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Mar 20 2013

Supreme Court Upholds First-Sale Rights of Foreign Bookseller

copyright logoIn a stunning blow to large publishers, the United States Supreme Court overturned two lower courts in determining that the copyright law did not prevent a Thai student-entrepreneur named Supap Kirtsaeng from buying cheaper, legally-obtained versions of various textbooks in Thailand, bringing them to the US, and then re-selling them to his fellow students here in the states on eBay. The price margins were so big that evidence showed he made $1.2 million in receipts over the life of the business. The decision in Kirstaeng v. John Wiley & Sons decided a battle not just between two litigants but between two aspects of the US Copyright Law. One of the rights you acquire when you acquire copyright in a work is the exclusive distribution and importation right contained in section 602(a)(1) of the Copyright Act. But the Copyright Act also contains section 109(a) which sets forth the first sale doctrine:

“Notwithstanding the provisions of section 106(3) [the section that grants the owner exclusive distributionrights], 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…”

That’s why used bookstores exist. Once I buy a copyrighted work, I am free to sell that one copy to anyone I please at whatever price I can obtain with no money going to the author of the work; the author only gets the right to the “first sale” of the work. Of course, I cannot copy my copy and distribute it, I can only sell the one that I have. So which right wins out? The importation right or the first sale right? The Supremes, in a 6-3 split, voted for first sale. Writing for the majority, Justice Breyer said that the first sale doctrine permeates the entire Copyright Act including the distribution clause (106) and the importation clause (602).

It all came down to a simple phrase in the Copyright Law. Section 109 of the Act which sets forth the first sale doctrine says it applies to all works lawfully made under this title. Wiley argued that this phrase limited the application of first-sale to works made and distributed in the United States alone. The two courts below agreed with this interpretation and said that the doctrine did not apply to books made and sold in foreign lands. But Breyer agreed with Kirstaeng that nothing in section 109 gave it any geographical limitation. He broke the phrase down even more saying it came to the definition of the word “under:”

One difficulty is that neither “under” nor any other word in the phrase means “where.” See, e.g., 18 Oxford English Dictionary, supra, at 947–952 (definition of “under”). It might mean “subject to,” see post, at 6, but as this
Court has repeatedly acknowledged, the word evades a uniform, consistent meaning. See Kucana v. Holder, 558 U. S. 233, 245 (2010) (“‘under’ is chameleon”); Ardestani v. INS, 502 U. S. 129, 135 (1991) (“under” has “many dictionary definitions” and “must draw its meaning from its context”).

[My law students will of course likely find humor in Breyer saying “under” and “where” in the same sentence so let me cut them off at the pass and say, yes I see it and I get it]. Breyer said “under” means it basic English definition – any work to which the Act applies and since §104 of the Act itself says that works “subject to protection under this title” include unpublished works “without regard to the nationality or domicile of the author,” and works “first published” in any one of the nearly 180 nations that have signed a copyright treaty with the United States. §§104(a), the Act covers the US textbooks printed and distributed in Thailand. The majority said if the Copyright Act’s first sale doctrine is to contain a geographical limitation, it is for Congress to draft one not the court.

Justices Kagan and Alito concurred with the majority but wanted to highlight that the court in Quality King Distibutors, Inc v. L’Anza Research Int’l Inc which was decided in 1998 already held that the importation clause was limited by the first sale clause and that since Congress did nothing to overturn that case, it must have agreed with the court’s interpretation of the statute.I Congress wants this protection to extend to these facts, Kagan wrote, it has to write a law that says so and overturns Quality King as well.

The dissent was written by Justice Ginsburg and joined by Scalia and Kennedy. Kennedy was the surprise vote here (and that Thomas did not join Scalia). Ginsburg is a staunch upholder of copyright at every turn so this end-around of the importation clause did not sit right with her. Scalia likely saw the monetary damage this could do to large corporations and wanted to make sure they could get every dollar out of their intellectual property. Ginsburg too focused on the word “under”:

But the Court overlooks that, according to the very dictionaries it cites . . . the word “under” commonly signals a relationship of subjection, where one thing is governed or regulated by another. See Black’s Law Dictionary 1525 (6th ed.1990) (“under” “frequently” means “inferior” or “subordinate” (internal quotation marks omitted)); 18 Oxford English Dictionary 950 (2d ed. 1989) (“under” means, among other things, “[i]n accordance with (some regulative power or principle)” (emphasis added)). See also Webster’s Third New International Dictionary 2487 (1961) (“under” means, among other things, “in . . . a condition of subjection, regulation, or subordination” and “suffering restriction, restraint, or control by”). Only by disregarding this established meaning of “under” can the Court arrive at the conclusion that Wiley’s foreign-manufactured textbooks were “lawfully made under” U. S. copyright law,even though that law did not govern their creation

So the dissent held that since these books were manufactured in Thailand, US Copyright Law did not apply and they were not “lawfully made under” the Copyright Act. The decision also stated that the court in Quality King specifically stated that it was not addressing works made in foreign lands. But the decision did not get enough votes, so for now it is merely a footnote to history.

The decision is another example of how the Internet is allowing crafty entrepreneurs find the gray area in laws written well before its inception. Kirstaeng’s business model would fail without e-Bay. He can advertise the books at no cost, rely on Google search to have interested buyers find his sales, and have his Thai family ship the books diredtly from Thailand to the US customer without any warehousing fees. That all allows him to add a nice markup to the book.

I expect Congress will likely decide this issue in the end by either changing the Copyright Act to limit the first sale doctrine to US books on US soil or by allowing this decision to stand without any change to the Act, signaling its agreement with the ruling by its silence. My money is on the first one as Congress never met a lobby it didn’t like and large publishers are sure to be lobbying Congress as we speak to get this overturned. They will likely wave the flag and say that US companies should not be undersold on its own goods by folks banking on the lower costs of goods manufactured abroad. That they themselves are the ones manufacturing and selling them at a lower cost to foreigners than to US citizens will likely not be part of their argument.

1 comment

  1. Merlin

    Had this decision gone the other way even more production and jobs would be leaving the US.

    The next game tried will be to end run 109(a) by purporting to license anything and everything.

    I’ll buy a sandwich but I’ll have to call the deli to negotiate before I go to the bathroom because I didn’t read the fine print and my sandwich license only allows me to eat it not to expel any portion of it. Or I’ll have to hire someone like you to argue I have an implied license to go. Or maybe rely on “natural law” — when you have to go you have to go.

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