The Supreme Court ruled last week in Kirtsaeng v.
Wiley, a case that centered on the tension between copyright
law's first sale doctrine, codified at 17 U.S.C. §109(a),
and the importation restriction found in 17 U.S.C.
§602(a). The express question before the Court was
whether the first sale doctrine applies to works manufactured
outside the United States. While the Second Circuit and the
Ninth Circuit had each ruled, in some fashion, that the first sale
doctrine was limited to works manufactured within the United
States, the Supreme Court disagreed with them – and the
Solicitor General, holding that the first sale doctrine applies
regardless of where the works are manufactured.
The first sale doctrine, codified at 17 U.S.C. §109(a),
provides that the owner of a particular copy of a work
"lawfully made under this title" is entitled to sell or
otherwise dispose of that particular copy of the work.
Meanwhile, another Section of the Copyright Act, 17 U.S.C.
§602(a), provides that the importation of a work into the
United States without the permission of the copyright owner is an
infringement of the copyright owner's exclusive distribution
right.
The first sale doctrine and the importation restriction are in
tension with another when it comes to gray market goods. Gray
market goods are goods that are lawfully purchased overseas and
brought back into the U.S. for resale. They are usually
resold in the United States at a much cheaper price than products
originally intended for sale in the U.S. Importation of these
cheaper copies undercuts the copyright owner's ability to
separately price the goods for the respective markets and
successfully commercialize the work on an international
scale. In 1998, the Supreme Court touched on this tension
when it ruled in Quality King Distributors, Inc. v
L'Anza Research International, 523 U.S. 135 (1998), that
the importation ban is subject to the first sale doctrine. In
other words, where a defendant buys a copy of a work that is
"lawfully made under [the Copyright Act]" and later
imports it, the defendant is protected by the first sale
defense. However, that case involved goods made in the United
States, so the Court never addressed whether the first sale
doctrine also applies to imports that are made
overseas.
In the years since Quality King, the issue regarding
products first sold abroad has caused consternation in lower
federal courts. For example, the Ninth Circuit and Second
Circuit both addressed the open question of whether goods
manufactured overseas are "lawfully made under this
title" and, thus, subject to the first sale doctrine.
Guided, in part, by dicta from Quality King, both
Courts reached the same basic conclusion – that the phrase
"lawfully made under this title" was geographic in
nature, such that the first sale doctrine would only apply to works
made in the United States (although the Ninth Circuit found that
goods first sold in the United States would also qualify).
Under those courts' precedents, then, the first sale doctrine
did not shelter an importer of gray market goods manufactured
overseas from copyright infringement liability for violating the
importation restriction in 17 U.S.C. § 602(a).
Last week, the Supreme Court overturned the Second Circuit's
ruling in Kirtsaeng, relying on the plain language of the
statute, historical and contemporary statutory context, and
practical considerations. The Court explained that a work
"lawfully made under this title" refers to infringing
versus non-infringing copies of a work -- that is, legitimate
versus counterfeit copies -- and does not refer to a geographical
limitation on the fair use defense. A significant portion of
the Court's majority opinion, which was written by Justice
Breyer and joined by 5 other Justices, focused on the practical
import of the decision. For instance, the Court cited the
American Library Association's amicus brief in the
case, which argued that if the Court decided that the first
sale doctrine did not apply to all works, regardless of geography,
then public libraries would face the "insurmountable
barrier" of having to obtain licenses for the 200
million foreign-published books in their collections, which would
likely force them to close.
Interestingly, in her concurrence (joined by Alito, J.), Justice
Kagan reasoned that the Court's decision was mandated by its
earlier ruling in Quality King, but called on Congress to
clarify the intent of Section 602(a), stating: "I think John
Wiley may have a point about what 602(a)(1) was designed to do;
that gives me pause about Quality King's holding that
the first sale doctrine limits the importation ban's
scope." Thus, although the Kirtsaeng decision
was joined by six Justices, at least two of those Justices
expressed reservations about the ultimate conclusion.
Nonetheless, at the end of the day, the Supreme Court has settled
the matter unless and until Congress steps in, effectively
eliminating a copyright owner's right to address gray market
goods through the use of the Copyright Act. As such,
copyright owners, particularly those who sell hard goods –
books, DVDs, CDs – on an international scale will need to
give increased consideration to the ways in which their
international distribution contracts (and subcontracts) may be able
to provide protection against gray market
imports.
For more information regarding the Kirtsaeng decision or
to discuss any aspect of anti-counterfeiting or protecting your
intellectual property, contact
Venable's Intellectual Property Group.
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