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• Case Summary: The Supreme Court grants a writ of certiorari, reviewing a Ninth Circuit decision that the first sale doctrine does not apply to a claim of copyright infringement regarding a copy of a work lawfully made overseas and imported into the United States without the authorization of the copyright owner.
• Possible Impact: This grant may finally lead to resolution of the conflict between Section 602 of the Copyright Act and Section 109, which was left hanging by a 4-4 tie on the court when the issue was last addressed in 2010.
By Anandashankar Mazumdar
The granting of certiorari on April 16 in a case asking whether the Copyright Act's first sale doctrine applies when a work manufactured overseas is imported and resold in the United States will give the Supreme Court a second chance to answer a question left hanging after a 4-4 deadlock in late 2010 (Kirtsaeng d/b/a Bluechristine99 v. John Wiley & Sons Inc., U.S., No. 11-697, review granted 4/16/12).
The recusal of Justice Elena Kagan from Costco Wholesale Corp. v. Omega S.A., 131 S. Ct. 565, 96 USPQ2d 2025 (2010), and the subsequent tie left standing an appeals court ruling that appeared to create a loophole that gave copyright holders the incentive to produce works overseas.
That result, in addition to rulings by other circuit courts, left standing a three-way split among federal appeals court circuits regarding the question of how the first sale doctrine, 17 U.S.C. §109(a), interacts with 17 U.S.C. §602(a)(1), which gives copyright owners the right to control the initial release of a work in the United States.
Omega had produced a batch of wristwatches in Switzerland intended for sale outside the United States. Costco sold some of these watches that it had acquired legally from a distributor.
This Costcowas notable in one aspect in that it represented an attempt by a manufacturer to block sales of gray-market goods through a copyright infringement action. Generally, such attempts to block importation give rise to claims of counterfeiting or trademark infringement. However, such causes of action were not applicable because the goods in question were genuine.
Importation into the United States, with out the authority of the owner of copyright … of copies … of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies … .
[T]he 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 Supreme Court granted a writ of certiorari in the Costcocase, but failed to reach a majority ruling.
In Quality King, however, the copies in question were produced in the United States, and then shipped abroad for distribution. A parallel importer then acquired copies and re-imported them into the United States.
Under those circumstances, the Supreme Court said, the first sale doctrine did apply. However, the distinguishing fact in Quality Kingwas the “round-trip” element; the goods in the Kirtsaengcase were not originally made in the United States.
John Wiley & Sons Inc. publishes editions of textbooks targeting overseas markets. These books are of slightly lower quality than those it markets in the United States and have fewer additional features, such as study guides. The foreign editions are printed overseas, and text on the back covers indicates restrictions on their sale to markets other then those indicated and prohibits exportation.
Wiley assigned rights to reprint and publish the foreign editions to its Wiley Asia subsidiary, and the contracts limit the subsidiary's geographical distribution area. In the agreement, Wiley retained the right to publish and sell the books in the United States, a more profitable market.
Supap Kirtsaeng d/b/a Bluechristine99 was originally a resident of Thailand. After he relocated to United States, he received shipments of Wiley Asia-made foreign edition textbooks from contacts in Asia and sold the books through commercial websites, such as the eBay online auction site. Kirtsaeng used the proceeds of such sales--amounting to $37,000-- to help cover his expenses while attending universities in the United States.
Wiley sued Kirtsaeng, alleging copyright infringement.
The U.S. District Court for the Southern District of New York ruled that the first sale doctrine was inapplicable. John Wiley & Sons Inc. v. Kirtsaeng d/b/a Bluechristine99, 93 USPQ2d 1432 (S.D.N.Y. 2009).
A jury found Kirtsaeng liable for infringing eight Wiley works and awarded $600,000 in statutory damages.
However, the majority opinion in this case included an extensive footnote acknowledging that this interpretation had “undesirable” public policy implications, effectively giving producers an economic incentive to outsource manufacturing.
A dissenting opinion argued that a copy of a work manufactured outside the United States with the authorization of the copyright owner could indeed constitute a work made lawfully under the Copyright Act.
Under §602(a)(1) of the Copyright Act, it is impermissible to import a work “without the authority of the owner” of the copyright. But the first-sale doctrine, codified at §109(a), allows the owner of a copy “lawfully made under this title” to sell or otherwise dispose of the copy without the copyright owner's permission.
The question presented is how these provisions apply to a copy that was made and legally acquired abroad and then imported in to the United States. Can such a foreign-made product never be resold within the United States without the copyright owner's permission, as the Second Circuit held in this case? Can such a foreign-made product sometimes be resold within the United States without permission, but only after the owner approves an earlier sale in this country, as the Ninth Circuit held in Costco? Or can such a product always be resold without permission within the United States, so long as the copyright owner authorized the first sale abroad, as the Third Circuit has indicated?
The petition emphasized the urgency surrounding this issue, resulting from the economic impact of the global explosion in parallel importation. TheCostco case attracted heavy hitters on both sides, including eBay Inc., Amazon.com Inc., Google Inc., Target Corp., Wal-Mart Stores Inc., Intel Corp., Fujifilm Holdings Corp., and Seiko Epson Corp.
[T]he stakes extend far beyond buyers and sellers of traditional copyrighted content. If a foreign-made copy can never be sold without authorization in the U.S., then obviously it can never be imported into the U.S. without authorization either. … And the exclusive right “to distribute copies” encompasses the right to block any “other transfer of ownership”--including a gift--and any “rental, lease, or lending.” … Thus, … Netflix and Blockbuster are vulnerable. So are libraries. …
The petition urged the court to grant certiorari and to resolve the question regarding the proper scope of the phrase “lawfully made under this title” as used in Section 109. Three possible interpretations were proposed:
(1) That the phrase means that the copy in question was produced in a manner “consistent with” the Copyright Act; that is, that copies lawfully produced under the law of another country might so qualify;
(2) That, as stated by the Second Circuit, only copies produced in the United States could qualify; and
(3) That, as stated by the Ninth Circuit, a work produced outside the United States could qualify if the copyright owner had authorized at least one such importation.
Petitioners claim that there is a circuit split on this issue, but they have not identified any court of appeals that has ever applied the first-sale doctrine to foreign-made copies where, as here, the copyright holder has not authorized their sale in the United States. And while Petitioners insist that the Ninth Circuit would apply the first-sale doctrine to foreign copies given such authorization, purportedly unlike the Second Circuit below, the Ninth Circuit has specifically reserved the question whether that approach is still good law in the circuit; in any event, the decision below does not implicate this supposed disagreement because it is undisputed that Respondents did not authorize the domestic sale of any foreign-manufactured textbooks.
Regarding the Sebastian decision, Wiley rejected this reference as dictum; indeed, “dictum that did not even purport to resolve the question presented.”
The respondent's opposition brief concluded that the Second Circuit's ruling was consistent with the text of the Copyright Act, with Quality King, and with “the purposes of the Copyright Act.”
Kirtsaeng was represented by E. Joshua Rosenkranz of Orrick, Herrington & Sutcliffe, New York. Wiley was represented by Theodore B. Olson of Gibson, Dunn & Crutcher, Washington, D.C.
By Anandashankar Mazumdar
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