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The United States Supreme Court’s Decision in Kirtsaeng v. Wiley & Sons: An “Inevitable” Step in Which Direction?

An Erratum to this article was published on 03 April 2014

Abstract

This opinion analyzes the decision of the Supreme Court of the United States in the case Kirtsaeng v. Wiley & Sons. In this decision, the Court ruled that the principle of copyright exhaustion as provided in Section 109(a) of the Copyright Act equally applies to products “lawfully made” in the United States as well as to products that have been “lawfully made” in foreign countries. This “revolutionary” decision came after almost two decades of conflicting positions, including two previous Supreme Court decisions that had failed to clarify the issue, notably Quality King v. L’anza and Costco v. Omega. Yet, a closer look at the decision, particularly at the concurring and dissenting opinions in the case, seems to show that Supreme Court’s position may have been a necessary step that the Court had to take in order to redress the ambiguities that continued to linger on the issue, especially in light of the additional uncertainty that the Court itself had injected into the interpretation of Section 109(a) with its decision in Quality King. Accordingly, more chapters may be awaiting to be written in this American saga on the territorial application of the principle of copyright exhaustion. As the concurring opinion in the case directly suggested, Congress could overrule the Supreme Court and clarify with a legislative amendment that the application of copyright exhaustion in the United States is not international but instead national exhaustion for all products. Calls for copyright reforms not surprisingly, started just days after the decision in Kirtsaeng. Furthermore, even if the Court’s decision would survive future reforms, copyright owners continue to have alternative means, such as contractual clauses and technical measures, to largely reduce the positive effects of the decision for international trade.

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Notes

  1. 1.

    Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1351 (2013). See 44 IIC 472 (2013), doi:10.1007/s40319-013-0048-z.

  2. 2.

    See Quality King Distribs., Inc. v. L’anza Research Int’l., Inc., 523 U.S. 135 (1998); Costco Wholesale Corp. v. Omega, S.A., 131 S.Ct. 565 (2011).

  3. 3.

    For a detailed analysis of the pre-Kirtsaeng ambiguities in the interpretation of the principle of copyright exhaustion in the United States, see Irene Calboli, “An American Tale: The Unclear Application of the First Sale Rule in United States Copyright Law (and Its Impact on International Trade)”, in Jan Rosen (ed.) Intellectual Property at the Crossroads of Trade p. 67 (2012) [hereinafter Calboli, “First Sale Rule in Copyright Law”]; Irene Calboli, “Corporate Strategies, First Sale Rules, and Copyright Misuse: Waiting for Answers from Kirtsaeng v. Wiley and Omega v. Costco (II)”, 11 NW. J. Tech. & Intell. Prop. 221, 227 (2013) [hereinafter Calboli, “Corporate Strategies”].

  4. 4.

    Kirtsaeng, 133 S.Ct. at 1372 (Kagan J. concurring).

  5. 5.

    Id. at 1384 (Ginsburg J. dissenting).

  6. 6.

    Quality King, 523 U.S. at 152 (stating that the right to “sell or otherwise dispose of” an item includes the right to ship an item abroad and that, in turn, importation constitutes a first sale under the language of Sec. 109(a) of the Copyright Act).

  7. 7.

    Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1351, 1372 (2013) (Kagan J. concurring).

  8. 8.

    See discussion infra Part 4.

  9. 9.

    Id.

  10. 10.

    This Part summarizes the pre-Kirtsaeng analysis of the territorial application of the principle of copyright exhaustion that I elaborated in Calboli, “First Sale Rule in Copyright Law”, supra note 3, at 67; and Calboli, “Corporate Strategies”, supra note 3, at 225. Accordingly portions of this Part borrow from those earlier publications.

  11. 11.

    Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 350 (1908).

  12. 12.

    Quality King Distribs., Inc. v. L’anza Research Int’l., Inc., 523 U.S. 135, 141–42 (1998) (“Congress subsequently codified our holding in Bobbs-Merrill that the exclusive right to ‘vend’ was limited to first sale of the work.”).

  13. 13.

    17 U.S.C. § 109(a).

  14. 14.

    17 U.S.C. § 602(a)(1).

  15. 15.

    See, e.g., Quality King, 523 U.S. at 153 (Ginsburg J. concurring).

  16. 16.

    For a detailed description of the various interests at stake with respect to gray market products, see Heath (1997), Cohen Jehoram (1999), Worth (1994).

  17. 17.

    Sebastian Int’l, Inc. v. Consumer Contacts (PTY) Ltd., 847 F.2d 1093 (3d Cir. 1988).

  18. 18.

    Id. at 1099.

  19. 19.

    Id. 1096–7 [quoting Burke & Van Heusen, Inc. v. Arrow Drug, Inc., 233 F. Supp. 881, 884 (E.D. Pa. 1964)].

  20. 20.

    Id. (stressing that if Sec. 109(a) applied only to copies sold in the US, copyright owners selling copies abroad would receive a purchase price and a right to limit importation, whereas copyright owners selling copies domestically would only receive the purchase price).

  21. 21.

    Prior to the Third Circuit’s decision in Sebastian, the District Court for the Eastern District of Pennsylvania had interpreted the “lawfully made under this title” language of Sec. 109(a) of the Copyright Act to mean “lawfully made in the United States.” The Third Circuit affirmed the decision without opinion. See Columbia Broadcasting Sys., Inc. v. Scorpio Music Distribs., Inc. 569 F. Supp. 47, 50 (E.D. Pa. 1983) aff’d without opinion, 738 F.2d 424 (3d Cir. 1984).

  22. 22.

    BMG Music v. Perez, 952 F.2d 318, 319 (9th Cir. 1991).

  23. 23.

    Parfums Givenchy, Inc., v. Drug Emporium, 38 F.3d 477, 481 (9th Cir. 1994).

  24. 24.

    Id. at 482–3.

  25. 25.

    L’anza Research Int’l, Inc. v. Quality King Distribs., Inc., 98 F.3d 1109 (9th Cir. 1996).

  26. 26.

    Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982, 984 (9th Cir. 2008).

  27. 27.

    Quality King Distribs., Inc. v. L’anza Research Int’l, Inc., 523 U.S. 135 (1998).

  28. 28.

    Id. at 139.

  29. 29.

    See generally Calboli, “First Sale Rule in Copyright Law”, supra note 3, at 79 (highlighting that the “Supreme Court fell short of addressing the territorial extent of the first sale rule in copyright law”).

  30. 30.

    Quality King, 523 U.S. at 153 (Ginsburg J. concurring) (citing William F. Patry, Copyright Law and Practice (1997 Supp.) pp. 166–70 and 10; Paul Goldstein, Copyright (2d edn. 1998) Sec. 16.0, 16:1–16:2).

  31. 31.

    Costco Wholesale Corp. v Omega, S.A., 131 S.Ct. 565 (2010).

  32. 32.

    Id.

  33. 33.

    Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1351 (2013). This Part incorporates with adaptations the analysis of the litigation in the case prior to the Supreme Court’s ruling, which I originally addressed, at different stages, in Calboli, “First Sale Rule in Copyright Law”, supra note 3, at 85; and Calboli, “Corporate Strategies”, supra note 3, at 233.

  34. 34.

    John Wiley & Sons, Inc. v. Kirtsaeng, No. 08 Civ. 7834 (DCP), 2009 U.S. Dist. LEXIS 96520, at 37 (S.D.N.Y. Oct. 19, 2009).

  35. 35.

    John Wiley & Sons Inc. v. Kirtsaeng, 654 F.3d 210, 224 (2d Cir. 2011) (noting that “[a]t trial the jury awarded $75,000 in statutory damages per copyrighted work for Kirtsaeng’s willful infringement of eight works”).

  36. 36.

    Id. at 210.

  37. 37.

    Id. at 221 [relying on Justice Ginsburg’s concurrence in Quality King Distribs., Inc. v. L’anza Research Int’l, Inc., 523 U.S. 135, 154 (1998)].

  38. 38.

    Id. at 224–29 (Murtha J. dissenting) (noting that an interpretation of the language “lawfully made under this title” as “made in the United States” was incorrect since Sec. 109(a) of the Copyright Act does not make reference to the place of manufacture of the products, but instead focuses on whether the products are made “lawfully.”).

  39. 39.

    Id. at 226–27 (Murtha J. dissenting) (highlighting that it could not have been Congress’ intent to provide more copyright protection to foreign goods than domestic ones).

  40. 40.

    Transcript of Oral Argument, Kirtsaeng v. John Wiley & Sons, Inc., No. 11-697 (S.Ct. argued Oct. 29, 2012), available at http://www.supremecourt.gov/oral_arguments/argument_transcripts/11-697.pdf.

  41. 41.

    Id. at 29–32.

  42. 42.

    Id. at 32.

  43. 43.

    Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1351, 1358 (2013) (supporting that Sec. 109(a) establishes a defense against a copyright infringement claim based on unauthorized resale “where, as here, copies are manufactured abroad with the permission of the copyright owner.”).

  44. 44.

    Id. at 1355–56.

  45. 45.

    Id. at 1363–64.

  46. 46.

    Id. at 1358.

  47. 47.

    Id. at 1370.

  48. 48.

    Kirtsaeng, 133 S.Ct. at 1370.

  49. 49.

    Id.

  50. 50.

    Id. at 1371.

  51. 51.

    Id.

  52. 52.

    Id.

  53. 53.

    Kirtsaeng, 133 S.Ct. at 1371. Justice Breyer stated, specifically, that “our holding in Quality King that § 109(a) is a defense in U.S. courts even when ‘the first sale occurred abroad’ has already significantly eroded such principle.” Id. (citation omitted).

  54. 54.

    Id.

  55. 55.

    Article 15.5(2), United States-Morocco Free Trade Agreement, U.S.-Morocco, June 15, 2004, 44 I.L.M. 544 (2005), available at http://www.ustr.gov/Trade_Agreements/Bilateral/Morocco_FTA/FInal_Text-Section_Index.html.

  56. 56.

    Article 4(11), Agreement Between the United States of America and the Hashemite Kingdom of Jordan on the Establishment of a Free Trade Area, U.S.-Jordan, Oct. 24, 2000, 41 I.L.M. 63 (2002), available at http://www.ustr.gov/assets/Trade_Agreements/Bilateral/Jordan/asset_upload_file250_5112.pdf.

  57. 57.

    See Articles QQ.G.3 and QQ.G.17 Trans-Pacific Partnership, Intellectual Property [Rights] Chapter, Consolidated Text, Aug. 2013, available at https://wikileaks.org/tpp/static/pdf/Wikileaks-secret-TPP-treaty-IP-chapter.pdf [hereinafter TPP IP Chapter Draft Aug. 2013]. As indicated in this draft, the United States opposes a system of international copyright exhaustion and proposes national exhaustion for negotiating members of the TPP. The TPP is currently being negotiated between Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the United States.

  58. 58.

    Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1351, 1372–73 (2013) (Kagan J. concurring).

  59. 59.

    Id. at 1372 (Kagan J. concurring).

  60. 60.

    Id.

  61. 61.

    Id.

  62. 62.

    Id.

  63. 63.

    Kirtsaeng, 133 S.Ct. at 1372 (Kagan J. concurring) (emphasis added).

  64. 64.

    Id.

  65. 65.

    Id. at 1373 (Ginsburg J. dissenting).

  66. 66.

    Quality King Distribs., Inc. v. L’anza Research Int’l, Inc., 523 U.S. 135, 153 (1998) (Ginsburg J. concurring).

  67. 67.

    Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1351, 1373 (2013) (Ginsburg J. dissenting) (noting that “the Court’s bold departure from Congress’ design is all the more stunning, for it places the United States at the vanguard of the movement of “international exhaustion” of copyrights – a movement that the United States has steadfastly resisted on the world stage”).

  68. 68.

    Id. at 1377.

  69. 69.

    Id. at 1384. The United States was in fact one of the countries supporting the principle of national exhaustion (at least for patents and copyrights) during the negotiations leading to the adoption of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) in 1994 – for lack of consensus among TRIPs members, TRIPs finally left members free to adopt their preferred position on the issue. See Art. 6, Agreement on Trade-Related Aspects of Intellectual Property Rights, April 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, Legal Instruments – Result of the Uruguay Rounds Vol. 31, 33 I.L.M. 83 (1994). Article 6 provides that nothing in the Agreement can “be used to address the issue of the exhaustion of intellectual property rights.” See also S.K. Verma, “Exhaustion of Intellectual Property Rights and Free Trade—Article 6 of the TRIPS Agreements”, 29 IIC 534, 539 (1998). See also supra notes 55–57.

  70. 70.

    Maria Pallante testified, on March 20, 2013, before the House Subcommittee on Courts, Intellectual Property and the Internet, urging Congress to considering comprehensive legislation reforms. See Statement of Maria A. Pallante, Register of Copyrights of the United States, Subcommittee on Courts, Intellectual Property and the Internet Committee on the Judiciary, United States House of Representatives 113th Congress, 1st Session March 20, 2013, available at http://judiciary.house.gov/hearings/113th/03202013/Pallante%20032013.pdf).

  71. 71.

    On April 24, 2013, the House Judiciary Committee Chairman Bob Goodlatte (R-Va.) announced that the Judiciary Committee will conduct a comprehensive review of U.S. copyright law over the coming months. The announcement is available at http://judiciary.house.gov/news/2013/04242013_2.html.

  72. 72.

    On May 16, 2013, the House Judiciary Committee held the first hearing on “A Case Study for Consensus Building: The Copyright Principles Project.” Materials, witness list and statements, and the statement of Chairman Bob Goodlatte are available at http://judiciary.house.gov/hearings/113th/hear_05162013.html.

  73. 73.

    See supra notes 55–57.

  74. 74.

    New Zealand adopts, since 1998, the principle of international copyright exhaustion. See Copyright (Removal of Prohibition on Parallel Importing) Amendment Act 1998, Publication Act 1998 No. 20, May 19, 1998, available at http://www.legislation.govt.nz/act/public/1998/0020/latest/DLM426040.html. In 2003, New Zealand introduced some limitations to this principle, in favor of films, due to pressure from the United States. See Alberto Cerda, “USTR New Exclusive Right for Copyright Holders: Importation Provision in the TPPA”, Knowledge Ecology International, July 5, 2011, available at http://keionline.org/node/1176. Similarly, Singapore follows the principle of international copyright exhaustion. See Singapore Copyright Act of 1987, Secs. 32, 25(3) (Sing.) (as amended by the Copyright Amendment Act of 1994). The Amendment followed a leading decision of the Singapore Court of Appeals issued by the Chief Justice of Singapore in the case PP v. Teo Ai Nee. See PP v. Teo Ai Nee, 1 SLR 452 (1994). See also Ng-Loy (2004). Should the TPP ultimately impose national obligations to permit copyright owners to prevent gray market goods, New Zealand and Singapore could be obliged to review their current law altogether. See TPP IP Chapter Draft Aug. 2013, supra note 57.

  75. 75.

    See, e.g., Vernor v. Autodesk, Inc., 621 F.3d 1102 (9th Cir. 2010) (holding that software can be sold subject to contract provisions restricting further transfers).

  76. 76.

    For a detailed summary of the alternative tools that copyright owners have to circumvent the ruling of the Supreme Court in Kirtsaeng, see Eric Goldman, “The Supreme Court's First Sale Ruling Will Spur Price Competition in the Short Run, But Enjoy It While It Lasts”, Forbes, March 20, 2013, available at http://www.forbes.com/sites/ericgoldman/2013/03/20/the-supreme-courts-first-sale-ruling-will-spur-price-competition-in-the-short-run-but-enjoy-it-while-it-lasts/.

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Calboli, I. The United States Supreme Court’s Decision in Kirtsaeng v. Wiley & Sons: An “Inevitable” Step in Which Direction?. IIC 45, 75–90 (2014). https://doi.org/10.1007/s40319-013-0146-y

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Keywords

  • Copyright exhaustion
  • Copyright first sale
  • Parallel imports
  • Gray market goods
  • International trade