The U.S. Supreme Court Will Soon Decide the Reach of U.S. Copyright Law on Foreign-Made Goods

Copyright Law and Resale of Foreign Goods

What is the reach of U.S. Copyright Law in regulating the sale and distribution of protected works in the global marketplace? The U.S. Supreme Court will soon answer that question when it delivers its decision in the case of Kirtsaeng v. John Wiley & Sons. Its ruling will have far-ranging implications for the fast growing ecommerce industry and its consumers. This includes the sale of copyrighted music on sites such as eBay and Amazon (infamously parodied in a Colbert Report bit:

Kirstaeng is a story of how a university student sought to finance his education using copyrighted materials lawfully printed and sold in different places. The defendant (respondent, for you legal types) set up online stores on eBay other online retailers to sell textbooks for American university courses that his family members purchased in his native Thailand. The family bought lawfully produced copies of the textbooks and shipped them to the defendant in the U.S., where he was able to resell them to other students at a significant profit, earning as much as $100,000 in one year alone! The textbook publisher was not as enthusiastic about the defendant’s brand of geographical arbitrage, and filed suit in a New York federal court for copyright infringement.

The core issue in Kirtsaeng is the “First Sale Doctrine.” This rule permits someone who lawfully purchases a copyrighted work to resell, rent, or otherwise distribute that work without the permission of the copyright owner. Also at issue in the Kirstaeng case, however, is another provision of federal copyright law that makes it illegal to “import” copyrighted works obtained outside the United States without the permission of the copyright owner. The student in Kirstaeng is arguing the former, the publisher, the latter.

The US Supreme Court frames the issue as such: “The question presented is how these provisions apply to a copy that was made and legally acquired abroad and then imported into the United States,” the Court said in a statement. The student has argued that the First Sale Doctrine provides a safe harbor for his activities. The Doctrine is limited to copies lawfully made under the Copyright Act and the textbooks he sold were not counterfeits and could qualify as lawfully made. The textbook publisher, on the other hand, claims the Copyright Act does not apply to anything produced overseas. It argues the Copyright Act is domestic law only and does not extend beyond our borders. The First Sale doctrine, therefore, is not applicable and provides no defense in this case.

Prior decisions of lower federal courts have split on issues similar to those in Kirstaeng. The Second Circuit Court of Appeals ruled that a person could never resell a foreign-made product in the U.S. without the copyright owner’s permission. The Ninth Circuit took a middle road, reasoning that a person could sometimes resell a foreign-made product in the U.S. without permission if the copyright owner had previously approved such a sale. The Third Circuit concluded that a person can always resell a product in the U.S. so long as this “first seller” lawfully purchased the product abroad. This is the student’s position in Kirstaeng.

The U.S. Supreme Court’s decision on this issue could have a significant impact on online retailers and brick and motor stores alike. These companies have built their operations around global sales and reselling of goods, usually without regard to their countries of origin. eBay wrote the Court (they submitted what is known as an “amicus brief”) arguing the importance of this secondary marketplace to producers and consumers alike. The Court’s decision could also have a significant impact on how licenses and intellectual property rights are administered, affecting groups such as Netflix, which would potentially have to limit access to movies or television shows to particular countries depending on who has licenses to what. Taken to an extreme, even the weekend warrior yard seller would have to be concerned about countries of origin. A ruling for the student, conversely, could encourage “geographical arbitrage” to a point where buyers assume that like products shipped from overseas are the real thing, when in fact such goods may not have been legally produced or sold.

Attorneys argued the Kirtsaeng case, Supreme Court Docket No. 11-697, on October 29, 2012, and the legal community expects a decision in early 2013. How do you think the U.S. Supreme Court should decide Kirstaeng?

UPDATE: The Supreme Court has ruled in favor of the defendant, Kirstaeng.  Ultimately, they decided that the law does not have a geographical restriction on the Right to First Sale.

– Ari Good

Ari Good, JD LLM, a tax, aviation and entertainment lawyer, is the Shareholder of Good Attorneys At Law, P.A. Ari Mr. Good received his BA, With Distinction, from the University of Michigan in 1993. He graduated from the DePaul University College of Law in 1997 and received his LL.M. in Taxation from the University of Florida. Ari represents DJs, live musicians, fashion models and other entertainers in copyright, licensing and contract matters.