Last ruling on ‘first sale’

By MATTHEW PATE

Stephens Media

With fall approaching it can only mean one thing: The new Supreme Court term. Last Monday the court agreed to hear a very important copyright case.

No, a case on copyright law doesn’t sound very sexy, but the court’s ruling in Kirtsaeng v. John Wiley & Sons could well be a landmark decision.

At the heart of the case is the legality of purchasing copyrighted works overseas and bringing them back to the U.S. for resale — without the permission of the copyright owner. Kirtsaeng represents the court’s second run at the subject after it deadlocked in 2010.

The central issue is the so-called “first sale doctrine.” Lower courts have delivered a series of conflicting prior decisions dealing with this question. First sale is a concept that permits the purchaser of a copyrighted work (in this instance college textbooks), in a legal transaction, to dispose of that work without the approval of the owner of the copyright. Unfortunately, federal copyright law fails to define the doctrine. Accordingly, the issue has been left to the fickle winds of judicial evolution; and to this point, they’ve disagreed.

The outcome will have tremendous impact on the so-called “gray market” for goods — bought overseas at prices well under their U.S. cost and then returned to the U.S. for resale. The current market for these sales runs to the tens of millions of dollars annually.

At issue in Kirtsaeng is whether it is permissible to buy college textbooks in their cheaper foreign editions, then bring them back for sale to U.S. students. This is done under the first-sale doctrine, but copyright owners insist that federal law does not allow it.

Just to lend perspective, in grad school, I needed a statistics book that cost $130 in the bookstore. I bought the new U.K. edition on eBay for $75. Talk about a math lesson.

Of course, the Internet is the great engine of this trade. Many Internet merchants filed briefs asking the court to hear the appeal of a textbook trader, Supap Kirtsaeng. A native of Thailand, Kirtsaeng came to the U.S. for college. In an attempt to offset the costs of graduate school, he saw an opportunity in international textbook trade.

Kirtsaeng’s family and friends helped by purchasing cheaper international editions and sending them to him in the U.S. He then re-sold them to other students.

The publisher, John Wiley & Sons, had previously sold the books overseas through an Asian subsidiary. In total, Kirtsaeng sold $37,000 worth of Wiley textbooks. Wiley sued Kirtsaeng in federal court. Kirtsaeng’s defense relies on the first-sale doctrine. A federal judge rejected Kirtsaeng’s argument, ruling the doctrine does not apply to goods made in a foreign country.

The jury found Kirtsaeng liable for copyright infringement on eight books, and found the sale was a violation of Wiley’s copyright. It awarded Wiley $75,000 in damages for each book, for a total of $600,000. On appeal, the Second Circuit Court upheld the award.

As time went along, a three-way split developed: the Second Circuit held that foreign-made works cannot be resold in the U.S. without the copyright owner’s consent; the Ninth Circuit ruled foreign-made products sometimes can be sold in the U.S. without permission, but only after the owner has approved an earlier domestic sale; lastly, the Third Circuit ruled such products can always be re-sold without permission, so long as the copyright holder had authorized the first foreign sale.

As noted above, the court has been here before, in 2010. Back then, the case was the Ninth Circuit’s decision in Costco Wholesale v. Omega (similar dynamic: foreign-bought watches). Justice Elena Kagan was recused from that case. The remaining eight Justices split 4-4. Deadlock always affirms the lower court decision, but without setting a precedent. Kagan will take part in Kirtsaeng.

Given the cross-national nature of manufacturing today, this case extends not only to books, but hundreds of other products. Of course, none of this would matter if the Congress would pass a simple law: No domestically incorporated company should be allowed to sell goods overseas for a lower price than it sells to the American public.

The latent consequences would cause a fundamental paradigm shift in many areas, not just textbook sales, but in much more consequent matters like prescription drugs.

Matthew Pate is a former law enforcement executive who has advised police agencies around the country.