Last week, the Supreme Court held oral arguments in Kirtsaeng v John Wiley & Sons. You can read a transcript of the arguments or listen to audio of the arguments.
The US Government, through the Solicitor General, is participating as amicus curiae, not uncommon when a Supreme Court case involves a question of statutory interpretation. During arguments, Deputy Solicitor General Malcolm Stewart started by saying:
I would like to discuss — begin by discussing our Bobbs-Merrill argument, because it’s a part of our brief that’s different from both the parties’ submissions, and I do think it’s very important to understanding the practical implications of the Court’s decision.
The Bobbs-Merrill argument that the US advanced has been described as a “middle-ground” between Kirtsaeng and Wiley’s positions, though at least a few observers have characterized it as “odd.” Many have also commented that this argument did not seem to land during arguments, being greeted by skepticism from the Justices.
The actual argument made by the US is a relatively minor one, discussed in just three paragraphs in its 31 page brief. However, I think it deserves some attention, because it may have some merit.
The Government’s Argument
Kirtsaeng involves nonpiratical copyrighted works — as opposed to infringing works — manufactured overseas. Section 602(a)(1) of the Copyright Act prohibits the “[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.”
Petitioner Supap Kirtsaeng was sued by John Wiley & Sons under this section but argued in the lower court that the first sale doctrine, codified in 17 USC § 109, allows such conduct. 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.”
The issue in front of the Supreme Court is primarily focused on the meaning of the phrase “lawfully made under this title” — Kirtsaeng argues that this means any copy that would be lawful had US law been applied (thus allowing importation of nonpiratical works manufactured overseas) while John Wiley & Sons argues that it only includes works manufactured in the US.
Virtually every court in the past 30 years has held that the first sale doctrine is not available as a defense when works manufactured overseas are imported into the US without authorization. However, Kirtsaeng has raised several concerns with this interpretation on appeal.
In its brief, the US addressed one such concern: that, if you interpret the Copyright Act to say the first sale doctrine does not allow importation of nonpiratical copies, it would also mean the first sale doctrine never applies to copies made outside the US, allowing copyright owners to control resale markets and all downstream sales.
Petitioner’s argument assumes that, if Section 109(a) is inapplicable, a copyright owner could make copies abroad, import them into the United States and sell them subject to onerous restrictions on resale, and then obtain copyright remedies from buyers who disregard those restrictions.
The US argues that this conclusion does not follow its (and John Wiley’s) interpretation of the statutes. Section 109 explicitly only applies to copies lawfully made within the US, allowing copyright owners to prohibit the importation of copies lawfully acquired overseas. But, says the US, this interpretation does not expand a copyright owner’s distribution right in other respects.
Thus, when a copyright holder has authorized goods to be imported into the United States and/or sold within this country, applying a “first sale†or “exhaustion†principle as an implicit limitation on the copyright holder’s exclusive right to “distribute†would be consistent with the current text of the Copyright Act and faithful to the doctrine’s historical underpinnings. (Emphasis added.)
To get to this point, the US relies on the 1908 Bobbs-Merrill case, one of the earliest applications of the “first sale doctrine.” Though Bobbs-Merrill was framed as an interpretation of the Copyright Act as it existed then, the US argues that it relied on common-law principles to reach its result. Foremost among these principles is the deep suspicion of restraints on alienability of property.
At the time, the Copyright Act gave a copyright owner the sole right to “vend” a work and did not explicitly contain a first sale doctrine. The Bobbs-Merrill Court nevertheless held that the right to “vend” a work did not extend past the first sale of a work.
True, the statute also secures, to make this right of multiplication effectual, the sole right to vend copies of the book, the production of the author’s thought and conception. The owner of the copyright in this case did sell copies of the book in quantities and at a price satisfactory to it. It has exercised the right to vend. What the complainant contends for embraces not only the right to sell the copies, but to qualify the title of a future purchaser by the reservation of the right to have the remedies of the statute against an infringer because of the printed notice of its purpose so to do unless the purchaser sells at a price fixed in the notice. To add to the right of exclusive sale the authority to control all future retail sales, by a notice that such sales must be made at a fixed sum, would give a right not included in the terms of the statute, and, in our view, extend its operation, by construction, beyond its meaning, when interpreted with a view to ascertaining the legislative intent in its enactment.
This is the implicit limitation that the US argues survives today. Using the same reasoning as Bobbs-Merrill, to add to the right of importation the authority to control all future retail sales “would give a right not included in the terms of the statute.”
Deputy Solicitor General Stewart made clear the import of this argument last Monday:
JUSTICE KAGAN: So Mr. Stewart, if I understand your argument, both here and in Quality King you want the copyright holder to have some control over importation, but at the same time you don’t want the copyright holder to have control over all downstream sales.
MR. STEWART: That’s correct.
JUSTICE KAGAN: And that’s what your Bobbs-Merrill argument is designed to do. It’s designed to prevent that.
MR. STEWART: That’s correct.
However, Justice Alito first expressed skepticism of this argument, followed by Chief Justice Roberts.
CHIEF JUSTICE ROBERTS: That’s an awfully difficult maze for somebody to — to get through. You have to start with the difficulty of the language here, and then you have to proceed and put the Quality King gloss over it; and, when you finally get to that point, you say, well, now you’ve got to read Bobbs-Merrill and figure out how the common law governs all that.
Justice Roberts is correct in noting the awfully difficult maze here (I would place the blame mostly on the Quality King decision), but most of the difficulty would arise in crafting an opinion that incorporates the Government’s argument. Actual application would be fairly straight-forward.
Under the US approach, copyright owners could engage in the type of market segmentation that § 602 permits and block unauthorized importation of nonpiratical goods manufactured overseas. However, if a copyright owner were to try to extend its right under § 602 to control downstream uses and resales of works once they were in the US, Bobbs-Merrill would kick in.
It may be a “difficult maze”, but it’s also one of the few ways out presented to the Supreme Court.
So let me see if I understand the arguments (and please let me know if I’m off).
Kirtsaeng argues that 109 statutory first sale kicks in for books manufactured and sold abroad, and that 602 doesn’t prevent his importation because Wiley’s distribution rights have already been exhausted. The problem with this is that it guts the importation/distribution right.
Wiley argues that 109 statutory first sale never kicks in for books manufactured and sold abroad, and that 602 prevents Kirtsaeng’s importation because its distribution rights have not yet been exhausted. The problem with this is that it guts first sale for books that are legally imported.
The Government agrees with Wiley that 109 statutory first sale never kicks in for books manufactured and sold abroad and that 602 prevents Kirtsaeng’s importation because Wiley’s distribution rights have not yet been exhausted, but then it argues that common law first sale rights kick in once the book is imported and sold in the U.S.
If I’m understanding it correctly, it seems like the government’s argument answers nicely the “parade of horribles” question about the Toyota. If I understand the hypothetical, it posits that since the copyrighted computer software manufactured abroad and included in Toyota’s car would not be subject to 109 statutory first sale, it follows that Toyota’s distribution rights are not exhausted when the car is imported and sold in U.S. Thus, Toyota could prevent the owner of the car from selling it to another person since that would be a distribution and Toyota still holds the distribution rights. The government’s response is that while 109 statutory first sale doesn’t exhaust Toyota’s distribution rights, common law first sale doctrine would. So Toyota would not have any control over anything downstream and the “horrible” is avoided.
I really like this argument since it doesn’t render any part of 109 or 602 superfluous and it disposes of the “horribles.”
Great article, Terry!
I wonder if it’s a matter of poor wording or the courts reading too deeply into the statutes, because it seems to me that the combined effect of these two provisions is stupidly simple.
It is this: the copyright holder is assured the exclusive right to introduce copies of works he holds rights to into the US market – be it through making them in the US, or through importing copies made elsewhere. Thus he is assured a monopoly of upstream supply, as is the general tenor of copyright law. (602)
At the same time, his upstream monopoly does not affect any future downstream sales of copies lawfully introduced into the US market. Once the “first sale” is made, the copyright holder has no further legal means of restricting trade in a copy that he had introduced to the market.
All that’s required to reach such a conclusion, that neatly satisifies both provisions, is a realisation that upstream supply to the US market can be equally well effected by making fresh copies of a work – obviously the exclusive right of a copyright holder – as by importing copies of the work made abroad, that had hitherto had no presence in the US marketplace. Thus 109 is concerned with the secondary market that the copyright holder has rightly no control of, while 602 concerns the primary market which should be the exclusive province of the copyright holder.
Quite frankly, I cannot see a “maze” here (other than of the courts’ own making). Perhaps I could interest Justice Roberts in a pair of gardening shears.