First Sale Doctrine Has No Geographic Limitation

by Eugene Opoku-Serebuoh, PhD, MBA, JD on May. 05, 2014

Intellectual Property Copyright 

Summary: Books sold outside the country by publishers may be imported and resold by first purchaser without copyright violation because the first sale doctrine does not end at the border.

In Kirtsaeng v. John Wiley & Sons, Inc., a case that was recently decided by the US Supreme Court, the court ruled that the first sale doctrine, which has given significant protection to consumers who purchase US-made products, does apply to products that have been lawfully manufactured outside of the United States and have been brought back into the country for resale.

Background
Copyright holders have a right to profit from their works.  This means that such copyright owners can sell their products for value and reap profits from their sale.  However, there is a limit to how much control a copyright owner can exercise beyond the initial sale.  After the first sale, if the product was lawfully made, the purchaser is free to do whatever the purchaser intends with the purchased product.  This is the first sale doctrine and has been applied in the country to give a measure of protection to owners who hold copies of copyrighted products.  Simply put, if you buy a copy of a copyrighted product, you have no more obligations left to satisfy to the owner of the copyright.  That was the understanding at least when it concerned copyrighted products purchased within the country.  What was not clear was whether the situation was different when the copyrighted product was purchased overseas.  Would it be possible to buy a copyrighted product abroad, bring it back to the country, sell it here and not face any retribution from the holder of the copyright?  At least with the Kirtsaeng decision, the Supreme Court says you are free to do so.

What Happened in Kirtsaeng?
            Kirtsaeng, a student from Thailand, came to the United States to study mathematics.  He decided to make some money when he found out there was an arbitrage opportunity when it came to English-language texts.  Books sold in Thailand at a massive price differential as compared to similar texts sold in the United States.  He asked his family and friends back in Thailand to buy these books from Thai bookstores and mail them to him in the United States.  When he received them, he sold these books in the country and reimbursed his people back home, and kept the rest of the money as profit.
            Unsurprisingly, publishers, including John Wiley & Sons, Inc., were not too happy about this so they sued him, first in District Court, where the publishers won, and when the matter was appealed to the Second Circuit, the publishers won again.  These lower courts essentially ruled that the first sale doctrine does not apply to products sold overseas so Kirtsaeng should not be allowed to import sold books that had been lawfully manufactured back into the country.  Unfortunately for the publisher, the Supreme Court had other ideas and overruled the two lower courts.
            The Supreme Court gave a broader meaning to the first sale doctrine and explained that the doctrine was not limited by geography.  In other words, it does not matter whether the copyrighted product was first sold in the country or overseas, as long as the product was made with the permission of the publisher, after the sale, it was fair game whatever the purchaser intended to do with it, including Kirtsaeng, who decided to profit from a presented arbitrage opportunity he saw, and from which he profited after implementing his scheme.  In so ruling, the court was also concerned about issues that reached far beyond the domestic resale of imported books brought back from overseas, or even about the conduct of people like Kirtsaeng.  As Justice Breyer noted in his opinion, concerns of technology companies, libraries, museums and consumer-goods retailers, by way of example, could not be ignored because of the constitutional protections accorded these groups as they go about their traditional ways of doing things in their lines of work.  While the dissenting opinion by Justice Ginsburg mentioned that Justice Breyer’s “parade of horribles” was “imaginary,” Justice Breyer was not convinced that a geographical limitation was not insignificant when one considered the importance of the role of foreign trade to America’s interest.

Implications
            If you are the CEO of a publishing house, this decision means that you are going to be awake at night trying to figure out a way out of this “mess” of a situation that the Supreme Court just dumped on your doorstep.  Pricing differentials have been the staple for most multinationals that have business operations all over the world.  And we need not even go outside the country to see such practices.  Within the same zip code, it is likely to see a product selling at a different price from one end of the street to the next.  In addition, retailers may sell the same item at one price in the brick-and-mortar store while selling it at a different price at its online store, for whatever reason.  The Supreme Court’s decision essentially seems to say that this practice is appropriate because there has not been an initial sale yet and the rights of the copyright holder are yet to be exhausted.  However, when the publisher has taken advantage of price differentials to accomplish whatever business objectives it may have, the publisher, after the first sale, wherever it occurred in the world, may not turn around and make other people’s lives difficult merely because these parties identified an arbitrage opportunity on which they capitalized.  So a publisher may have to rethink its overseas business strategies if it has to eliminate such opportunities for savvy people like Kirtsaeng while holding true to its profit-making objectives in the publishing market.

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