On December 13, 2010, the United States Supreme Court issued a split decision, with no opinion or explanation, in the Costco v. Omega copyright case: it went 4-4 because Justice Kagan, who had filed an amicus brief in the case while she was the U.S. Solicitor General, recused herself from the proceeding. The uncertainty that resulted from the split decision has already come back to knock on the door of the Supreme Court: the Justices granted the Petition for Certiorari in Supap Kirtsaeng v. John Wiley & Sons on April 16, 2012, an appeal from the Second Circuit’s ruling in favor of John Wiley & Sons.
Both cases concern the scope of the First Sale principle: once a copyright owner has made a lawful sale of a particular copyrighted work, the owner’s rights are exhausted, and the owner can no longer control what happens to that particular copy, which can then be resold, leased, or given as a gift without risk of copyright infringement liability. The retail market for used books, CDs, and DVDs is based on the legitimacy of this principle.
Both cases have similar facts. In the Omega watch dispute, Costco was obtaining authentic Omega watches through unauthorized foreign sales channels (i.e., the “gray market”) and then reselling them in its U.S. stores at discounted prices without Omega’s consent. When Omega sued Costco for copyright infringement, Costco claimed the First Sale principle as a defense. In the new case, which involves Wiley’s foreign edition textbooks, Supap Kirtsaeng, a Thailand national pursuing a doctoral degree in California, obtained foreign edition textbooks published by Wiley Asia through friends and family in Thailand and sold those copies at a profit through eBay’s online service to U.S. purchasers. Wiley sued Kirtsaeng for copyright infringement, and, like Costco, Kirtsaeng has invoked the First Sale doctrine as a defense.
The First Sale principle is codified in Section 109(a) of the Copyright Act, which defines it as applying to copies “lawfully made under this title” (i.e., under Title 15, the Copyright Act). In Costco v. Omega, Omega argued that the key language is “under this title” and that the whole phrase means made in the United States, where the U.S. Copyright Act applies. Costco argued that the key language is “lawfully made” and that the phrase means made with the authority of the copyright owner, and therefore lawful regardless of whether the making occurs in the United States or in a foreign jurisdiction. Under Omega’s interpretation, Costco’s First Sale defense fails because the First Sale principle only applies when copyrighted goods are manufactured in the United States, or when they are manufactured abroad but first sold in the United States with the authority of the copyright owner. Under Costco’s interpretation, the First Sale principle applies to copyrighted goods made anywhere in the world so long as such copies are made with the authority of the copyright owner.
The arguments in Kirtsaeng v. Wiley are likely to follow the same paths, but the advantage of precedent will lie with Wiley. The split decision in Costco v. Omega constituted a de facto affirmation of the Ninth Circuit’s 2008 ruling for Omega and against Costco’s expansive interpretation of the First Sale principle. Further, the Second Circuit has in essence agreed with the Ninth Circuit and has already ruled in favor of Wiley by holding that the First Sale principle does not apply to copies manufactured outside of the United States. Nevertheless, the 4-4 split in Costco v. Omega means that the scope of the First Sale principle is still uncertain in states outside of those two Circuits, so we must wait and see if this new case will bring clarity and national uniformity to this area of copyright law.