Supreme Court Endorses International Copyright Arbitrage

by Frank L. Bernstein and Jonathan D. Reichman

In a much-awaited decision, Kirtsaeng v. John Wiley & Sons, Inc., (lexis.com subscribers may access Supreme Court briefs and the opinion for this case) the U.S. Supreme Court held that the copyright law's "first sale" doctrine trumps the import restriction for a lawfully purchased copyrighted work, lawfully manufactured outside the United States. As a result, someone who purchases works outside the United States, with the copyright owner's permission, can bring those works into the United States and resell them as desired, without requiring the copyright owner's permission.

Publisher John Wiley & Sons, Inc., had sued a student, Supap Kirtsaeng, who came from Thailand to pursue collegiate studies in the United States. Kirtsaeng created a profitable business by reselling, in the United States, textbooks lawfully purchased at much lower prices in Thailand. These textbooks were editions directed by Wiley to the Asian market, and not intended for sale in the United States. This "textbook arbitrage" by Kirtsaeng cut into U.S. profits that Wiley enjoyed for the equivalent U.S. editions.

The Supreme Court's ruling in favor of Kirtsaeng means that this kind of arbitrage is permitted under U.S. copyright law. The ruling relieves numerous U.S. businesses, from libraries to used booksellers to art galleries - even automobile and equipment manufacturers whose products run software - from having to police their inventories to determine whether individual copyrighted works-based on their situs of manufacture-require the copyright owner's permission before being lent, resold, or displayed.

For international publishers like Wiley, one response, at least for physical works, would be to increase prices abroad, thereby making arbitrage less attractive. An alternative would be to "license" electronic copies of the textbooks for use on e-readers, tablets, and personal computers, following the model adopted for software, music, video, and books. This approach would not invoke the "first sale" doctrine, because a license is, by definition, not a sale.

In Kirtsaeng, the Supreme Court noted that movie theater operators lawfully acquire, but do not own, the movies they receive from the movie studios. These operators are "bailees" or "lessees" (i.e. owners of fewer than all rights in a work), and so are not entitled to do whatever they please with the acquired works. Going to an electronic "licensing" model for textbook distribution would similarly enable publishers to retain control and prevent resale.

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