Supreme Court Holds That the First Sale Doctrine Permits the U.S. Resale of Copyrighted Works Made and Sold Overseas

SUMMARY

In Kirtsaeng v. John Wiley & Sons, Inc.,1 the Supreme Court held that the U.S. Copyright Act permits the subsequent domestic resale of copyrighted works lawfully manufactured abroad for overseas markets and initially sold outside of the United States. In a 6-3 decision written by Justice Stephen Breyer, the Court found that there was no "geographical limitation" to a provision of the Copyright Act that permits the owner of a copy "lawfully made under this title" to resell that work—the so-called "first sale" doctrine.2

The first sale doctrine allows copies of copyrighted material that are sold with authorization of the copyright owner to be resold on a secondary market in the U.S. without risk of infringement. A prime example is the market for used books. There had been disagreement—and a split among the Courts of Appeals—about whether a U.S. copyright holder could prevent the importation and resale of products that were initially made and distributed outside of the U.S. with that holder’s permission. By applying the first sale doctrine to authorized foreign sales, the Kirtsaeng decision may have consequences for a broad range of products manufactured and sold abroad.

BACKGROUND

Supap Kirtsaeng is a Thai national who came to the U.S. to study at Cornell and the University of Southern California. To subsidize his educational expenses, Kirtsaeng resold textbooks purchased by his family from bookstores in Thailand. Those textbooks were not counterfeit—they were legitimate copies that had been lawfully printed and sold in Thailand, but they included a notice that importation into the U.S. was prohibited.

John Wiley & Sons ("Wiley"), a major American textbook publisher, brought suit, claiming that the unauthorized importation and resale of the textbooks constituted infringement of Wiley’s U.S. copyrights. Kirtsaeng argued that because Section 109(a) of the Copyright Act permits him "to sell or otherwise dispose of" books "made under this title," the first sale doctrine permitted his resale of legitimately acquired copies. The District Court disagreed, reasoning that the first sale doctrine did not apply to foreign-manufactured goods first sold abroad. A divided Second Circuit affirmed.

THE SUPREME COURT’S DECISION

Writing on behalf of six members of the Court, Justice Breyer explained that the Supreme Court previously held that one who purchases a copyrighted work manufactured in the U.S. and sold abroad can later import and sell that work domestically because of the first sale doctrine as codified in Section 109(a) of the Copyright Act. Slip op. at 2-3.3 Justice Breyer characterized the question posed by Wiley as whether Section 109(a) has a "geographical limitation," whereby the first sale doctrine would limit a copyright holder’s control only when copies were lawfully made in the U.S. Id. at 7-8. The Court rejected that position on multiple grounds.

In a dissent joined by Justices Anthony Kennedy and Antonin Scalia, Justice Ruth Bader Ginsburg argued that the Court’s majority ignored Congress’ goal of protecting "copyright owners against the unauthorized importation of low-priced, foreign-made copies of their copyrighted works." Slip op. at 1 (Ginsburg, J., dissenting). The dissent reasoned that "Congress intended to provide copyright owners with a potent remedy against the importation of foreign-made copies of their copyrighted works," and that Section 109(a) "is most sensibly read as referring to instances in which a copy’s creation is governed by, and in accordance with," the Copyright Act, which "does not apply extraterritorially." Id. at 5-6.

IMPLICATIONS

This decision leaves copyright owners with less power to enforce their rights in the U.S. over products made and sold outside the U.S., thereby undermining business models that have relied on distinguishing pricing between domestic and foreign sales of the same items. For instance, as amicus curiae in support of the publisher’s position, the Business Software Alliance argued that permitting copyrighted foreign goods to be resold in the U.S. limits the ability of businesses to sell works more cheaply in developing markets and could result in higher overall prices.

Importantly, because it interpreted a provision of the Copyright Act, the Kirtsaeng decision is only directly applicable to copyright law. But in light of the Court’s conclusion that its interpretation was consistent with the first sale doctrine under common law, parties will likely argue that the Court’s reasoning applies to the analogous common-law patent exhaustion doctrine, which the Federal Circuit has held does not apply to patented goods manufactured and sold abroad.4 That issue could be resolved in another case, Ninestar Technology Co. v. International Trade Commission,5 in which certiorari has been requested. In that case, the Supreme Court may choose to vacate and remand the case to the Federal Circuit to further consider whether foreign sales authorized by a patent holder give rise to patent exhaustion in light of Kirtsaeng.

First, the Court concluded that a literal reading of Section 109(a) did not support a geographical limitation. Instead, the Court reasoned that the words "lawfully made under this title" say nothing about geography, but logically refer to works "made ‘in accordance with’ or ‘in compliance with’ the Copyright Act," a reading supported by Congressional intent.

Id. at 8-16.

Second, the Court found that a non-geographical reading of the statute was consistent with the common-law first sale doctrine. In that context, noting the historical preference for avoiding "restraints on the alienation of chattels," the Court reasoned that a law permitting a copyright holder to control resale would be against "bargaining and contracting."

Id. at 17-19. The Court concluded that the "common-law doctrine makes no geographical distinctions" and that it is a "straightforward application" of the first sale rule to apply that doctrine to copies made and sold abroad. Id. at 18-19.

Finally, the Court stated that public policy considerations do not support a geographical limitation. In reaching this conclusion, the Court described a long tradition of freedom to resell copies of copyrighted material without geographical distinctions, and then considered the "horribles" that could result from a different rule.

Id. at 17-24. The Court observed that "[a]ssociations of libraries, used-book dealers, technology companies, consumer-goods retailers, and museums point to various ways in which a geographical interpretation would fail to further basic constitutional copyright objectives." Id. at 19. For instance, refusing to apply the first sale protections to sales occurring abroad "could prevent a buyer from domestically selling or even giving away copies of a video game made in Japan, a film made in Germany or a dress (with a design copyright) made in China." Id. at 11.