On Monday, Oct. 29, 2012, the Supreme Court heard oral argument in Kirtsaeng v. John Wiley & Sons, Inc., No. 11-697. This case pits copyright owners seeking international market segmentation and import prohibitions on gray market goods manufactured abroad against secondary market participants ranging from libraries and museums to e-Commerce and brick and mortar stores seeking exhaustion following a first sale of copyrighted goods. The former argue for import ban and downstream market sales prohibitions on copyrighted goods without the permission of the copyright owner while the latter argues that once there has been a first sale of lawfully made goods anywhere, copyright protections are exhausted.
This is not the first time the Supreme Court has addressed this issue. In 2010, in Costco v. Omega, No. 08-1423, an equally divided Court affirmed the Ninth Circuit’s holding that the first sale doctrine applies only to copyrighted items that are made and distributed in the United States. Specifically, the Ninth Circuit found that section 602(a)(1) of the Copyright Act, which prohibits the importation of a work without the authority of the copyright owner, was not limited by section 109(a) of the Copyright Act, which allows the owner of a copy “lawfully made under this title” to sell or otherwise dispose of the copy without the copyright owner’s consent. In Costco, the Supreme Court split 4-4, with Justice Kagan recused. Two years later, the Court is poised to answer the question.
Supap Kirtsaeng, the petitioner in Kirtsaeng v. John Wiley & Sons, Inc., came to the U.S. from Thailand to study at Cornell University. In order to subsidize the cost of his education, Mr. Kirtsaeng asked his family and friends to buy copies of textbooks in Thailand and ship them to him in the U.S., where he sold them on eBay. Among the books Mr. Kirtsaeng sold were eight textbooks printed in Asia by John Wiley & Sons’ Asian subsidiary. Wiley sued Mr. Kirtsaeng for copyright infringement. A jury found Mr. Kirtsaeng liable for infringement, and the Second Circuit affirmed. The Second Circuit rejected Mr. Kirtsaeng’s first sale doctrine defense. The court held that “the phrase ‘lawfully made under this Title’ in § 109(a) refers specifically and exclusively to works that are made in territories in which the Copyright Act is law, and not to foreign-manufactured works.” John Wiley & Sons, Inc. v. Kirtsaeng, 654 F.3d 210, 222 (2d Cir. 2011). The Supreme Court granted certiorari and set the case for oral argument.
Key Issues and Arguments
The case turns on the Supreme Court’s interpretation of the phrase “lawfully made under this title” in section 109(a). Mr. Kirtsaeng argues that the phrase means “in accordance with this title,” as opposed to “manufactured on U.S. soil” or “made in the U.S.A.” Wiley argues that the phrase “under this title” means “pursuant to Title 17,” and that a copy manufactured abroad is not made pursuant to Title 17 because the Copyright Act does not apply extraterritorially. Dicta in Quality King Distributors, Inc. v. L’anza Research Intern., Inc., 523 U.S. 135 (1998), which granted first sale exhaustion for goods manufactured in the U.S. and “round tripped” abroad and back, will also play a key role. In that dicta, the Court recognized international market segmentation may prohibit the importation of copyrighted goods manufactured abroad.
Dozens of amici addressed not only the extensive legislative history of the Act but also the possibly dire consequences of a decision that encourages overseas manufacturing of goods subject to copyright protection, restrictions on consumers’ rights to redistribute goods, and places restrictions on secondary markets, e-Commerce and small businesses.
Supreme Court Oral Argument
As expected, the oral argument was spirited. In response to inquiry from Justice Ginsburg, Mr. Kirtsaeng’s counsel confirmed that he was advocating for exhaustion following a first sale of lawfully made goods anywhere. “Lawfully made under this title” means “lawfully made in a manner that does not violate the standards articulated under the U.S. Copyright Act.” Piratical copies would remain subject to the importation and downstream sales bans. In short, once there is a first sale of a lawfully made good — wherever it is made or sold — copyright protection is exhausted.
Wiley’s counsel argued that the Court had already concluded that section 602 is broader than 109(a) in Quality King. Justice Breyer engaged counsel in an extensive series of hypotheticals about the potential “horribles” which could result from adoption of the Wiley position — owners of imported vehicles that included copyrighted GPS systems may not be able to resell them, museums may not be allowed to hang a Picasso lawfully acquired, and libraries may not be able to lend foreign made books without the copyright owner’s consent. Wiley's counsel described those “horribles” as unlikely and “not this case.” Justice Kagan — who recused herself from the Costco case and thus could provide the key swing vote — noted “I find this language a little bit perplexing, and I can kind of see it both ways.” Justice Kagan noted that Mr. Kirtsaeng’s position depended on the phrase “lawfully made” as opposed to “unlawfully made.” In response to Wiley’s argument that Congress had intended to address the “vast gray market problem,” Justice Kagan pressed “Intended where? . . . [T]here’s really nothing to support [Wiley’s] argument that that language was intended to address this gray market problem.” She also noted that “Section 109 is just a rewording of a prior provision that [Wiley] would clearly lose under, where the prior wording had nothing to do with where any product was manufactured.” Justice Breyer pointed out long-standing commercial law principles prohibiting an owner who has sold his entire interest from maintaining conditions on the property after the sale.
The Solicitor General’s office argued for a compromise position which would prevent importation but allow later downstream resale once there has been a first sale in the U.S. Justice Roberts called the Solicitor General's position “an awfully difficult maze for somebody to get through” and added “it’s not that complicated under the petitioner’s approach. It says once you’ve had a first sale, that’s it.”
While it is difficult to predict the outcome of the case, both sides remain poised to seek legislative remedies if needed following the Court’s decision.
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This article was originally published by Bingham McCutchen LLP.