Wednesday, March 20, 2013

Kirtsaeng SCOTUS Analysis

The background to Kirtsaeng v. John Wiley & Sons, Inc. is interesting. This is a copyright case involving the unauthorized importation of textbooks. Wiley is a publisher of textbooks in both the U.S. and various foreign markets. Some of the books it sells in foreign markets are produced abroad and contain notices stating that the books are intended only for sale and distribution in specified non-U.S. markets. The notice further states that exporting the book to an unauthorized market, presumably including the United States, is a violation of the publisher's copyright.

Supap Kirtsaeng was a Thai student in the United States. To supplement his income, Kirtsaeng asked friends and family in Thailand to send him English-language versions of textbooks offered for sale in Thailand at prices that were lower than the price for a comparable book in the United States. Kirtsaeng would then resell the book, reimburse his supplier, and keep the profit. This is a fairly typical example of a small parallel import, or gray market, operation. Wiley sued Kirtsaeng for copyright infringement on the basis of the unauthorized importation of the books. After a trial, Kirtsaeng was found to have infringed Wiley's copyrights and he was assessed $600,000 in statutory damages. [More on the District Court judge below. Spoiler Alert: Court of International Trade judges turn up in interesting places.]

To make sense of this, we need to discuss a little copyright law. In the U.S., copyright law grants to the author of an original work of authorship certain exclusive rights including the right to distribute the work to the public. 17 USC 106(3). The rights, however, are subject to important limitations. For purposes of this case, the relevant limitation is that:
Notwithstanding the provisions of section 106(3) [the section that grants the owner exclusive distribution rights], the owner of a particular copy or phonorecord 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 or phonorecord.
This is the "first sale doctrine" of  17 USC 109. The first sale doctrine is why you can buy a book and then give it to someone as a gift without violating the copyright holder's distribution right. It also allows for used book stores and libraries. Keep in mind that purchasing a copy of a copyrighted work does not give the purchaser the right to make additional copies, derivative works, or other uses of the work.

In a prior decision called Quality King v. L'Anza, the Supreme Court held that the first sale doctrine permitted the importation of copyrighted products that were made in the United States without the authorization of the copyright holder. This case is based on facts that are slightly but importantly different. The books Kirtsaeng was importing were not produced in the United States. Thus, the question to be answered was whether the books were "lawfully made under this title" as that phrase is used in section 109(a). If not, then the first sale doctrine would not protect Kirtsaeng's business.

The Supreme Court, via Justice Breyer, parsed this question as whether the first sale doctrine is based on the geography of where the Copyright Act applies (i.e., the United States) or on whether the copies were produced in a manner consistent with the Copyright Act regardless of the physical location of production. According to the Court, "under this title" means "in accordance with."

The Court found that inferring a geographical limitation in the statute requires unacceptable linguistic gymnastics. Specifically, the Court found no reference to location in the plain language. "Under," according to the decision, does not mean "where." Further, the Copyright Act can be "applicable" to works outside of the United States. The Court gave as an example the Copyright Act being applicable to an apparently as-yet unpublished Irish manuscript lying in a desk drawer in Ireland. In support of this analysis, the Court noted that adding a geographic element to the first sale doctrine would mean that an individual who purchases a bumper sticker in Europe would not be able to legally display it in the United States. Similarly, a professor would not be able to show a foreign made movie in a film class.

Based on this review of the law, the majority of the Supreme Court held that the sale of the lawfully made textbooks in Thailand exhausted the copyright holder's ability to control the distribution of those copies. As a result, the distribution right does not prohibit the importation and resale of the books in the United States.

With respect to works primarily protected by copyright, this decision further narrows the protections afforded copyright holders. Under this decision, owners of foreign made legitimate copies of works may import those works without the authorization of the copyright holder. That means that the ban on unauthorized importations now limits only importations by parties who do not own the work. That might apply, for example, to those who possess licensed software, foreign printers who produce but do not own books, thieves, and librarians. It is not clear whether this was what Congress intended and there is obviously friction between the first sale doctrine and the distribution right.

In the end, for readers of this blog, I suspect the decision will have limited impact. This is most important to literary works, film, software, music, and art. These are not the kinds of articles usually imported by the container load (although that certainly happens). Nevertheless, Quality King v. L'Anza involved salon products with a copyrighted label. Thus, the copyrighted element need not be the primary product involved.

To the extent these products are also subject to enforceable trademarks (e.g., the word mark "WILEY"), the trademark provides another avenue for possible enforcement. However, the law is pretty clear that (with some exceptions) genuine products bearing an authorized trademark that are not materially different from the same product offered for sale in the United States are admissible gray market products. The idea behind pursuing this issue on a copyright theory may well have been to get around that perceived trademark loophole. Mr. Kirtsaeng seems to have taken the wind out of those sales. Now that the Supreme Court has spoken on the issue, it will be up to Congress to change the law if that is what it wants to do.


Joe L said...

Law Student here. In your opinion, wouldn't this decison appy to unauhtorized compact discs in the specific instance where a manufacturer in Germany obtains a master broadcasted copy of a concert of an artist, lawfully manufactures the product according to German law, pays mechanincal royalties, does not infringe a Trademark, and exports it to the US. In effect does this ruling usurp the WIPO augmentations in 94. No right of performance exists in the 76 US act. Furthermore in Dowling, the USSC confrimed that this type of infringement does not constitute theft. It appears that Kirtstaeng may preempt seizures as an item coming into the US sans exclusion order would meet the First Sale. Kirtsaeng seems to "turn back" the clock & creates an umbrella. Just interested in your thoughts?

Larry said...

Joe, There is a fairly clear bottom line here: if goods subject to copyright were produced and sold outside the United States, they may be imported to the U.S. by the owner without permission of the U.S. copyright holder. The first sale, whether abroad or in the U.S., exhausts the copyright with respect to the importation aspect of the distribution right. This is true with respect to anything protected by copyright including "compact discs in the specific instance where a manufacturer in Germany obtains a master broadcasted copy of a concert of an artist, lawfully manufactures the product according to German law, pays mechanincal royalties, does not infringe a Trademark, and exports it to the US."