Second Circuit Concludes First Sale Doctrine Does Not Apply to Copyrighted Works Manufactured Outside the U.S.
In an opinion that seemed almost uncomfortable at times with its conclusion, the Second Circuit joined the Ninth Circuit in holding that the Copyright Act's so-called "first sale" defense to copyright infringement does not apply to copies of copyrighted works manufactured outside the United States.
John Wiley & Sons publishes journals and books that are sold domestically and internationally. Wiley's wholly-owned subsidiary ("Wiley Asia") manufactures the books sold in foreign countries.
To help subsidize his educational costs in the U.S., defendant Supap Kirtsaeng's friends and family shipped him foreign edition textbooks printed outside the U.S. by Wiley Asia, which he then sold on websites like eBay.
Wiley sued Kirtsaeng in the Southern District of New York alleging, in part, that Kirtsaeng's conduct constituted copyright infringement.
Kirtsaeng requested a jury instruction charging the jury that the first sale doctrine was a defense to copyright infringement but the District Court denied the request, rejecting the applicability of the defense to foreign editions of the books.
Along with evidentiary issues, Kirtsaeng appealed the conclusion that the first sale defense was unavailable but the Second Circuit affirmed.
The Second Circuit first looked to the statutory language of the first sale doctrine in Section 109(a) of the Copyright Act:
Notwithstanding the provisions of section 106(3), the owner of a particular copy . . . 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[.]
(Emphasis added).
Focusing on the phrase "lawfully made under this title," the Second Circuit ultimately concluded that it was "utterly ambiguous text" because it
could plausibly be interpreted to mean any number of things, including: (1) "manufactured in the United States," (2) "any work made that is subject to protection under this title," or (3) "lawfully made under this title had this title been applicable."
Given this ambiguity, the Second Circuit concluded that it was "best" to interpret the first sale doctrine in a way that best comports with Section 602(a)(1) of the Copyright Act and the Supreme Court's opinion in Quality King Distributors, Inc. v. L'anza Research Int'l, Inc., 523 U.S. 135 (1998).
Section 602(a)(1) provides:
Importation into the United States, without the authority of the owner of the 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.
The Supreme Court's decision in Quality King addressed the interplay between Sections 602(a)(1) and 109(a), albeit on different facts. Specifically, in Quality King, the copyrighted works had been manufactured in the United States, sold to foreign distributors where they had been purchased by the defendant and then re-imported into the U.S. for re-sale. In that case, the Supreme Court concluded that the first sale defense was available.
The Supreme Court found it "significant" that Section 602(a)
does not categorically prohibit the unauthorized importation of copyrighted materials. Instead, it provides that such importation is an infringement of the exclusive right to distribute copies "under section 106." [But] the exclusive right to distribute is a limited right. The introductory language in [section] 106 expressly states that all of the exclusive rights granted by that section . . . are limited by the provisions of [sections] 107 through 120. One of those limitations . . . is provided by the terms of [section] 109(a), which expressly permit the owner of a lawfully made copy to sell that copy "[n]otwithstanding the provisions of section 106(3)."
(footnote omitted).
Despite the differing facts and acknowledging that the Supreme Court's Quality King opinion did not answer the question, the Second Circuit concluded that the Court's dicta "suggests that copyrighted material manufactured abroad cannot be subject to the first sale doctrine contained in [section] 109(a)."
For instance, the Second Circuit latched onto a hypothetical offered by the Supreme Court that it felt supported its conclusion:
If the author of [a] work gave the exclusive United States distribution rights--enforceable under the Act--to the publisher of the United States edition and the exclusive British distribution rights to the publisher of the British edition, . . . presumably only those made by the publisher of the U.S. edition would be 'lawfully made under this title' within the meaning of [section] 109(a). The first sale doctrine would not provide the publisher of the British edition who decided to sell in the American market with a defense to an action under [section] 602(a) (or, for that matter, to an action under [section] 106(3), if there was a distribution of the copies).
The Second Circuit acknowledged that the Supreme Court was recently offered the opportunity to answer the question not resolved in Quality King--whether copies of copyrighted works manufactured outside the U.S. are subject to the first sale doctrine.
The Supreme Court granted review in Omega S.A. v. Costco Wholesale Corp., in which the Ninth Circuit again held that, with one exception, the first sale doctrine does not apply to works manufactured outside the U.S. But an equally divided Supreme Court affirmed the judgment without opinion, leaving the questioned unanswered.
Nonetheless, while stating that it was "perhaps a close call" but "comforted" by the Supreme Court's decision in Quality King, the Second Circuit held that the first sale defense in Section 109(a) applies only to copies of copyrighted works manufactured in the United States.
The Second Circuit's decision was not unanimous, however. The dissenting judge argued that the language of the first sale doctrine "does not refer to a place of manufacture: It focuses on whether a particular copy was manufactured lawfully under title 17 of the United States Code" (i.e., under the Copyright Act). Under that Act, a "U.S. copyright owner may make her own copies or authorize another to do so. . . . Thus, regardless of place of manufacture, a copy authorized by the U.S. rightsholder is lawful under U.S. copyright law."
The dissenting opinion's interpretation of "lawfully made under this title" found support in other provisions of the Copyright Act using similar language as contrasted with other provisions where Congress explicitly made reference to the place of manufacture, demonstrating an ability to do so when intended.
Economic justifications as well as the policies underlying the first sale doctrine further supported the dissenting opinion's interpretation of the doctrine to foreign manufactured copies of copyrighted works. For instance, the majority's rule would provide greater protection to works manufactured abroad than those manufactured domestically. As to the latter, once a copy is sold, regardless of where that sale takes place, the copyright holder's right to control distribution is exhausted, unlike foreign manufactured copies.
In the end, although it agreed with the majority that it was a "close call," the dissenting opinion would hold that the first sale doctrine does apply to foreign manufactured copies of copyrighted works.
The case cite is John Wiley & Sons, Inc. v. Kirtsaeng, No. 09-4896 (2d Cir. Aug. 15, 2011).
