Kirtsaeng and Copyright: First sale means first sale

Rotunda area, Newark historic courthouseThe Supreme Court handed down a huge decision in copyright law today, ruling in Kirtsaeng v. John Wiley & Sons, Inc. that the first sale doctrine, which allows for legally acquired copyright-protected works (or, in trademark, goods bearing a trademark) to be resold by their owners, applies to works made overseas — notwithstanding language in the Copyright Act that many courts had held suggested otherwise.

My first involvement in litigation centered on this question was in a case called Pearson v. Textbook Discounters in the Southern District of New York.  It is one of many such cases that had been brought by textbook publishers against resellers of “foreign editions” of American textbooks.  At the time, despite some questioning in a number of decisions, the overwhelming trend (especially in that District) was in favor of the publishers’ efforts to utilize a provision of the Copyright Act to control prices charged to American students for their college textbooks by forbidding the domestic sale of cheaper — but materially identical — versions for the overseas market.  Eric Goldman explains well in this 2009 post about another case Pearson and other publishers brought at the same time, Pearson Education, Inc. v. Liu, 2009 WL 3064779 (S.D.N.Y. Sept. 25, 2009):

Defendants are book resellers participating on various websites under the alias “JMBooks.” They purchase legitimate copies of cheaper international editions of textbooks, ship them to the US, and then resell them online to US students in competition with the US editions of the same textbooks. The court describes the differences between the international and US editions:

The textbooks plaintiffs publish are customized for the geographical markets in which they are sold. Editions authorized for sale in the United States are of the highest quality, and are printed with strong, hard-cover bindings with glossy protective coatings. Sometimes, plaintiffs include academic supplements, such as CD-ROMs or passwords to restricted websites, with these books. Editions authorized for sale outside of the United States, by contrast, have thinner paper, different bindings, different cover and jacket designs, fewer ink colors, and lower-quality photographs and graphics. These foreign editions are not bundled with academic supplements such as CD-ROMs. The cover of a foreign edition may include a legend indicating that the book is a “Low Price Edition” or only authorized for sale in a particular country or geographic region.  The foreign editions are uniformly manufactured outside the United States.

Students usually purchase a textbook only because the instructor required it, and even then they expect to “enjoy” the textbook for only [one] quarter or semester. So many students may not care about the lower quality printing or absence of various supplements, in which case the international editions could serve as a viable and cost-effective substitute for the US editions. Accordingly, Internet resale of the international editions creates a major channel conflict for the publishers and destroys their efforts to price discriminate by geography.

To block this substitution (in technical speak, to stop the parallel importation of the grey market goods), the publishers invoke the importation right in copyright law (17 USC 602). The defendants respond that the importation right, like the distribution right in 106(3), is subject to the First Sale limitations in Sec. 109(a). If so, the defendants hoped to take advantage of the fact that they bought legitimate copies of the international editions to allow them to freely resell those copies to US buyers.

That hope wasn’t working out so well.  I had hoped, therefore, to get my client out of New York court.  I argued for dismissal on the ground of personal jurisdiction, based on the fact that my client had nothing to do with the place. That didn’t stop me, however, from hinting broadly to the judge that maybe the underlying claims — which, believe it or not, including claims of trademark infringement — stunk anyway, as I wrote in my moving brief (indulge me here!):

This lawsuit alleges a number of causes of action against defendants, who are in the business of lawfully buying the foreign editions of textbooks published by plaintiffs for overseas use, and making them available for sale to American students seeking lower cost alternatives to the “United States Editions” of those books.    The Complaint goes to great lengths to explain why the U.S. editions are much more valuable to those students – e.g., because they offer features such as better quality paper, online resources, ribbon bookmarks, prettier covers and “different” bindings.   In contrast, the “Foreign Editions” of these works lack these qualities and, of primary concern to plaintiffs, are a lot cheaper to produce and thus can be sold at a profit in poorer lands.

Plaintiffs, however, insist that they stay there.  They allege that the law of copyright, trademark and unfair competition make it unlawful for American students, whether or not burdened by the expense of higher education, to economize by buying the cheaper books published by plaintiff but intended for use only by foreigners.

Based on the silence of the Complaint as to the matter of choice, it appears that the publisher plaintiffs have no interest in whether these students or their parents want to, or can, pay the premium plaintiffs charge for sturdy paper, online supplements, graphic design or impressive ribbons sewn right into the binding. Textbook publishers such as plaintiffs are insulated from such concerns in general, because unlike typical consumers, purchasers of academic textbooks have no control over what texts they will be required to utilize in their studies; that is determined by their instructors.  There is thus little or no price elasticity in this “market” for their products; students who want a textbook to study from in their homes or dormitories must pay what essentially amounts to a “monopoly” price for the text chosen.  Naturally, every “extra” added to the U.S. editions – every unasked-for ribbon, CD and illustration – carries with it a non-negotiable additional cost, and of course increment of profit for plaintiffs, that American students (with their ready access to limitless student loans) are expected to bear.

Plaintiffs allege that they “invest significant monies to publish their copyrighted works.”  Obviously, and quite rationally, they intend to enjoy “significant” returns on that investment.  Yet either they have declined to take the opportunity to persuade American students of the value of their pricey, bells-and-whistles-laden U.S. editions, or have failed to move them on this point despite their mastery of the published word; the Complaint is, again, silent on which of these is the case.  In any event, when it comes the arguments plaintiffs make in the Complaint about the advantages of the U.S. editions, it appears that “no one is buying,” for the Complaint alleges that by selling these benighted students the “plain vanilla” edition of plaintiffs’ textbooks to willing buyers – not illegal copies, but works that plaintiffs have placed in the global market and sold at a price set by them – defendants in this action have caused plaintiffs “irreparabl[e] damage.”   Moral suasion being either unavailing or untried, plaintiffs have instead opted for blunt force, asserting that the intellectual property laws, and the law of unfair competition, were intended by Congress and the common law to prevent Americans from buying “underground” literature from abroad.

This motion does not address the questionable merits of [Pearson's] claims.  The Court should, however, be familiar with them, for the use of this Court as a catchall enforcement mechanism for any defendant amenable to service of process in the United States is no small part of plaintiffs’ strategy of using questionable litigation tactics to eliminate consumers’ choice over where they buy their academic literature.  Regarding the trademark claims, the Complaint alleges that defendants infringed plaintiffs’ trademarks “by using them on and/or in connection with the works that they have sold.”  But these “works that [defendants]” have sold are, notwithstanding the cagey description, works that plaintiffs manufactured and sold, and works on which they placed their own trademarks.  If indeed this could possibly be described as an “infringement,” the trademark claim would still fail by virtue of the failure of the complaint to allege a likelihood of confusion, and are amenable to the defenses of fair use, license and waiver.

Similarly, plaintiffs’ unfair competition claim is completely inscrutable; to the extent it sounds in trademark, plaintiffs have failed to allege a likelihood of confusion; to the extent it sounds in copyright, any related common law claim for unfair competition is preempted by the Copyright Act; and to the extent it is intended to enunciate any other theory of recovery, it has failed to state any cognizable claim for unfair competition under New York law.

Ultimately, both the copyright and trademark claims are barred by the First Sale Doctrine of § 109(a) of the Copyright Act, which generally allows parties that have, like the defendants here, lawfully acquired ownership of copies of copyright-protected goods to resell those copies to anyone they choose.

Well, I call it a “moving brief,” but the court was not moved; no hint was taken; and the motion was denied.  On that point, I guess it made me feel a little bit better, actually, when the New York Court of Appeals (i.e., the highest state court) ruled later in Penguin Group v. American Buddha that as far as the state’s own longarm statute was concerned, New York could in fact operate as a de facto universal forum for all copyright claims by publishers with offices in New York — which is pretty much all of them.  (Very thorough analysis here of this case, which I should have thoroughly analyzed myself.) So my argument really didn’t have much of a chance, the way things were moving.

Regarding the first sale doctrine, however, Second Circuit wasn’t going to help out, either.  As Publisher’s World explains, “The Supreme Court decision addresses the fallout from an August, 2011 ruling in John Wiley & Sons, Inc. v. Supap Kirtsaeng, in which Kirtsaeng, a Thai-born U.S. student was successfully sued by Wiley for importing and reselling in the U.S. foreign editions of Wiley textbooks made for exclusive sale abroad.”

I wanted to litigate the issue, but my client, for some reason, wanted to just live and get out of the case.

Oh well.  I didn’t get to be the guy (that’s why you had to indulge me here) — kudos, instead, to Sam P. Israel, the real lawyer for the petitioner, and E. Joshua Rosenkranz, the Supreme Court guy (who argued) – and now it’s a new game:

In a 6-3 ruling, the court rejected publisher John Wiley’s interpretation of a rule known as the “first sale doctrine” which prevents copyright owners from exerting rights over a product once it has been purchased legally. This rule is what allows used book and music stores to sell used items without the copyright owners’ permission.

In recent years, copyright owners facing a wave of imported good have argued that “first sale” only applies to goods manufactured in the United States. Lower courts have till now sided with the copyright owners, producing considerable uncertainty about whether or not retailers can import and sell goods they legally purchase abroad.

Writing for the majority, Justice Stephen Breyer rejected John Wiley’s argument that the phrase “lawfully made under this act” implied a geographic limitation. He also cited the concerns of library associations, used-book dealers, technology companies, consumer-goods retailers, and museums — all of which had urged the court to reject the restricted notion of “first sale.”

The politics of this Supreme Court litigation are pretty interesting.  Here, via SCOTUSBlog, were the amici for the petitioner:

Jul 2 2012 Brief of petitioner Supap Kirtsaeng, dba Bluechristine99 filed.
Jul 2 2012 Brief amicus curiae of Association of Service and Computer Dealers filed.
Jul 3 2012 Brief amici curiae of American Library Association, et al. filed.
Jul 9 2012 Brief amicus curiae of Costco Wholesale Corporation filed.
Jul 9 2012 Brief amicus curiae of Intellectual Property Owners Association in support of neither party filed.
Jul 9 2012 Brief amici curiae of Powell’s Books Inc., et al. filed.
Jul 9 2012 Brief amici curiae of Public Knowledge, et al. filed.
Jul 9 2012 Brief amici curiae of eBay Inc., et al, filed.
Jul 9 2012 Brief amici curiae of 25 Intellectual Property Law Professors filed.
Jul 9 2012 Brief amici curiae of Retail Litigation Center, Inc., et al. filed.
Jul 9 2012 Brief amici curiae of Entertainment Merchants Association, et al. filed.
Jul 9 2012 Brief amici curiae of Association of Art Museum Directors, et al. filed.
Jul 9 2012 Brief amicus curiae of Goodwill Industries International, Inc. filed.
Jul 9 2012 Brief amicus curiae of Knowledge Ecology International in support of neither party filed.

On the dark side, all the stars of Big IP:

 

Aug 31 2012 Brief of respondent John Wiley & Sons, Inc. filed. (Distributed)
Sep 7 2012 Brief amicus curiae of Omega S.A. filed. (Distributed)
Sep 7 2012 Brief amicus curiae of Business Software Alliance filed. (Distributed)
Sep 7 2012 Brief amicus curiae of Text and Academic Authors Association filed. (Distributed)
Sep 7 2012 Brief amicus curiae of the United States filed. (Distributed)
Sep 7 2012 Brief amicus curiae of American Intellectual Property Law Association filed. (Distributed)
Sep 7 2012 Brief amici curiae of Motion Picture Association of America, Inc., et al. filed. (Distributed)
Sep 7 2012 Brief amicus curiae of Software and Information Industry Association (SIIA) filed. (Distributed)
Sep 7 2012 Brief amicus curiae of Professor Hugh C. Hansen filed. (Distributed)

And “in support of nobody” was the AIPLA, which you have to admit, means they didn’t lose; pretended to have something to say that no one else was saying; and didn’t get their clients upset for saying what they really think.

Eric Goldman’s 2009 post explained well the economics of yet another version of the “diversion” trope — i.e., an utterly unjustifiable restriction on the free market.

Although this case hasn’t reached its final conclusion, the logical implication of this ruling is that this channel-wrecking reseller [Liu] is probably going to get kicked out of the industry. This, of course, is good for textbook manufacturers who want to overcharge US students for overproduced textbooks that the students don’t want and probably don’t need. However, many students would be just as happy with the cheaper textbooks; after all, most students just want the information in the textbook. Given the enormous price tags that textbooks now carry, it’s hard to see how propping up the textbook publishers’ silly channel management schemes is a particularly good outcome for anyone other than the publishers.

Well, anyone other than Congress — which is certainly already getting calls and emails from Big IP lobbyists who will seek new legislation to buy back that “good outcome for publishers” — and the associate counsel all around.  You got a problem with that?

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Author:Ron Coleman

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5 Responses to “Kirtsaeng and Copyright: First sale means first sale”

  1. March 20, 2013 at 7:16 am #

    Hopefully it won’t take too long for someone to pull this case together into a single source. If the bells and whistles aren’t priced in, I’ll buy it.

    Good on you for tilting at that windmill. Even if the court is determined to ignore the internal incoherence of the plaintiff’s arguement, someone still needs to point it out to them periodically.

  2. March 20, 2013 at 6:57 pm #

    Tim, I’m not sure what you mean in the first paragraph.

  3. Tal Benschar
    March 20, 2013 at 8:57 pm #

    “forbidding the domestic sale of cheaper — but materially identical — versions for the overseas market. ”

    If you read the district court opinion in the Kirtsaeng case, it shows that the Asian books were markedly inferior to the U.S. version. Certainly more than enough for a “material difference.” The plaintiff had a trademark claim, which for some reason seems to have fallen by the wayside. I wonder if they can revive that now, and if so will they try.

  4. March 21, 2013 at 1:32 pm #

    I think Tim wants someone to publish all of the briefs and decisions in a single volume. A sort of portable Kirtsaeng Reader. Maybe Wiley will do it. ($12.99 in the U.S.; $4.99 in Asia)

  5. tim maguire
    March 21, 2013 at 9:16 pm #

    Roughly what Matthew said. I think it’s an interesting case and very important in the current struggle over whether you really own the things you buy (see also phone unlocking, DVD regional blocking, etc.). But I’d rather pay someone to bring me the full story than go out and get it myself.

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