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The First Sale Doctrine: Made in the U.S.A. Only?

Posted: Wednesday, May 30, 2012 | Posted by Lizbeth Hasse, Esq. | Labels: , , ,

The Supreme Court decided on Monday, April 16, to hear a case about a Cornell student from Thailand who thought he could finance his education (and more) by reselling to U.S. students textbooks that he bought in Thailand. What could be wrong with that?

The first sale doctrine in copyright law allows purchasers of any copyrighted work to resell or use the particular copy in many ways without the copyright holder’s permission. It is codified in section 109(a) of the Copyright Act, stating “the owner of a particular copy…lawfully made under this title…is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy.” It is because of the first sale doctrine that entities such as libraries, used books and video game stores, and sellers on eBay are allowed to lend, sell or lease the books and games they have purchased.

With the Cornell Student from Thailand, the Supreme Court has taken the opportunity to clarify the applicability of the first sale doctrine to copyrighted goods manufactured in a foreign country. The justices have decided to review Kirtsaeng v. John Wiley & Sons, Inc., involving textbook maker John Wiley & Sons and Thai national Supap Kirtsaeng, who was studying at Cornell University at the time he resold the textbooks. Supap had his family send him copies of Wiley textbooks purchased abroad, and then resold them on eBay at a profit, without the publisher’s consent, sometimes called “gray marketing”. Because the evidence shows Supap profiting $900,000 to $1.2 million in sales, it is likely that he was running a business on this model.

The publisher sued, and Supap asserted the first sale doctrine defense. A New York Federal jury agreed with the publisher’s position that the first sale doctrine did not apply, and awarded Wiley & Sons $600,000 in damages for copyright infringement. The Second Circuit affirmed the decision on appeal, and now the case awaits a Supreme Court ruling.

Supap is making arguments similar to those that Costco made in Omega S.A. v. Costco Wholesale Corp., claiming that by not allowing the first sale doctrine to apply to foreign manufactured copyrighted goods, the law effectively incentivizes U.S. based manufacturers to flee to foreign countries in order to gain total control over the distribution of their goods in the U.S. market. By manufacturing outside the U.S., copyright owners effectively escape the first sale doctrine and thereby limit what little control purchasers would have had in the copy.

Librarians, museums and archives throughout the U.S. are watching this case closely as it has the potential to restrict how libraries loan foreign printed books. Will libraries be able to continue to lend imported books held in their collection or will this now violate the copyright holder’s right to distribute?

The impact could even run into markets outside of libraries and second hand stores. The advocacy group Public Knowledge writes in a blog post that, “many cars contain copyrighted computer programs, so used-car sales for foreign-manufactured automobiles would become illegal” if they resold the programs (along with the used car) without the copyright owner's permission.

The legal debate is over the meaning of “lawfully made under this title” in the language of the first sale provision. In 2008, the Ninth Circuit held it to mean “made in the U.S.A.” in Omega S.A. v. Costco Wholesale Corp.. The court reasoned that because the U.S. Copyright Act does not apply outside the United States, a first sale doctrine could not either. In that case, because Costco had imported and resold discounted Omega watches not made in the U.S.A., the first sale doctrine did not apply. Therefore, Omega still had the exclusive right to control distribution in the United States and could require that Costco get its permission. The Supreme Court then affirmed the standard on a 4-4 split vote in 2010, leaving the Ninth Circuit’s decision intact without setting a clean nationwide precedent.

For now, publishers, intermediaries and consumers wait to see how much control the current Supreme Court will decide to give to U.S. publishers and distributors in the U.S. distribution of their foreign-produced content.


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