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Argument preview: Court tries again on copyright importation problem

The Court’s November calendar features probably the most important copyright case since its 2003 decision in Eldred v. AshcroftKirtsaeng v. John Wiley & Sons, Inc. presents one of the fundamental questions for the globalized media world:  whether a U.S. copyright holder can prevent the importation of “gray-market” products manufactured for overseas markets.  When the Court tried to address this question two Terms ago – in Costco Wholesale Corp. v. Omega, S.A. – the Court was equally divided (with Justice Kagan recused) and left the Ninth Circuit’s decision (allowing the copyright holder to bar importation of those goods) undisturbed.  The Court returns to the question in this case, in which all nine of the Justices apparently will participate.

The facts are almost too good to be true.  A Thai national (Kirtsaeng) came to this country to study at Cornell and U.S.C.  To subsidize his educational expenses, he resold textbooks purchased by his family at bookstores in Thailand.  Although the parties have understandably different views about how to describe his operations, it is plain that he sold several hundred thousand dollars of textbooks imported in this way; because the price at which the books were purchased in Thailand was markedly lower than the price at which similar versions of the books were sold in the United States, his profits from the sales were in the range of $100,000.  When his activities came to the attention of Wiley (a major American textbook publisher), a suit for copyright infringement predictably ensued.  The district court found for Wiley and imposed statutory damages of $600,000.   The Second Circuit affirmed.

The case involves the interplay of three related provisions of the Copyright Act.  Because the dispute turns almost entirely on a close reading of those provisions, the text warrants close attention.  First, Section 106(a)(3) grants copyright holders the exclusive right to “distribute copies . . .  of [any] copyrighted work to the public by sale.”  Second, Section 602(a)(1) provides that “[i]mportation into the United States, without the authority of the owner of copyright . . . , of copies . . . of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies . . . under section 106.”  Third, 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 . . . that copy.”

At bottom, the central question in the case is whether books manufactured outside the United States are “lawfully made under this title” for purposes of Section 109(a). Kirtsaeng argues that they are, because they were manufactured under a license from Wiley to its Asian subsidiary; if so, Section 109(a) permits Kirtsaeng to resell them in this country with impunity.  Wiley argues that they are not, because the Copyright Act does not apply in Asia; if that is correct, then Section 109(a) does not shelter Kirtsaeng’s activity, which becomes a wanton violation of Wiley’s exclusive right to distribute its books.  The economic significance of the question is profound: the ability of copyright holders to discriminate on the basis of price – selling books, movies, music, and other copyrighted works more cheaply in foreign countries and at higher prices in the United States – is central to the profitable exploitation of copyrighted works in a globalized economy.  A decision explicitly authorizing the importation into this country of low-cost foreign versions of copyrighted works would directly undermine the ability of content providers to maintain high prices for domestic versions of the works.

Given the amount at stake, and the obvious closeness of the question – both sides come to the case knowing that at least four Justices are predisposed to their position – it should be no surprise that the case has attracted the attention of a broad cross-section of the most experienced and capable members of the Court’s bar.  The result is a rich set of briefs in which the two sides join issues on a large number of disparate facets of the problem.

To my taste, the strongest aspect of Kirtsaeng’s presentation emphasizes the absurdity of the result as a structural matter.  The so-called “first-sale” defense in Section 109 means that, for books (and other copyrighted works) created wholly within the United States, the copyright holder can control only the first sale.  Thus, once a particular copy of the book has been sold, the purchaser is free to resell that copy at any price it desires; in the common parlance, the first sale “exhausts” the copyright with respect to that particular copy.  Wiley’s argument, at bottom, is that this defense is wholly inapplicable to copies printed outside the United States.  Why, Kirtsaeng asks, would Congress give copyright holders a direct incentive to shift manufacturing operations overseas?

Several amici offer redoubtable support for Kirtsaeng.  Roy Englert (appearing on behalf of Costco) emphasizes the history of American copyright and foreign works – in which Congress was notoriously reluctant to provide any protection at all for works written or manufactured abroad.  The outrage of Charles Dickens at the bestselling publications of his books in this country without his permission (or compensation) are part of the back-story against which this dispute unfolds.  Thus, it was not until 1891 that the United States provided any protection for foreign works.  The idea that Congress’s codification of the first-sale doctrine in Section 109 was intended to elevate protection for foreign works above the protection for wholly domestic works is so out of line with that well-documented historical sensibility as to be “inconceivable.”

Mark Lemley also offers a succinct but telling argument on behalf of Powell’s Books and an assortment of other independent bookstores.  He emphasizes the common-law source of the first-sale doctrine, developing in a series of nineteenth-century lower-court decisions before an emphatic adoption by the Court in its 1908 decision in Bobbs-Merrill v. StrausThe strong common-law tradition against restraints on alienation that led to those decisions conflicts directly with Wiley’s argument that the statute grants it complete control over the sale and distribution of foreign copies.  Lemley contends that Congress’s actions make much more sense as a codification and reinforcement of the common-law doctrine, rather than as an almost complete rejection of it.  His practical plea on behalf of the used bookstores he represents – who under Wiley’s view would violate the Copyright Act whenever they purchase books manufactured overseas – is particularly telling.

This is not to say Wiley has the worst of it.  Ted Olson’s presentation on its behalf is masterful.   He homes directly in on the weakest point of Kirtsaeng’s presentation – the text of Section 109. Olson can offer a simple and straightforward reading of “lawfully made under this title”: books manufactured overseas are not made “under this title” because “this title” does not apply overseas.  Kirtsaeng, by contrast, must read those words to mean something like “in accordance with what this title would require if it applied.”

This Court’s previous discussion of that provision (in its 1998 decision in Quality King v. L’anza) provides another stumbling block that Olson casts in Kirtsaeng’s way.  The Court there discussed a hypothetical in which a copyright holder granted exclusive distribution rights for the United States and Britain to different entities and commented that “presumably only those made by the publisher of the United States edition would be ‘lawfully made under this title’ within the meaning of Section 109(a).” It is difficult to read that language without concluding that the Quality King Court read Section 109 as Wiley does.  [Quality King did not definitively resolve the issue presented here because that case involved “round-trip” importation – the labels were manufactured in the United States, exported, and then reimported.]

Olson also ably responds to the argument that it is absurd to elevate the protections for foreign-made works over those for domestic works, noting how frequently the Court has recognized the compromises that competing interests have driven Congress to adopt in copyright law.  If the policy choice in the language at issue here turns out to be a bad one, Congress can be expected to step in and reverse it.

Olson also has the luxury of having the United States support his position.  To be sure, the United States must contend with the problem that its position on this question has shifted over time – it supported a contrary reading of the statute in Quality King – but the brief remains powerful.  Among other things, the Solicitor General rebuts Kirtsaeng’s “absurdity” argument by articulating a common-law restriction on the “eternal” downstream control that Kirtsaeng perceives in Wiley’s position. Specifically, the Solicitor General argues that if the copyright holder consented to the importation of the goods into the United States, the principle of Bobbs-Merrill – codified by Section 109(a) but not rejected – would prevent the copyright holder from controlling the disposition of those goods within this country.  Although the argument is novel, it does provide the Court a ready way to a compromise decision that might attract Justice Kagan (presumptively the deciding vote after her recusal in Costco).

Finally, Wiley’s position is bolstered by a subtle brief on behalf of the MPAA filed by Seth Waxman.  He presents an elegant argument built on the presumption against extraterritorial application of domestic statutes.  Essentially, he reasons from that presumption to a corollary idea that the relevant exploitation of a particular copy that should bring the first sale doctrine into play necessarily should be exploitation with respect to the domestic market.  Treating a sale overseas as relevant for first-sale purposes implicitly assumes that Congress’s concern related to global exploitation of the product rather than domestic exploitation.  Waxman is particularly effective when he discusses how problematic the decision could be for industries (like the motion pictures of greatest concern to the MPAA) in which domestic exploitation is ordinarily controlled by entities unrelated to those that control overseas exploitation.  A ruling for Kirtsaeng necessarily would dissipate the value of the rights to domestic exploitation, a dubious result indeed.

As long as it is, even this summary cannot do justice to the myriad grounds on which the parties and their amici join issue.  Suffice it to say that there will be more than enough fodder for judicial inquiry when the Justices hear argument on October 29.

Recommended Citation: Ronald Mann, Argument preview: Court tries again on copyright importation problem, SCOTUSblog (Oct. 18, 2012, 10:41 AM),