In a decision that may significantly impact international production and distribution practices for copyrighted works, the Supreme Court of the United States on Tuesday found that the Copyright Act’s first sale doctrine was not limited geographically and instead applied equally to copyrighted goods made both in the United States and abroad.

On March 19, 2013, in a 6-3 ruling, the Supreme Court of the United States in Kirtsaeng v. John Wiley & Sons Inc. held that the “first sale” doctrine as codified under §109(a) of the Copyright Act applies to copies of a copyrighted work lawfully made abroad and then imported into the United States for sale or other disposal of the work.  Justice Breyer’s majority opinion was joined by Chief Justice Roberts and Justices Thomas, Alito, Sotomayor and Kagan.  Justice Kagan also filed a concurring opinion, in which Alito joined.  The Court’s analysis centered on interpretation of the language in Copyright Act §109(a) pertaining to copies or phonorecords “lawfully made under this title.”  The Court’s holding resolved the “first sale” issue that remained unsettled as a consequence of the 4-4 Supreme Court deadlock in Costco Wholesale Corp. v. Omega S.A., 131 S. Ct.565, 95 U.S.P.Q.2d 2025 (2010) (IP Update, Vol. 11, No. 1, and IP Update, Vol. 13, No. 12).

U.S. textbook publisher John Wiley & Sons Inc. brought a copyright infringement suit against Supap Kirtsaeng, a University of California graduate student from Thailand.  While he was studying in the United States, Kirtsaeng’s family and friends in Thailand shipped him low-cost foreign editions of English-language textbooks lawfully printed abroad by John Wiley & Sons (Asia) Pte Ltd., a wholly owned foreign subsidiary of John Wiley & Sons.  Kirtsaeng re-sold the imported books in the United States for a substantial profit. 

In the district court, John Wiley & Sons claimed that Kirtsaeng’s importation and resale of the books was an infringement of the company’s exclusive right to distribute its copyrighted works under §106(3) of the Copyright Act, as well as a violation of the Copyright Act’s import provision under §602.  Kirtsaeng defended his actions on the basis of the first sale doctrine, but the district court prohibited him from raising the defense and rejected its applicability to goods manufactured abroad (even when manufactured abroad with the copyright owner’s permission).  Accordingly, a jury found Kirtsaeng liable for willful copyright infringement and awarded Wiley statutory damages of more than half a million dollars.  Kirtsaeng appealed to the U.S. Court of Appeals for the Second Circuit, which affirmed the trial court.  In April 2012, the Supreme Court agreed to hear the case (IP Update, Vol. 15, No. 5).

The Supreme Court noted that §602(a)(1) of the Copyright Act makes it clear that importing a copy of a work without permission violates the copyright owner’s exclusive distribution right under §106(3) of the Copyright Act.  Nevertheless, the Court also explained that §602(a)(1) explicitly refers to the §106(3) distribution right, which is always subject to the various exceptions of and limitations to a copyright owner’s exclusive rights as set forth in §§107 through 122 of the Copyright Act, including the §109(a) “first sale” limitation.  The Court then examined its 1998 decision in Quality King Distributors v. L’anza Research International, in which the Supreme Court unanimously held that the first sale doctrine limited the scope of §602(a) and thus a foreign distributor who re-imported copyrighted works could assert the first sale doctrine as a defense.  The Quality King Court, however, did not rule on whether the first sale doctrine would apply to works manufactured outside of the United States.  The Kirtsaeng Court noted that the location of the manufacture of the copyrighted work is critical when interpreting §109(a) because the codification applies the first sale doctrine to a particular copy or phonorecord “lawfully made under this title.”  The Court then analyzed the meaning of that five-word phrase in light of differing views among the Circuit Courts, and to determine whether the relevant language imposed a geographical limitation on the first sale doctrine.

After reviewing the language of §109(a), its context in the Copyright Act and the common law history of the first sale doctrine, the Court concluded that the statute should be read to favor a non-geographical interpretation, and that “lawfully made under this title” means “in accordance with” or “in compliance with” the Copyright Act, and thereby rejected the Respondent’s arguments that the language applies to works made “in territories in which the Copyright Act is law.”  The Court also considered the evolution of the Copyright Act and the inconsistency that could result from imposing a geographical limitation on the first sale doctrine, noting that such an interpretation would grant a U.S. copyright holder permanent control over the U.S. distribution chain with respect to copies of works printed abroad, but not those printed in the United States.  The Court also noted the potential impact that a geographical interpretation could have on libraries, used book dealers, technology companies, consumer goods retailers and museums, all of which have long relied upon the protection of the first sale doctrine.  The Court reversed the Second Circuit decision and remanded the case.

Justice Ginsberg filed a dissenting opinion joined by Justice Kennedy and joined in part by Justice Scalia.  The dissent stated that the Court’s decision is at odds with the intent of Congress to protect copyright owners against unauthorized importation of low-priced, foreign-made copies of copyrighted works, and insisted that the Court has placed the United States “at the vanguard of the movement for ‘international exhaustion’ of copyrights.”  The dissent also stated that the “practical problems” identified by the majority with respect to libraries, businesses, museums, etc., comprise a largely imaginary “parade of horribles” with absurd hypothesized consequences.

Practice Note

This Supreme Court opinion does not mention the first sale doctrine or exhaustion as it applies in the patent context (see Federal Circuit decisions in Fujifilm v. Benum (IP Update Vol. 13, No. 7) and Jazz Photo (IP Update Vol. 8, No. 1)), or application of the first sale doctrine to streaming copyrighted content from one jurisdiction to another.  The Supreme Court may have occasion to address some of the patent-related issues in the seed case of Bowman v. Monsanto, argued on February 19, 2013, and awaiting decision.  In addition, the Supreme Court has been asked to consider the issue of first sale exhaustion in the patent context more directly in Ninestar’s pending petition for cert in the case of Ninestar v. ITC (seeIP Update, Vol. 15, No. 2).