In a recent case involving the importation of “gray market” or “parallel imports” into the U.S., the Supreme Court decided in Kirtsaeng v. John Wiley & Sons, Inc., 568 U. S. 11-697 (2013), that copyrighted goods produced abroad and imported into the country, without the permission of the copyright owner, are subject to the “first sale” doctrine, which provides that the owner of a lawfully obtained copyrighted work is entitled to sell that work without the copyright owner’s permission. The Supreme Court’s decision reconciles an apparent conflict between two provisions of the Copyright Act of 1976 and overturns a U.S. Court of Appeals for the Second Circuit decision that prohibited such imports.
The Copyright Act (“the Act”) provides that “the owner of a particular copy or phonorecord, lawfully made … is entitled, without the authority of the copyright holder, to sell or otherwise dispose of the possession of that copy or phonorecord,” However, the Act also provides that importing a copy made abroad without the copyright owner’s permission is an infringement. In this case, John Wiley & Sons assigned to its Asian subsidiary its rights to publish and sell foreign editions of Wiley’s English language textbooks in the Southeast Asia market. The books were essentially equivalent versions of those published in the U.S. However, the Asian edition of the books say that the books are not to be taken (without permission) into the United States.
Supap Kirtsaeng, an enterprising citizen of Thailand, moved to the U.S. in 1997 to study at Cornell University. While he was studying in the U.S., Kirtsaeng asked his friends and family in Thailand to buy copies of foreign edition English language textbooks at Thai book shops, where they sold at low prices, and mail them to the U.S. Kirtsaeng would then sell them on EBay, reimburse his family and friends, and keep the profit, which was substantial over the course of the enterprise. Wiley brought a lawsuit against Kirtsaeng, claiming that the unauthorized importation of its books, and later resale of the books, amounted to an infringement of Wiley’s exclusive right to distribute, as well as the Act’s related import prohibition.
Kietsaeng maintained that the books he had acquired were ‘lawfully made” under the Act, and that he had acquired them legitimately. The District Court agreed with Wiley that the first sale doctrine does not apply to “foreign manufactured goods,” even if made abroad with the copyright owner’s permission, and assessed significant statutory damages. The Second Circuit agreed, pointing out that the “lawfully made under this title” requirement of the first sale doctrine does not apply to copies of American copyrighted works manufactured abroad.
The court’s task was to decide whether the words “lawfully made under this title” restricted the scope of the Act’s first sale doctrine geographically. The Second Circuit, Wiley and numerous amicus parties claimed that it did, with the Second Circuit arguing the words limited the first sale doctrine to works “made in territories in which the Copyright Act is law,” i.e., works “manufactured domestically.” Wiley claimed the first sale doctrine does not apply to works made outside of the U.S., and at least not to “foreign production of a copy for distribution exclusively abroad.”
The argument that carried the day however was Kirtsaeng’s who read the words “lawfully made under this title” as imposing no such geographical limitation. He argued that they mean “in accordance with” or “in compliance with” the Act, such that the first sale doctrine would apply to copyrighted works as long as their manufacture met the requirements of American copyright law. In particular, the doctrine would apply to the instant case where the copies are manufactured abroad with the permission of the copyright owner. The court agreed.
The impact of the ruling is still being sorted out in the marketplace. Those in the Wiley camp claim the ruling will cause significant harm to the U.S. economy by causing a dramatic influx of copyrighted material priced for sale in developing countries. They further claim that students in the foreign marketplaces will be harmed, presumably by the elimination of the disparate pricing models that help them gain access to the books or by the abandoning of these marketplaces by the publishers. These parties are also advocating for congressional action to redefine the scope of the first sale doctrine to include geographical limitations. Supporters of the court’s decision including libraries and proponents of consumer’s rights were enthusiastic about the decision and indicated the decision would provide more certainty and flexibility in disposing of copyrighted works wherever lawfully obtained.
Imports of the type involved in Kirtsaeng fall into a category of imported goods known as “gray market,” or “parallel imports,” generally defined as goods bearing a genuine trademark and sold into a market outside of the U.S., and then subsequently imported into the U.S. without the authorization of the trademark owner. The importation of gray market goods into the U.S. in general is not prohibited, and as it stands today the decision further affords importers and consumers greater access to gray market goods, likely at the expense of U.S. copyright holders’ ability to structure their marketing and pricing strategies on global basis.
By: Paul Fudacz, Senior Attorney