A Foreign Affair (Supreme Court Edition): First Sale Doctrine Applies to Works Made Outside U.S.

Can a person who buys copies of a copyright-protected work lawfully made and sold overseas sell those copies in the United States without the copyright owner’s permission?  This question, arising under the “first sale” doctrine, has divided the lower courts.  Last week the Supreme Court settled the question, with significant implications for individuals and entities operating in the “secondary” resale market for books, artwork, music, motion pictures, software, and other works protected by copyright. 

In John Wiley & Sons, Inc. v. Kirtsaeng, 2013 WL 1104736 (Mar. 19, 2013), a Thai citizen studying at Cornell University and the University of Southern California helped pay for his education by reselling college textbooks lawfully manufactured and purchased abroad, at substantially lower cost, in the higher-priced U.S. market.  As discussed in this previous blog piece (September 23, 2011), the Second Circuit held the first sale doctrine did not apply to works manufactured abroad and, as a consequence, the resale of these textbooks infringed the publisher’s exclusive right of distribution.  The Supreme Court reversed, holding the “first sale” doctrine protects the right to resell copyrighted works legally produced abroad in the United States, even by an individual or entity without express permission to do so. 

The first sale doctrine is a statutory exception to a copyright owner’s exclusive right to distribute the copyright-protected work.  Codified in Section 109(a) of the Copyright Act, the doctrine provides that “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 or phonorecord.”

The lower courts’ disagreement about the application of the doctrine to works manufactured outside the United States resulted largely from ambiguity in the phrase, “lawfully made under this title.”  The Second Circuit, for example, read a geographical restriction into this phrase.  It held that “lawfully made under this title” refers only to works “made in territories in which the Copyright Act is law, and not to foreign-manufactured works.”  In contrast, the Third Circuit, in Sebastian Int’l, Inc. v. Consumer Contacts, Ltd., 847 F.2d 1093 (3d Cir. 1998), held that the “first sale doctrine” included copyrighted works lawfully manufactured abroad. 

The Supreme Court resolved this dispute, holding that “lawfully made under this title,” had no geographical implications.  Instead, the Court held the first sale doctrine applies to works manufactured anywhere in the world “as long as their manufacture met the requirements of American copyright law.”  The Court gave substantial weight to the practical difficulties in enforcing a geographically-based first sale doctrine in an increasingly global marketplace.

The Supreme Court’s opinion in John Wiley & Sons provided much-needed clarity for individuals and entities operating in the secondary market for books, music, fine art, software, and other protectable works.  Those with the most to lose – international publishers and manufacturers who use pricing models based on particular geographic locations – will have to rethink those models to remain competitive in what is now a truly global marketplace.

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

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