First Sale Doctrine Applies to Works Lawfully Made Abroad and Imported to United States

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By Anandashankar Mazumdar

The first sale doctrine, as codified in the federal copyright statute, applies to copies of works legally made overseas and imported into the United States without the permission of the copyright holder, the U.S. Supreme Court held March 19 in a 6-3 ruling (Kirtsaeng d/b/a Bluechristine99 v. John Wiley & Sons Inc., U.S., No. 11-697, 3/19/13).

Reversing the U.S. Court of Appeals for the Second Circuit, the high court resolved a conflict between the first sale doctrine, 17 U.S.C. §109(a), and a provision giving copyright holders the right to block imports of copies made overseas, 17 U.S.C. §602(a)(1).

The court rejected the argument that the phrase “lawfully made under this title” as used by Section 109(a) to indicate what copies could be disposed of by purchasers without the authorization of copyright holders did not mean only copies produced within the United States and subject to U.S. copyright law.

This decision resolves an issue left hanging in 2010, when the court deadlocked 4-4 over Costco Wholesale Corp. v. Omega S.A., 131 S. Ct. 565, 95 U.S.P.Q.2d 2025 (2010) .

Justice Stephen G. Breyer's majority opinion was joined by Chief Justice John G. Roberts Jr., and Justices Clarence Thomas, Samuel A. Alito Jr., Sonia M. Sotomayor, and Elena Kagan. Kagan also filed a concurring opinion joined by Alito.

Justice Ruth J. Bader Ginsburg dissented, joined by Justice Anthony M. Kennedy. Justice Antonin G. Scalia joined the dissent in part.

Lower Courts Find Student Liable

John Wiley & Sons Inc. of Hoboken, N.J., an educational publisher, publishes certain editions of textbooks designed for overseas markets. These books are of slightly lower quality than those it markets in the United States and have fewer supplements, such as study guides. The foreign editions are printed overseas. Text on the back covers indicates restrictions on their sale in markets other than those indicated and prohibits exportations.

Wiley assigned rights to reprint and publish the foreign editions to John Wiley & Sons (Asia) Pte. Ltd., its Singapore-based subsidiary, and the contracts limited 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 Kirstaeng d/b/a Bluechristine99 was originally a resident of Thailand. After he relocated to the United States, he received shipments of Wiley Asia-made foreign edition textbooks from contacts in Asia and sold the copies through commercial websites, such as the eBay online auction site. Kirtsaeng used the proceeds of such sales to help cover his expenses while attending universities in the United States.

Wiley sued Kirtseang, alleging copyright infringement under 17 U.S.C. §106(3), which gives a copyright holder the exclusive right  

to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending ….  



Under 17 U.S.C. §602(a)(1),  

[i]mportation into the United States, without the authority of the owner of copyright under this title, of copies or phonorecords of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies or phonorecords under section 106 ….  



Kirtsaeng, however, argued that his sales were protected under the first sale doctrine, 17 U.S.C. §109(a), which states that  

[n]otwithstanding the provisions of section 106(3), the owner of a particular copy or phonorecord 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 or phonorecord.  



The U.S. District Court for the Southern District of New York rejected Kirtsaeng's argument that his sales were protected under the first sale doctrine. John Wiley & Sons Inc. v. Kirtsaeng d/b/a Bluechristine99, 93 U.S.P.Q.2d 1432 (S.D.N.Y. 2009) . The basis for the decision was a reading of Section 109(a) such that a copy created overseas, even a copy made with the authorization of the copyright holder, could not be “lawfully made under this title,” because only copies created within the United States and subject to U.S. copyright law could be lawfully made under Title 17 of the U.S. Code. A jury found Kirtsaeng liable for infringing eight Wiley works and awarded $600,000 in statutory damages.

On appeal, the Second Circuit affirmed the district court's ruling 2-1. John Wiley & Sons Inc. v. Kirtsaeng d/b/a Bluechristine99, 654 F.3d 210, 99 U.S.P.Q.2d 1641 (2d Cir. 2011) The appellate court agreed with the reasoning of Costco Wholesale Corp. v. Omega S.A., 541 F.3d 982, 88 U.S.P.Q.2d 1104 (9th Cir. 2008) , that Section 109 did not apply.

However, the majority opinion acknowledged that this interpretation could have “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.

This result flowed from Quality King Distributors Inc. v. l'Anza Research International Inc., 523 U.S. 135, 45 U.S.P.Q.2d 1961 (1998), which held that Section 602(a)(1) did not prevent re-importation and sale of a copy that had originally been made in the United States and then exported for sale in overseas markets.

Quality King, a unanimous opinion authored by Justice John Paul Stevens, reasoned that Section 602(a)(1)'s reference to a copyright holder's rights under Section 106(3) meant that limitations on Section 106 rights, such as the first sale doctrine, also applied to Section 602(a)(1).

Thus, under Quality King, the first sale doctrine applied to such “round-trip” copies, but under Costco, the first sale doctrine did not apply. Under Costco, copyright holders would have stronger rights when copies were made outside the United States.

Moreover, the Ninth Circuit's ruling in Costco, on which the Second Circuit relied, was made more ambiguous when on a petition for certiorari, the Supreme Court deadlocked 4-4 with the recusal of recently seated Justice Elena Kagan. Costco Wholesale Corp. v. Omega S.A., 131 S. Ct. 565, 95 U.S.P.Q.2d 2025 (2010) .

The Supreme Court granted Kirtsaeng's petition for a writ of certiorari in April 2012 and the court heard arguments in October . The Office of the U.S. Solicitor General participated in the arguments as amicus curiae, and supported Wiley's position that Section 109(a) did not apply to copies made outside the United States.

Context, Common Law Reject Geographical Limitation

Breyer's opinion rejected the geographical interpretations of Section 109(a)'s use of the phrase “lawfully made under this title.” Rather, the court favored Kirtsaeng's view, that this phrase meant that such copies should be made “in accordance with” or “in compliance” with Title 17, the Copyright Act.

“In particular, the doctrine would apply where, as here, copies are manufactured abroad with the permission of the copyright owner,” the court said in summarizing Kirtsaeng's position.

First, the court said that the literal meaning of Section 109(a) favored this interpretation, pointing out that the statute does not mention any geographical limitation. The court said:  

The language of §109(a) read literally favors Kirtsaeng's non-geographical interpretation, namely, that “lawfully made under this title” means made “in accordance with” or “in compliance with” the Copyright Act. The language of §109(a) says nothing about geography. The word “under” can mean “[i]n accordance with.” … And a nongeographical interpretation provides each word of the five-word phrase with a distinct purpose. The first two words of the phrase, “lawfully made,” suggest an effort to distinguish those copies that were made lawfully from those that were not, and the last three words, “under this title,” set forth the standard of “lawful[ness].” Thus, the nongeographical reading is simple, it promotes a traditional copyright objective (combatting piracy), and it makes word-by-word linguistic sense.  



In contrast, the court said, should the geographic interpretation be accepted, then the word “lawful” would be superfluous. And not only was there no explicit reference to geography in the language of the statute, the court said, but accepting that argument “is far more complex than may at first appear.”

For example, the court said, Wiley's interpretation required reading into the phrase “under this title” the qualifications “in conformance with the Copyright Act where the Copyright Act is applicable.” Not only would this stretch the meaning of the word “under,” but it would also raise the question, “Where, precisely, is the Copyright Act 'applicable'?” The court elaborated:  

The Act does not instantly protect an American copyright holder from unauthorized piracy taking place abroad. But that fact does not mean the Act is inapplicable to copies made abroad. As a matter of ordinary English, one can say that a statute imposing, say, a tariff upon “any rhododendron grown in Nepal” applies to all Nepalese rhododendrons. And, similarly, one can say that the American Copyright Act is applicable to all pirated copies, including those printed overseas.  



Indeed, the court said, Section 602(a)(2) is explicitly applicable to copies made in foreign countries.

Furthermore, the court noted that Section 104 of the statute, which defines the scope of copyright law, states that it protects unpublished works “without regard to the nationality or domicile of the author” as well as works first published in many other countries.

Costco's interpretation of “lawfully made under this title” was even more complex, the court said, because it also applied to copies made overseas and imported into the United States with the authorization of the copyright holder. While this reading might make policy sense, the court said, it would not make sense if one accepted the geographical reading of the phrase.

The court thus concluded:  

In sum, we believe that geographical interpretations create more linguistic problems than the resolve. And considerations of simplicity and coherence tip the purely linguistic balance in Kirtsaeng's, nongeographical, favor.  



History of Statute Weighs for Nongeographical Meaning

The first sale doctrine as codified in the Copyright Act of 1947 clearly did not have a geographical limitation, the court said, given that it applied to any copy “the possession of which has been lawfully obtained.”

The court determined that the version incorporated into the Copyright Act of 1976 had not introduced any geographical limitation. The key difference between the two versions was that the 1947 statute had protected a possessor of a lawfully obtained copy; whereas, the 1976 statute protected the owner of a lawfully made copy.

The change could be explained by a concern that the 1947 statute might have permitted a movie theater that had leased a copy of a motion picture to sell that copy, the court said. This consideration was sufficient to justify the change in language.

Common Law History Supports Kirtsaeng

Quoting from Samantar v. Yousuf, 130 S. Ct. 2278 (2010), the court set forth a canon of statutory interpretation that requires that “ 'when a statute covers an issue previously governed by the common law,' we must presume that 'Congress intended to retain the substance of the common law.' ”

According to the court, the common law history of the first sale doctrine did not support a geographical limitation, nor did Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908), which incorporated the doctrine into Supreme Court jurisprudence.

The court rejected Wiley's argument that because other parts of the statute--namely, Section 602(a)(2)--used different terms to convey a nongeographical concept, that Section 109(a)'s language must be interpreted differently.

“We are not aware … of any canon of interpretation that forbids interpreting different words used in different parts of the same statute to mean roughly the same thing,” the court said.

In any case, even had such a canon existed, the court said, Wiley's interpretation would itself be in violation because another part of the 1976 act used the phrase “manufactured in the United States or Canada,” an equivalent to the geographical limitation.

Practical Considerations Weigh Against Wiley

The court then recited the “parade of horribles,” a term used by Breyer himself during oral argument. This referred to the fears of negative consequences proposed by librarians, used bookstores, high-technology manufacturers, retailers, and museum curators should Section 602(a)(1) be permitted to block importation of lawfully made copies. The court said:  

[R]eliance 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. … That inertia means a dramatic change is likely necessary before these institutions, instructed by their counsel, would begin to engage in the complex permission-verifying process that a geographical interpretation would demand. And this Court's adoption of the geographical interpretation could provide that dramatic change.  



The court labeled these as “intolerable consequences” of reaching such a decision. Furthermore, the idea that a copyright owner could “exercise downstream control even when it authorized the import or first sale” would be an “absurd result,” the court said.

Such practical problems would be “too serious, too extensive, and too likely to come about for us to dismiss them as insignificant,” the court concluded. Thus, “copyright-related consequences along with language, context, and interpretive canons argue strongly against a geographical interpretation of §109(a).”

Dissent Relies on Quality King

Ginsburg, who had concurred with the majority in Quality King, filed a dissenting opinion arguing that the geographical interpretation was supported by Quality King. Specifically, the dissent indicated the following passage of that decision, which referred to authorized British and American publishers whose licenses limited their geographical reaches:  

The first sale doctrine would not provide the publisher of the British edition who decided to sell in the American market with a defense to an action under §602(a) (or, for that matter, to an action under §106(3), if there was a distribution of the copies.  



Ginsburg conceded that this passage constituted dictum in Quality King. However, she said that it was not “ill considered.”

According to the dissent, the nongeographical interpretation of Section 109(a) constituted an “unnatural construction” and acted to rob Section 602(a)(1) of any significance.

“As the Court appears to acknowledge … the only independent effect §602(a)(1) has under today's decision is to prohibit unauthorized importations carried out by persons who merely have possession of, but do not own, the imported copies,” Ginsburg said.

This interpretation did not reflect congressional intent, she said:  

Congress used broad language in §602(a)(1); it did so to achieve a broad objective. Had Congress intended simply to provide a copyright remedy against larcenous lessees, licensees, consignees, and bailees of films and other copyright-protected goods, … it likely would have used language tailored to that narrow purpose.  



Furthermore, Ginsburg pointed to the exceptions enumerated in Section 602(a)(3), which permit unauthorized imports for governmental, personal, scholarly, educational, and religious purposes.

Under the majority's interpretation, she said, these exceptions would be unnecessary. The dissent said:  

[I]f, as the Court holds, such copies can in any event be imported by virtue of §109(a), §602(a)(3)'s work has already been done. For example, had Congress conceived of §109(a)'s sweep as the Court does, what earthly reason would there be to provide, as Congress did in §602(a)(3)(C), that a library may import “no more than five copies” of a non-audiovisual work for its “lending or archival purposes”?  



Not only did the evolution of the first sale doctrine and its codification in statute support the geographical reading, according to Ginsburg, but the government's own stance in international trade negotiations also supported that reading.

For example, Article 6 of the Agreement on Trade-Related Aspects of Intellectual Property Rights of 1994, explicitly avoids reaching a conclusion on the issue of international exhaustion of rights because, according to Ginsburg, “There is no consensus on whether the sale in one country of a good incorporating protected intellectual property exhausts the intellectual property owner's right to control the distribution of that good elsewhere.”

The dissent cited to similar provisions in other treaties, namely ones created under the auspices of the World Intellectual Property Organization.

And, accordingly, U.S. negotiators have consistently taken the position that exhaustion of rights should be treated on a state-by-state basis, rather than globally.

Ginsburg also rejected the parade of horribles, arguing that copyright exhaustion would still be effective once the first authorized importation took place. Furthermore, she pointed to other provisions, such as the Section 602(a)(3) exceptions, that would act to prevent undesirable outcomes.

Other kinds of limitations of rights might also be available, she said. For example, in the case of a museum's acquisition of an overseas work for display, not only would a museum have the option of seeking authorization from the copyright holder, but “[f]urthermore, the sale of a work of art to a U.S. museum may carry with it an implied license to publicly display the work.” The dissent noted that there have been no actual instances of such restrictions:  

Most telling in this regard, no court, it appears, has been called upon to answer any of the Court's “horribles” in an actual case. Three decades have passed since a federal court first published an opinion reading §109(a) as applicable exclusively to copies made in the United States. … Yet Kirtsaeng and his supporting amici cite not a single case in which the owner of a consumer good authorized for sale in the United States has been sued for copyright infringement after reselling the item or giving it away as a gift or to charity. The absence of such lawsuits is unsurprising. Routinely suing one's customers is hardly a best business practice.  



Kagan: The Blame Lies on Quality King

In her concurring opinion, Kagan said that to the extent that the interplay between this decision and Quality King was problematic, Congress “should recognize Quality King--not our decision today--as the culprit.

Had Quality King not ruled that the first sale doctrine was applicable to “round-trip” copies of works--that is, that Section 602(a)(1) was limited by Section 109(a)--then “the copyright owner [would be able] to divide international markets in the way John Wiley claims Congress intended when enacting §602(a)(1).”

The instant decision, after all, “merely construe[s] §109(a),” Kagan said. It was Quality King that limited Section 602(a)(1).

And had Quality King come out the opposite way, Section 602(a)(1) would have enabled international market segregation “without imposing downstream liability on those who purchase and resell in the United States copies that happen to have been manufactured abroad.”

Liu Case Waiting in the Wings

Another petition pending before the court addresses the same issue. Liu v. Pearson Education Inc., No. 11-708 (U.S. review sought Dec. 8, 2011), appeals an unpublished ruling by the Second Circuit denying interlocutory appeal of Pearson Education Inc. v. Liu, 656 F. Supp. 2d 407 (S.D.N.Y. 2009) . Wiley is also a party in that proceeding.

By Anandashankar Mazumdar  

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