First Sale Doctrine: Reseller Wins

We all know John Wiley & Sons Inc.: textbooks. A bright Thai student studying at Cal saw what is taught in every good principles of economics class, that a price discriminator cannot succeed if the person who buys at a lower price can sell to someone who wants the good, but is only being offered, directly, a higher price. The Thai student is named Mr Kirtsaeng, and he sold Wiley textbooks first sold in Thailand in the United States for a substantial profit.

Different prices is the issue.

Wiley, like any good profit maximizer, claimed that Kirtsaeng’s importation and resale of the books was an infringement of the company’s exclusive right to distribute its copyrighted works under §106(3) of the Copyright Act. Wiley also asserted the Copyright Act’s import provision under §602.

The economic issue is simple: should copyright law give the copyright owner the right to price discrimination, which means, of course, more profits. The legal issue is a little more complex. 

The First Sale Doctrine was the obvious response, but the district court prohibited the student from raising the defense, rejecting its applicability to goods manufactured abroad.  The jury found Kirtsaeng liable for willful copyright infringement and awarded Wiley statutory damages of more than half a million dollars.

Luckily, Mr Kirtsaeng appealed. The Supreme Court noted that §602(a)(1) of the Copyright Act makes it clear that importing a copy of a work without permission violates the copyright owner’s exclusive distribution right under §106(3) of the Copyright Act.  But, there is that testy First Sale Doctrine also.

The First Sale Doctrine (17 U.S.C. § 109) provides that an individual who knowingly purchases a copy of a copyrighted work from the copyright holder receives the right to sell, display, or otherwise dispose of that particular copy. So, can one reconcile the First Sale Doctrine with the Import Restriction?

The big problem for the Supreme Court was Quality King Distributors v. L’anza Research International. There, the Supreme Court held that the first sale doctrine limited the scope of §602(a). A foreign distributor who re-imported copyrighted works, made in the US, could assert the first sale doctrine as a defense. The Quality King Court did not rule on whether the first sale doctrine would apply to works manufactured outside of the United States.

Wait. Quality King is about hair products, or, more specifically, their labels. The book case is  the first Supreme Court case about the first sale doctrine. That case involved a claim by a publisher that the resale of its books at discounted prices infringed its copyright on the books. Bobbs-Merrill Co. v. Straus, 210 U. S. 339 (1908). Bobbs-Merrill had inserted a notice in its books that any retail sale at a price under $1 would constitute an infringement of its copyright. The defendants, who owned Macy's department store, disregarded the notice and sold the books at a lower price without Bobbs-Merrill's consent. The Supreme Court said that the exclusive statutory right to "vend" applied only to the first sale of the copyrighted work:

"What does the statute mean in granting 'the sole right of vending the same'? Was it intended to create a right which would permit the holder of the copyright to fasten, by notice in a book or upon one of the articles mentioned within the statute, a restriction upon the subsequent alienation of the subject-matter of copyright after the owner had parted with the title to one who had acquired full dominion over it and had given a satisfactory price for it? It is not denied that one who has sold a copyrighted article, without restriction, has parted with all right to control the sale of it. The purchaser of a book, once sold by authority of the owner of the copyright, may sell it again, although he could not publish a new edition of it.

 Sell a book, and the owner of the copyright has lost control of its resale. Hair products? Well, they can have a copyright label. And their is that pesky import restriction.

The  Quality King went to the statute itself. It noted that the most relevant portion of § 602(a) provides:

"Importation into the United States, without the authority of the owner of copyright under this title, of copies or phonorecords of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies or phonorecords under section 106, actionable under section 501. ... "

It refers to section 106. The Court explaints: "After the first sale of a copyrighted item "lawfully made under this title," any subsequent purchaser, whether from a domestic or from a foreign reseller, is obviously an "owner" of that item. Read literally, § 109(a) unambiguously states that such an owner "is entitled, without the authority of the copyright owner, to sell" that item. Moreover, since § 602(a) merely provides that unauthorized importation is an infringement of an exclusive right "under section 106," and since that limited right does not encompass resales by lawful owners, the literal text of § 602(a) is simply inapplicable to both domestic and foreign owners of L'anza's products who decide to import them and resell them in the United States.'

Solved. But, what about textbooks, produced abroad? In Kirtsaeng, the Court notes that the location of the manufacture of the copyrighted work is critical when interpreting §109(a) because the codification applies the first sale doctrine to a particular copy “lawfully made under this title.”  The Court concluds that the statute should be read to favor a non-geographical interpretation, and that “lawfully made under this title” means “in accordance with” or “in compliance with” the Copyright Act, and rejects the argument that the language applies to works made “in territories in which the Copyright Act is law.” First Sale rules, it seems.

And copyright owners cannot squeeze more profits.