Supreme Court Hears Dispute Over Foreign Copyrights, Domestic Resale

WASHINGTON, D.C. — (Mealey's) After a 4-4 split on the issue just two years ago in Costco Wholesale Corp. v. Omega S.A. (131 S. Ct. 565 [2010]) [enhanced version available to lexis.com subscribers], the U.S. Supreme Court on Oct. 29 heard oral arguments in a case that poses the question of whether copyrighted works manufactured and purchased abroad can be legally resold domestically (Supap Kirtsaeng d/b/a BlueChristine99 v. John Wiley & Sons Inc., No. 11-697, U.S. Sup.).

(Transcript available. Document #16-121105-015T.)

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E. Joshua Rosenkranz, representing petitioner Supap Kirtsaeng, told the high court that once a copy is sold — regardless of where the sale takes place — a copyright owner loses control of its distribution rights, pursuant to the international exhaustion principle.

“What Congress wrote was ‘lawfully made under this title,’ not ‘lawfully made in the United States,’ or not ‘lawfully made under this title and made in the United States.’ When Congress wants to say that, Congress says that very explicitly,” Rosenkranz argued.

Quality King Cited

Respondent and textbook publisher John Wiley & Sons Inc. sued Kirtsaeng in the U.S. District Court for the Southern District of New York for copyright infringement in 2009. Before trial, the District Court rejected Kirtsaeng’s anticipated first-sale defense under Section 109(a) of the Copyright Act. A jury found Kirtsaeng liable for willfully infringing eight works and awarded Wiley statutory damages of $75,000 per work for a total of $600,000. Kirtsaeng was a graduate student at the time with limited income, so at Wiley's request, the District Court ordered Kirtsaeng to give Wiley his golf clubs and his computer and printer.

Kirtsaeng appealed the ruling, and on Aug. 15, 2011, the Second Circuit U.S. Court of Appeals affirmed the District Court's findings in a divided opinion on a case of first impression, holding that, based on the U.S. Supreme Court's decision in Quality King Distributors, Inc. v. L'anza Research International, Inc. (523 U.S. 135 [1998]) [enhanced version] interpreting Section 602(a) of the Copyright Act, Kirtsaeng was not entitled to the first-sale defense under Section 109(a) (John Wiley & Sons Inc. v. Supap Kirtsaeng d/b/a BlueChristine99, No. 09-4896, 2nd Cir.) [enhanced version]. The appellate panel held that “while perhaps a close call, we think that, in light of its necessary interplay with § 602(a)(1), § 109(a) is best interpreted as applying only to works manufactured domestically.”

In December, Kirtsaeng filed a petition for writ of certiorari that was granted in April. In October, the high court granted a request by the U.S. solicitor general to participate in oral arguments. According to Kirtsaeng’s brief on the merits: “The question presented is whether the copyright owner is entitled to control downstream sales just because it opts to manufacture the copies abroad.”

Standards At Issue

Arguing in the negative, Rosenkranz responded to questioning by Supreme Court Justice Antonin Scalia that “lawfully made under this title” as it appears in Section 109(a) does not mean lawfully made in a manner that does not violate U.S. copyright law, but instead means “lawfully made in a manner that does not violate the standards articulated” by the Copyright Act.

“The standards, okay. So . . . it could be lawfully made in England, let's say; in a country that has compulsory licensing, it could be lawfully made there, but it would not be lawfully made under our — under our copyright law, because we don't have that,” Justice Scalia asked.

“Yes, your honor,” Rosenkranz responded.

“The only question under our definition is, was the making lawful which is to say, was it authorized, whether it's by transfer of licensing or by transfer of copyright or in any other way? Is it lawful as measured by U.S. standards?” Rosenkranz later added.

‘How Do You Distinguish?’

Attorney Theodore B. Olson, representing Wiley, stressed the high court’s recognition in Quality King that Section 602(a)(1) encompasses copies of books that are lawfully made under the law of foreign countries. Noting that Section 602(a) is “broader than” Section 109(a) “because it encompasses copies not subject to the first-sale doctrine,” Olson argued that Kirtsaeng’s “commercial enterprise is precisely what Section 602(a)(1) was enacted to address — an international gray market in copyrighted works.”

Olson’s approach was met with some skepticism from the Supreme Court, however. Justice Stephen G. Breyer asked about whether — under the respondent’s theory — Toyota owners could resell their automobiles when those automobiles contain copyrighted features.

“Now, under your reading . . . the millions of Americans who buy Toyotas could not resell them without getting the permission of the copyright holder of every item in that car which is copyrighted? Is that right?” Justice Breyer asked.

“That is not this case,” Olson replied, leading Breyer to ask, “Well how do you distinguish? How do you distinguish?”

‘Some Control’

In its amicus brief and again at oral arguments, the U.S. government — represented by Malcolm L. Stewart — argued that the phrase “lawfully made under this title” should be interpreted to mean “made subject to and in compliance with Title 17.”

“So Mr. Stewart, if I understand your argument, both here and in Quality King you want the copyright holder to have some control over importation, but at the same time you don't want the copyright holder to have control over all downstream sales,” Justice Elena Kagan asked.

“That’s correct,” Stewart replied.

Kirtsaeng is represented by Rosenkranz of Orrick, Herrington & Sutcliffe in New York. Wiley is represented by Olson of Gibson, Dunn & Crutcher in Washington. Stewart and Donald B. Verilli Jr. of the U.S. Department of Justice in Washington represent the government.

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