Kirstaeng v. John Wiley & Sons, Inc.: Bye Bye, American Pie

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Bad news on the doorstep—at least for copyright holders seeking to segment foreign markets and then keep foreign-made copies from first-sale doctrine protections.  Under the first-sale doctrine, a copyright owner loses the right to control the copies of protected work after a first, lawful sale. In Kirstaeng v. John Wiley & Sons, Inc., a majority of the United States Supreme Court ruled that the first-sale doctrine is not limited by geography and equally applies to copyrighted works lawfully made outside the United States. A vigorous dissent argued that the majority’s holding “shrinks to insignificance” protection against the unauthorized importation of foreign-made copies included in the Copyright Act. The result?  If you wrote the Book of Love, gray market sales of foreign made copies could make your home-profit levy run dry.

In Kirstaeng, publisher John Wiley & Sons (“Wiley”) asserted copyrights held in foreign-printed, English textbooks against Kirstaeng, a student book reseller. While studying in the U.S.,  Kirstaeng resold at a profit 600 lower-priced foreign editions textbooks purchased from his home in Thailand. The district court agreed with Wiley that the first sale doctrine did not cover the foreign manufactured goods and awarded statutory damages of $600,000 ($75,000 per work).  On appeal, a split panel of the Second Circuit affirmed, with the majority agreeing that the first sale doctrine does not cover works manufactured abroad, whether or not that foreign manufacture was “lawful” under U.S. copyright law.

The U.S. Supreme Court granted certiorari in order to resolve differences between the circuits—illustrated by the Second Circuit’s opinion—on the application of the first-sale doctrine to lawfully made foreign works imported to the U.S. for resale. Looking to the copyright statute and its own precedent, the Court’s majority held that the first-sale doctrine does apply to copies of a copyrighted work lawfully made abroad.

In its decision, the majority first noted the Court’s opinion in Quality King Distributors, Inc. v. L’anza Research, Inc. 523 U.S. 135 (1998). There, the Court held that the first-sale doctrine applied to works purchased abroad but manufactured in the U.S. Next, the Court looked to the language of §109 of the Copyright Act, which codifies the first-sale doctrine.  That section grants buyers of copies “lawfully made under” the Act the right to sell or dispose of those copies as they wish.  Disagreeing with those circuits that held otherwise—and the dissent—the majority found that a plain and linguistically sensible reading of the term “lawfully made under this title” imposes no geographic limitation. Instead, as long as the manufacture is lawful under the Copyright Act, the actual place of that manufacture does not matter for purposes of first-sale protection.  In particular, the majority noted the difficulties imposing a geographical limitation would inflict on various entities including libraries, technology companies, consumer goods retailers and museums.

Strongly disagreeing with the majority, a three-judge dissent led by Justice Ginsburg argued that the majority’s opinion guts the protection of §602(a)(1) of the Copyright Act.  This section gives copyright owners the right to restrict importation of infringing works. Justice Ginsburg’s dissent strongly criticizes the majority for ignoring Quality King’s contrary dictum as well as its extraterritorial interpretation of §109. Concurring, Justice Kagan would have overruled Quality King and given copyright holders the right to control imports without regard to the first sale doctrine.  Kagan argues that approach would allow the market segmentation Congress enactment of §602(a)(1) probably intended without harming the various entities the majority’s opinion seeks to protect. Still, she concurs with the majority because she thinks it would be a bigger mistake to destroy the first-sale protection that §109(a) gives to every owner of a copy manufactured abroad.

Kirstaeng will make players across global copyright markets start their singing. It’s dirges in the dark time for U.S.publishers and other copyright owners who have taken a segmented approach to global submarkets and now want to protect the value of their rights at home. Conversely, enterprising entrepreneurs profiting from pricing differences between the U.S. and foreign markets copies will dig Kirstaeng’s rhythm and blues.  And, of course, Congress can amend the Copyright Act to address international exhaustion and change the marching tune. But, if they don’t, Kirstaeng just might be the day the foreign copyright market died.

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