April 18, 2012

Supreme Court revisits First Sale doctrine


The Supreme Court yesterday agreed to hear a case that may revise the law’s understanding of the First Sale doctrine, with significant consequences for publishers.

The court will hear an appeal from California entrepreneur Supap Kirtsaeng, who was reselling textbooks on eBay purchased overseas to U.S.-based students without the publisher’s consent. A jury awarded the textbook maker, John Wiley & Sons, damages for copyright infringement.  The Second Circuit decision is available here.

On Wired‘s Threat Level blog, David Kravet‘s reports that Kirtsaeng v. John Wiley & Sons will test whether someone who purchases a copyrighted work overseas may resell it in the United States without the copyright holder’s permission. Kravet writes that:

“The first-sale doctrine generally allows the purchaser of any copyrighted work to re-sell or use the work in many ways without the copyright holder’s permission. That’s why used bookstores, libraries, GameStop, video rental stores and even eBay are all legal. But how the doctrine applies to foreign-purchased works — the so-called grey market — has been a matter of considerable debate.”

According to Greg Stohr at The Seattle Times, gray market goods are “are genuine goods sold by U.S. retailers outside official distribution channels to exploit the lower prices manufacturers sometimes charge for their products overseas.”  Such goods have an economic impact for better or worse, depending on your perspective:

“Imports of those products to the United States costs manufacturers as much as $63 billion in sales a year, according to a 2009 Deloitte analysis…

[Alternatively] It “represents a multibillion-dollar benefit to American consumers,” according to a brief urging Supreme Court review filed by the Retail Industry Leaders Association, whose members include Wal-Mart Stores, Target and Costco Wholesale.”

This appeal reconsiders a 1998 case (Costco Wholesale Corp. v. Omega) where the court decided that U.S.-made products sold overseas could be brought back to the U.S. through unauthorized channels even if the copyright holder objected. The issue here is whether that same ruling applies when the product is made overseas.

Appellant, Kirtsaeng, argues that upholding the copyright infringement “affords copyright owners not just one opportunity to sell their works at a bargained-for price but perpetual control”.

Andrew Berger of Tannenbaum Helpern Syracuse & Hirschtritt says that the lower court’s decision against Kirtsaeng has the odd effect of giving copyright holders greater rights — the elimination of the First Sale doctrine — when their products are made overseas.

In opposition, publisher Wiley & Pearson put forward that “Market segmentation creates many benefits for consumers and producers … Among other things, it permits the copyright holder to license the printing of lower-priced editions in foreign countries, including developing countries, without, in effect, losing U.S. copyright protection for, and profits on, their higher-priced U.S. works”.

This is a complicated case, and one that reflects the way the law is being left floundering in the face of the break down of traditional book trade models.

As well as demonstrating a contradiction in copyright law, the case also illuminates a greater policy concern that remains unvoiced.  Although different price points in different countries may make sense, publishers should be concerned about the trend of “picking and choosing” copyright law.

The U.S. is often intent on exporting it’s copyright regime for the benefit of U.S. industry, such as U.S. publishers, especially to developing nations. If the Court decides the First Sale doctrine does not apply to goods made overseas, it sends a confusing message.  The First Sale doctrine, that the creator may only benefit from the first sale, is a cornerstone of our understanding of copyright, and ensures a balance between the need for profit and and the imperative of the flow of information.  It is an understanding we want to export.

Hopefully the arguments at the Supreme Court will illuminate these discrepancies, which could have significant consequences for publishers who manufacture and sell overseas.

Ariel Bogle is a publicist at Melville House.