Supreme Court Extends "First Sale" Doctrine to Overseas Goods

In November 2012, we discussed two separate cases regarding copyright law's "first sale doctrine" and how their decisions could affect the future of content creation and distribution. Section 106 of the Copyright Act grants copyright holders the exclusive right to distribute copies of their works, but Section 109 allows the owner of a copy of a work "to sell or otherwise dispose of" that copy without permission of the copyright owner. Yesterday, the US Supreme Court issued its decision in Kirtsaeng v. John Wiley & Sons, in which it held, by a 6-3 decision, that the first sale doctrine applies to copyrighted goods that are manufactured abroad.

The case involved Supap Kirtsaeng, a Thai student studying in the US, who resold English-language textbooks that were purchased abroad. John Wiley & Sons ("Wiley"), the publisher of some of those textbooks, filed suit, claiming that Kirtsaeng's importation and resale was unauthorized and violated its exclusive rights under Section 106.

The main issue was how the Court would interpret Section 109 of the Copyright Act, specifically the language stating that the first sale doctrine only applies to works "lawfully made underthis title." Wiley argued that the language implied a geographical limitation, suggesting that "under this title" means "in conformance with the Copyright Act where the Copyright act is applicable." It also argued that Section 602(a)(1) of the Copyright Act, which makes the importation into the US, without permission, of copies acquired outside the US a violation of Section 106, would be undercut without such a geographical limitation. Kirtsaeng, on the other hand, argued that "lawfully made under this title" simply means that a copy was manufactured according to the requirements of US copyright law, meaning, in this case, that the copies were manufactured abroad with the permission of the copyright owner.

Writing for the majority, Justice Stephen Breyer stated that a textual analysis of the clause and the common-law history of the first sale doctrine "favor a nongeographical interpretation." Breyer also revisited the potential problems with Wiley's interpretation of the rule (which he hinted at during oral arguments, as noted in our original post). Breyer feared that if Wiley's interpretation was accepted, then the copyright status of at least 200 million library books published abroad could be called into question, selling a used car might require the permission of the copyright holders of every software component in the car, and art museums would need to receive permission from a copyright owner to display a painting even if the owner already donated the painting to a foreign museum.

In dissent, Justice Ruth Bader Ginsburg stressed how this ruling will prevent copyright holders from charging different prices for works in different territories. The ability of rightsholders "to engage in such price discrimination," she wrote, "…is undermined if arbitrageurs are permitted to import copies from low-price regions and sell them in high-price regions." According to Ginsburg, Congress's importation ban in Section 602(a)(1) intended "to grant copyright owners the right to control the importation of foreign-made copies of their works," but that right was effectively destroyed by the majority's opinion.

For the moment, it appears as though the first sale doctrine has trumped importation protections and price discrimination strategies. However, a concurring opinion by Justice Elena Kagan, with whom Justice Samuel Alito joined, suggested that the proper way to strengthen the importation protections of Section 602(a)(1) was not by having the Court rule in favor of Wiley but by having Congress amend the law itself. The MPAA has already noted that the decision "will hinder American businesses' ability to compete overseas to the detriment of the long-term economicinterests of the United States, and particularly its creative industries," so this issue could very well be revisited in Congress in the near future.

Until then, content owners will likely be re-evaluating global content distribution strategies in light of this decision. Of course, the DigitalHHR team will continue to monitor the development of the first sale doctrine and are available to answer any questions you might have.