A recent 2nd Circuit decision has highlighted the difficult statutory interpretation and policy issues involved in the interplay between the first sale doctrine and restrictions on unauthorized imports into the United States under the Copyright Act. In John Wiley & Sons, Inc. v. Supap Kirtsaeng,1 the 2nd Circuit Court of Appeals held that the first sale defense only applies to copyrighted works manufactured in the United States. The case had been closely watched because the implications are potentially far reaching both for copyright holders in the United States and for consumers of copyrighted works. In so holding, the 2nd Circuit departed from the 9th Circuit's approach to the problem and all but invited a petition for certiorari or Congressional intervention.
At issue were two provisions of the Copyright Act: the first sale doctrine, which is codified at 17 U.S.C. § 109(a):
Notwithstanding the provisions of section 106(3) [the distribution right of the Copyright Act], the owner of a particular copy . . . 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 . . .
and 17 U.S.C. § 602(a)(1), which states that:
[i]mportation into the United States, without the authority of the owner of copyright under [the Copyright Act], of copies . . . of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies.
Could a book manufactured outside the United States ever be "lawfully made" under the Copyright Act or did that phrase require that the book was manufactured in the United States? If the answer was yes to the former, then the first sale doctrine would apply to books manufactured abroad with the authority of the U.S. copyright owner; if the latter, it would not.
The Factual Background
Wiley is a publisher of a broad range of books for both the U.S. and international markets. Books intended for the foreign market are manufactured by a wholly-owned subsidiary of Wiley in Asia, are marked for sale in specified geographical regions only, and differ from the domestic product in the design and quality of manufacture. Defendant Kirtsaeng was a Thai postgraduate student in California who helped pay for his education by asking friends and family members abroad to purchase for him inexpensive foreign editions of Wiley's books, which he would then sell on eBay and similar sites. Kirstaeng testified that he believed he had a legal right to resell the foreign manufactured books in the United States.
Wiley brought suit in the Southern District of New York for copyright and trademark infringement, though it later abandoned its trademark claim. The district court rejected Kirstaeng's attempt to have the jury charged on his defense of the first sale doctrine on the ground that it did not apply to books published outside the United States.
The 2nd Circuit phrased the question on appeal as "whether the first sale doctrine, 17 U.S.C. Section 109(a), applies to copyrighted works produced outside of the United States but imported and resold in the United States."2
The Court began by examining the first sale doctrine. It noted that there was "at least some tension" between 17 U.S.C. § 602(a)(1), which prohibits unauthorized importation into the United States of copies of a work that have been acquired outside the United States, and § 109(a) "which limits the extent to which the copyright holder may limit distribution following an initial sale."3
The interplay between those two provisions had been addressed by the Supreme Court in Quality King.4 The 2nd Circuit recognized a distinction between the facts in Quality King, which underpinned that holding, and the facts before it in Wiley. The copyrighted hair products at issue in Quality King had been manufactured in the United States, exported and then reimported to the United States, rather than manufactured abroad. It noted that "this important fact provided the basis for Justice Ginsburg's brief concurring opinion that 'This case involves a round trip journey, travel of the copies in question from the United States to place abroad and back again. I join the Court's opinion recognizing that we do not today resolve cases in which the allegedly infringing imports were manufactured abroad.'"5
The 2nd Circuit, like Wiley, found helpful the "instructive dicta that guides our disposition of the issues" in that decision. The Quality King court had stated that the § 602(a) importation bar "encompasses copies that are not subject to the first sale doctrine – e.g., copies that are lawfully made under the law of another country," and had offered a hypothetical:
If the author of [a] work gave the exclusive United States distribution rights – enforceable under the Act – to the publisher of the United States edition and the exclusive British distribution rights to the publisher of the British edition, . . . presumably only those made by the publisher of the U.S. edition would be "lawfully made under this title" within the meaning of § 109(a). The first sale doctrine would not provide the publisher of the British edition who decided to sell in the American market with a defense to an action under § 602(a) (or, for that matter, to an action under § 106(3), if there was a distribution of the copies).6
The majority's confidence in this dicta was made clear when it opined that in Omega S.A. v. Costco Wholesale Corp "[t]he Supreme Court recently seemed poised to transform this dicta into holding." There, however, the equally divided Court had been obliged to affirm the 9th Circuit judgment without opinion.7
The 2nd Circuit then turned to statutory analysis and concluded that the relevant language "lawfully made under this title" was too ambiguous alone to be dispositive. On the one hand, interpreting the language to mean "lawfully made in the United States" was consistent with the text of § 109(a) and with the presumption of territoriality in U.S. copyright law. This had also been the meaning proposed by the United States in an amicus brief filed in the Costco matter. On the other hand, some sections of the Copyright Act did take into account actions abroad, and if Congress had intended to mean "manufactured outside the United States" it could have said as much. In short, the Court considered the statutory language "simply unclear."8
To break the logjam, the Court looked to the importation clause, Section 602(a)(1), which was intended to give copyright holders some ability to treat domestic and international markets differently. In the view of the majority, to read the first sale doctrine as applying to goods manufactured abroad would gut that option in the vast majority of cases. Therefore, although the Court considered it "perhaps a close call," it departed from the 9th Circuit and held that "in light of its necessary interplay with § 602(a)(1), § 109(a) is best interpreted as applying only to works manufactured domestically."9
In its briefs, Kirstaeng had stressed that the district court's interpretation would result in "an unprecedented economic bonanza for publishers" and would permit publishers to exercise a perpetual control over their works.10 In return, Wiley, had denied that it would have such an effect because any importation and subsequent sale of a foreign manufactured work by the copyright owner would bring it back within the first sale doctrine.11 The New York Intellectual Property Law Association, as amicus, further argued that applying the first sale doctrine to books manufactured abroad would undermine both the incentive for U.S. companies to publish cost-appropriate versions for the foreign market and the health and diversity of the publishing industry in the United States.12
The majority, however, dismissed such public policy concerns in a footnote. It acknowledged that this interpretation of the statute carried the risk that U.S. copyright holders would be incentivized to move manufacture of its copyrighted works abroad and then import them into the United States for sale, thereby circumventing the first sale doctrine entirely. But it also insisted that the Court's focus should be on legal analysis, not policy, so ultimately any such concern "does not affect or alter our interpretation of the Copyright Act."13
Vermont District Judge Murtha, sitting by designation, dissented. For Judge Murtha, "the first sale defense should apply to a copy of a work that enjoys United States copyright protection wherever manufactured."14 So long as the copy is authorized by the copyright holder, it is lawful under U.S. copyright law and its place of manufacture is irrelevant. Significant for Judge Murtha was the evidence alluded to by the majority that when Congress intended the place of manufacture to be dispositive, the language in the Copyright Act explicitly said so. For example, Section 601(a) refers to importation of certain nondramatic literary material which was "manufactured in the United States" or Canada.15 Moreover, there was nothing in common law with respect to restraints of trade or in early 20th century codifications of the Copyright Act to support the distinction. Contrary to the majority, Judge Murtha did not think that applying the first sale doctrine wherever a work was manufactured gutted the importation provision; for example it would still apply to pirated works and works not sold abroad. Nor did he see it as inconsistent with Quality King, which had not addressed the place of manufacture in its holding.16
Unlike the majority, Judge Murtha gave weight to appellant's policy arguments. For the dissent, not only would the majority's interpretation encourage U.S. copyright holders to move all their manufacturing abroad, but it would lead to confusion in the U.S. secondary market where the place of manufacture – sometimes a difficult thing to establish – would determine whether or not the goods could be legally resold.17
The implications of the decision have caused distress in a number of quarters, not least in higher education. Wiley's specialties are textbooks and other academic books heavily in demand in education – exactly the market Kirstaeng was attempting to reach. Libraries' ability to lend, and students' ability to resell, used course books may now be compromised if the book was manufactured abroad. Wiley's position in its appellate briefs was that once an authorized sale of a foreign-manufactured work had been made within the United States, the first sale doctrine would apply, but the dissent was by no means convinced that other copyright owners would read the majority's decision that way. Similarly, the secondary market for other manufactured goods containing copyrighted works, such as music or software, is under threat. The onus now falls on the reseller and consumer to determine whether or not the product was manufactured – in whole or in part – in the United States. On the other hand, copyright holders have been handed a powerful weapon in their efforts to control unauthorized import of their works.
There is no doubt that the 2nd Circuit had a hard time with this case, and it was not just the references to a "close case" and Judge Murtha's dissent. As the majority stated:
We freely acknowledge that this is a particularly difficult question of statutory construction in light of the ambiguous language of § 109(a), but our holding is supported by the structure of Title 17 as well as the Supreme Court's opinion in Quality King.18
The majority practically throws up its hands when it concludes:
If we have misunderstood Congressional purpose in enacting the first sale doctrine, or if our decision leads to policy consequences that were not foreseen by Congress or which Congress now finds unpalatable, Congress is of course able to correct our judgment.19
It remains to be seen how aggressively publishers and other copyright holders will enforce their expanded rights under Wiley and whether, as a result, Congress will feel compelled to act.
1 Docket No. 09-4896-cv, 2011 U.S. App. LEXIS 16830 (2d Cir. Aug. 15, 2011).
2 Id. at *3.
3 Id. at *18.
4 Quality King Dist. V. L'Anza Research Int'l, 523 U.S. 135 (1998).
5 2011 U.S. App. LEXIS 16830, at *19-20 (quoting Quality King at 154).
6 Id. at 20-21 (quoting Quality King at 148).
7 Sub. nom. Costco Wholesale Corp. v. Omega, S.A., 2010 U.S. LEXIS 9597 (Dec. 13, 2010).
8 2011 U.S. App. LEXIS 16830, at *22-28.
9 Id. at 29-30.
10 Appellant's Brief, 2010 U.S. 2nd Cir. Briefs LEXIS 2, at *28 (Jan. 28, 2010); Reply Brief, 2010 U.S. 2nd Cir. Briefs LEXIS 4, at *6 (Mar. 12, 2010).
11 Appellee's Brief, 2010 U.S. 2nd Cir. Briefs LEXIS 3, at *29-30 (Mar. 1, 2010).
12 Amicus Brief, 2010 U.S. 2nd Cir. Briefs LEXIS 6, at *13-16 (Mar. 8, 2010).
13 2011 U.S. App. LEXIS 16830, at *32, n.44.
14 Id. at *41.
15 Id. at *46-47.
16 Id. at 48-52.
17 Id. at 49-50.
18 Id. at 34.
19 Id. at 34-35.