In Kirtsaeng v. John Wiley & Sons, Inc., No. 11-697, the U.S. Supreme Court will determine whether the Copyright Act's first-sale exception is limited to U.S.-manufactured products or, alternatively, whether it extends to products manufactured abroad, such as the iPhone. As made clear during the October 29th oral argument before the Supreme Court, Kirtsaeng could affect both consumers and copyright holders.
To subsidize the cost of his education, Supap Kirtsaeng raised $37,000 by selling textbooks manufactured abroad. Kirtsaeng paid his friends and family, living in Thailand, to purchase and ship him texts manufactured by Wiley Asia, a wholly owned subsidiary of the U.S. corporation, Wiley. Though similar in content, the foreign-manufactured books differed from their domestic counterparts in quality--and, most significantly, cost--and Kirtsaeng took advantage of Wiley's discriminatory pricing scheme by listing them for sale on eBay.
Wiley brought suit in the U.S. District Court for the Southern District of New York, claiming that that the importation and resale of the foreign editions infringed its "exclusive right [under the Copyright Act] to distribute copies" of its texts. In response, Kirtsaeng argued that the first-sale doctrine, one of many exceptions to a copyright holder's exclusive distribution right, entitled him to resell the foreign texts. "The whole point of the first sale doctrine is that once a copyright owner places a copyrighted item in the stream of commerce by selling it, he has exhausted his exclusive statutory right to control its distribution." Quality King Dists., Inc. v. L'anza Research, Int'l, Inc., 523 U.S. 135, 152 (1998). Thus, Kirtsaeng's contention was that the first-sale exception prevents copyright holders, like Wiley, from controlling second-hand sales of its texts, including those manufactured abroad.
The district court disagreed. Relying in part on Quality King, a U.S. Supreme Court case decided in 1998, it held that the first-sale exception only applies in cases where the item that is imported had been manufactured in the U.S.; and because the textbooks at issue had been manufactured in Asia, the district court held that Kirtsaeng could not claim protection under the first-sale exception.
After being found liable for $600,000 in damages, Kirtsaeng appealed. Like the district court, however, the U.S. Court of Appeals for the Second Circuit rejected the argument that the first-sale exception extends to foreign-manufactured items. Kirtsaeng then filed a petition for writ of certiorari, which the U.S. Supreme Court granted.
On appeal, the parties contend that the issue of whether the first-sale exception is limited to U.S.-manufactured products turns on a statutory interpretation of the phrase "lawfully made under this title." In pertinent part, section 109(a) of the Copyright Act, a codification of the common-law first-sale doctrine, provides that "the owner of a particular copy . . . lawfully made under this title . . . is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy. . . ." 17 U.S.C. § 109(a) (emphasis added). If the Court determines that "lawfully made under this title" means "manufactured and published in the [U.S.]," as the district court held, or "made in territories in which the Copyright Act is law," as the Second Circuit held, the verdict in Wiley's favor will stand.
Further, such a determination could have far-reaching consequences. In his appellate brief, Kirtsaeng unleashed what was referred to during the oral argument as the "parade of horribles" that could result if the Court adopts Wiley's interpretation. Among the numerous potential consequences of adopting Wiley's reading are the following:
In apparent recognition of the difficulty that these hypotheticals posed to its position, Wiley argued that the Court should instead focus only on the "gray-market problem" presented. However, Justice Anthony Kennedy noted during the argument that its resolution of the case is not so simple, stating that "you have to look at th[e]se hypotheticals to decide this case."