Copyright Law Update: First Sale Doctrine Applies Regardless of Where a Work is Manufactured
In a landmark ruling earlier this year, the Supreme Court held that the first sale doctrine, which allows for legally acquired copyrighted works to be resold by their owners, applies to all works, regardless of whether they are manufactured domestically or abroad. The ruling comes from the case of Kirtsaeng vs. Wiley, and reverses the Second Circuit, which ruled that the term “lawfully made” limited the first sale doctrine “specifically and exclusively” to works that are made in territories in which the Copyright Act is law, and “not to foreign-manufactured works.”
Rights Under Copyright Law
Federal copyright law provides owners of a copyright with certain rights, including the right to prevent unauthorized distribution or sale of a copyrighted work. There are two sections of the Copyright Act that are important to the Court’s decision in Kirtsaeng, the first of which is the first sale doctrine (17 U.S.C. § 109(a)). The first sale doctrine provides that the owner of a particular copy of a work “lawfully made under this title” is entitled to sell, gift or otherwise dispose of that copy of the work as the owner sees fit. The second section provides that the importation of a work into the United States without permission of the copyright owner is an infringement of the copyright owner’s exclusive distribution right (17 U.S.C. § 602(a)).
The Kirtsaeng case involved a lawsuit by Wiley, a textbook publisher, against Supap Kirtsaeng, a Ph.D. student and a citizen of Thailand. In order to create different price points for books sold domestically and internationally, Wiley printed two different versions of a number of its textbooks – domestic versions and international versions. The domestic versions were printed and sold in the United States. The international versions, which were consistently sold at a lower price than their domestic counterparts, were printed and sold abroad. The international versions contained a statement that the books were authorized for sale only in Europe, Asia, Africa, and the Middle East. When Mr. Kirtsaeng came to the United States, he asked his family to purchase copies of the textbooks in Thailand and to send the purchased books to him so that he could resell the books to students in the United States at a price point that was higher than the international market but lower than the domestic market. Mr. Kirtsaeng made over $1 million dollars from the sale of internationally printed textbooks in the United States.
In a prior case, Quality King Distributors v. L’anza Research Int’l, Inc., the Supreme Court held that the first sale doctrine covers the foreign sale of a work that was printed in the United States. In Quality King, the Court left unanswered the question of whether a book that was both printed and sold in a foreign country qualifies as a work “lawfully made under” the Copyright Act.
In a 6-to-3 decision, the Court held that U.S. copyright owners may not stop imports and reselling of copyrighted content lawfully sold abroad. The Court’s decision relied heavily on the statutory language governing the first sale doctrine. The Court stated:
“[w]e must first decide whether the words ‘lawfully made under this title’ restrict the scope of § 109(a)’s ‘first sale’ doctrine geographically.” Turning first to text, the Court concluded that the word “under” means “in accordance with” and that “lawfully made under this title” simply means “lawfully made” under the standard of lawfulness set forth in the Copyright Act. The Court rejected Wiley’s argument that “under this title” is limited in meaning to “where the Copyright Act applies.”
The Court noted that a geographical interpretation of the first sale doctrine could raise various practical problems for entities that often rely heavily on the first sale doctrine (booksellers, libraries, retailers). For example, libraries would have to obtain permission before circulating books printed overseas.
Kirtsaeng clears up the ambiguity surrounding the application of the first sale doctrine outside the United States. Many commentators believe the decision is a victory for resellers and U.S. consumers seeking lower priced or special edition works from overseas. The decision clearly limits the ability of copyright owners to profit from market segregation. Accordingly, copyright owners will need to reconsider strategies for the distribution of products in international markets.
It is also important to understand that the first sale doctrine applies only to copies that are “sold.” Courts have consistently held that a copy that is “licensed” does not fall within the confines of the first sale doctrine. In order to avoid application of the first sale doctrine to digital copies of works, such as music, electronic books and software, the terms under which digital copies are provided to consumers often expressly state that such copies are licensed, rather than sold. The same terms often contractually limit the licensees from reselling the digital copies.