On March 19, the U.S. Supreme Court issued its decision in Kirtsaeng v John Wiley & Sons Inc., which could impact general counsel at Texas businesses that buy or sell copyrighted products, such as books, computer software, music, works of art, jewelry, and other ornamental products. The high court sent a signal that, in the worldwide economy, businesses no longer can segment their product offerings based on geography as easily as they have in the past.
According to the Supreme Court’s opinion, John Wiley & Sons, an academic textbook publisher, gives rights to its foreign subsidiary to publish, print and sell foreign editions of Wiley’s English language textbooks abroad. The foreign editions of the books contained a legend stating that the books were authorized for sale in Europe, Asia, Africa and the Middle East only and could not be exported out of those territories. It went on to say the importation of the book to another region was illegal and violated the publisher’s rights.
The foreign editions of the books typically sell at much lower prices than they do in the United States, primarily to assist students in underdeveloped nations. Supap Kirtsaeng moved from Thailand to the United States to attend school. He had friends and family buy the Wiley foreign edition books in Thai book shops and send them to him. He sold them, reimbursed the senders and kept the profits. The high court’s opinion notes that Kirtsaeng received more than $1 million from these sales.
Wiley sued him for copyright infringement. Kirtsaeng claimed that, because Wiley lawfully made his books and he acquired them legitimately, the first-sale doctrine of the Copyright Act insulated him from any infringement actions.
The first-sale doctrine is a defense to copyright infringement. Generally, the sale of a copyrighted product — such as a book, artwork, poster, software or jewelry — extinguishes the copyright owner’s right to control any further the downstream distribution of the product.
In Kirstsaeng, the U.S. District Court for the Southern District of New York and the 2nd U.S. Circuit Court of Appeals found that the first-sale doctrine did not apply to goods manufactured outside the United States. Thus, they found Kirtsaeng liable for copyright infringement.
The lower courts’ reasoning centered around Copyright Act language dealing with the first-sale doctrine: The owner of a copy of a copyrighted work "lawfully made under this title" is entitled to sell or otherwise dispose of the copy without the authority of the copyright owner.
The lower courts determined that "lawfully made under this title" meant that the work was American-made and that the relevant language did not apply to works manufactured abroad. The lowers courts essentially created a geographical limitation in the language of the Copyright Act. Thus, the courts found, any goods manufactured outside the United States were not subject to the first-sale doctrine, and Kirstaeng could not rely on that as a defense.
Before the Supreme Court issued its decision, many parties speculated about what impact the 2nd Circuit’s decision would have on businesses if it stood. TV character Stephen Colbert aired a tongue-in-cheek report, stating that, if the high court upheld the circuit court’s decision, anyone holding a garage sale would need to get the copyright owner’s permission to resell records and other goods that were first sold outside the United States.
However, the Supreme Court reversed the 2nd Circuit, finding that the first-sale doctrine does apply to copyrighted works lawfully made abroad, thus exonerating Kirtsaeng of any liability for copyright infringement.
After the decision, a number of commentators claimed that importing grey-market goods — goods that are genuine but intended for distribution in another country — had become legal. This is not, however, the true impact of the decision.
Essentially, the Supreme Court’s decision means that, regardless of where a copyrighted work is manufactured, sale of the product means the copyright owner no longer can control distribution of the work under the terms of the Copyright Act — so long as the goods are not pirated (which would make them unlawful).
Many businesses other than book publishers vary their pricing models for goods depending upon the geographic areas where they sell those goods. Based on this decision, those businesses no longer can claim copyright infringement when goods they intended for sale in another country are resold in the United States, even at a significant profit.
Critics have voiced concerns that the decision will result in copyrighted materials intended for sale in foreign countries at lower prices flooding into the United States, which essentially will allow parties other than the copyright owner to profit significantly from this sales gap. This decision may cause businesses to rethink their business models and either increase their prices in the underdeveloped nations or decrease their prices for the same products in the United States.
The decision in Kirtsaeng only applies to works covered by copyright. It does not necessarily give a green light to the entire category of grey-market goods or parallel-import goods. Copyrights don’t cover all goods that are subject to the grey market or parallel imports, and brand owners still can attempt to limit their importation into the United States if the differences in their quality or characteristics could impact the lawful sale of those goods in the United States.
The decision has created significant clarity, however, for many companies that were previously concerned about whether goods manufactured abroad and intended for distribution only outside the United States could be resold in the United States.