Intellectual Property Attorney

Supreme Court To Decide Copyright Case On “Gray Market” Goods

The Supreme Court is considering whether a copyright holder’s rights are infringed when books that were legally published and sold abroad are then resold in the United States without the copyright holder’s permission. Given that such goods are sold legally in the first instance (i.e., not sold on the “black market”) though the terms of their resale is suspect, they are commonly called “gray market” goods. Although the defendant in this particular case is an individual student, an adverse decision threatens retailing giants, such as, Costco and, as well as art museums, libraries, and the entire publishing industry.

The defendant, Mr. Supap Kirtsaeng, came from Thailand to study at Cornell University and then University of Southern California, ultimately earning a PhD in math. Over the years, his friends and relatives in Thailand purchased and sent him textbooks that had been published abroad. Those textbooks were virtually identical to ones published here in the United States, except that they were significantly cheaper. So much cheaper, in fact, that when Mr. Kirtsaeng later resold books worth $900,000 through, he realized a tidy profit of $100,000. Mr. Kirtsaeng used the money to pay for his education.

Eight of those books were printed by the Asian subsidiary of the U.S. publishing company, John Wiley & Sons, Inc. The publisher sued Mr. Kirtsaeng for copyright infringement and won in the U.S. District Court for the Southern District of New York. He was ordered to pay the publisher $600,000 ($75,000 per book). Mr. Kirtsaeng appealed the decision, arguing that Wiley lost its right to control sales of the books at the moment Mr. Kirtsaeng’s friends and relatives first purchased them. The U.S. Court of Appeals for the Second Circuit affirmed the district court’s decision. Mr. Kirtsaeng has now sought relief from the Supreme Court.

At issue are two provisions of the Copyright Act that appear to be in conflict. Section 109(a) provides that “the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.” This is called the “first sale doctrine,” meaning that the copyright owner’s right to control the distribution of a particular copy of a work ends at the first sale of that copy. Meanwhile, Section 602(a)(1) provides that the “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 other words, the copyright owner maintains the right to control the distribution of all copies that were purchased outside the United States.

Thus, the question before the Supreme Court is whether the first sale doctrine applies to imported books. More broadly stated: Does U.S. copyright law apply to products manufactured outside the United States?

As noted during oral argument before the justices in October, the implications of a decision in Wiley’s favor are staggering: the respective copyright owner’s consent would be required before a library could lend a book that was published abroad, a museum could sell or even display a painting by Picasso, or a car owner could sell his Toyota containing a copyrighted sound system. A ruling for Wiley would also significantly incentivize U.S. manufacturers to move all manufacturing (i.e., jobs) overseas to preserve their control over distribution. Retailers, such as eBay and Costco, whose businesses depend on selling and reselling products manufactured abroad (which are typically priced much lower than those manufactured for sale here) would be severely impacted.

On the other hand, entertainment companies fear that a ruling for Kirtsaeng would lead to rampant unauthorized sales of their movies, music and books here in the U.S.

A decision is expected by June. We will update this blog with any developments. The case is Kirtsaeng v. John Wiley & Sons, 11-697.

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