In the recent case of Kirtsaeng v. John Wiley & Sons, the Supreme Court held that the first sale doctrine, codified in Section 109(a) of the Copyright Act, applies to copyrighted works manufactured overseas. Kirtsaeng, a Thai national studying mathematics in the United States, made himself thousands of dollars reselling textbooks on eBay that had been manufactured by Wiley’s Asian subsidiary and shipped to him by family and friends. Although the English-language Thai editions were nearly identical to their American counterparts, Wiley had priced them differently, as economic conditions and demand for academic textbooks vary in different territories. While this sort of activity is undoubtedly legitimate (and the underpinning of robust businesses) if it’s done entirely within the United States, the statutory text is, in the words of the Second Circuit, “simply unclear” and “utterly ambiguous” when you consider works produced abroad that are imported and resold domestically. Proponents of differential pricing argue that their ability to serve poorer territories with low cost, lower quality publications is subsidized by the sale of higher quality books where the market will allow it, whereas critics emphasize the importance of consumers’ freedom of choice and argue that differential pricing is not an exclusive right of copyright holders.
Section 109(a) provides that “the owner of a particular copy or phonorecord lawfully made under this title… is entitled, without the authority of the copyright owner, to sell or otherwise dispose of that copy or phonorecord” (emphasis added). In oral arguments, counsel for Kirtsaeng urged the court to read the phrase “under this title” as modifying “lawfully,” suggesting that Wiley and the government’s position was that “under this title” modified “lawfully made.” To clarify, Kirtsaeng believed he was free to resell any copy that was not considered infringing under the Copyright Act, whereas Wiley urged that only those copies whose creation was governed by the U.S. Copyright Act could be resold without permission.
Also under consideration was the extent to which first sale and the ban on unauthorized importation in Section 602(a) are interrelated. In the earlier Supreme Court decision of Quality King v. L’anza, the Court held that the first sale doctrine protected the sale of exported goods which were re-imported and sold in the gray market. Looking to the statutory language, Justice Stevens stated on behalf of an undivided Court that Section 602(a) merely provides that unauthorized importation is an infringement of Section 106, which is subject to Section 109(a). It was not determined whether owners of U. S. copyrights could retain control over the importation of copies manufactured and sold abroad. A variety of amici submitted briefs suggesting that a holding favoring Wiley would have wide reaching consequences, from putting burdens on libraries to hunt down foreign publishers abroad to preventing the importation of computers, phones or even cars containing copyrighted software.
Justice Breyer, writing for the 6-3 majority, characterized Wiley’s interpretation as placing undue geographical restrictions on the doctrine that just do not appear in the statutory text. Looking to the legislative history and the first sale doctrine’s common law roots, the Court also found no geographical restrictions. In her dissent, Justice Ginsberg read the word “under” as signaling subjection and was troubled by the majority’s characterization of conduct as lawful under an inapplicable law. Further, the dissenters were concerned that the majority ruling would eviscerate Section 602(a) and render its exceptions virtually meaningless. Although Ginsberg opined that adopting a policy of “international exhaustion” would be troubling, given the government’s position that it is against our long term economic interests and its resistance to such a policy in international trade negotiations, Breyer’s majority evaluated the “parade of horribles” raised by the petitioner and amici as the greater threat. Wiley argued, and the dissent observed, that the “parade of horribles” was not a realistic threat.
While reasonable people may disagree as to which reading is better supported by the legislative history, economic policy or the rules of statutory construction, it’s undeniable that the subtle but important nuances dividing the two interpretations support opposite conclusions. Ironically, the decision’s undermining of territorial price differentiation may drive publishers to avoid serving lower priced markets, or offer books in digital formats provided under license, which are not currently subject to Section 109(a). Publishers that rely on geographic pricing models to supply texbooks to lower-price regions may be asking Congress for a legislative fix, letting them try again at drafting statutory language with clear intent.
If you have any questions about this article, please contact an attorney in the CDAS Copyright Practice Group.
Taylor Sitzler assisted in the preparation of this article.