The U.S. Supreme Court’s Kirtsaeng v. John Wiley & Sons ruling that a legally obtained copyrighted work can be imported into the U.S. and resold without permission from the copyright owner, even if it was manufactured and sold overseas, will have broad legal ramifications going forward, intellectual property attorneys say.
Industries that rely on copyright protection, such as book publishers, film and television companies, and software publishers, will begin operating differently. Lawyers will start testing alternative legal strategies that could give their clients the protections they thought they had under copyright law. Congress may try to pass new legislation to grant those protections. Meanwhile, other forms of intellectual property protection could be affected by the Court’s ruling, as could U.S. international trade negotiations.
"This decision will have a large impact on law and business," said Shari Mulrooney Wollman, co-chair of the intellectual property practice at Manatt, Phelps & Phillips.
The 6-3 decision was prompted by a case involving Supap Kirtsaeng, a Thai student who imported lower-priced textbooks from Thailand and resold them in the U.S. to help pay for his studies at Cornell University and the University of Southern California. Textbook publisher John Wiley & Sons sued, saying Kirtsaeng’s unauthorized importation and sale of its books amounted to copyright infringement, and that the "first-sale" doctrine — under which people who buy something may resell it without permission — does not apply because the books were produced overseas for sale overseas.
"This was the publishing industry’s understanding of the law for at least three decades," said Anderson Duff, an attorney with Wolf Greenfield. "Everyone is pretty stunned."
While copyright owners are still taking stock of Kirtsaeng‘s potential impact, lawyers say they expect their clients to make changes in light of the ruling. In the short term, they will have to decide whether to continue to sell overseas for lower prices — a move they initially made in part to discourage counterfeiters who might otherwise try to compete. Or, they may consider raising U.S. prices temporarily to recoup losses resulting from unexpected imports.
But copyright owners can apply other legal strategies to protect themselves, according to intellectual property attorneys. Publishers have been digitizing much of their content, for example, and this digitization could render Kirtsaeng — which only applies to physical, tangible works — almost moot. "Instead of a purchaser buying a copy of the work, they’re licensing it in digital form," said Jonathan Reichman, an attorney at Kenyon & Kenyon. That digital copy cannot easily be resold.
In areas of the developing world where computers are not yet prevalent enough to rely on digital sales, contractual remedies are available, Wollman said. Publishers can grant licenses to overseas distributors to sell a certain number of copies of a work, thereby limiting output. "If they exceed the scope of the license they’ve been granted, that’s copyright infringement," she said.
In addition, copyright owners can start expanding their use of trademarks to protect their markets. "Trademark law gives the owner the right to control the quality of goods bearing its mark," Wollman said. "If an imported product is materially different, it can be legally blocked from importation."
Publishers could start intentionally producing goods of different quality overseas — using lower-quality paper or ink, for example. The courts have ruled that trademark owners may block the importation of goods that are "materially different" from those produced for the U.S. market. And while the law has yet to be tested by publishers, "trademark could be a very powerful tool," according to Wollman.
While copyright owners and their attorneys try to find creative ways to protect their intellectual property, they also may urge Congress to rewrite the statutes that led to the Supreme Court ruling. In a concurring opinion, Justice Elena Kagan wrote that Congress is free to change the law if it thinks holders of copyrights need more protection. They may, in fact, try to piggyback on a growing movement urging a major rewrite of copyright laws, which are considered out of date and which fail to address issues specific to the digital age.
But drafting new legislation could prove tricky, lawyers say. "Remember what happened when they tried to pass SOPA," said Reichman, referring to the Stop Online Piracy Act — a bill that prompted major players in the tech industry to protest proposed legislation they believed would curtail freedoms, even creating a coordinated blackout of their websites for a day last year. "Any effort to expand copyright protection is likely to be met with a challenge," Reichman said.
Meanwhile, the copyright decision in Kirtsaeng has caused patent attorneys to be wary. "There’s been some speculation that patent law could follow," said Dori Hanswirth, a partner at Hogan Lovells. The Justices did not address patent law in their decision, but the concept of rights exhaustion does exist in patent law as well as in copyright.
The Federal Circuit has ruled that only initial sales within the U.S. can exhaust patent rights. But lawyers say the Supreme Court may order the Federal Circuit to review that standard for patent exhaustion in light of its finding that international sales can exhaust copyrights. Ninestar Technology Co. Ltd., a printer cartridge manufacturer that bought ink cartridges in China and refilled and sold them in the U.S., has asked the Supreme Court to review the Federal Circuit’s ruling that patent exhaustion only applies if the first sale occurs in the U.S.
Finally, the U.S. government may find itself in a difficult position in light of the Kirtsaeng ruling as it negotiates international trade agreements. The Office of the United States Trade Representative (USTR) is in the midst of trade talks concerning the Trans-Pacific Partnership — a treaty that deals in part with intellectual property rights. "The U.S. has taken the position that there be no international exhaustion of rights," said Wolf Greenfield’s Duff. "So it’s basically asking other countries to agree to a provision that is in direct contravention to the Supreme Court’s decision."
It remains unclear how the High Court’s ruling will affect the talks, which occur behind closed doors. "We are studying the opinion and plan to consult with other agencies and Congress about it," a spokesperson for the USTR said.