U.S. Supreme Court Backs Resellers in Physical Goods Copyright Case

Suppose you plan to buy a large supply of Disney books from an overstocked Barnes & Noble retailer in Taiwan, and then offer your employees the opportunity to purchase the books at a deep discount as gifts for Christmas.  You reason that if the employees don’t buy up all of the books, you can always sell the remainder to a discount book chain or on the Internet.

You are approached by the human resources department manager and advised that Disney is very litigious about protecting its copyrights. Because your company is not an authorized seller for Disney products, the manager fears losing an infringement lawsuit.

Fortunately, your legal counsel is familiar with this issue. Upon learning that you intend to make the initial purchase from an authorized Disney retailer in Taiwan, counsel advises that your company is protected by the “First Sale” Doctrine of the Copyright Act.

And the U.S. Supreme Court agrees. In Kirtsaeng v. John Wiley & Sons, the Court held that a legally obtained copyrighted work can be imported into the U.S. and resold without permission from the copyright owner even if it was manufactured and sold overseas. The ruling applies to sale of physical, tangible works and not digital works that are licensed and not easily resold because of license agreements. The Court explained that in a complex and interconnected world, buyers, sellers, and retailers should be able to import and sell products without having to search out the copyright owner to determine if the U.S. copyright owner approves of the sale.

The facts are simple.  Kirtsaeng, a Thailand citizen, moved to the U.S. to study mathematics at Cornell University, and entered a Ph.D. program in mathematics at the University of Southern California.

John Wiley and Sons, Inc. (“Wiley”) publishes academic textbooks.  Wiley is the copyright owner in that it has various foreign and domestic copyright assignments, permissions, and licenses.  Wiley publishes two versions of a textbook: one that is printed and published in the U.S. and another that is manufactured and sold abroad. Through various affiliated entities, Wiley licensed foreign subsidiaries to publish and print its textbooks abroad. Each foreign-version textbook contained warnings that the copy was only to be sold in a particular country or geographical region outside of the U.S.

Kirtsaeng financed his studies by selling these foreign-version textbooks in the U.S. Being entrepreneurial, he asked his family and friends to purchase these much less expensive foreign-version textbooks abroad. He then sold them in the U.S. at a price less than Wiley charged for its U.S. version of the same textbook.

Wiley sued Kirtsaeng for copyright infringement, claiming that his unauthorized importation and his later resale of its foreign-version books amounted to an infringement of Wiley’s Section 106 (3) exclusive right to distribute as well as Section 602’s related import prohibition.  Kirtsaeng defended his right to import and sell the books by claiming that the books he acquired were “lawfully made” and that he had acquired them legitimately.

Section 106 of the Copyright Act grants “the owner of copyright under this title” certain “exclusive rights” including the right to “distribute copies … of the copyrighted work to the public by sale or other transfer of ownership.”  17 U.S.C. Section106 (3). These rights are qualified by various limitations set forth in the next several sections of the Act. Sections 107 through 122 are typically titled “Limitations on exclusive rights” and include, for example, the principle of “fair use” (Section 107), permission for limited library archival reproduction (Section 108), and the “first sale” doctrine (Section 109).

Section 109(a) sets forth the “first sale” doctrine as follows:

“Notwithstanding the provisions of section 106 (3) (the section that grants the owner exclusive distribution rights), the owner of a particular copy of phonorecord lawfully made under this title… is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.”

This means that once a copy of a book or other copyrighted work has been lawfully sold (or its ownership lawfully transferred), the buyer of that copy and subsequent owners are free to dispose of it as they wish. In short, the “first sale” has “exhausted” the copyright owner’s Section 106 (3) exclusive distribution right.

The Supreme Court essentially declared that the first sale doctrine in 17 U.S.C. Section 109 (a) superseded the import-control provision of Section 602 (a) (1).

The “first sale” doctrine thus covers legitimate goods initially purchased by you as a third party in the U.S. or abroad. It is an important limitation upon a copyright holder’s exclusive right to sell the copyrighted product. It applies to more than phonograph records as in the original language of the statute.  Once that copyright owner has made the first sale, the buyer can resell it to anyone. If you purchase the book as the third party, you are also free to resell it.

The Supreme Court case involved books, but the doctrine applies to any copyrighted work, e.g., clothing pattern designs, packaging materials, wheel covers, pill shapes, and a whole host of other products with copyrightable elements.

If you are unsure of your particular situation, always check with counsel.

Posted by Attorney Ruth A. Binger. Binger serves both emerging and mature businesses concentrating in corporate law, intellectual property and technology law, digital media law, and labor and employment law. Her commitment to the success of small to medium-sized businesses, and her understanding of multi-faceted issues inherent in operations, are what distinguish Binger’s practice.