Court Rules First Sale Doctrine Only Applies to Works Manufactured in U.S.
By Michael Kelley Aug 17, 2011A U.S. appeals court affirmed a lower court ruling on Monday, August 15, that held the first sale doctrine applies only to works manufactured in the United States. The decision has the potential to undermine libraries' ability to lend foreign printed books.
The 2nd U.S. Circuit Court of Appeals ruled 2-1 in John Wiley & Sons Inc v. Supap Kirtsaeng that Kirtsaeng, a Thai man studying in the United States, infringed upon John Wiley & Sons' copyrights when he had his family send him cheaper foreign editions of Wiley textbooks, printed by Wiley Asia, that he then resold on eBay for a profit. His PayPal account showed revenues of $1.2 million.
Kirtsaeng has argued that the first sale doctrine gave him the right to resell the textbooks, but the U.S. District Court for the Southern District of New York ruled against this argument in October 2009 and awarded John Wiley $600,000 in statutory damages. The Second Circuit upheld this decision this week.
The first sale doctrine, Section 109(a) of the Copyright Act (Title 17), limits the distribution rights of a copyright owner (Section 106) and allows the owner of a copy that is "lawfully made under" the Copyright Act to sell or loan the copy without permission from the copyright holder.
However, the Second Circuit, which heard arguments in May 2010, ruled that the phrase "lawfully made under" means physically manufactured in the United States, further narrowing the applicability of the first sale doctrine, which underpins the ability of libraries to loan books.
The Ninth Circuit had previously ruled in a closely watched case (Omega S.A. v. Costco Wholesale Corp.) that the first sale doctrine applies to copies made outside the United States but only after the copyright owner has authorized a sale here. The Supreme Court, in a 4-4 vote, left the Ninth Circuit ruling in place, but it is not binding on any other circuit.
"The Second Circuit's decision is actually worse than the Ninth Circuit's decision in Costco in a manner significant to libraries," wrote Jonathan Band on ARL Policy Notes.
Band goes on to say:
The Ninth Circuit realized that its interpretation had a negative policy impact in that it encouraged the outsourcing of printing jobs and it prevented a resale market in copyrighted goods. So, the Ninth Circuit created an exception to its interpretation, and ruled that the FSD [first sale doctrine] still applied to a foreign manufactured copy if it was imported with the authority of the U.S. copyright owner. Thus, if a library buys a foreign printed book from an authorized dealer in the U.S., the FSD applies to that book and the library can lend it.
The ruling by the Second Circuit, however, puts that exception in jeopardy and could create uncertainty in the secondary market (which includes libraries). District Judge J. Garvan Murtha, in a dissenting opinion, wrote:
An owner first would have to determine the origin of the copy—either domestic or foreign—before she could sell it. If it were foreign made and the first sale doctrine does not apply to such copies, she would need to receive permission from the copyright holder. Such a result would provide greater copyright protection to copies manufactured abroad than those manufactured domestically: Once a domestic copy has been sold, no matter where the sale occurred, the copyright holder's right to control its distribution is exhausted. I do not believe Congress intended to provide an incentive for U.S. copyright holders to manufacture copies of their work abroad.
Murtha wrote that the place of manufacture was irrelevant if a copy was authorized:
A U.S. copyright owner may make her own copies or authorize another to do so. Thus, regardless of place of manufacture, a copy authorized by the U.S. rightsholder is lawful under U.S. copyright law. Here, Wiley, the U.S. copyright holder, authorized its subsidiary to manufacture the copies abroad, which were purchased and then imported into the United States.
Band wrote that the majority's ruling means that libraries in the Second Circuit that want to lend copies manufactured abroad "must [now] rely on fair use or the ambiguous exception in 17 USC 602(a)(2)(C) that allows a library to import 5 copies (except audiovisual works) for lending purposes, but doesn't specifically allow the library to actually lend those copies."
However, the court's majority said that it was necessary to resolve some of the tension between the fair use doctrine and Section 602(a)(1) of the Copyright Act, which "seemingly seeks to give copyright holders broad control over the circumstances in which their copyrighted material may be imported (directly or indirectly) into the United States."
That section says that it is an infringement of a copyright owner's rights to acquire a work abroad and import it into the U.S. if the copyright owner has not given permission to do so.
That law "is obviously intended to allow copyright holders some flexibility to divide or treat differently the international and domestic markets for the particular copyright item," Judge Jose Cabranes wrote.
Kirtsaeng's lawyer, Sam Israel, criticized the court's ruling for "writing the first sale doctrine out of the statute," Reuters reported.
The Second Circuit includes New York, Vermont, and Connecticut; the Ninth Circuit includes California, Oregon, Washington, Idaho, Montana, Nevada, Arizona, Alaska, and Hawaii.
