On March 19, the U.S. Supreme Court held that the U.S. Copyright Act’s first sale doctrine applies also to copies of copyrighted works that are legally made overseas and imported into the United States without the copyright owner’s permission. Kirtsaeng v. John Wiley & Sons, No. 11-697, slip op., accessible at http://www.supremecourt.gov/opinions/12pdf/11-697_d1o2.pdf

John Wiley & Sons, Inc. (“John Wiley”) publishes and holds United States copyrights in textbooks, some of which are published through a foreign subsidiary of John Wiley and printed outside the United States, including in Asia.  The case arose after Supap Kirtsaeng (“Kirtsaeng”), a Thai student studying in the United States, had family members in Thailand buy and send him these lower-priced foreign edition textbooks from a Thai bookstore.  Kirtsaeng later resold the textbooks in the United States at a profit.  John Wiley sued Kirtsaeng alleging an infringement of its exclusive distribution right under 17 U.S.C. § 106(3) and the related import prohibition in 17 U.S.C. § 602(a).  Kirtsaeng defended himself stating he lawfully acquired the textbooks and their resale does not constitute copyright infringement under the first sale doctrine.

Under the first sale doctrine, a copyright owner's exclusive distribution right under 17 U.S.C. § 106(3) does not preclude the sale of a copy of the copyrighted work by the owner of such copy if such copy was "lawfully made under this title." 17 U.S.C. § 109 (the word "title" refers to Title 17 of the U.S.C., which includes the Copyright Act). Accordingly, an individual who legally purchases a copy of a copyrighted work has the right to “sell or otherwise dispose of” such copy “without the authority of the copyright owner.” Id.

The U.S. District Court for the Southern District of New York found for John Wiley awarding it $600,000 in damages for Kirtsaeng’s willful copyright infringement. The Court held that the words “lawfully made under this title” in 17 U.S.C. § 109 limit the first sale doctrine to copies lawfully made in the United States. Since the textbooks resold by Kirtsaeng were printed outside the United States, the Court rejected the application of the first sale doctrine. Upon Kirtsaeng’s appeal, the U.S. Court of Appeals for the Second Circuit upheld the District Court’s decision, following its previous interpretation that the first sale doctrine is limited to copies lawfully made in the United States, as well as copies lawfully made outside the United States, but first sold in the United States with the copyright owner’s permission.

The U.S. Supreme Court reversed the decision, holding that the words “under this title” did not denote a geographical restriction. Thus, the first sale doctrine applies to copies of a copyrighted work lawfully made anywhere in the world. The Court reasoned that interpreting the words “under this title” as a geographical restriction contradicts a literal reading of the words. Instead, the literal reading of “lawfully made under this title” favors an interpretation that copies are made lawfully in accordance with the Copyright Act. Under rules of statutory interpretation and the historical development of the first sale doctrine, the words “lawfully made under this title” cannot be accorded a geographic interpretation.

Before Kirtsaeng, the Court had occasion to address the applicability of the first sale doctrine outside the United States in Quality King Distributors, Inc. v. L’anza Research Int’l, Inc., 523 U.S. 135 (1998). In that case, the Court held that the importation into the United States of a copy of a copyrighted work made domestically and first sold abroad does not infringe the copyright owner’s distribution right even if such importation is without the copyright owner’s consent as long as the export and the non-United States first sale of such copy was with the copyright owner’s consent. Id. at 138-139. Since the copy in Quality King was made in the United States, the Court did not have to interpret the words “lawfully made under this title.” The Court in Kirtsaeng discussed Quality King and found that Quality King’s reasoning supported the Court’s interpretation of the words “lawfully made under this title.” In a more recent case, OMEGA SA v. Costco Wholesale Corp., 541 F.3d 982 (9th Cir. 2008), Omega made watches including a copyrighted work in Switzerland. The watches were then imported by a third party into the United States and bought and resold by Costco in the United States. The Ninth Circuit decided, in reliance on Quality King, that Costco’s distribution of the watches was not protected under the first sale doctrine. The court interpreted the words “lawfully made under this title” to mean “legally made in the U.S.” Id. at 986. Costco appealed to the U.S. Supreme Court. However, since Justice Kagan recused herself and the other Justices split 4-4, the Ninth Circuit’s decision was affirmed per curiam without substantive discussion. Costco Wholesale Corp. v. Omega, S.A., 526 U.S. __; 131 S. Ct. 565 (2010).

Kirtsaeng now clears up the ambiguity surrounding the application of the first sale doctrine outside the United States. On the one hand, it is a victory of resellers, libraries, and United States consumers seeking lower priced or special edition works from overseas. On the other hand, it limits the ability of copyright owners to profit from market segregation. Accordingly, United States copyright owners may need to reconsider strategies for the distribution of products in international markets. This has already occurred with regard to some digital products through the use of different digital rights management (DRM) in diverse markets, such as region coding, which limits the ability to use in the United States copies of copyrighted works made for an overseas market, thus discouraging their importation. The first sale doctrine also applies only to copies that are “sold.” Courts have held that a copy that is “licensed” does not fall under the first sale doctrine. Thus, to avoid application of the first sale doctrine to digital copies of works, such as e-books, software, and digital movies and music, the terms under which such digital copies are provided to consumers often expressly state that such copies are licensed, rather than sold. In addition, the same terms often expressly contractually limit the “purchasers” from reselling the digital copies.

However, as the Court clearly stated, the first sale doctrine is not a blank check for the importation of infringing copies. The first sale doctrine does not apply if there is no first sale authorized by the copyright owner. Thus, if the copyright owner authorizes the making of copies of a work overseas and the copies are then sold without the approval of the copyright owner, their importation into the United States will be infringing. An unsettled question is whether the first sale doctrine applies where the owner of a copyrighted work is located outside the United States and grants an exclusive license under, or “assigns,” the United States copyrights to a United States entity, and either the copyright owner or another licensee makes and sells copies of the work outside the United States, which are then imported into the United States. Can the United States exclusive licensee or “assignee” block the importation, or are such sales “lawfully made under this title?” This question is more difficult because it involves two different, unrelated right holders with potentially conflicting interests and the question of whose authorization is decisive under 17 U.S.C. § 109. This may be the subject of a future decision.