On the eve of the arrival of Superstorm Sandy, the Supreme Court of the United States heard oral arguments in John Wiley and Sons v. Kirtsaeng, a case involving the international reach of the First Sale Doctrine.  The impending storm provided a fittingly overwrought metaphor for the Court’s attempt to interpret the Copyright Act as it pertains to so-called “gray-market” works published outside the U.S. and imported for sale.  Though similar issues were tackled in the 2010 Omega S.A. v. Costco Wholesale Corp. case, the Court’s 4-4 decision left the gray market in an unsatisfying state of suspended jurisprudence.  With all nine justices weighing in on Kirtsaeng, the Court has an opportunity to establish precedent in a case that is sure to affect many U.S. retailers and their customers.

Kirtsaeng D.B.A. Bluechristine99

Supap Kirtsaeng was a Thai national who came to the U.S. to attend Cornell University in 1997.  When he arrived, he realized that textbooks were much more expensive here than in his native Thailand.  Kirtsaeng saw this as an opportunity to finance his education, and enlisted his relatives in Thailand to buy textbooks by the hundreds and ship them to the U.S. for sale at a significant markup.  The plan worked well—so well, in fact, that Kirtsaeng reportedly collected profits exceeding $100,000.   Kirtsaeng’s success eventually caught the attention of John Wiley & Sons, a U.S.-based publisher of journals, encyclopedias, and textbooks.  Realizing that many of its textbooks were being imported and sold on the gray market, Wiley filed a copyright suit against Kirtsaeng in the Southern District of New York.

The trial court found in favor of Wiley, imposing statutory damages of $600,000.  The Court of Appeals for the Second Circuit affirmed.  Kirtsaeng then filed for certiorari, and the Supreme Court of the United States granted cert earlier this year.

A Tale of Two Sections

At issue in the case are two sections of the Copyright Act.  Section 602(a)(1) prohibits the importation of a published work without the permission of the copyright owner.  Section 109(a) allows the owner of a copy of a work “lawfully made under this title” to resell a copy legally without permission of the copyright owner.  Wiley argued that the books were not published in the United States and were, therefore, not “lawfully made” under the Copyright Act.  Under Wiley’s interpretation, the books were imported rather than resold—a violation of §602(a)(1).  Kirtsaeng countered that the books were “lawfully made” because they were published in Thailand under a license from Wiley.  Under Kirtsaeng’s view of the facts, the books were purchased legally in Thailand and then legally resold in the United States under §109; since they were not technically imported, they were not prohibited under §602.

The First-Sale Doctrine and “Universal” Exhaustion of Copyright

As codified in § 109 of the Copyright Act, the first-sale doctrine is a statutory restriction which allows an individual who purchases a copy of a copyrighted work from the copyright holder to sell, display, or otherwise dispose of that particular copy of the work. The key point of controversy in this case is over the statute’s use of the term “lawfully made under this title.”  During oral arguments, Justice Scalia challenged Kirtsaeng’s attorney, Joshua Rosenkranz by asking him if his interpretation of “under this title” was something to the effect of “if this title had applied.”  Rosenkranz denied that this was his position, arguing instead that “under this title” actually meant “in accordance with U.S. law.”  Since the books Kirtsaeng obtained in Thailand were published in accordance with U.S. law under a license from Wiley, he argued, the first-sale doctrine applied.

Interestingly, Justice Ginsburg described this interpretation as “universal exhaustion,” and noted that it would present a significant limit to the rights of copyright owners in the U.S.  Deputy Solicitor General Malcolm Stewart later used the more generally accepted term “international exhaustion” (as opposed to the more limited “national exhaustion”) in his argument.   It is worth noting that, under the Berne Convention and the TRIPS agreement, most countries now extend “national treatment” to citizens of signatory countries.  In other words, most nations do not distinguish between national and international exhaustion, perhaps lending some gravity to Justice Ginsburg’s terminology.

Kagan as Tiebreaker?

In Omega S.A. v. Costco Wholesale Corp., the Supreme Court split 4-4 on a similar “grey market” issue.  In that case, Costco was selling imported Omega watches at a significant discount.  Omega’s other retailers began to complain, and Omega eventually pursued the matter as a copyright issue.  The trial court ruled in favor of Costco, holding that the first-sale doctrine precluded any copyright infringement claims.  The Court of Appeals for the Ninth Circuit reversed, holding that the first-sale doctrine only applied to goods made in the United States.  When the case reached the Supreme Court, Justice Kagan was forced to sit out due to her previous involvement in the case as Solicitor General for the Obama administration, during which she had urged a ruling in Omega’s favor.  The resulting 4-4 decision upheld the Ninth Circuit’s decision but created no precedent in the highest court.

In Kirtsaeng, Justice Kagan did not need to recuse herself, and is therefore the presumptive “swing vote” in the case.  Given her previous leanings in favor of the manufacturer in Omega, it is tempting to predict that she will find in favor of Wiley in Kirtsaeng.  However, much of what she said during oral arguments seems to lean toward Kirtsaeng’s argument that he was working within his rights under § 109.  At one point, she discusses Rosenkranz’s argument with Deputy Solicitor General Olson, noting that “under this title doesn’t mean made in the United States, it means lawfully made under the rules of this title.”  This seems to stray from her position in Omega, and could be a sign of a judgment in favor of Kirtsaeng.

The Horribles

What will the ramifications of a ruling in favor of Kirtsaeng mean for U.S. copyright holders?  What would a ruling in favor of Wiley do to the burgeoning online textbook resale market?  The Court asked Deputy Solicitor General Olson to consider a few hypotheticals (what Justice Breyer referred to as “the horribles”) to try to help predict what a ruling in one direction or the other would mean to future litigation.  Ever mindful of the downstream effect of its actions, the Court appears to be approaching Kirtsaeng with requisite caution in order to avoid spawning “the horribles” in the form of an inadvertently broad interpretation of §109.

%d bloggers like this: