Among the rights enjoyed by copyright owners is the right to block the importation of infringing goods into the United States.(1) Among the rights enjoyed by lawful purchasers of copyrighted articles is the right to resell that article to others, codified in the first sale doctrine.(2)
But which rule applies when someone buys a genuine copyrighted article that was manufactured outside the United States and then imports it without the authorisation of the US copyright holder? According to the US Court of Appeals for the Second Circuit, the answer is that the first sale doctrine does not apply in these circumstances and the importer is liable to the copyright owner for infringement.
The conduct at issue in the Second Circuit case might be called textbook arbitrage. Because US editions are sometimes more expensive than foreign editions of the same work, it is possible to profit by purchasing copies of foreign editions overseas, bringing them to the United States and reselling them in competition with the more expensive US edition. Supap Kirtsaeng did this with textbooks printed by publisher John Wiley & Sons, which sued him for copyright infringement. The success of Wiley's suit and the propriety of Kirtsaeng's actions turned in large part on the scope of the first sale doctrine, which applies to copies "lawfully made under this title [ie, the Copyright Act]".(3) Wiley contended that its foreign editions were not made "under" the provisions of the US copyright laws because they were printed overseas (ie, outside the territorial scope of the US copyright laws). Kirtsaeng countered that the first sale doctrine was not so limited, and that copyright law cannot prohibit the purchaser of a legitimate copy of a tangible copyrighted item from reselling the item.
The trial court ruled in Wiley's favour and entered judgment against Kirtsaeng for $600,000 for wilful infringement of the copyrights on eight Wiley textbooks. Kirtsaeng appealed to the Second Circuit.
In a decision released on August 15 2011, the Second Circuit held that while the interpretation of the statutory phrase 'lawfully made under this title' was a "close call" and "particularly difficult", the interpretation that best aligned with the Copyright Act and Supreme Court dicta was that it means works manufactured in the United States. Therefore, the first sale doctrine did not apply to foreign-manufactured works and copyright owners have the right to block the importation into the United States of such works.(4)
This issue recently divided the Supreme Court in a similar case involving Swiss watches. In that case, retailer Costco was sued for copyright infringement by watchmaker Omega for selling genuine Omega watches that were imported into the United States through grey market channels. As in Wiley, Costco argued that its actions were non-infringing under the first sale doctrine because the watches were first sold (albeit in Europe) by Omega. Omega responded that the first sale doctrine did not apply because the watches were not made or sold in the United States. The Ninth Circuit ruled in Omega's favour and Costco sought review in the Supreme Court. The Supreme Court agreed to hear the case, but sat with only eight justices because Justice Kagan was recused (having filed a brief expressing the views of the United States when she was solicitor general). The result was a four-four tie, which under Supreme Court practice results in no opinion and a non-precedential affirmance of the judgment under review (for further details please see "Supreme Court affirms no first sale defence for foreign-made copies").
The Second Circuit decided the issue in the same way as the Ninth Circuit, with the result that two of the most influential circuits in the copyright arena are in agreement that the first sale doctrine does not apply in these circumstances.
Kirtsaeng can seek further review of this decision by the full Second Circuit or the Supreme Court, so the panel decision may not be the last word on this issue.
For further information on this topic please contact Charles A Weiss at Kenyon & Kenyon LLP by telephone (+1 212 425 7200), fax (+1 212 425 5288) or email ([email protected]).
(4) John Wiley & Sons, Inc v Supap Kirtsaeng, 09-4896, 2011 WL 3560003 (2d Cir Aug 15 2011).