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US: Supreme Court Upholds First Sale Defense

Raymond A. Kurz

Raymond A. Kurz,

Washington, D.C.

Anna Kurian Shaw

Anna Kurian Shaw,

Washington, D.C.

25 March 2013
In a 6-3 decision, the Supreme Court held that the resale within and importation into the United States of copies manufactured and purchased abroad are protected under the first sale defense. Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. ___ (2013). That is, once a copyrighted article manufactured abroad is first sold abroad, any later sale or distribution of the product in or to the United States would not constitute an act of copyright infringement. The ruling is somewhat surprising given the Court’s earlier 2010 non-precedential 4-4 decision in Costco Wholesale Corp. v. Omega, S. A., 562 U.S. ___ (2010) (per curiam), affirming a Ninth Circuit decision that the first sale defense was inapplicable to foreign-made works first sold abroad and the United States’ general resistance to the movement for “international exhaustion” of copyrights, as noted in the dissenting opinion. The decision will likely serve to focus companies’ attention on trademark protection as the means (now the sole means) for protecting them against the importation of gray market goods into the U.S.

Case History

The case involved petitioner, Supap Kirtsaeng (“Kirtsaeng”), a citizen of Thailand, who, while attending graduate school in the United States, imported foreign edition English language textbooks purchased in Thailand and manufactured abroad and resold them in the United States for a profit. In 2008, respondent John Wiley & Sons, Inc. (“Wiley”) sued Kirtsaeng for copyright infringement under the theory that Kirtsaeng’s importation and resale of the books was a violation of the exclusive right of distribution under 17 U.S.C. §106(3) and the prohibition against importing infringing copies acquired outside of the United States under 17 U.S.C. §602(a). Kirtsaeng argued that the books had been “lawfully made” and legally acquired in Thailand and, thus, 17 U.S.C. §109(a)’s first sale doctrine protected his activities and provided a defense to the allegations of infringement under §106(3) and §602(a).

The District Court held that the first sale defense did not apply to “foreign-manufactured goods” even if made abroad with the copyright owner’s permission and held that Kirtsaeng had committed copyright infringement awarding statutory damages to Wiley in the amount of $600,000. On appeal, the Second Circuit affirmed the District Court ruling finding that the first sale doctrine is only applicable where the copy in question is “lawfully made under this title” and interpreted that phrase to have a geographic limitation, specifically, that the copies in question were made in the United States. 17 U.S.C. §109(a). The Supreme Court granted Kirtsaeng’s petition for certiorari in light of different views among the Circuits as to the meaning of the phrase “lawfully made under this title.”

Decision

In its opinion, the Court reversed the Second Circuit’s decision and held that the first sale doctrine is applicable to the resale and importation of lawfully foreign-made and purchased copies. The Court focused its discussion on the meaning of “lawfully made under this title” and whether the language of the statute imposed a geographical limitation on where the copies in question were made, a position advanced by Wiley. Kirtsaeng, on the other hand, advanced a non-geographical interpretation of the statute and read the phrase to mean made “in accordance with” or “in compliance with” the Copyright Act. The Court concluded that Kirtsaeng’s interpretation was “the better reading of the Act”, relying on what it considered to be the plain language of §109(a), the historical and contemporary statutory context and the common-law history of the first sale doctrine. The Court also noted the impact a geographical interpretation would have on the downstream liability of libraries, used-book dealers, technology companies, consumer-goods retailers and museums, particularly in view of the growing importance of foreign trade to the United States.

The Court also referred to its prior decision in Quality King Distributors, Inc. v. L’anza Research Int’l, Inc., 523 U.S. 135 (1998), which held that the first sale doctrine provides a defense to both §106(3)’s exclusive right to distribute and §602(a)’s prohibition on the importation of infringing copies acquired outside of the United States. Justice Kagan, in the concurring opinion, notes that the Court’s decision, in combination with Quality King, significantly narrows §602(a)’s ban on unauthorized importation but suggests that the real “culprit” is the Quality King decision holding that the first sale doctrine under §109(a) provides a defense to the §602(a) importation ban. The concurring opinion states that in the absence of the Quality King decision, the Court’s decision would still leave room for §602(a) to restrict importation irrespective of the first sale doctrine, but would not impose downstream liability on those parties purchasing, reselling and distributing copies of the imported copies, including the libraries and other entities referenced in the Court’s opinion. The concurrence also suggests that legislative changes could restore the §602(a) ban if Congress wants copyright owners to have the ability to divide markets.

Raymond A. Kurz

Raymond A. Kurz,

Washington, D.C.

Anna Kurian Shaw

Anna Kurian Shaw,

Washington, D.C.

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