March 26, 2013
LES Insights
Authored by D. Brian Kacedon, John C. Paul, and Kevin D. Rodkey
The first-sale doctrine in copyright law allows the owner of legally purchased copyrighted material to resell it without risk of infringement. This doctrine is codified in 17 U.S.C. § 109(a) and 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."
On March 19, 2013, the Supreme Court issued the much-anticipated decision in Kirtsaeng v. John Wiley & Sons, Inc.,1 holding—in a 6-3 split decision—that the first-sale doctrine applies to lawfully made works manufactured and sold abroad. Kirtsaeng extends the Court's previous decision in Quality King Distributors, Inc. v. L'anza Research International, Inc., which applied the first-sale doctrine to U.S.-manufactured works first sold abroad but later imported into the United States. The Kirtsaeng decision is significant to copyright owners, and it may also have important ramifications for patent owners who make and sell goods abroad that practice a U.S. patent.
Supap Kirtsaeng, a citizen of Thailand, came to the United States to study mathematics. During his studies, he asked friends and family members in Thailand to purchase, and send to him in the United States, copies of English-language versions of the textbooks manufactured abroad. Kirtsaeng sold these imported textbooks in the U.S. at a profit. John Wiley & Sons, Inc. holds the U.S. and foreign copyrights on the textbooks sold by Kirtsaeng. Wiley intended for the international versions of the textbooks to be sold only in a particular country or region outside the United States.
Wiley sued Kirtsaeng, claiming that Kirtsaeng's unauthorized importation and resale of the foreign-made and foreign-bought textbooks infringed Wiley's exclusive rights to distribute the copyrighted works. The lower courts held that the first-sale doctrine does not apply to foreign-made works, meaning Kirtsaeng was liable for copyright infringement. Kirtsaeng appealed. In a split decision, the Supreme Court reversed, holding that the first-sale doctrine applies to copies of a copyrighted work lawfully made abroad.
Writing for the Court, Justice Breyer recognized that this case lies at the intersection of a copyright owner's exclusive rights to control the distribution of copyrighted works and a lawful purchaser's ability to resell the purchased work. The Court acknowledged that the copyright owner holds certain exclusive rights, including the right "to distribute copies of the copyrighted work to the public by sale or other transfer of ownership." But the copyright owner's exclusive rights are subject to certain limitations, including the first-sale doctrine, codified in section 109(a) of the Copyright Act. In addition, the importation of copies of a copyrighted work, without the copyright owner's authority, "violates the owner's exclusive distribution right" under section 602(a)(1) of the Copyright Act, which is an importation prohibition. Relying on its decision in Quality King, the Court held that the first-sale doctrine applies to foreign-made works and that the authorized manufacture and sale of a copyrighted work abroad exhausts the copyright owner's rights to control the distribution of the work in the United States.
In reaching its conclusion in Kirtsaeng, the Court first considered whether the language of the first-sale doctrine supports a geographic restriction that allows a copyright owner to control foreign-made goods sold abroad. According to the majority opinion, the conclusion turns on the meaning of the phrase "lawfully made under this title," which it determined means "made 'in accordance with' or 'in compliance with' the Copyright Act" and does not contain any geographical restrictions. This interpretation, according to the Court, is "simple" and promotes a "traditional copyright objective" of fighting piracy. Thus, the Court determined that the plain language of the first-sale doctrine weighs in favor of a nongeographical interpretation.
Second, the Court examined the context surrounding the enactment of section 109(a). Comparing the current statute to its predecessor, the Court concluded that the predecessor applied to works that were "lawfully obtained," whereas the current statute applies to "the owner of a particular copy" that is "lawfully made." It reasoned that this change in statutory language precludes nonowners (such as lessees, who, at the time of the predecessor statute, often leased films from the filmmakers) from taking advantage of the first-sale doctrine because they may have "lawfully obtained" a copy, but are not "owners," and that the language did not create a geographical limitation. The Court also explained that the predecessor statute was not geographically limited. The Court, therefore, rejected a geographical interpretation because it "would grant the holder of an American copyright (perhaps a foreign national) permanent control over the American distribution chain (sales, resales, gifts, and other distribution) in respect to copies printed abroad but not in respect to copies printed in America."
Third, the Court examined section 109(a) under statutory-construction principles and in light of the first-sale doctrine's "impeccable historic pedigree" and common-law roots. The Court reiterated the canon of construction that "'when a statute covers an issue previously governed by the common law,' [the Court] must presume that 'Congress intended to retain the substance of the common law.'" And because the common-law first-sale doctrine did not contain any geographical restrictions, this principle of construction weighed against adding one to section 109(a).
Fourth, the Court examined the arguments of several associations and their claims that a geographical interpretation of section 109(a) "would fail to further basic constitutional copyright objectives, in particular 'promot[ing] the Progress of Science and useful Arts.'" The Court found these arguments persuasive and rejected Wiley's position that these "problems have not occurred." The Court proposed that the lack of occurrences could be due to the uncertainty in the law, or because a "reliance upon the 'first sale' doctrine is deeply embedded in the practices of [the associations]," which are not in the habit of seeking approval from the copyright owner. The Court acknowledged that a geographical interpretation could break this reliance but declined to provide that change in view of the "intolerable consequences" that would result.
Fifth, and finally, the Court addressed several of the dissent's arguments. It first rejected the dissent's position that the Court's Quality King decision "strongly supports" a geographical interpretation. The Court observed that Quality King "held that the importation provision did not prohibit sending products back into the United States (without the copyright owner's permission)" and that Quality King "noted that § 109(a)'s 'first sale doctrine' limits the scope of the § 106 exclusive distribution right." Rejecting the dissent's position that Quality King reduces the importation prohibition to "insignificance," the Court observed that Quality King still forbids importation of copies of a work without the copyright owner's permission in several situations, such as when the importer is a lessee. The Court also rejected the dissent's legislative-history argument, finding that the legislative history for section 109(a) was silent on any geographical restrictions. The Court did, however, concede the dissent's claim that a nongeographical interpretation of the first-sale doctrine "would make it difficult, perhaps impossible" for publishers to divide domestic and foreign markets. But neither the Constitution nor the Copyright Act suggests that the "limited exclusive right should include the right to divide markets." Rather, the first-sale doctrine "limits copyright holders' ability to divide domestic markets," which is "consistent with antitrust laws that ordinarily forbid market divisions." Last, the Court rejected the dissent's position that the Court's opinion creates an "unprecedented regime of 'international exhaustion'" and stated that, under Quality King, the dissent's proposed geographical interpretation was "already significantly eroded."
In conclusion, Kirtsaeng extended Quality King to apply to foreign-manufactured copies that are sold abroad and later imported into the United States, and holds that the first-sale doctrine applies to limit the copyright owner's right to control the distribution of those copies.
Justice Kagan, joined by Justice Alito, concurred with the Court's opinion but wrote separately to discuss "the combination of [the Court's] decision and [Quality King]," which constricts the scope of the ban on unauthorized importation. In Justice Kagan's view, "any problems" with this combination stem from Quality King, not the Kirtsaeng opinion, because applying Quality King "unavoidably diminish[es]" the importation ban to "a fairly esoteric set of applications." Justice Kagan acknowledged that this result gives her "pause about Quality King's holding that the first-sale doctrine limits the importation ban's scope," but she concluded that the Court "correctly declines the invitation to save [the importation ban] from Quality King by destroying the first-sale protection that § 109(a) gives every owner of a copy manufactured work abroad."
Justice Ginsburg, joined by Justice Kennedy, dissented from the Court's opinion, with Justice Scalia joining in part. In the dissent's view, the Court's opinion is "at odds with Congress' aim to protect copyright owners against unauthorized importations" and "places the United States at the vanguard of the movement for 'international exhaustion' of copyrights." Like the majority, the dissent recognized that the resolution of this case turns on the three statutory provisions relating to the "'exclusive rights' of a copyright owner," the "first sale doctrine," and the "importation ban." The dissent also acknowledged that Quality King held that "the importation of copies made in the United States but sold abroad did not rank as copyright infringement under [the importation ban.]." However, the dissent relied on dictum in Quality King suggesting that the first-sale doctrine may not apply to foreign-made copies to conclude that the importation ban "authorize[s] a copyright owner to bar the importation of a copy manufactured for sale abroad."
The dissent, like the majority, focused on the phrase "lawfully made under this title" in section 109(a) but concluded that it means "referring to instances in which a copy's creation is governed by, and conducted in compliance with," the Copyright Act. Because copyright law "does not apply extraterritorially," foreign-manufactured copies are "not governed by [the Act]." According to the dissent, the majority's interpretation reduces the importation prohibition to "insignificance" and fails to give the ban Congress's intended scope. Rather, the majority view "overwhelms" the statutory exceptions to the importation ban, which would otherwise permit importation of copies without the copyright owner's authorization. To avoid these results, the dissent would read the first-sale doctrine to "apply to copies made in the United States, not to copies manufactured and sold abroad."
The Kirtsaeng decision extends the reach of the first-sale doctrine in copyright law to encompass foreign-made copies that were first sold abroad and then imported into the United States by third parties to be resold. This result affects the strategies available to licensors who want to geographically limit the distribution of goods or divide foreign and domestic markets for goods.
Importantly, the Kirtsaeng decision, although focused on copyright law, may also ultimately impact patent owners who make and sell products covered by U.S. patents abroad. Although the Federal Circuit has previously held that patent rights are only exhausted by a sale in the United States, this ruling from the Supreme Court courts may cause courts to consider whether to extend the reasoning of Kirtsaeng to the first-sale doctrine in patent law. If courts follow this approach, it may become more difficult for a patent owner to restrict the flow of foreign-made articles into the United States. Furthermore, unlike the statutory first-sale doctrine in the Copyright Act, the patent law first-sale doctrine remains a common-law doctrine, which may affect how Kirtsaeng would apply in the patent context.
Endnotes
1 The Kirtsaeng opinion can be found here.
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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