On Tuesday, the Supreme Court issued its opinion in Kirtsaeng v. John Wiley & Sons, Inc., resolving a long-simmering debate by holding that copyright’s first-sale doctrine applies to copyrighted works lawfully made anywhere in the world. The upshot is that someone who buys an authorized, foreign-made copy (Kirtsaeng involved a foreign version of a textbook) is free to resell that copy in the U.S. without the copyright owner’s permission.
As we explained in a previous post, the crux of the issue is the interplay between the Copyright Act’s “importation” provision (section 602(a)(1)) and its “first-sale” provision (section 109(a)). Generally, a copyright owner has the exclusive right to distribute copies of the copyrighted work. The first-sale provision, however, creates an exception to that right: it provides that someone who owns a particular copy “lawfully made under this title” (i.e., lawfully made under the Copyright Act) has the right to sell that copy without permission from the copyright owner. Finally, the importation provision says that if you acquire a copy outside the U.S., importing that copy into the U.S. without the copyright owner’s permission infringes upon the owner’s exclusive right to distribute copies.
Fifteen years ago, in Quality King Distributors, Inc. v. L’anza Research International, Inc., the Supreme Court decided that by referring to the exclusive distribution right, the importation provision also incorporates all of the limitations on that right — in particular, the first-sale provision. In other words, someone who exercises her first-sale-doctrine rights does not infringe upon the owner’s exclusive right to distribute copies, so the importation provision in no way restricts her ability to import and sell copies as long as those copies are covered by the first-sale doctrine. But Quality King involved U.S.-manufactured copies that made a “round trip” out of the U.S. and back, so its holding that those copies were covered by the first-sale doctrine did not answer the question of whether the first-sale doctrine applies to foreign-manufactured copies. Indeed, Quality King noted in dicta that books published outside the United States “presumably” would not be “lawfully made under this title,” as required by the first-sale provision.
According to Tuesday’s decision, the Quality King opinion presumed incorrectly. Justice Breyer wrote for a majority of six (a surprising number, considering that only two years ago the Court took up precisely this issue but ended up tying 4–4 with Justice Kagan recused — which means that one justice switched). He reasoned that as a textual matter, “lawfully made under this title” is not a geographically constraining phrase, and that both the first-sale provision’s enactment history and the common law support this interpretation. Justice Breyer then recounted a “parade of horribles” that he believed might result from an alternative reading: libraries would not be able to circulate foreign-printed books without obtaining permission; used book stores would not be able to sell foreign books; products containing copyrightable software or packaging that are made in multiple countries could not be resold by consumers or retailers. Even if copyright owners rarely enforced these rights, “a copyright law that can work in practice only if unenforced is not a sound copyright law,” he opined.
In dissent, Justice Ginsburg (joined by Justices Kennedy and Scalia) pointed out that the result of the majority’s holding is that the importation provision becomes insignificant: it now only prohibits unauthorized importations by people who possess, but do not own, the imported copies. She would have constrained the first-sale doctrine to copies made in the U.S., as the Quality King dicta had presumed. Moreover, Justice Ginsburg wrote, this case presents the question of whether the United States has a rule of national exhaustion (under which a copyright owner’s right to control distribution of a particular copy is exhausted only within the country in which the copy is sold) or international exhaustion (under which the first sale of a particular copy anywhere in the world exhausts the copyright owner’s distribution right everywhere with respect to that copy). The majority’s decision in favor of the latter, according to Justice Ginsburg, contradicts the United States’ consistent support for national exhaustion in multilateral trade negotiations — thus the majority “risks undermining the United States’ credibility on the world stage” by “likely disadvantag[ing] foreign holders of U.S. copyrights” for the potential benefit of U.S. consumers. (In response, Justice Breyer conceded that publishers would be unable to divide foreign and domestic markets, but wrote that nothing in the Copyright Act nor the Solicitor General’s statements opposed such a regime.)
Justice Kagan (joined by Justice Alito) agreed with the majority but wrote a brief concurrence. She acknowledged that the Court’s decision limits the importation provision “to a fairly esoteric set of applications,” and even wrote that the copyright owner in this case “may have a point about what [the importation provision] was designed to do.” But the problem was with Quality King, according to Justice Kagan, not with the majority in Kirtsaeng: in her view, Congress intended the importation provision to apply to all importers — irrespective of the first-sale doctrine — and only importers — not libraries, used book stores, consumers, or retailers. Moreover, she argued, interpreting the first-sale provision to impose geographical limits (as the dissent would do) would make a copyright owner’s power to divide markets hinge on the place the copies were manufactured rather than where they were intended to be sold, which makes little policy sense. Justice Kagan concluded with an invitation to Congress to overturn Quality King: “If Congress thinks copyright owners need greater power to restrict importation and thus divide markets, a ready solution is at hand — not the one John Wiley offers in this case, but the one the Court rejected in Quality King.”
After Kirtsaeng, copyright owners will have a tougher time segmenting markets because parallel importers are free to buy copyrighted goods abroad and resell them in the U.S. This might reduce the prices of copyrighted goods for U.S. consumers, as lower-priced foreign goods are brought into the domestic market, but it could also foster customer confusion and dissatisfaction when foreign versions of products (with their differing designs or qualities) are resold in the U.S. Indeed, going forward, copyright owners may raise prices or even forego sales in foreign markets due to the potential adverse impact on their U.S. market.
That said, Kirtsaeng’s holding is not set in stone. A majority of the Court (the dissenters plus Justices Kagan and Alito) appears to believe that Congress never intended the combined results of Quality King and Kirtsaeng, and that the Copyright Act was designed to give copyright owners greater control over market segmentation than the law now provides. Accordingly, although Kirtsaeng may have resolved this issue in the courts, this week’s decision may prompt Congress to re-assess the scope of the first-sale doctrine and its impact on copyright owners and consumers alike.