CPLRG™ 0083 - Kirtsaeng v. John Wiley & Sons, Inc. - Mar. 19, 2013

Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013) (Breyer; Kagan, concurring; Ginsburg, dissenting).  For a slip opinion, click here.Kirtsaeng03192013

Kirtsaeng is a landmark decision addressing one of the grandest and most universal of  issues of intellectual property: should there be “international exhaustion” of an intellectual property right?  Can an intellectual property owner prevent importation of a product into a country when the specific product was originally made and sold in another country with the owner’s permission?  Does it matter that owner qualified the permission with a territorial restriction?

Kirtsaeng is a copyright case.  The Court, by a majority of six of the nine justices, held that a first authorized sale outside the United States (in Thailand) exhausted the owner’s exclusive right of distribution under United States copyright law.  The case involved textbooks, but the holding will directly impact importation of a wide variety of products containing copyrighted material, including software.  It may impact exhaustion as applied to the unauthorized importation of patented products made or purchased  legally abroad. The “first sale” doctrine provides that an authorized sale of a copy of a copyrighted work “exhausts” the copyright owner’s exclusive right to distribute copies of the work.  The purchaser, as owner of the particular copy, may resell it without the copyright owner’s authority.

The Supreme Court recognized the first sale doctrine for copyright in the seminal 1908 decision, Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908), even though there was no specific statutory basis for it.  The copyright statute at that time conferred on copyright owners the “sole liberty” of “vending” their works. The Court reasoned that Congress did not intend to permit copyright owners to impose restrictions on subsequent alienation.  Subsequently, Congress “codified” the first sale doctrine in the copyright statutes, the present version being 17 USC § 109(a).

Earlier, the Court had recognized a “first sale” doctrine for patent law.  Adams v. Burke, 84 U.S. 453 (1873); Keeler v. Standard Folding-Bed Co., 157 U.S. 659 (1895).

First sale unquestionably applies when the owner makes and sells a copy in the United States.  Less clear is whether it applies when the owner makes and sells (or authorizes others to make and sell) copies in another country, especially if the owner indicates that the copies shall not be exported to the United States.

In Kirtsaeng, a Court majority, in an opinion by Justice Breyer, held that “the `first sale’ doctrine applies to copies of a copyrighted work lawfully made abroad.”  The holding was based on the Court’s construction of three provisions of the Copyright Act.  Section 602(a)(1) provides:  “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.”  In turn, Section 106(3) grants a copyright owner the exclusive right “to distribute copies . . . of the copyrighted work to the public by sale or other transfer of ownership.”  Finally, Section 109(a) provides:”Notwithstanding the provisions of section 106(3), the owner of a particular copy … 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 …..”  The Court majority held that there was no “geographic” limitation on “lawfully made under this title.”  It repudiated dictum in a prior decision, Quality King Distribs. v. L’anza Research Int’l, 523 U.S. 135 (1998), which suggested that lawfully made under this title meant made in the United States.

The Court recognized that its holding would hamper efforts by copyright owners, such as publishers, to “charge different prices … in different geographic markets.”  But the Court saw no reason to prefer “interpretations of copyright statutes that would provide for market divisions.”  It also credited contentions by “friends of the Court” (amici curiae) that failure to recognize international exhaustion would create practical problems.  For example, libraries and used books stores contended that their collections contained many books imported from abroad, which, absent exhaustion, they could not dispose of it, at least without locating and securing permission from copyright owners.  Technology companies contended that imported products, such as automobiles, contained copyrighted software.

Justice Kagan concurred, arguing that Quality King erred in holding that the first sale doctrine limited the right of importation but agreeing that exhaustion was not geographically limited and, therefore, that further resales of an imported copy of a work would not infringe.

Justice Ginsburg dissented, at length.  Her main points were:  First, the interpretation is contrary to “Congress’ aim to protect copyright owners against the unauthorized importation of low-priced, foreign-made copies of their copyrighted works.”  Second, the interpretation is “stunning” because “it places the United States at the vanguard of the movement for `international exhaustion’ of copyrights–a movement the United States has steadfastly resisted on the world stage.”  Third, the interpretation “shrinks to insignificance copyright protection against the unauthorized importation of foreign-made copies”, which was Congress’ objective in enacting Section 602(a)(1) of the Copyright Act.  Fourth, the Court’s “practical problems” (“parade of horribles”) with a geographic interpretation of the first sale statute (Section 109(c)) are “largely imaginary.”

Uncertain is whether the logic of the Court’s holding in Kirtsaeng will extend to patents, thus altering the current position of the Court of Appeals for the Federal Circuit that a “first sale” must occur in the United States to create an exhaustion of patent rights.  Such extension depends on whether the Kirtsaeng holding can, or will, be restricted to specific language in the Copyright Act, which is absent from the Patent Act.  Mitigating against confining Kirtsaeng to copyright law is the Court’s description of the “common law” “first sale” doctrine as unrestricted geographically.  That description may apply to patents.

Kirtsaeng will stir debate about international exhaustion.  Intellectual property owners may urge Congress to address the issue by amending the statutes on copyright and other aspects of intellectual property, including patents.  Kirtsaeng may influence court rulings in other countries.  It may stimulate discussions in multi-national trade negotiations.

For a comment predicting how the Supreme Court might rule on international exhaustion of patents, click here.InternationalPatentExhaustion

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