On March 19, in Kirtsaeng v. John Wiley & Sons, Inc., the Supreme Court, reversing the 2nd Circuit, resolving conflicting decisions from the federal appellate courts, and rejecting the solicitor general’s arguments, held that the “first sale” doctrine applies to lawful copies of a copyrighted work first sold abroad. Practically, this decision means that a buyer or other rightful owner of a copy of a copyrighted work lawfully first sold abroad may bring that copy into the U.S. and sell it without violating the copyright owner’s copyright rights.
Prior to the Supreme Court’s ruling, some copyright owners had divided international markets, placing notices in foreign editions of copyrighted works that such copies could be sold only in a particular country or region outside the U.S., and could not be imported into the U.S. This practice, which arose from the recognition that economic conditions and demand for particular goods vary around the world, allowed copyright owners to sell equivalent foreign and U.S. manufactured copyrighted works at significantly different prices. The ability to engage in such price discrimination is undermined if third parties are permitted to import copies from low-price regions and sell them in high-price regions, which is precisely what had happened in Kirtsaeng, which involved the importation into the U.S. for resale of textbooks first sold abroad.
Section 106 of the Copyright Act grants to a copyright owner certain “exclusive rights,” but these rights are qualified by Section 109(a), which provides that the owner of a particular copy “lawfully made under this title … is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy.” However, Section 602(a)(1) provides that “importation into the United States, without the authority of the owner of copyright under this title, of copies . . . of a work that have been acquired outside of the United States is an infringement of the exclusive right to distribute copies . . . under section 106.” Given these statutory provisions, the issue before the Supreme Court was whether the first sale doctrine as codified in Section 109(a) applies to lawful copies first sold abroad in view of the prohibition against importation as codified in Section 602(a)(1). To resolve this issue, the Supreme Court had to decide whether the words “lawfully made under this title” in Section 109(a) geographically restrict the scope of the first sale doctrine.
In concluding that there is no geographic restriction in Section 109(a), the Supreme Court reasoned that geographical interpretations created more linguistic problems than they resolve in the construction of these statutory provisions; that both historical and contemporary statutory context indicates that Congress, when writing the present version of Section 109(a), did not have geography in mind; that the court must presume that Congress intended to retain the substance of the common law first sale doctrine, which made no geographic distinctions; and that a geographic interpretation could bring about practical problems arising from having to obtain permission from the copyright owners (where for example, the owner cannot be found or if a group of heirs is arguing about who owns which copyright) that are “too serious, too extensive, and too likely to come about” to be dismissed as insignificant. In dissent, Justices Ginsburg, joined by Justices Kennedy and Scalia, argued that the majority’s decision “shrinks to insignificance copyright protection against the unauthorized importation of foreign-made copies.”
Under the Supreme Court’s ruling in Kirtsaeng, once a copy of a copyrighted work has been lawfully sold in a foreign country, the buyer has the right to resell that copy in the U.S., and as a consequence it will now be more difficult for a copyright owner to charge different prices for the same copyrighted work in different geographic markets. However, other considerations, such as language of publication, may de facto restrict cross-border sales.
The “exhaustion doctrine” in patent law is similar to the first sale doctrine in copyright law. Under the patent exhaustion doctrine, a first lawful sale of a patented product in the U.S. terminates the patent owner’s patent rights in that product. However, consistent with several of its earlier decisions, in 2012, in Ninestar Tech. Co. v. ITC, the Court of Appeals for the Federal Circuit held that the exhaustion doctrine does not apply when the first lawful sale of a patented product is made outside the U.S., i.e., importation of that product into the U.S. constitutes patent infringement. Ninestar petitioned the Supreme Court for review of the Federal Circuit’s ruling, but on March 25, after issuing its decision in Kirtsaeng, the Supreme Court denied Ninestar’s petition for review, leaving intact, at least for now, the Federal Circuit’s position on this issue.