In a long-awaited and far-reaching opinion, the United States Supreme Court today overturned the Second Circuit’s holding in Kirtsaeng v. John Wiley & Sons, Inc., holding that the First Sale Doctrine (17 U.S.C. §109(a)) applies to goods manufactured in foreign countries (exclusively for distribution and sale in those countries) and resold in the United States. Kirtsaeng v. John Wiley & Sons, Inc., ___ U.S.____ (2013). As a result, buyers who purchase copyrighted works in foreign countries are now free to bring them back to the U.S. and resell them. Copyright owners looking to employ price-differentiation strategies in various international markets will now have to look to Congress for relief.
Textbook publishers commonly authorize foreign subsidiaries or licensees to reproduce and distribute English language versions of their works in foreign countries with a restriction on further distribution outside those countries. Typically, these foreign editions sell for lower prices than their U.S. counterparts, thus creating an arbitrage opportunity in the U.S. market.
Supap Kirtsaeng, a Thai national studying mathematics at Cornell University, recognized this opportunity and asked friends and family to purchase and ship those English-language versions of textbooks available in Thai bookstores to him in the U.S. Kirtsaeng then re-sold the Thai versions at a significant mark-up (but still lower than the U.S. retail price). He profited to the tune of several hundred thousand dollars and was ultimately assessed $600,000 in statutory damages ($75,000 per infringement) by the Second Circuit. The Second Circuit ruling was essentially in line with the Ninth Circuit’s ruling in a similar case, but the result was contrary to a decision of the Third Circuit. The Supreme Court granted cert in order to resolve the dispute among the circuits.
Section 109(a) provides in part that “[N]otwithstanding the provision of section 106(3), the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.” The issue before the court was “whether the ‘first sale’ doctrine applies to protect a buyer or other lawful owner of a copy (of a copyrighted work) lawfully manufactured abroad. Can that buyer bring that copy into the United States (and sell it or give it away) without obtaining permission from the copyright owner? Can, for example, someone who purchases, say at a used bookstore, a book printed abroad subsequently resell it without the copyright owner’s permission?”
After a lengthy exercise in parsing the words of the statute, the wording of prior statutes, prior Supreme Court decisions, and even some commentary, the Court held that the “first sale” doctrine does apply to copies of a copyrighted work lawfully made abroad and resold in the United States.
This ruling wreaks havoc on the foreign pricing strategies described above. The Court acknowledged the effect of its ruling on such practices, stating that “[A] publisher may find it more difficult to charge different prices for the same book in different geographic markets. But we do not see how these facts help Wiley, for we can find no basic principle of copyright law that suggests that publishers are especially entitled to such rights.” Presumably this effect will be felt in other industries that attempt to parse international markets in similar ways. As for the publishing industry, perhaps as the creation and distribution of electronic textbooks proliferates, the need for international pricing dichotomies will decrease.
Finally, this ruling only applies to works that are “sold” in foreign jurisdictions. Thus, it does not apply to distribution of copyrighted works under licensing agreements, e.g., software and films.