Asked and Answered

Howard Abrams

By Steve Thorpe
sthorpe@legalnews.com

Publisher John Wiley & Sons won a copyright infringement lawsuit earlier this year against a Thai graduate student, Supap Kirtsaeng, who is now appealing to the U.S. Supreme Court. Kirtsaeng used eBay to sell $900,000 worth of books published abroad by Wiley and others and made about $100,000 in profit, which he intended to put toward his education. The international editions of the textbooks were essentially the same as the more expensive American versions. A jury in New York awarded Wiley $600,000 after deciding Kirtsaeng sold copies of eight Wiley textbooks without permission. The Supreme Court is considering what protection the holder of a copyright has after a product made outside the U.S. is sold for the first time. Professor Howard Abrams of University of Detroit Mercy School of Law specializes in copyright law. He is author of a multi-volume work on copyright and is author or co-author of numerous other books and articles on the subject.

Thorpe: This case has generated a lot of public interest, even including a segment by comedian Stephen Colbert on how a ruling might affect his upcoming garage sale. Is the case really that unusual, or is it a fairly straightforward copyright case?

Abrams: The conflict or potential for conflict between the “first sale” doctrine embodied in section 109(a) of the Copyright Act (17 U.S.C. § 109(a)) and the importation restriction of section 602 (17 U.S.C. § 602(a)(1)) is not new, but only recently has it become a matter of intense interest.

The first sale doctrine states that the sale of a copy of a copyrighted book, CD, DVD, video game, etc., exhausts the rights of the copyright owner to control any further distribution of that particular copy. If you buy a book, you can resell it, give it away, lend it or throw it in the garbage as you see fit. The importation restriction provides that it is an infringement of copyright to import a copy of a work into the United States without the consent of the copyright owner.

The legal issue arises because the text of section 109(a) provides “the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.” (emphasis added) The importation restriction of section 602 does not differentiate between copies lawfully made in their country of origin and those copies that are infringing.

Kirtsaeng is a paradigm of the problem. John Wiley & Sons, Inc., publishes high-priced textbooks and licenses the right to print their books to foreign publishers with the restriction that the books could be sold only in the national markets specified in the license agreement. Mr. Kirtsaeng bought licensed copies of these books outside of the United States, imported them into the United States, and sold them at lower prices than the buyers could find from legitimate sources in the United States.

Thorpe: What reasoning did the original court and the federal appeals court apply to rule in favor of Wiley?

Abrams: When Wiley sued Kirtsaeng, the trial court refused to instruct the jury on the first sale doctrine. John Wiley & Sons, Inc. v. Kirtsaeng, 2009 Copyright L. Dec. (CCH) ¶ 29,840, 93 U.S.P.Q.2d (BNA) 1432 (2009). This was upheld on appeal by the Second Circuit, 654 F.3d 210 (2011) (2-1), on the ground that the importation restriction was not subject to the first sale doctrine. The Second Circuit relied on the Supreme Court’s prior decision in Quality King v. L’Anza Research International, 523 U.S. 135 (1998). In Quality King, goods manufactured in the United States with copyrighted labels were exported then purchased by a third party who imported them back into the United States to be sold at a price below their normal U.S. selling price. Justice Stevens, writing for the Court in Quality King, held that under these facts the first sale provision of section 109(a) took precedence over the importation restriction of section 602 because the first sale occurred in the United States. In dicta, he gave a hypothetical set of facts equivalent to Kirtsaeng’s as illustrating a situation where the importation restriction would prevail over the first sale provision of section 109(a). 523 U.S. at 148.

The Second Circuit’s Kirtsaeng was presaged by the Ninth Circuit’s decision in Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982 (9th Cir. 2009), where Costco had purchased Omega watches abroad, imported them into the United States and then sold them at prices which undercut Omega’s normal retail prices. The Copyright Act came into play because an engraved design on the back of the Omega watches was copyrighted. The Ninth Circuit held that the importation restriction prevailed over the first sale doctrine because the watches were originally manufactured abroad. The Supreme Court granted certiorari in Omega, 130 S. Ct. 2089 (2010), but split 4-4, 131 S. Ct. 565 (2012) (Kagan, J., did not participate), thus affirming the Ninth Circuit’s decision but without precedential value.

Thorpe: EBay and Google say in court papers that the appellate ruling “threatens the increasingly important e-commerce sector of the economy.” Why are such heavy hitters interested and what exactly do you think they’re worried about?

Abrams: The commercial interests at stake here are those of market segmentation. Copyright owners want to be able to charge more in the more affluent markets such as the United States, Japan or the European Union, while still being able to exploit less affluent markets through lower prices. Many, manufacturers copyright their labels or elements of their labels as an aid to market segmentation. eBay and Google (not to mention Amazon, Wal-Mart, Costco and Target) want to sell at lower prices as their business model is volume based and they can acquire the goods at a lower cost if they could buy them abroad and bring them into the United States. A quick look at the amicus briefs filed in Kirtsaeng shows the major economic interests on both sides of this issue. Moreover, there is a consumer interest. Should consumers in the United States have to pay prices so much higher than those in Thailand that a third party can buy the books in Thailand at retail, ship them to the United States, seriously undercut the prices in the United States and still make a useful profit? Finally, the trademark law (the Lanham Act) contains similar provisions so the resolution of Kirtsaeng will extend well beyond copyright.

Thorpe: Justice Stephen Breyer, while questioning one of Wiley’s attorneys, offered what he called a list of “horribles” involving the arguments, including whether, without seeking permission, people could resell their foreign cars, libraries could sell or lend books bought from foreign publishers or museums could display paintings by Pablo Picasso. Was the justice exaggerating to make a point, or could these be valid concerns?
Abrams: Although many of his examples were greatly exaggerated, I think Justice Breyer was making a point that upholding the lower court decisions could present some real problems for future courts. In effect, placing restrictions on the further disposition of lawfully purchased copies of copyrighted works could lead to unwanted results or judicial distortions in the future. For example, section 602(a) does have some leeway, i.e., you can purchase a single copy of a book published abroad provided it is for your own personal use, 17 U.S.C. § 602(a)(3)(B), but you could not import two copies, one for yourself and one for a spouse, child, parent or friend under this provision.

Thorpe: Any prediction of an outcome?

Abrams: The tea leaves are not helpful. Given the 4-4 split by the Supreme Court in Costco, it seems plausible to predict that the decision will be 5-4 in favor of whichever side Justice Kagan favors. Of course, that may be inaccurate. Justice Kagan, probably because she took no part in the Costco decision, was very active in the questioning but her questions did not indicate a predetermined position. Moreover, the positions of the other judges can change in the time from Costco to Kirtsaeng. As to the “fireside equities,” if the Justices are sympathetic to United States consumers, they should side with petitioner. If their sympathies are with the copyright owners, they should favor the petitioners. If their sympathies are with expansion of globalized ecommerce, they should favor the petitioner.

On a personal basis, I did not find any of the oral arguments, petitioner, respondent, or for the United States as amicus curiae, to be very impressive. Certainly none of the Justices seemed impressed.