Tag Archives: Grey Market

Best of 2013: Kirtsaeng and Copyright: First sale means first sale

Originally published March 19, 2013.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.   Read More…

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.  Read More…