November 7, 2011
LES Insights
Authored by D. Brian Kacedon and John C. Paul
The first-sale doctrine in copyright law allows the owner of legally purchased copyrighted material to resell it without risk of infringement. The Supreme Court announced the doctrine in 1908 in a case holding that the owner of a copyright could not control prices beyond the first sale. Congress codified the doctrine in the Copyright Act of 1909 and in successive Copyright Acts.
As codified, the doctrine provides that "the owner of a particular copy . . . lawfully made under [the Copyright Act], 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." Several years ago, the Ninth Circuit held in Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982 (9th Cir. 2008), that the first-sale doctrine does not apply to foreign-manufactured goods unless the copyright owner previously authorized their importation and sale within the United States. An evenly-divided Supreme Court affirmed the Ninth Circuit's decision without issuing an opinion. The Second Circuit interpreted the extraterritorial application of the first-sale doctrine for the first time in John Wiley & Sons, Inc. v. Kirtsaeng, No. 09-4896-cv (2d Cir. Aug. 15, 2011),1 holding, like the Ninth Circuit, that the first-sale doctrine does not apply to copyrighted works made outside the United States.
The case involved a copyright for textbooks published by John Wiley & Sons, Inc. ("Wiley"). Wiley's subsidiary, John Wiley & Sons (Asia) Pte Ltd. ("Wiley Asia") manufactures books for sale in foreign countries. The written content of the textbooks is often similar or identical for those published in the United States and those published abroad. But the internationally published textbooks can differ from domestic versions in design, supplemental content, and type and quality of materials used for printing. The international textbooks are also designated to be sold only in a particular country or region.
The defendant, Supap Kirtsaeng, sold in the United States foreign editions of textbooks printed abroad by Wiley Asia. His friends and family shipped him the foreign editions, which he then sold on websites such as eBay. Kirtsaeng made a profit by selling the foreign editions in the United States.
As a defense to a copyright-infringement action filed by Wiley, Kirstaeng argued that the first-sale doctrine protected the reselling of the foreign-edition textbooks. The district court held that the first-sale doctrine did not apply because the textbooks were made outside the United States. Kirstaeng appealed.
Before the Second Circuit was a question of first impression—whether the first-sale doctrine applies to foreign manufactured products. The court concluded that it does not, affirming the district court's decision that Kirstaeng could not defend his infringement with the first-sale doctrine. In reaching its decision, the Second Circuit looked to the textual context of the first-sale doctrine and to the Supreme Court's decision in Quality King Distributors, Inc. v. L'anza Research International, Inc., 523 U.S. 135 (1998).
The court noted that it principally had to decide the meaning of "lawfully made under this title" as codified in the first-sale doctrine in the Copyright Act. Wiley argued that it must mean "lawfully made in the United States," which is the same position the United States took in the Costco case before the Supreme Court. Wiley further argued that construction logically flowed from the presumption against extraterritorial application of statutes.
The court concluded that Wiley's argument was not fully supported by the text, and that, under a textual analysis alone, "lawfully made under this title" was ambiguous. For example, the court found that because the Copyright Act extends U.S. copyright protection to works published in foreign nations, "lawfully made under this title" could mean "any work that is subject to protection under this title." The court also noted that "lawfully made under this title" appears in other provisions of the Copyright Act where it at least arguably applies to works made outside the United States. For example, the distribution of royalty payments is not limited to recordings made in the United States.
Because of the ambiguity in the text, the court looked to the Supreme Court's opinion in Quality King. In that case, the Supreme Court held that the first-sale doctrine applies to reimported copyrighted works—i.e., works made in the United States and exported to foreign distributors, but then imported back into the United States. The copyrighted items in question had all been made in the United States.
In dicta in Quality King, the Supreme Court suggested that the first-sale doctrine does not apply to copyrighted works made internationally. The Second Circuit adapted this reasoning. The court concluded that the prohibition against importing copyrighted works without the authority of the copyright owner would have no force in the vast majority of importation cases if the first-sale doctrine applied to foreign-made goods. The court noted that foreign-manufactured goods are a category of copies that are neither piratical nor "lawfully made under this title" and thus subject to infringement proceedings.
One of the judges on the appeals panel dissented, concluding that the first-sale doctrine should apply to foreign-manufactured goods. When Congress intends the place of manufacture to be important, the dissent noted, it so states in the statute. Because it did not do so in the first-sale doctrine, the dissenting judge argued, Congress intended the first-sale doctrine to apply regardless of place of manufacture so long as the U.S. rights holder authorized the copy.
The dissenting judge also expressed concern that, under the majority's interpretation, foreign-made copies will receive greater copyright protection than U.S.-made copies. For that reason, U.S. copyright holders could have an incentive to manufacture copies abroad, which the dissenting judge concluded was not Congress's intent. The dissenting judge also noted that four justices presumably agreed in Costco that the first-sale doctrine should apply, and the decision remains a close call.
While the Wiley decision, as the dissent notes, may provide incentives for U.S. copyright holders to manufacture works abroad, the decision is not likely settled. Indeed, four justices of the Supreme Court presumably agreed that the first-sale doctrine should apply to foreign-manufactured copies. But until the Supreme Court hears a similar case and issues an opinion, the prevailing view in the Second and Ninth Circuits is that the first-sale doctrine does not apply. For that reason, licensors can still prevent importation of their foreign-made copyrighted works into the United States.
This decision may also have an impact for patent owners. Similar to the decision here, the Court of Appeals for the Federal Circuit has previously held that only sales in the United States exhaust U.S. patent rights. If, however, this copyright decision is ultimately reversed by the Supreme Court, it may impact how the Federal Circuit decides this issue with respect to patent law in the future. Patent law and copyright law share a common root in the U.S. Constitution and the courts often look to rulings in the other doctrine when precedent is lacking. Thus, a holding by the Supreme Court that the first sale doctrine applies to sales made outside of the United States may ultimately lead to a holding that patent rights are exhausted by sales outside of the United States.
Endnotes
1 The John Wiley decision may be found at: http://www.ca2.uscourts.gov/decisions/isysquery/fa47b56d-35b6-4a0a-a625-a25c3fe93f50/2/doc/09-4896_complete_opn.pdf#xml=http://www.ca2.uscourts.gov/decisions/isysquery/fa47b56d-35b6-4a0a-a625-a25c3fe93f50/2/hilite/
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.
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