Under a recent U.S. Supreme Court ruling, publishers of books and magazines who print and sell their publications in other countries through distributors will no longer be able to rely on U.S. copyright law to prevent others from importing and re-selling those publications in the U.S. In Kirtsaeng v. John Wiley & Sons, Inc.1, the U.S. Supreme Court fully embraced international copyright exhaustion. Going against the views (admittedly dicta) expressed in its own unanimous decision from 1998, as well as the official position of the United States in international trade negotiations, the court held that the first sale doctrine applies to copyrighted works manufactured and sold abroad under the authority of the copyright owner. Such authorized manufacture and sale, even if done outside of the U.S., exhausts the copyright owner’s right to control the importation and distribution (i.e., sale) of such works.
As a result of Kirtsaeng, copyright owners will find it difficult to prevent the unauthorized importation of their works purchased in other countries (assuming, of course, that those works were made and sold abroad with the approval of the copyright owner). Though Kirtsaeng was limited to copyright, the majority opinion suggests that the Court may be willing to embrace international patent exhaustion as well.
John Wiley & Sons publishes, among other things, textbooks. In many instances, Wiley prints and sells foreign editions of its textbooks through various overseas subsidiaries — in this case Wiley Asia. Wiley Asia’s books typically include the following admonition:
This book is authorized for sale in Europe, Asia, Africa and the Middle East only and may be not exported out of these territories. Exportation from or importation of this book to another region without the Publisher’s authorization is illegal and is a violation of the Publisher’s rights.
As a result, there are essentially two English-language versions of the same textbook: the U.S. version printed and sold only in the U.S, and the foreign version printed and sold abroad. At least for the books at issue in Kirtsaeng, the foreign editions are priced considerably less than their U.S. counterparts.
Supap Kirtsaeng came to the U.S. from Thailand in 1997 to attend Cornell. It probably did not take him long to figure out that college textbooks in the U.S. are very expensive. So he asked friends and family members to buy copies of foreign-edition textbooks in Thailand, where they were a lot cheaper. After importing the books into the U.S., he resold them at a profit. While some reports have suggested that Kirtsaeng sold $1.2 million worth of books for a profit of around $900,000, Kirtsaeng claimed that his revenues for the eight titles in dispute were only $37,000 (and less than that in profit).2
Kirtsaeng was sued for copyright infringement, and the District Court (S.D.N.Y.) held that Kirtsaeng could not rely on the defense of the first sale doctrine due to the fact that the books in question had been printed outside of the U.S. A jury concluded that Kirtsaeng had willfully infringed by importing and selling the books without Wiley’s permission, and awarded statutory damages (which are awarded without regard to profit) in the amount of $600,000 ($75,000 per title).3 The Second Circuit affirmed in a 2-1 decision.
The First Sale Doctrine
The first sale doctrine arose out of the common law’s prohibition of restraints on the alienation of chattels. Purchasers of goods (chattels) were permitted to resell those goods, and post-sale restraints imposed by a seller were generally not permitted. For copyrights, the first sale doctrine simply means that “once the copyright owner places a copyrighted item in the stream of commerce by selling it, he has exhausted his exclusive statutory right to control its distribution.” Quality King Distribs. v. L’anza Research Int’l, 523 U.S. 135, 152 (1998). Though the first sale doctrine was acknowledged by the Supreme Court more than 100 years ago in Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908), it is now codified in 17 U.S.C. § 109(a). Before examining the statutory first sale doctrine, however, it may be helpful to review the basics of copyright protection.
Copyright Prevents Copying (and some other things)
Copyright protection extends to “original works of authorship fixed in any tangible medium of expression,” including, for example, literary works (e.g., books, software), musical works, pictorial, graphic and sculptural works, motion pictures and sound recordings. 17 U.S.C. § 103.
Section 106 of the Copyright Act (17 U.S.C. § 106) establishes the exclusive rights of a copyright owner:
§ 106 Exclusive rights in copyrighted works
Subject to sections 107 through 122, the owner of copyright under this title has the exclusive rights to do and to authorize any of the following:
1) to reproduce the copyrighted work in copies or phonorecords;
3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending;
5) in the case of literary, musical, dramatic and choreographic works, pantomimes, and pictorial, graphic or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly;…
In Kirtsaeng, the issue was the exclusive distribution right of 17 U.S.C. § 106(3), as Kirtsaeng was not alleged to have made unauthorized copies or violated any other exclusive rights of the copyright owner in 17 U.S.C. § 106.
Codification of the First Sale Doctrine
As noted above, the copyright owner’s exclusive rights listed in 17 U.S.C. § 106 are limited by 17 U.S.C. §§ 107 through 122. One of these limitations is the first sale doctrine provided in 17 U.S.C. §109:
§ 109. Limitations on exclusive rights: Effect of transfer of particular copy or phonorecord
a) Notwithstanding the provisions of section 106(3), 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….
c) Notwithstanding the provisions of section 106(5), 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 display that copy publicly, either directly or by the projection of no more than one image at a time, to viewers present at the place where the copy is located.
If I purchase a copy of a book which was lawfully made under this title, I am free to sell that copy to someone else. I can’t make another copy of the book, but I am free to sell the copy I bought to someone else.
But what if my book was made (i.e., printed) in another country at the direction of the copyright owner? Was my book “lawfully made under this title,” i.e., Title 17 of the United States Code (the Copyright Act) for purposes of the first sale doctrine? Does it matter if I bought the book while vacationing in Singapore rather than at a U.S. book store?
Before examining those questions and the Kirtsaeng decision, let’s introduce another section of the Copyright Act:
17 USC § 602 — Infringing importation or exportation of copies or phonorecords
a) Infringing importation or exportation.
1) Importation. Importation into the United States, without the authority of the owner of copyright under this title, of copies … of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies … under section 106, actionable under section 501.
2) Importation or exportation of infringing items. Importation into the United States or exportation from the United States, without the authority of the owner of copyright under this title, of copies…, the making of which either constituted an infringement of copyright, or which would have constituted an infringement of copyright if this title had been applicable, is an infringement of the exclusive right to distribute copies … under section 106, actionable under sections 501 and 506.
3) Exceptions. This subsection does not apply to — …
B) importation or exportation, for the private use of the importer or exporter and not for distribution, …
A plain reading of § 602(a)(1) would seem to indicate that, despite the first sale doctrine in § 109, the copyright owner is permitted to control the importation of its works such as by having U.S. and foreign editions of the same work and prohibiting the importation of the foreign editions. Sections 602(a)(1) and 602(a)(2) also distinguish between pirated copies (i.e., works made without the copyright owner’s permission) and non-pirated versions, seemingly permitting the copyright owner to control the importation of both varieties. In addition, § 602(a) includes exceptions which allow individuals to import works for their own personal use, but not for distribution.4
Unfortunately for Wiley, however, things are not as clear as they might seem — nor are they quite the same as a unanimous Supreme Court informed us 15 years ago.
Supreme Court Reverses in a 5-3 Decision
The Supreme Court’s decision in Kirtsaeng largely rests on the meaning of five words found in 17 USC 109(a): “lawfully made under this title.” The trial court determined that this phrase limits the first sale doctrine to U.S.-manufactured copies (even if made abroad with the permission of the copyright owner).
The majority in Kirtsaeng disagreed, holding that “lawfully made under this title” means made “in accordance with” or “in compliance with” the U.S. Copyright Act, and therefore encompasses works manufactured abroad with the copyright owner’s permission. The majority determined that not only did the literal language linguistically support this interpretation, but also that this interpretation was supported by the common-law roots of the first sale doctrine and congressional intent. “[T]he nongeographical reading is simple, it promotes a traditional copyright objective (combating piracy), and it makes word-by-word linguistic sense.” Kirtsaeng, Slip Opinion at p. 9
As part of its linguistic analysis, the majority interpreted the word “under” to mean “in accordance with” or “according to,” with no requirement that the work have been made where the Copyright Act is applicable. The majority stated that “under” does not mean “where,” and that such an interpretation would necessitate the supposedly difficult second step of determining where the Copyright Act is applicable. On this latter issue, the majority stated that the Copyright Act is “applicable” to copies made anywhere in the world. Of course what the majority did not mention is that foreign-made works are only subject to the provisions of the U.S. Copyright Act if and when they are imported into, copied, distributed, etc. in the U.S. — the Copyright Act has no extraterritorial effect.
In addition to its linguistic analysis of “lawfully made under this title,” the majority found that the common-law first sale doctrine supported their conclusion, as did the legislative history. The majority also discussed at great length how interpreting “lawfully made under this title” to only encompass works made in the U.S. would lead to a myriad of other problems. For example, 17 U.S.C. § 109(c) allows the owner of a particular copy lawfully made under this title to publicly display that copy. If “lawfully made under this title” does not encompass works made in other countries, the majority pointed out that a museum may be unable to display a foreign-made painting without the permission of the copyright owner.
The dissent, as they are want to do, reached a different conclusion regarding the meaning of “lawfully made under this title,” arguing that the phrase referred only to “instances in which a copy’s creation is governed by, and conducted in compliance with, Title 17 of the U.S. Code.” The dissent, citing its own dictionary as well as those relied upon by the majority, posited that “under” means “[s]ubject to the authority, rule, or control of,” therefore limiting the first sale doctrine to U.S.-made works.
The dissent also dismissed the many “horribles” envisioned by the majority if “lawfully made under this title” only encompasses works made in the U.S., suggesting that such concerns could be adequately addressed under concepts of fair use or implied license (e.g., the sale of a painting would carry with it an implied license to publicly display the painting). In addition, the dissent pointed out that the majority’s holding was inconsistent with the position the United States has taken against international copyright exhaustion in international trade negotiations.
The biggest problem with the dissent’s view, in my opinion, is that it makes little sense to limit the first sale doctrine to works manufactured in the U.S. Though a strong argument can be made that the phrase “lawfully made under this title” literally means made in the U.S., it seems illogical that Congress intended to limit the first sale doctrine in this manner. Yet the dissent makes that very argument.5 If I buy a copy of book at my local bookstore (there are a few of them left), I should be free to sell that copy to someone else no matter where the book was printed. Why would Congress intend to promote overseas manufacturing of copyrightable works (which includes not only books and music, but also a multitude of other products such as clothing) by ensuring that only works made in the U.S. were subject to the first sale doctrine?
But what about 17 U.S.C. § 602(a)(1)?
As discussed above, § 602(a)(1) appears to give the copyright owner the right to control the importation of works purchased outside of the U.S. Isn’t the unauthorized importation of works still an infringement of the copyright owner’s exclusive right to distribute, per § 602(a)(1)? On this issue, the court was boxed in by its own prior decision and its often inflexible adherence to stare decisis.6 Ironically, however, the majority was more than willing to cast aside fairly clear dicta7 from that same prior decision of the court.
In Quality King Distribs. v. L’anza Research Int’l, 523 U.S. 135 (1998), the court unanimously held that § 602(a)(1) was limited by the first sale doctrine, at least with respect to works made in the U.S. Specifically, the court in Quality King held that § 602(a)(1)’s reference to § 106(3)’s exclusive distribution right incorporated the first sale doctrine of § 109(a) into § 602(a)(1). Accordingly, the court in Quality King held that the first sale doctrine applied to a copy purchased abroad, at least when that copy was manufactured in the U.S., and, therefore, § 602(a)(1) could not be used to control the re-importation of such works. (The copies in dispute in Quality King had been printed in the U.S., exported for sale abroad, purchased abroad by the accused infringer, and then re-imported by the accused infringer for sale in the U.S.)
Though the holding in Quality King was limited to works that were made in the U.S. and then exported, the opinion included some fairly definitive dicta asserting that “lawfully made under this title” means made in the U.S. For example:
“[§ 602(a)] is, in fact, broader because it encompasses copies that are not subject to the first sale doctrine — e.g., copies that are lawfully made under the law of another country.”
Quality King, 523 U.S. 135, 147.
“Even in the absence of a market allocation agreement between, for example, a publisher of the U.S. edition and a publisher of the British edition of the same work, each such publisher could make lawful copies. If the author of the work gave the exclusive U.S. distribution rights — enforceable under the Act — to the publisher of the U.S. edition and the exclusive British distribution rights to the publisher of the British edition, however, presumably only those made by the publisher of the U.S. edition would be “lawfully made under this title” within the meaning of § 109(a). The first sale doctrine would not provide the publisher of the British edition who decided to sell in the American market with a defense to an action under § 602(a) (or, for that matter, to an action under § 106(3), if there was a distribution of the copies).”
Quality King, 523 U.S. 135, 148.
The court’s decision in Kirtsaeng may be distilled down to the fact that, while none were willing to overturn Quality King, the majority was more than willing to cast aside the dicta in Quality King which strongly implied that “lawfully made under this title” meant made in the U.S. As a result of Kirstaeng, §602(a)(1) has been whittled down to a “fairly esoteric set of applications.” It seems implausible, in my opinion, that this is what Congress intended when §602(a) was enacted. Of course as discussed above, it seems equally implausible that Congress intended to limit the first sale doctrine to works made in the U.S.
In the end, the real problem with the decision in Kirstaeng is, as Justice Kagan pointed out in her concurrence (to which Justice Alito joined), the decision in Quality King: “I write to suggest that any problems associated with that limitation come not from our reading of §109(a) here, but from Quality King’s holding that §109(a) limits §602(a)(1).”8
Justice Kagan agreed that it makes no sense to limit the first sale doctrine to works made in the U.S. Reading between the lines, it would appear that she also believes Quality King was wrongly decided since it guts §602(a)(1)’s ban on unauthorized importation. But because stare decisis inhibits the court from simply overturning Quality King, Justice Kagan wisely invited Congress to fix the problem:
“If Congress thinks copyright owners need greater power to restrict importation and thus divide markets, a ready solution is at hand — not the one John Wiley offers in this case, but the one the court rejected in Quality King.”
Given the that our current Congress is, shall we say, preoccupied with other issues,9 don’t hold your breath.
The Effects of Kirtsaeng
As is often the case, Kirtsaeng leaves many questions unanswered. For example, what if there are different, unrelated copyright owners in the U.S. and abroad? This scenario is not unheard of, and can occur, for example, when the original author of a work separately assigns the copyright on a geographical basis. It seems likely that the first sale doctrine would not apply to works lawfully made abroad under the authority of the foreign copyright owner rather than the U.S. copyright owner.
Similarly, what if the work is no longer protected by copyright in the country where the work is made? Though there is considerable uniformity in copyright protection around the world, it is quite common, particularly for older works, for copyright protection to expire in some countries and not others. After Kirtsaeng, how will the first sale doctrine apply to a work made in a country where the copyright has expired? Will it make any difference if the U.S. copyright owner made the work in that country?
As for the first sale doctrine and patents (typically referred to as patent exhaustion), that issue will be the subject of a future blog post.
Finally, keep in mind that the first sale doctrine, at least under current case law, generally does not apply to e-books (books in electronic rather than paper form), digital music and most computer software, in part because these works are almost always licensed rather than sold. The first sale doctrine only allows the owner, not a mere licensee, of a particular copy to sell or dispose of that copy. The issue of the applicability of the first sale doctrine to digital content, specifically, digital music, is the subject of current litigation: Capitol Records, LLC v. ReDigi Inc., Case No. 12-0095, S.D.N.Y. Stay tuned.
1 Supreme Court of the United States, No. 11-697, decided March 19, 2013.
2 Brief of Petitioner, Supap Kirtsaeng, at p. 9.
3 In what some may view as the greatest injustice of all, Kirtsaeng was ordered to turn over his golf clubs in an effort to satisfy the judgment.
4 Kirtsaeng was found to have violated both the exclusive distribution right in § 106(3) and the import prohibition of § 602(a)(1).
5 In fairness to the court, Congress is likely the problem here. There may simply be no way to effectively reconcile the various statutory provisions. As we shall see, however, the court did have a way out, but its unwavering adherence to stare decisis prevented the court from taking a more logical path (i.e., overturning Quality King).
6 Stare decisis literally means “let the decision stand.” Under this principle, even the Supreme Court will normally resist the temptation to reverse prior precedent. The principle carries the greatest strength on matters of statutory interpretation, since Congress is free to alter the court’s interpretation by subsequent legislation.
7 Dicta, or obiter dictum, means “other things said.” Dicta includes views provided in a prior decision which go beyond the facts of that case and/or are not essential to the prior judgment. The Supreme Court is not bound by its own dicta, but certainly Supreme Court dicta is influential and often relied upon by lower courts and others.
8 Though it might be tempting to suggest that Justice Kagan was really saying “don’t blame me as I was not on the court in 1998,” that would be inappropriate (if not inaccurate).
9 Some commentators have gone so far as to characterize the current Congress as “dysfunctional.” I choose to take the high road.