Today, the Supreme Court reversed over thirty years of consistent precedent with its decision in Kirtsaeng v. John Wiley & Sons. The opinion, reversing and remanding the Second Circuit's decision, is at odds with the plain meaning of the Copyright Act and its legislative history, and will hamper the ability for creative industries to engage in market differentiation that ultimately benefits consumers through lower prices and greater choice.
Kirtsaeng involved an individual who imported vast quantities of textbooks made and sold in foreign markets for resale, reaping as much as $1.2 million from his endeavors. John Wiley & Sons, the copyright owner of some of the textbooks, sued Kirtsaeng for copyright infringement. The lawsuit was brought under 17 USC § 602(a)(1), which provides that "[i]mportation 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." A jury found Kirtsaeng liable for willful copyright infringement and awarded statutory damages of $75,000 for each of the eight works at issue.
Kirtsaeng appealed to the Second Circuit and argued that the first sale doctrine, codified in 17 USC § 109(a), removed any liability for importing the textbooks without authorization. The court below disagreed with Kirtsaeng and found that the so-called first sale doctrine was not applicable to works manufactured outside of the United States. In reaching its decision, the Second Circuit touched on the Court’s ruling in Quality King Distributor’s Inc. v. L’anza Research Intl, which addressed the applicability of the first sale doctrine when goods are re-imported into the United States after being manufactured domestically and shipped overseas. Relying on dicta from the Court’s decision in Quality King, in tandem with “the text of §109(a)” [and] “the structure of the Copyright Act,” the Second Circuit found that the first sale doctrine does not apply to goods manufactured abroad.
The Second Circuit’s ruling affirmed the continuation of market differentiation. Under market differentiation, copyright holders can treat different markets as they are – different. This approach yields economic and non-economic benefits, allowing copyright holders to make products available while respecting cultural differences, complying with local laws, and responding to diverse demands of a global population. Without market differentiation, goods may very well be offered on an all-or-nothing basis, lack competitive pricing, and only be offered in limited markets.
Supporters of Kirtsaeng, including companies like eBay and groups such as Public Knowledge, have played an aggressive role in warping the public’s understanding of the anti-arbitrage provisions of the Copyright Act and the benefits of market differentiation. Behind the veil of the Owners Rights Initiative, they perpetuated a series of falsehoods; these sweeping generalizations mischaracterize the impact of Kirtsaeng, generally attempting to recast a case limited in scope as an issue that will concern all individual resellers of goods.
Justices Ginsburg, Kennedy, and Scalia note in their dissent the "stunning" nature of this decision:
Instead of adhering to the Legislature’s design, the Court today adopts an interpretation of the Copyright Act at odds with Congress’ aim to protect copyright owners against the unauthorized importation of low-priced, foreign made copies of their copyrighted works. 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 for “international exhaustion” of copyrights—a movement the United States has steadfastly resisted on the world stage.
Unfortunately, the Supreme Court has, with this decision, completely gutted the importation provisions of the Copyright Act that courts have consistently interpreted as applying even after a sale or disposition has occurred outside the United States. The ability to differentiate markets is vital to U.S. copyright owners and provides many economic and non-economic benefits to both them and to consumers across the globe. In light of this decision, Congress may need to step in to reimplement the exclusive right to import into the United States that it secured to copyright owners in the 1976 Copyright Act.