Kenyon & Kenyon LLP: Copyright Act’s First Sale Doctrine Does Not Apply To Genuine Works Manufactured Outside the United States

By Charles A. Weiss

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Second Circuit Rules Copyright Owners May Block Importation of Articles They Made and Sold Overseas, Reaching Issue that Divided Supreme Court last Term

Among the rights enjoyed by copyright owners is the right to block importation into the United States of infringing goods. 17 U.S.C. § 602. Among the rights enjoyed by lawful purchasers of copyrighted articles is the right to resell that article to others, codified in the first sale doctrine. 17 U.S.C. § 109.

What rule controls when someone buys a genuine copyrighted article that was manufactured outside the United States and then imports it without authorization of the U.S. copyright holder? According to the U.S. Court of Appeals for the Second Circuit, the answer is the latter, i.e., the first sale doctrine does not apply in these circumstances and the importer is liable to the copyright owner for infringement.

The conduct at issue in the Second Circuit case might be called textbook arbitrage. Because U.S. editions are sometimes more expensive than foreign editions of the same work, it is possible to profit by purchasing copies of a foreign edition overseas, bringing them to the U.S., and reselling them in competition with the more expensive U.S. edition. That's what Mr. Supap Kirtsaeng did with textbooks printed by the publisher John Wiley & Sons, which sued him for copyright infringement. The success of Wiley's suit and the propriety of Kirtsaeng's actions turned in large part on the scope of the first sale doctrine, which applies to copies "lawfully made under this title [i.e., the U.S. Copyright Act]." 17 U.S.C. § 109. Wiley contended that its foreign editions were not made "under" the provisions of the U.S. copyright laws because they were printed overseas, i.e., outside the territorial scope of the U.S. copyright laws. Kirtsaeng countered that the first sale doctrine was not so limited, and that copyright law cannot prohibit the purchaser of a legitimate copy of a tangible copyrighted item from reselling the item.

The trial court ruled in Wiley's favor and entered judgment against Kirtsaeng for $600,000 for willful infringement of the copyrights on eight Wiley textbooks. Kirtsaeng appealed to the Second Circuit.

In a decision released on August 15, 2011, the Second Circuit held that while the interpretation of the statutory phrase "lawfully made under this title" was a "close call" and "particularly difficult," the interpretation that best aligned with the Copyright Act and Supreme Court dicta was that it means works manufactured in the United States. Therefore, the first sale doctrine did not apply to foreign-manufactured works, and copyright owners have the right to block the importation into the U.S. of such works.

This issue recently divided the U.S. Supreme Court in a similar case involving Swiss watches. In that case, the retailer Costo was sued for copyright infringement by watchmaker Omega for selling genuine Omega watches that were imported into the U.S. through gray-market channels. As in the Wiley case, Costco argued that its actions were noninfringing under the first sale doctrine because the watches were first sold (albeit in Europe) by Omega, with Omega responding that the first sale doctrine did not apply because the watches were not made or sold in the United States. The Ninth Circuit ruled in Omega's favor, and Costo sought review in the Supreme Court. The Supreme Court agreed to hear the case, but sat with only eight Justices because Justice Kagan was recused (having filed a brief expressing the views of the United States when she was Solicitor General). The result was a 4-4 tie, which under Supreme Court practice results in no opinion and a nonprecedential affirmance of the judgment under review.

The Second Circuit decided the issue in the same way as did the Ninth Circuit, with the result that two of the most influential circuits in the copyright arena are in agreement that the first-sale doctrine does not apply in these circumstances.

Mr. Kirtsaeng can seek further review of this decision by the full Second Circuit or the Supreme Court, so the panel decision may not be the last word on this issue.

Case citations

John Wiley & Sons, Inc. v. Supap Kirtsaeng, No. 09-4896, 2011 U.S. App. LEXIS 16830 (2d Cir. Aug. 15, 2011). [enhanced version available to lexis.com subscribers / unenhanced version available from lexisONE Free Case Law]

Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982 (9th Cir. 2008) [enhanced version / unenhanced version], aff'd by an equally divided Court, 131 S. Ct. 565 (2010). [enhanced version / unenhanced version]

Disclosure

Mr. Weiss, the author of this article, filed an amicus brief in the Second Circuit on behalf of the New York Intellectual Property Law Association in support of John Wiley & Sons.

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