Reselling products in the USA, Part I: “First Sale” doctrine in copyright

At a secondhand bookstore in Palo Alto, California (the location is relevant, as shall be seen below), I once paid US$5 for the first volume of Jean-Yves Tadié’s biography of Marcel Proust from the Éditions Gallimard “Collection Folio,” a book printed in France. Liking volume 1 so much, I feel an urge to buy volume 2 also. However, if I want to buy secondhand from an American bookseller, as I so often do, I need to hurry up, because the Supreme Court of the United States may ban all secondhand sales of foreign-made books in the United States.

Bans on gray market imports are a familiar phenomenon in the trademark and patent domains. In both, the owner of the intellectual property right may prevent imports, into the United States for example, of goods covered by that right.  What is more, the owner may even get to prevent the import of goods which it has authorized to be sold in the country where they were bought, and even of goods which were manufactured in the United States and then exported. See, e.g., Jazz Photo Corp. v. International Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001).  This helps American pharmaceutical manufacturers, for example, to sell the same patented drugs cheaply in Canada – obeying the price controls exercised in that country by the Patented Medicines Price Review Board – and at a much higher price in America, where such price controls do not apply. Similarly, Nestlé may license the Perugina chocolate mark to a Venezuelan company to mark chocolates made in Venezuela, yet prevent those chocolates from being imported to America to compete with the Italian-made Perugina chocolates that Nestlé sells there.  See Société des Produits Nestlé, S.A. v. Casa Helvetia, Inc., 982 F.2d 633 (1st Cir. 1992).

A similar legal right has long been on the books for owners of copyrights:  depending on the circumstances, they may get to prevent importation if they wish.  Like owners of patents and trademarks, seemingly, only they have the right to import goods as to which they have a copyright interest.  The right to prevent import of copyrighted goods is found in 17 USC § 602(a)(1):

“Importation into the United States, without the authority of the owner of copyright under this title, of copies or phonorecords of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies or phonorecords under section 106, actionable under section 501.”

There is, most curiously, an exception for tourists in § 602(a)(3)(B), as well as an exception for one-off importation, allowing:

“importation or exportation, for the private use of the importer or exporter and not for distribution, by any person with respect to no more than one copy or phonorecord of any one work at any one time,  or by any person arriving from outside the United States or departing from the United States with respect to copies or phonorecords forming part of such person’s personal baggage.”

I have personally made use of this exception, for example to bring some Chilean and other foreign books with me following trips to Chile, my home country, and to Mexico. The one-off exception seemingly also authorizes me to buy foreign books from foreign booksellers over the Internet, as I have occasionally done as well.

This brings us to Thai immigrant Supap Kirtsaeng. After he arrived on American soil, Mr. Kirtsaeng set up a business importing for resale foreign-made copies of American textbooks that he bought in Thailand, paying less for them than what the textbooks would cost in America. The making of the foreign copies was authorized by the books’ American publishers, but their importation into America was not.  Mr. Kirtsaeng was sued by Wiley, a major textbook publisher.  His textbook resale business was seemingly illegal under the provisions quoted above (unless, perhaps, he brought the books in his baggage on airplane trips to Thailand), but he argued that his activity was authorized by a different provision of law, 17 USC § 109(a), often called the “first sale” rule:

“the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.”

Mr. Kirtsaeng’s argument was, and is, that the copies he brought into the United States were lawfully made under license from the copyright owner Wiley, and thus, as owner of a copy lawfully made, Mr. Kirtsaeng was entitled to sell it in the United States.  The argument lost in the district court and lost 2-1 in the United States Court of Appeals for the Second Circuit.  In his majority opinion for the Court of Appeals, Judge Cabranes expressed deep concern about the drafting of § 109(a).  The concern was curiously all about just five little words, “lawfully made under this title.”

“The relevant text is simply unclear. ‘[L]awfully made under this title’ could plausibly be interpreted to mean any number of things, including: (1) ‘manufactured in the United States,’ (2) ‘any work made that is subject to protection under this title,’ or (3) ‘lawfully made under this title had this title been applicable.’ . . . Confronted with an utterly ambiguous text, we think it best to adopt an interpretation of § 109(a) that best comports with both § 602(a)(1) and the Supreme Court’s opinion in Quality King [v. L’anza Research International, Inc., 523 U.S. 135 (1998)].”

In Quality King, a unanimous Supreme Court found that if a copyrighted article is made in the United States, sold abroad, and then imported back into the United States for resale without the copyright owner’s authorization, § 109(a) applies, and there is no copyright violation because the importer is “the owner of a particular copy . . . lawfully made under this title” under § 109(a) and therefore “is entitled, without the authority of the copyright owner, to sell or otherwise dispose of” it.  This is so even though § 602(a)(1), on its face, would seem to bar the importation.  Quality King goes on to explain that the right to “otherwise dispose” of the article granted by § 109(a) includes the right to import it.  Furthermore, in dicta which Judge Cabranes called “instructive,” the Court considered a hypothetical in which a book had separate British and U.S. editions (a common practice today and long ago) and mused that “presumably only those made by the publisher of the U.S. edition would be ‘lawfully made under this title’ within the meaning of § 109(a).”

Although the Supreme Court’s opinion in Quality King was unanimous, Justice Ginsburg filed a concurrence in which she noted “that we do not today resolve cases in which the allegedly infringing imports were manufactured abroad.”  And nobody on the Quality King Court explicitly considered, in connection with their British-edition hypothetical, the possibility that the American publisher, too, could have had its copies made abroad.  Based on my personal observation, this is common, for example, for art books, and was common even in 1998.  Outsourcing of manufacturing in general is of course a very American practice.

As a consequence of this reasoning in Quality King, Judge Cabranes’s majority opinion for the Court of Appeals panel concluded in Mr. Kirtsaeng’s case that “the phrase ‘lawfully made under this Title’ in § 109(a) refers specifically and exclusively to works that are made in territories in which the Copyright Act is law, and not to foreign-manufactured works.”  Under this holding, works made abroad, even under contract to an American copyright owner, are not “made under this title,” and so do not enjoy the protection of the first sale doctrine of § 109(a).

The implications of the holding against Mr. Kirtsaeng, if upheld by the United States Supreme Court following its grant of certiorari, are amusing to contemplate.  I can buy Tadié volume 2 from a bookseller in France (or Québec or Chile), because the bookseller is presumably not subject to a national law forbidding resale, and my importation of a single copy is allowed by the one-off exception in § 602(a)(3)(B), quoted above.  I cannot, however, buy the same volume used from a U.S.-based bookseller with the same impunity, for Éditions Gallimard could sue the bookseller and seek statutory damages of up to US$150,000, for selling a book that seems to have a going price of approximately US$10 for resale on the Web.  The person who sold it to that bookseller, if the sale was in America, is likewise potentially liable.

Of course, it is not just foreign-made texts, written in languages like Spanish and French, whose resale is forbidden.  A lot of American books, particularly art books, are printed abroad.  My copy of The Sibley Guide to [American] Birds, for example, is printed abroad, and so cannot be resold.  (My copy, naturally, was bought used.)

Continuing a little further down the path of this decision’s consequences, we all know in America that electronic books are popular.  People tell me that I should stop having so much paper in my home and office, and instead get a Kindle, an electronic device that allows one to read books encoded in a proprietary format with suitable digital rights management.  There is even a Web page that suggests (I express no opinion on whether American copyright law actually allows this procedure) taking all your paper books, slicing them into individual sheets, running the sheets through a scanner, keeping the scan, and recycling the paper:

“I’m a bibliophile. I have thousands of books (including great piles of obsolete programming and tech manuals). The problem is the sheer size and weight of them — I cower at the prospect of moving. I’m also a hoarder, and so am unable to throw them away. So I decided to scan them, which would enable me to throw the physical book away, and yet satisfy my hoarding compulsions. . . .

“Scanning is straightforward and fairly quick. I slice off the spine with a stack slicer from eBay, and run the result through a hopper-fed scanner. It takes about 5 minutes for a regular paperback.”

This brings us to electronic books, of the sort that may be read on a Kindle.  From a publisher’s point of view, there is much to be said for electronic books.  But one of their biggest advantages from the standpoint of the copyright holder is that – at least with proper digital rights management – they cannot be resold or even given away.  The seller can even make them vanish after a time: for example, in selling electronic books to libraries, the well-known American publisher HarperCollins “allows e-books to be checked out 26 times before the library has to buy a new copy.”  While such vanishing tricks are not yet in the cards for good old paper books, the Second Circuit’s ruling has at least made them more equal to electronic books in one important respect – as long as an American publisher takes the trouble to have the book made in a foreign country, it can sell a paper book which cannot be resold.

The implication that publishers can make paper books unsalable makes some people uncomfortable, so it is important to note for the record that the Solicitor General of the United States disagrees with it.  The ancient case of Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908), created the first sale doctrine of copyright in common law.  Per the brief of the Solicitor General (pp. 27-28), even if the codification of that doctrine in § 109(a) fails to protect people who resell foreign-made books which were legally imported, the Bobbs-Merrill case could.  In effect, the codification was imperfect, and so some common law must be mixed in to understand what copyright law allows and does not allow us to do.

There is much else that could be said here, but let me note only that a case presenting similar issues, Costco Wholesale Corp. v. Omega, S.A., 131 S. Ct.  565 (2010), came up to the Supreme Court not long ago.  Justice Kagan recused herself.  The Court then split 4-4, a situation in which no opinion is handed down.  Nonetheless, this event has led people to assume that a similar split will occur in the Kirtsaeng case, and that Justice Kagan holds the casting vote.

Oral argument before the Supreme Court is today, October 29.

Flavio Rose, Bandgap Engineering Inc. and Goldberg Lowenstein & Weatherwax LLP

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