In the recent decision in Kirtsaeng v. John Wiley & Sons, Inc., the US Supreme Court ruled, with respect to non-pirated works lawfully made and sold outside the US, that the copyright "first sale" doctrine trumps the copyright importation restriction.
The first sale doctrine, in essence, constitutes an exception to the exclusive right of the copyright owner to distribute copies of the copyrighted work. The doctrine provides that after the first sale of a lawfully made copy, anyone who is the owner of that copy can sell or dispose of it in any way without permission of the copyright owner and without copyright infringement liability. The importation restriction provides that the importation of a copyrighted work obtained outside the US infringes the copyright owner's exclusive distribution rights. The inherent tension between the two is clear: Can a copyright owner invoke the importation restriction to prevent the importation into the US of copies of a copyrighted work that were lawfully made and sold outside the US and, therefore, appear to fall within the scope of the protection afforded by the first sale doctrine? More simply, does the first sale doctrine apply to copies of copyrighted works that are lawfully made and sold abroad?
The factual background to the Kirtsaeng decision was straightforward: Supap Kirtsaeng, a Thai student, purchased authorized versions of textbooks in Thailand and sold them on eBay to students in the US at a higher price than he had paid. In the process, US students benefited from a lower price than they would have otherwise paid for US editions of the same textbooks. And Supap Kirtsaeng, due to significant price differentials, made a handsome profit. John Wiley & Sons, the publisher of the textbooks and US copyright owner, was not pleased and sued for copyright infringement. John Wiley argued that the application of the first sale doctrine should be limited to works made in the US, thereby allowing it to establish effective and enforceable global market segregation and price differentiation strategies. After losing before the trial court and the Second Circuit Court of Appeals, Supap Kirtsaeng appealed to the Supreme Court, arguing that his importation business was protected by the first sale doctrine, which should be interpreted as applying to any authorized first sale, without geographical limitations and regardless of where the copies were first made and sold.
In an opinion handed down by Justice Steven Breyer, the Supreme Court sided six to three with Supap Kirtsaeng and overturned the lower court’s ruling. Relying on the plain language and legislative history of the first sale doctrine statutory provision, the Court held that there was no basis to impose a US-based geographic limitation on its application. Additionally, Justice Breyer was clearly persuaded by arguments in amicus briefs that Wiley’s narrow interpretation of the first sale doctrine would have "intolerable consequences" on US libraries, used-book dealers, retailers, museums and tech companies that have historically circulated and sold works lawfully made and purchased abroad. Justice Breyer also expressed significant concern at the possibility that a narrow interpretation of the first sale doctrine could result in copyright infringement liability for the importation into the US of foreign-manufactured cars with embedded copyrighted software developed and owned by a US company.
The decision in Kirtsaeng is an important victory for consumers, for Internet resellers such as eBay and Amazon that facilitate digital commerce and the sale of consumer goods across national borders, and, indeed, for any company that seeks to import and sell in the US unlicensed copies of works, which could include unexpected products such as cars, mobile phones, computers and numerous other products with embedded software. It is even possible that US copyright owners will now have less incentive to engage in manufacturing abroad – a potentially positive result for some, albeit not one that appears to have played a critical role in the majority opinion.
But what about the rights of content producers? Where does the decision in Kirtsaeng now leave them? The dissenters in Kirtsaeng (Justices Ruth Ginsburg, Antonin Scalia and Anthony Kennedy) ascribed significant importance to the ability of US copyright owners, who make and sell goods abroad, to set international prices – an ability, they argued, that would be severely “undermined if arbitrageurs are permitted to import copies from low-price regions and sell them in high-price regions.” Clearly, such copyright owners will now face greater challenges in establishing and enforcing global price differentiation strategies. Unable to rely on their exclusive distribution rights and the closely linked importation restriction, their best bet may be to attempt to sidestep the now clearly expansive reach of the first sale doctrine by relying on specific contractual terms and licensing models.
The most likely outcome of the decision in Kirtsaeng, however, is a push by content providers to shift the battle to Congress and lobby for legislation that protects their ability to maintain effective market segmentation and global price differentiation schemes through a change in the Copyright Act that clearly prohibits unauthorized importations of copyrighted works. It seems doubtful, then, that Kirstaeng will prove the last word on an issue that can only gain in significance with the ongoing development of a global marketplace still built around individual countries of differing economic strength.