The IP Law Blog Focusing on legal trends in data security, cloud computing, data privacy, and anything E

The Supreme Court Clarifies the Application of the “First Sale” Doctrine to Copyrighted Works Manufactured Abroad

Posted in Copyright Law

By Anji Mandavia

The big news in copyright jurisprudence is, of course, last week’s landmark ruling in Kirtsaeng v. John Wiley & Sons, in which the Supreme Court, in a 6-3 decision, definitively ruled that the “first sale” doctrine — which allows the owner of a copyrighted good to sell or dispose of that particular item without the permission of the copyright proprietor — applies to all goods legitimately manufactured with the permission of the copyright owner, whether made in the United States or abroad. 

By this decision, the Supreme Court resolved a split in the Circuits: The Third Circuit had adopted a similar position, that the first sale doctrine applies to lawful foreign-made copyrighted works; the Second Circuit had adopted the contrary position, that the first sale doctrine applies only to copyrighted goods made in the United States, and does not apply to foreign-made goods even if they were lawfully made; and the Ninth Circuit had adopted a hybrid position, that the first sale doctrine applies to lawful foreign-made goods if they have first been imported into or sold in the United States with the permission of the copyright proprietor.

While the Court’s decision will have broad ramifications across a number of business sectors regarding the foreign manufacture, sale, and potential importation of copyrighted goods (over 20 amicus briefs were filed, most on behalf of multiple parties and business organizations), the majority opinion itself had a very narrow, semantic focus — namely, what do the words “lawfully made under this title,” as used in section 109(a) of the Copyright Act, mean.

This has been a closely-watched case, and news of the Court’s decision has been widely reported. The key facts are as follows: John Wiley & Sons is an academic textbook publisher which, through a foreign subsidiary, publishes foreign editions of its English-language textbooks for sale abroad. Supap Kirtsaeng is a Thai national, who came to the United States to study mathematics at Cornell and USC. While here, he had friends and family in Thailand purchase foreign edition English-language textbooks — which were substantially cheaper than their domestic counterparts — and ship them to the United States. Kirtsaeng then sold those textbooks on eBay for a profit.

Kirtsaeng did this with a quantity of textbooks, reaping approximately $100,000 in profits. Wiley sued, claiming that Kirtsaeng’s actions violated Section 602(a)(1) of the Copyright Act, which prohibits the importation into the United States, without the permission of the copyrighted proprietor, of copyrighted works acquired outside the United States. Kirtsaeng countered with the defense of Section 109(a), which allows the owner of a particular copy of a copyrighted work “lawfully made under this title” to sell or dispose of that copy without the copyright proprietor’s permission.  Kirtsaeng lost at the District Court level, and was assessed $600,000 in damages. That judgment was confirmed by the Second Circuit, and the Supreme Court accepted the case for review.

As mentioned above, the principal issue before the Court was the meaning of the five words — “lawfully made under this title” — as used in Section 109(a). Did they mean, as Kirtsaeng contended, goods that were legitimately made with the copyright proprietor’s permission; i.e. were not counterfeit or pirated? Or did they include, as Wiley contended, a geographical limitation — as the Copyright Act is geographically limited — so that they only apply to goods lawfully manufactured in the United States?

The Court’s opinion is an exemplar of close statutory construction. Justice Breyer, writing for the majority, undertook a linguistic analysis of the language of the relevant sections and their predecessors, reviewed the history and context of the provisions, and considered the practical implications of the competing interpretations before landing on the ultimate holding in favor of Kirtsaeng. 

As a preliminary matter, the Court noted that Section 602(a) (the importation prohibition) is necessarily circumscribed by Section 109(a) (the first sale doctrine): A copyright owner’s exclusive distribution rights are granted under Section 106 of the Copyright Act, which is subject to the limitations set out in Sections 107 through 122, including Section 109. Section 602(a) (the importation prohibition), in turn expressly states that its violation is an infringement of a copyright proprietor’s Section 106 rights. Since the Section 106 rights themselves are limited by Section 109 (the first sale doctrine), the Court concluded that the prohibition on importation is also necessarily limited by Section 109.

The Court then turned to the relevant language of Section 109(a) —  “Notwithstanding the provisions of section 106(3), the owner of a particular copy … 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….” — and rejected Wiley’s argument that the emphasized language limited the first sale doctrine to goods made “where the Copyright Act is applicable,” i.e., the United States and its territories.

First, the Court stated that the language of the statute itself, read literally, favors a non-geographical interpretation, namely that “lawfully made under this title” means “in accordance with” or “in compliance with” the Copyright Act, and that nothing in the language itself suggests an intended geographical application.  Second, the Court determined that both the historical and contemporary statutory context support the conclusion that Congress did not have geography in mind when writing and enacting Section 109(a). Third, the Court found that the relevant canon of statutory interpretation favored a non-geographical reading. And finally, the Court found very persuasive the argument of Kirtsaeng and numerous amici that a geographical interpretation would unleash a potential “parade of horribles” — where libraries would not be able to lend out books published overseas; where used book sellers would be precluded from selling foreign editions of books; where art museums could not display works of foreign artists; and where many items in common and extensive use, that are made overseas and include copyrighted software, such as cars, phones and computers, could not be resold. The Court also found that it would be an anomalous result to have copyright owners be able to exercise perpetual downstream control of copies manufactured overseas when they had no such right of control over the same or similar copies manufactured in this country.

The Court recognized that its ruling would make it difficult for publishers and other copyright holders to divide foreign and domestic markets as they had long been accustomed to doing. However, it stated that potential damage to the publishers’ business model was not a relevant consideration in interpreting the statute.

Now that the proper application of the first sale doctrine has finally been settled by the Supreme Court, it will be interesting to see in the coming years how the Kirtsaeng decision shapes the business models and decisions of publishers, software developers, motion picture companies and the like, and whether the floodgates will now be open to a influx of foreign-manufactured copyrighted goods.