The law generally eschews monopolies because they are harmful to consumers. By controlling the supply of covered goods, monopolists artificially inflate prices above the competitive equilibrium point. This undoubtedly benefits producers, but almost invariably harms consumers through increased prices and decreased supply.
Our founding fathers recognized an important exception to this economic phenomenon: the granting of monopolies to creative endeavors. The power of exclusivity in this context—seemingly paradoxically—increases output, because the nonfree-market incentive allows creators to recoup costs—and hopefully reap profits—that often would simply not exist in the absence of the ability to prevent others from selling the same good. As such, these monopolists are spurred to produce when they would otherwise not do so at all. And, under those circumstances, both producers and consumers obviously benefit. Absent this bilateral improvement, monopolies are typically viewed as harmful—as manufacturers gain at the expense of consumers. Article I, Section 8 of the U.S. Constitution provides for the aforedescribed monopoly power to increase production by empowering Congress "[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries"—also known as the copyright clause. We properly understand this as allowing for patent and copyright protection.
Recently, the U.S. Supreme Court was called upon to interpret the Copyright Act, enacted pursuant to this constitutional authorization. In determining what the statute says, the court had to consider the purpose of the copyright clause. And, given any ambiguity, as Justice Anthony Kennedy has aptly proclaimed in his book: "the tie goes to freedom." That is what the court did in Kirtsaeng v. John Wiley & Sons.
Wiley—a book publisher—sued Supap Kirtsaeng for selling in the United States books he legally purchased in Thailand (through relatives there) that were produced under a licensing agreement with Wiley. Wiley sold the books to Thai consumers at prices significantly less than those it charged American purchasers. This is known as price discrimination—providing for different charges to different consumers.Such action usually fails, as savvy purchasers will contract through those on the better side of such discrimination. And that is exactly what occurred here. Kirtsaeng bought books designed to be sold cheaply to Thai purchasers and sold them at a relatively low markup to American consumers who otherwise would have had to pay even more to Wiley—as Wiley felt that it could extract more money by charging Americans a higher price. Indeed, these books were textbooks, which,as a teacher, I can attest enjoy a particularly strong monopoly power,because students are forced into the transaction with the legal monopolist by a third party—i.e., people like me.
The question presented to the court was whether the "first sale doctrine" applied to books sold overseas and then imported to the United States. The first sale doctrine is an old common law principle—now codified—that embodies the basic (and proper) notion that once a copyrighted (or patented) good is sold, the buyer owns that item outright. That is, if a student buys a copyrighted book (e.g.,virtually any currently used textbook), he is then free to dispose of that physical property anyway he wants. He can write in it, he can burn it and he can sell it. (To be clear, however, the purchaser cannot copy and sell homemade duplicates to others—as that would be creating a new good in violation of the intellectual property rights of the author and publisher.)
Wiley claimed that the Copyright Act’s inclusion of the first-sale doctrine doesn’t apply to goods made overseas, so as to allow copyright holders—such as it—to price discriminate. This indisputably harms American consumers and benefits Wiley. Although the bipartisan majority and concurring opinions found the language of the act contrary to Wiley’s argument, the economic rationale of the Constitution’s enumerated monopoly power supports the court’s holding as well: The Constitution’s grant of private monopolies should be treated with restraint,as the basis for the constitutional grant is in pursuit of what is known in economic circles as a Pareto improvement—i.e., the situation in which everyone benefits. Wiley’s position doesn’t achieve that goal. American consumers are harmed under Wiley’s (and Justice Ruth Bader Ginsburg’s dissenting) view.
Moreover, copyright law reflects the American tradition of respect for private property—in this case, intellectual property. A core element of this American foundational right is the notion of free transferability. Permanently tethering resale power in the hands of producers of copyrighted goods fails to respect the comparable rights of purchasers to fully own and dispose of their tangible property as they see fit. Such action might be barely constitutional, but it certainly should require a clear congressional intent to usurp the generally pro-property right and limited-monopoly power philosophy underlying our whole system of government.
The majority opinion concedes, perhaps somewhat rhetorically, that if its opinion misinterprets Congress’ current preferences, Congress is free to amend the Copyright Act. Of course, the court is correct, but I hope that our elected branches continue to favor the magical (well almost) intersection of freedom and property rights wonderfully embodied by the first-sale doctrine. American consumers deserve to be on equal footing with monopolists (albeit legal) and foreign purchasers. That result now exists, given the Supreme Court’s recent ruling.
Robert Steinbuch is a law professor at the University of Arkansas at Little Rock William H. Bowen School of Law.