“First-Sale” Resellers Rejoice
SUPREME COURT OF THE UNITED STATES
KIRTSAENG, DBA BLUECHRISTINE99 (Petitioner) v. JOHN WILEY & SONS, INC. (Respondent)
No. 11–697. Argued October 29, 2012—Decided March 19, 2013
COMMENT
Recently, a seminal decision was issued by the Supreme Court of the United States that undoubtedly affects the scope of rights for copyright holders as well as the resellers of those copyrighted works.
Background
John Wiley & Sons, Inc., an academic textbook publisher, often assigns to its wholly owned foreign subsidiary (Wiley Asia) rights to publish, print, and sell foreign editions of Wiley’s English language textbooks abroad. Wiley Asia’s books state that the books are not to be taken (without permission) into the United States.
Supap Kirtsaeng moved to the United States from Thailand in 1997 to pursue an undergraduate degree in mathematics at Cornell University. After moving, Kirtsaeng asked friends and family to buy foreign edition English-language textbooks in Thai book shops, where the books were sold at low prices, and to mail the books to him in the United States. He then sold the books, reimbursed his family and friends, and kept the profit. Allegedly, in this manner, Kirtsaeng subsidized the cost of his education.
Issue
Whether the “first sale” doctrine should apply to copies of a copyrighted work lawfully made abroad.
Procedural Posture
On September 8, 2008, Wiley brought suit against Kirtsaeng in the United States District Court for the Southern District of New York. Wiley filed suit, claiming—amongst other things—that Kirtsaeng’s unauthorized importation and resale of its books was a copyright infringement of Wiley’s 17 U.S.C. § 106(3) exclusive right to distribute and 17 U.S.C. §602’s import prohibition.
Kirtsaeng retorted that because his books were lawfully made and acquired legitimately, 17 U.S.C. §109(a)’s “first sale” doctrine permitted importation and resale without Wiley’s further permission.
The District Court jury ultimately found Kirtsaeng liable for willful copyright infringement of all eight works and imposed damages of $75,000 for each of the eight works. The District Court held that Kirtsaeng could not assert this defense because the doctrine does not apply to goods manufactured abroad. Kirtsaeng appealed.
On August 15, 2011, in a 2-1 split decision, the Second Circuit affirmed the District Court’s ruling, concluding that §109(a)’s “lawfully made under this title” language indicated that the first sale doctrine does not apply to copies manufactured outside of the United States.
On April 16, 2012, petition for writ of certiorari to the Second Circuit was granted by the Supreme Court.
Discussion
The first sale doctrine is codified at 17 U.S.C. § 109(a). Section 109(a) reads, in relevant part,:
Notwithstanding the provisions of section 106(3) [of the Copyright Act], the owner of a particular copy … 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….
The crux of the argument between the litigants is the imposition, or lack thereof, of geographical limitations vis-à-vis the statutory language of “lawfully made under this title”. Should Wiley’s argument of geographical limitations apply to this statutory language, it would mean that the first-sale doctrine does not apply to Wiley Asia’s books. Contrastingly, should Kirtsaeng’s argument of non-geographical limitation made “in accordance with” or “in compliance with” the Copyright Act, then the first-sale doctrine would apply to copies manufactured abroad and could be re-sold without the copyright owner’s permission.
The Court first analyzed § 109(a)’s statutory language and held that § 109(a) says nothing about geography. A non-geographically based, simple reading “promotes the traditional copyright objective of combatting [sic] piracy and makes word-byword linguistic sense.”
Next, the Court grappled with the historical and contemporary statutory context of the language at issue. The Court held that the comparison of the language between §109(a)’s predecessor and the present provision supports the conclusion that Congress did not have geography in mind when writing the present version of §109(a). The Court also found support for its non-geographical interpretation of the first-sale doctrine predicated on Congress’ intent to retain the substance of common-law “first sale” doctrine.
Lastly, the Court relied on a constitutional law provision, which is a tenet of intellectual property law. The Court highlighted several ways that—by requiring geographical limitations—would fail to further basic constitutional copyright objectives, in particular “promot[ing] the Progress of Science and useful Arts,” U. S. Const., Art. I, §8, cl. 8.
For example: “Technology companies tell us that “automobiles, microwaves, calculators, mobile phones, tablets, and personal computers” contain copyrightable software programs or packaging. Brief for Public Knowledge et al. as Amici Curiae 10. See also Brief for Association of Service and Computer Dealers International, Inc., et al. as Amici Curiae 2. Many of these items are made abroad with the American copyright holder’s permission and then sold and imported (with that permission) to the United States. Brief for Retail Litigation Center, Inc., et al. as Amici Curiae 4. A geographical interpretation would prevent the resale of, say, a car, without the permission of the holder of each copyright on each piece of copyrighted automobile software.”
Moreover, said the Court, “reliance upon the “first sale” doctrine is deeply embedded in the practices of those, such as booksellers, libraries, museums, and retailers, who have long relied upon its protection. Museums, for example, are not in the habit of asking their foreign counterparts to check with the heirs of copyright owners before sending, e.g., a Picasso on tour. Brief for Association of Art Museum Directors 11–12.”
In summation, the Court held that Section 109(a)’s language, its context, and the “first sale” doctrine’s common-law history favored Kirtsaeng’s position.
Policy Implications
The Court, in siding with Kirtsaeng, noted “the evergrowing importance of foreign trade to America.” This 6-3 nod to being mindful of foreign trade is not to be overlooked. When the Court spoke of the activities of associations of libraries, used-book dealers, technology companies, consumer-goods retailers, and museums that would be hampered by geographical limitations, it took the important step of applying the law to the facts, and not doing so in a vacuum because of the real-world applications that Supreme Court decisions have. Will the market for reselling significantly change (i.e., supply and demand economics)? What effect will the Kirtsaeng decision have on domestic and international pricing of copyrighted works? Time will tell how the actions of copyright holders and resellers change because of the Kirtsaeng decision.
Read between the lines. It is clear that the Court weighed and balanced various factors in its decision that Wiley’s perceived benefits of the imposition of geographical limitations are far outweighed by the negative affects on foreign trade and the suppression of the progress of science and the useful arts that such geographical limitation would render.
Conclusion
The Supreme Court, in a 6-3 ruling authored by Justice Breyer, reversed the ruling of the Second Circuit Court of Appeals and remanded the case.
Held: The “first sale” doctrine applies to copies of a copyrighted work lawfully made abroad.
Eli Rothblatt
Great website. I’m a fan of the Law Firm of Dayrel Sewell!
B.
I certainly see both sides of the argument, but ultimately I believe the correct decision was reached with respect to a person’s right to resell something legally acquired.
Great website!
Kkritz
Truly a fascinating read and blog. How interesting that politics and foreign trade have such an impact even into a simple matter of textbooks and how influential this can be in our decisions. While I might not agree, I certainly can appreciate a spirit of an entrepreneur which Kirtsaeng displays which is oftentimes how some of the best ideas are formed, much like the start of The Law Firm of Dayrel Sewell! my best wishes and hopes for all the success you deserve! Congratulations!
Dane
The U.S. Supreme Court reached the right decision in Kirtsaeng. The Court’s statutory interpretation of U.S.C. § 109(a) is correct. There is nothing in § 109(a) that mentions or even implies that the first-sale doctrine is geographical. An opposite interpretation of §109 (a) would be an outdated and archaic one, due to the modern—foreign trade climate. Copyrighted works should be easily transferred through commerce in today’s foreign trade.
Will the market for reselling significantly change (i.e., supply and demand economics)? What effect will the Kirtsaeng decision have on domestic and international pricing of copyrighted works? The Kirtsaeng decision may have a significant effect on supply and demand. Copyright owners or, in this case, textbook publishers may decide to charge higher premiums to avoid resale by consumers. It is possible that by charging higher premiums, the copyright owner will attempt to prevent the resale of works manufactured abroad. This is conceivable, because a consumer such as Kirtsaeng will have less of an incentive to resell a copyrighted work because margin of profits will decline. Thus, a consumer of a resale book will be less likely to purchase, which will lead to a decrease in demand for resale books.
Purchases will only be made by consumers that truly value the particular copyrighted work, but not by consumers that are looking to resale and profit from the work. Therefore, the demand for the particular copyrighted right may decrease due to its elevation in price, which will eventually lead to decrease in supply of the copyrighted works.
Overall, the Court had a tough decision to make because of the resale doctrine puts at the forefront copyright owner protection versus capitalism. The decision in Kirtsaeng speaks of the Court’s entrepreneurial spirit and awareness of the importance of international trade. It will be interesting to see how will textbook publishers, abroad, combat the harmful implications that result from this decision, since they afforded less copyright protection as a result of this decision.
Melaney
Under 17 U.S.C. § 106, a copyright owner has six exclusive rights: the right to reproduce the work, the right to create derivative works, the right to publicly distribute copies of the work, the right to publicly display the work, the right to perform the work, and the right to perform the work publicly by means of digital audio transmission in the case of sound recordings. The first sale doctrine, codified under 17 U.S.C. § 109(a), is a limit on the copyright holder’s right to restrict the re-selling of his or her work that was lawfully obtained. Under §109(a), once the copyright owner has legitimately sold a tangible copy of a work, the copyright owner has no further right to restrict the re-sale, or other disposition, of that copy.
This particular case focuses on language in the Copyright Act that permits the owner of a copy that was “lawfully made under this title” to resell the work. Wiley’s (the publisher) argument is that internationally printed books are not “lawfully made under this title,” and therefore Kirtsaeng cannot legally resell them on the premise of the first sale doctrine. The provision in question, §109(a), does not specify any geographic restrictions. The Supreme Court justices’ broad interpretation of the statute allows the first sale doctrine to encompass books printed internationally. This interpretation shifts the re-sale of internationally printed books from a gray area in the law, to a clearer black and white area. The holding of this case allows for more uniform copyright protection and incentivizes publishers to rethink their method for international pricing for fear other retailers such as Amazon or eBay might employ Kirtsaeng’s business practice and capitalize on the pricing discrepancy.
The Court has come to the correct decision in Kirtsaeng. Due to the nature of the globalized world, the world is becoming smaller and smaller as technological advancements have spurred the globalization process to a faster rate than ever before. International trade, has put more emphasis on the global economy and the global market. The instantaneous availability of books for sale from anywhere in the world, to anyone, anywhere in the world means there is no clear, definable market within a country. If the Supreme Court were to support the lower courts decision, the decision would have a stifling effect on international trade and possibly retard the progress of science and the useful arts. Kirtsaeng reflects the Supreme Court’s recognition of the importance of the international market and protects the international market with its holding. In light of this decision, it is important to also think about the disconnect between the first sale doctrine and its application with regard to the digital copy of a textbook vs. the physical copy of a textbook and how that will affect the international market, especially after the holding of Capitol Records, LLC v. ReDigi Inc., 934 F. Supp. 2d 640 (S.D.N.Y. 2013) (holding that there is no such thing as a digital first sale under 17 U.S.C. § 109 because the act of transferring digital music files over the internet must be accompanied with the file being copied to a new material object following the transfer thus creating a reproduction.)
Monika
Copyright law provides an exclusive right to copyright owners to the distribution of the copyrighted work. However, the exclusive right of distribution is subject to the first sale doctrine. The first sale doctrine is the statutory restriction that courts apply regarding the exclusive rights of the copyright owner, which provides that the owner of the particular copy which is lawfully acquired, has the right to sell or dispose of the possession of that copy. However, subject to the first sale doctrine, the distribution right ends once the owner sells that particular copy. The first sale doctrine gives the right to the purchaser of the copyrighted work, who has lawfully obtained the copy to dispose off the possession of that particular copy, which also includes the option of selling the copy. 17 U.S.C. § 602 talks about the importation restriction when the copyrighted work is acquired outside of the United States.
The question is whether the words “lawfully made under this title” restrict the scope of §109(a) first sale doctrine geographically. It is unlikely that congress intended to create a right favoring only the consumers who obtained the copy manufactured in United States and snatching away the rights of consumers who bought the copy manufactured elsewhere. The language “lawfully made under the title” means that the copy is made in accordance or in compliance with the Copyright Act. The language, context and the common law history of first sale doctrine taken together indicate that the Congress when writing the §109(a) purposefully did not include the geographical interpretation, if we compare the language of §109(a) with its immediate predecessor (Copyright Act of 1909, §41) the later says nothing about geography. The congress would have provided for geographical limitation in the statute, if they meant to carve out this exception to the first sale doctrine. The comparison of both sections shows the clear intention of congress not wanting to limit the first sale doctrine to geographic limitation, as discussed under Kirtsaeng.
In Kirtsaeng, the U.S. Supreme Court reversed the Second Circuit’s decision and clarified the issue of geographical limits in the application of first sale doctrine. The language of the Copyright Act is not limited only to the works which are made in United States, but it also extends to the works which are created lawfully abroad. The decision could have a far reaching effect on both consumers and publishers. Once the book comes out into the stream of commerce, the owner loses the right to control the circulation of the copy as the book is the personal property of the purchaser and it also does not interfere with the ownership of the copyright in the work at all. The doctrine would have been handicapped for the goods made outside United States, if the Supreme Court allowed the lower court’s geographically-limiting reading.
The copyright owner has the exclusive right in the work embodied in the book, but it should not extend to the resale of the copies obtained legally by the purchaser as it would render the doctrine of first sale insignificant. The copies purchased by Kirtsaeng were obtained legally (not pirated) and the doctrine of first sale gives him the right of disposal by sale under the Copyright Act. The language used in the Act does not bar resale in the United States even when the work is created abroad.
Ruth
Congress’s ability to grant copyright protections stems from the U.S. Constitution which states that Congress has the power to “promote the Progress of Science and the useful arts, by securing for limited time to authors and inventor’s exclusive rights to their respective writings and discoveries.” U.S Const. Art. I §8, cl 8. The theory behind an author’s right to a copyright in the United States is a purely utilitarian one. Allowing authors to be granted a copyright will provide a marketable right for the creators and therefore incentivize them to keep producing new works, this incentive is often considered as “promoting the progress of the useful arts.”.
The buyers of these copyrighted materials have rights, too, however, and one of those rights is found in 17 U. S. C. §109(a). This buyer’s exhaustive right is referred to as the “first sale doctrine” and provides that any person can do what they would like with their own copy of a work that has received a copyright without infringing on said copyright. This includes actions such as buying a work for example a book, and then selling that book to a friend.
A buyer’s right to the first sale doctrine is exactly the argument that was made by Supap Kirtsaeng and agreed with by the Supreme Court of the United Stated in the decision stemming from Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013). The issue in question here was not simply if Kirtsaeng was able to resell a book he had bought. The issue was whether his buying of a textbook that was produced and sold in a different country, and then reselling it in the United States fell under the limitations to the first sale doctrine. The answer to this hinges on one’s interpretation of the language used in the first sale doctrine. The argument by John Wiley & Sons Inc. is that a textbook manufactured outside the United States in not subject to the first sale doctrine because it was not “lawfully made under this title”. Until the Supreme Court’s decision in Kirtsaeng, there was no clear answer. The issue of the first sale doctrines application to overseas merchandise has had the courts divided for years. Now with the Kirtsaeng decision, there is a much clearer understanding of a buyer’s rights of not only copyrighted materials abroad, but also adds a bit more guidance regarding trademark and patent works made abroad.
Justice Breyer authored this opinion with five other justices joining. The Supreme Court decided that geographical location should not be considered when deciding whether the first sale doctrine applies. His rational behind the decision being that the language in the first sale doctrine does not state or hint at anything relating to where the writing was made or copyright was obtained, so long as the manufacturing of those copies were in compliance with U.S. copyright law. Breyer also points out that to read the statute as being a limitation on geographical location now, when it was clearly not read as a limitation on geographical location before its revision in the 1970s is inconsistent. This would insinuate that Congress’s intention during the revision was to limit the scope of the first sale doctrine, contradicting common-law beliefs that the first sale doctrine is meant to be read broadly. Furthermore, Justice Breyer focused on the broader implications the argument of John Wiley & Sons, Inc. would have if it were adopted. For example, this argument would lead to a requirement of libraries to obtain licenses from authors in order for them to own and lend out books that were printed overseas. As well as museums who would need to acquire the artists’ permission before they could publicly display a work created overseas.
The decision in Kirtsaeng did not outright overturn any conflicting common- law that already existed, no matter how much Justice Kagan would like it to argue otherwise. Thus, the case that the three dissenting justices based their arguments on is still technically good law, in part, for now. Justice Ginsberg’s dissent was based on the court’s unanimous decision in Quality King v. L’Anza Research International, 523 U.S. 135 (1998). Here, the Court concluded that a book made overseas was not “lawfully made under the title” in the United States. This is because, as Justice Ginsberg argues in her dissent, the Copyright Act was not meant to apply extraterritorially, thus works made overseas must be subject to the copyright laws in the country where they originate. Ginsberg goes on to acknowledge that this was dictum, but states that because it appears in an opinion of the Supreme Court it still holds weight. Justice Ginsberg also opposes Justice Breyer’s assertions on the impact John Wiley & Sons, Inc. argument would have on other works in the copyright field. Stating that siding with the publishers in this case would not extend for example, to a museums rights to overseas works of art.
The Court’s decision in Kirtsaeng was the right one. When you purely look to the language of the first sale doctrine as Justice Breyer did there is no mention of geographic location. If Congress meant for the statute to apply only to works created domestically, it would have explicitly done so in its revision of 17 U. S.C §109(a) back in the 1970s. Furthermore, because there is no clear restriction, the first sale doctrine should be read in its broadest terms. The entire rational behind the first sale doctrine is that a person should be able to do whatever they desire with their own property, and there should not be fear of copyright infringement hindering that. Once the author of a work is compensated for that work they should no longer have control over what is done with that specific copy. Since, the authors have already been compensated for that work, the incentive for them to keep producing new works has already been met. Meeting the utilitarian rational for why copyright protections exist in the first place. Therefore, restricting this doctrine solely to works created domestically as opposed to all works that comply with United States Copyright law, no matter the origin of their creation, would be going against the foundational principle of the first sale doctrine.
Hada
At the turn of the New Year in 2017, it is rather appropriate to revisit what has become a seminal case in copyright law. Perhaps not foreseeable when decided, both Kirtsaeng v. John Wiley & Sons, Inc.,133 S. Ct. 1351 (2013) (“Kirtsaeng I”) and Kirtsaeng v. John Wiley & Sons, Inc., 136 S. Ct. 1979 (2016) (“Kirtsaeng II”) are now read in the copyright classes of virtually every law school in the United States. The overall case study is worth revisiting now especially because we welcome into the fold John Wiley & Sons, Inc. v. Kirtsaeng, No. 08-cv-7834 (DLC), 2016 U.S. Dist. LEXIS 176981 (S.D.N.Y. Dec. 21, 2016) (“Kirtsaeng III”). Proper background on the first two cases is provided above, however, it would behoove us to advance a bit of history on Kirtsaeng II and Kirtsaeng III to bring us up to speed.
In the years that have passed since the Supreme Court’s previous ruling, the case has returned to the public eye where Kirtsaeng sought an award of attorney’s fees from Wiley based on §505 of the Copyright Act which states, in relevant part, that “the court in its discretion may allow the recovery of full costs by or against any party other than the United States” and “the court may also award a reasonable attorney’s fee to the prevailing party as part of the costs.” 17 U.S.C. § 505. The Supreme Court previously addressed this issue in Fogerty v. Fantasy Inc., where it stated that “[t]here is no precise rule or formula for making these determinations, but instead equitable discretion should be exercised . . . .” 510 U.S. 517, 534 (1994). The Fogerty Court also stated that the “[p]revailing plaintiffs and prevailing defendants are to be treated alike, but attorney’s fees are to be awarded to prevailing parties only as a matter of the court’s discretion.” Id. This broad language left lower courts wanting and promised a lack of uniformity in their decisions.
In Kirtsaeng II, the issue was what would constitute an appropriate standard for awarding attorneys’ fees to a prevailing party under §505. In doing so, the court discussed several “nonexclusive” factors that may be used to guide ‘courts’ discretion’ in deciding whether to award attorney’s fees, which include: (1) the frivolousness of the non-prevailing party’s claims or defenses; (2) the party’s motivation; (3) whether the claims or defenses were objectively unreasonable; and (4) compensation and deterrence. Kirtsaeng II at 1985. Nestled in a footnote from the Fogerty court, Justice Rehnquist stated that they “agree that such factors may be used to guide courts’ discretion, so long as such factors are faithful to the purposes of the Copyright Act and are applied to prevailing plaintiffs and defendants in an evenhanded manner.” Fogerty, 510 U.S. at n. 19. This caveat would prove to hold much weight in future decisions.
Ultimately, the Kirtsaeng II court vacated the Second Circuit’s decision, noting that “the Court of Appeals’ language at times suggest[ed] that a finding of reasonableness raises a presumption against granting fees.” Kirtsaeng II at 1983. In the unanimous decision, Justice Kagan stated that the lower court properly placed substantial weight on the reasonableness of the publisher’s decision to file suit and Kirtsaeng was not entitled to an award of attorney’s fees, however, the case was still remanded. Although the objective reasonableness factor for determining an award of attorney’s fees under §505 furthered the aims of the Copyright Act by encouraging both parties to advance strong legal positions and deter frivolous suits with weak claims, any fee award analysis must take into account more than this factor alone as others are relevant to the court’s determination. Here, the Supreme Court could not determine in reviewing the record that the district court and the court of appeals understood the full scope of their discretion; thus, the case was to be tried again to ensure that the district court would give “substantial weight to the reasonableness of Wiley’s litigating position . . . [and] tak[e] into account all other relevant factors.” Id. at 1989.
Skipping forward to the end of 2016, the case was at bar after its second trip to the Supreme Court. Judge Cote (SDNY) spent much time quoting and explaining Kirtsaeng II. In doing so, she pulled arguably one of the most resounding excerpts from Kirtsaeng II: courts “must take into account a range of considerations beyond the reasonableness of litigating positions. That means in any given case a court may award fees even though the losing party offered reasonable arguments (or, conversely, deny fees even though the losing party made unreasonable ones).” Id. at 1988. This excerpt is even more jarring when juxtaposed against the mentality of foreign courts like the UK that require losing parties to pay attorneys’ fees. She ultimately denied Kirtsaeng’s motion for attorneys’ fees following the Supreme Court’s reversal of the Second Circuit’s prior decision, which affirmed the lower court’s rejection of Kirtsaeng’s motion. On par with Kirtsaeng II, Judge Cote held that “[n]one of [Kirtsaeng’s] arguments, taken together or singly . . . persuade[d] [the] Court that he should be awarded fees in this action,” Wiley was reasonable in submitting its claims, the claims were not frivolous and Wiley acted in good faith. Kirtsaeng III at *7.
This decision comes as no surprise after the Kirtsaeng II court stated that “[i]n sending back the case . . . [the court does] not at all intimate that the District Court should reach a different conclusion.” Kirtsaeng II at 1989. Arguably, a call to return a similar verdict.
This decision will have the resounding effect of drawing a clear line when analyzing the issue of attorney’s fees under §505. That being said, the court also stated that where “Kirtsaeng argue[d] that compensation is necessary to ‘incentiviz[e] impecunious defendants to stand up to corporate goliaths’ and to reimburse the defendant and his attorneys,” the decision is not one to analyze presently, however, “[i]n a closer case for an award of attorneys’ fees, this argument might have greater weight.” Id. The closing words of Judge Cote leaves open the opportunity to add another factor to the analysis. Though the decision is fresh and yet untested, Kirtsaeng and counsel have shown an unwavering tenacity to appeal. It will be interesting to see what happens in the future.