies against claims involving copies that are “legally made and sold in the United States.”  (BMG Music v. Perez, 952 F.2d 318 (9th Cir. 1991), emphasis added.)  Critics of BMG Music argued that the copyright owner of foreign-made goods would have the ability to control all subsequent downstream sales of the goods within the United States when a domestically-manufactured good would not have the same downstream protections.

The Ninth Circuit subsequently clarified the BMG Music decision by holding that the First-Sale Doctrine can be raised as a defense in cases involving foreign-made copies so long as a lawful sale within the United States has occurred, i.e. a sale with the authority of the copyright owner.  (See Parfums Givenchy, Inc. v. Drug Emporium, 38 F.3d 477 (9th Cir. 1994).) 

Along those same lines, the United States Supreme Court in Quality King Distributors, Inc. v. L’anza Res. Int’l, Inc., 523 U.S. 135 (1998) dealt with a question involving the importation of copyrighted goods.  In Quality King, a copyrighted label was affixed to goods manufactured in the United States and exported to a foreign distributor.  The goods were sold to unidentified parties, shipped back into the United States, and sold without the copyright owner’s permission.  The Court found that the First-Sale Doctrine was a defense to the infringement claim because the goods were domestically manufactured and therefore were “lawfully made under this title.”  The copyright owner exhausted its right to restrict the sale and importation of the goods after the first authorized sale, even though that sale occurred outside of the United States.  The Supreme Court’s anticipated decision in Kirtsaeg will fill in the decisional gap by determining whether a foreign-made good bearing a U. S. copyright is “lawfully made under this title.”

Justice Kagan apparently will have the deciding vote in Kirtsaeg since the other eight justices were deadlocked in Costco v. Omega.  The publisher, Wiley & Sons, claims that goods “lawfully made under this title” only applies to goods manufactured in the United States.  Kirtsaeg claims that the rule applies wherever the goods are made because copyright owners seeking protection under the Act.  Kirtsaeg argued a contrary ruling would favor foreign over domestic manufacturers, leading to an exodus from the United States.The Court expressed concern over the potentially broad impact if it ruled in favor of Wiley & Sons.  If Wiley & Sons’ viewpoint is adopted, does that mean a traveler cannot return to the United States with a foreign-made DVD without violating the importation restriction of the Copyright Act?  Wiley & Sons’ counsel responded that these potential worst-case scenarios were not before the Court and there likely would be many alternative defenses to an infringement claim such as the Fair Use Doctrine.  Nevertheless, several Justices expressed concern about the wide-ranging impact of their decision.

Justice Kagan’s comments, however, did not provide much insight into her current views:  “I find this language a little bit perplexing, and I can kind of see it both ways.”  Only time will tell which way Justice Kagan will finally see it.