Kirtsaeng v. John Wily & Sons, No. 11-697 (S. Ct. Mar. 19, 2013)

http://www.supremecourt.gov/opinions/12pdf/11-697_d1o2.pdf

In Kirtsaeng, the Supreme Court surprised a lot of prognosticators and ruled that the ‘first sale’ doctrine in copyright, 17 U.S.C. §109(a), which provides that “the owner of a particular copy … lawfully made under this title … is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy”, is not limited geographically to the United States.

John Wiley & Sons publishes academic textbooks. As is common with some academic publishers, it often assigns to its foreign subsidiary, Wiley Asia, the rights to publish, print, and sell foreign editions of Wiley’s English language textbooks abroad. The books sold in Asia state they are not to be taken into the U.S. Kirtsaeng, an individual, moved from Thailand to the United States to study. He had friends and family to buy such Asian edition English-language books in Thailand, where they were priced lower than in the U.S., and ship them to him. He then sold the books in the U.S., reimbursed his buyers in Asia, and made a profit. Wiley sued Kirtsaeng for copyright infringement for unauthorized importation and resale of its books in the U.S.

A copyright owner enjoys exclusive rights to, inter alia, “distribute copies … of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending.” 17 U.S.C. §106(3). Under 17 U.S.C. §602(1), unauthorized importation into the U.S. of copies of a work acquired outside the U.S. constitutes “infringement of the exclusive right to distribute copies … under section 106.”

While the statutory language appears straightforward, the Court held in Quality King Distributors, Inc. v. L’anza Research Int’l, Inc., 523 U.S. 135, 145 (1998), that the reference in §602(a)(1) to §106(3) incorporates the limitations in §§107-122, including the ‘first sale’ doctrine in §109. But the copy at issue in Quality King was initially manufactured in the U.S., then shipped abroad, sold, and then brought back into the U.S. So the question remained whether the first sale doctrine applies to copies produced and sold overseas and then imported into the U.S.

The district court held that Kirtsaeng could not assert the first-sale defense because the doctrine does not apply to goods manufactured abroad. The jury found that Kirtsaeng had willfully infringed Wiley’s copyrights and awarded damages. The Second Circuit affirmed, concluding that §109(a)’s “lawfully made under this title” language meant made in the U.S., so that the “first sale” doctrine would not apply to copies of copyrighted works made abroad. In a 6-3 decision, the Supreme Court reversed the Second Circuit and held that the first sale doctrine does apply to works lawfully made overseas.

The majority opinion, written by Justice Breyer, rejected Wiley’s argument that the ‘lawfully made under this title’ language imposed a geographic limitation because it meant lawfully made under the U.S. Copyright Act which only applies within the country. The majority agreed with Kirtsaeng that the language was a non-geographical limitation meaning the work was made “in accordance with” or “in compliance with” the Copyright Act, permitting the application of the doctrine to copies made abroad with the copyright owner’s permission.

The Court noted there is no express geographic limitation in the statute and opined that implying one would present linguistic and other difficulties with the statute. The Court cited the fact that §602(a)(2) makes foreign-printed pirated copies subject to the Copyright Act, undercutting the argument that the Act only applies to conduct within the U.S. The Court also reviewed the prior version of §109, which extended first sale protection to those who ‘lawfully obtained’ their copy of the work, and concluded that the change to the current language was to make clear that lessees of a work (such as theatres leasing movies for viewing) do not benefit from the first sale doctrine, not to impose a geographic limitation. The current statute also phased out the ‘manufacturing clause,’ the Court noted, with the intent of equalizing treatment of copies manufactured in America and copies manufactured abroad. Also, the Court found, other portions of the Act argue against such a geographic restriction. For example, under Wiley’s interpretation, one who bought a poster abroad could not simply display the purchased copy in the U.S. without the copyright owner’s permission.

The Court then applied certain rules of statutory construction, citing the rule that, when Congress enacts a law to cover an issue previously governed by the common law, it is presumed that Congress intended to retain the substance of the common law. The first sale doctrine, the Court noted, is “a common-law doctrine with an impeccable historic pedigree,” dating back to the early 17th century.

Arguments about the practical impacts of a geographic restriction influenced the Court. For example, the Court cited the amicus brief by the American Library Association stating that library collections contain at least 200 million books published abroad and that a geographical interpretation would likely require the libraries to obtain permission before circulating the books (or create significant uncertainty). It would be difficult to determine the copyright owner for many of the books, the Association argued, some of which lack information about where they were created. Used book dealers argued that American citizens have bought books abroad since Ben Franklin and Thomas Jefferson. Retailers argued that they import $2.3 trillion of goods a year and that many are bought after a first sale abroad.

Wiley argued that these concerns are theoretical but the Court disagreed, finding that reliance upon the first sale doctrine is deeply embedded in the practices of those, such as booksellers, libraries, museums, and retailers, who have relied on its protection. “Museums, for example, are not in the habit of asking their foreign counterparts to check with the heirs of copyright owners before sending, e.g., a Picasso on tour.” Noting the increasing importance of international trade, the Court deemed these practical problems too serious to ignore.

The Court rejected Wiley’s argument, adopted by the dissent, that its interpretation would eviscerate §602(a)(1), noting that the section would still have application to non-pirated copies, such as a foreign licensee of books or a foreign lessee of a movie film who sends the works into the U.S. for sale.

Wiley argued that the legislative history supports a geographic restriction, but the Court rejected that history as reflecting the beliefs of private parties and taking place 10 years before the statute was enacted. The Court acknowledged Wiley’s point, adopted by the dissent, that its ruling would make it more difficult for copyright owners to divide international markets but found nothing in the Copyright Act to indicate that was a concern of the drafters, finding the only relevant concern expressed in §109 being to prohibit owners from sub-dividing the domestic market.

The dissent, authored by Justice Ginsburg, also argued that the majority opinion supports a theory of ‘international exhaustion’ that the U.S. government has opposed. The majority pointed out that, inter alia, the Solicitor General did not make that argument and that the Court’s prior decision in Quality King already started down that path.

This decision will benefit businesses that re-sell copyrighted works. It will make it more difficult for copyright owners to control the international distribution of their works and likely will change the way that many copyright owners offer and price their works in international markets. Some have wondered if the Supreme Court will reach the same conclusion about whether the ‘first sale’ doctrine as applied to patents is geographically limited.