The First Sale Doctrine After Kirtsaeng v. Wiley

In the United States, copyright owners enjoy several exclusive rights, including the right to distribute copies of the protected works.[1] This right is tempered by several defenses and exemptions, including the First Sale Doctrine.[2] Copyright owners are entitled to the first sale of any lawfully made copies of their works, after which their rights to that copy are exhausted.[3] Without this doctrine, copyright owners could use the distribution right to prohibit public libraries and second-hand bookstores.

For many years, it was unclear whether the exhaustion principle applied to works purchased abroad and imported for resale. Under 17 U.S.C. § 602, importing copyrighted materials without permission from the copyright owner is an infringement of the distribution right. Yet, in Quality King Distributors, Inc. v. L’anza Research Int’l,[4] the Supreme Court applied the First Sale Doctrine to the resale of the plaintiff’s hair care products, which had been manufactured in the United States, sold abroad, and imported by the defendant for resale in the United States.[5] However, it remained unclear whether the doctrine applied to goods that were manufactured abroad.[6] On March 19, 2013, the Supreme Court released its opinion in Kirtsaeng v. John Wiley & Sons, extending the First Sale doctrine to copyrighted works manufactured and sold abroad.[7]

John Wiley & Sons (“Wiley”) is a major U.S. publisher with substantial operations abroad. Like most publishers, Wiley engages in widespread price discrimination, selling works abroad much more cheaply than in the United States. Wiley’s English-language textbooks designated for sale in Asia are manufactured by a wholly subsidiary (“Wiley Asia”), which licenses the right to publish the textbooks. Although the textbooks are essentially the same, copies manufactured by Wiley Asia have a disclaimer prohibiting importation into the United States.

Supap Kirtsaeng is a Thai national who came to the United States to study mathematics. While pursuing his degree, Kirtsaeng had friends and family purchase English-language textbooks manufactured by Wiley Asia from local Thai bookstores. Because of the wide price differential, Kirtsaeng was able to pay for the books, as well as shipment to the United States, and still turn a significant profit on resale.[8]

The Supreme Court, in an opinion by Justice Breyer, found that the First Sale Doctrine had not been written to be geographically restrictive. Citing the open-ended phrasing of the doctrine, it found that there was no obvious intent from Congress to limit it to works sold domestically.[9] Significantly, however, this decision does not negate the restrictions on parallel imports of so-called “gray-market goods.” Depending on the nature of the goods and whether the domestic and foreign goods are “materially different,” manufacturers and distributors may still be able to prevent importation.

At TechLaw, we are attorneys and entrepreneurs. If you conduct business abroad, a parallel importer could undercut the value of your product in the United States. To find out how you can maximize your return on domestically sold products, contact TechLaw today.

 


[1] See generally 17 U.S.C. § 106.

[2] Although the name First Sale is commonly used in the United States, it is referred to as the principle of Exhaustion in the patent context and in foreign jurisdictions. Exhaustion is a better name for the doctrine, as it does not require a sale of the copyrighted work, but merely a lawful transfer. The First Sale Doctrine is codified at 17 U.S.C. § 109.

[3] See generally, 17 U.S.C. § 109.

[4] 523 U.S. 135 (1998).

[5] This has been referred to as the “round-trip” view after dicta in Justice Ginsburg’s Concurrence, which characterized the transportation of the plaintiff’s good as such.

[6] In Quality King, the Court expressly declined to resolve issues regarding the application of the First Sale Doctrine to goods manufactured abroad.

[7] 2013 WL 1104736 (U.S. Mar. 19, 2013).

[8] Kirtsaeng sold over $900,000 of such books on eBay, generating a profit exceeding $100,000.

[9] Justice Ginsburg, who had written the Concurring opinion in Quality King expressing the “round-trip” view of First Sale, dissented in this case for two reasons. (1) “International Exhaustion” is not widely recognized in foreign nations. (2) Extending First Sale to sales of foreign-manufactured goods was the responsibility of Congress.