[A2k] Michael Kelley: Court Rules First Sale Doctrine Only Applies to Works Manufactured in U.S.

Manon Ress manon.ress at keionline.org
Thu Aug 18 04:25:46 PDT 2011

Court Rules First Sale Doctrine Only Applies to Works Manufactured in U.S.

By Michael Kelley Aug 17, 2011


A U.S. appeals court affirmed a lower court ruling on Monday, August
15, that held the first sale doctrine applies only to works
manufactured in the United States. The decision has the potential to
undermine libraries' ability to lend foreign printed books.

The 2nd U.S. Circuit Court of Appeals ruled 2-1 in John Wiley & Sons
Inc v. Supap Kirtsaeng that Kirtsaeng, a Thai man studying in the
United States, infringed upon John Wiley & Sons' copyrights when he
had his family send him cheaper foreign editions of Wiley textbooks,
printed by Wiley Asia, that he then resold on eBay for a profit. His
PayPal account showed revenues of $1.2 million.

Kirtsaeng has argued that the first sale doctrine gave him the right
to resell the textbooks, but the U.S. District Court for the Southern
District of New York ruled against this argument in October 2009 and
awarded John Wiley $600,000 in statutory damages. The Second Circuit
upheld this decision this week.

The first sale doctrine, Section 109(a) of the Copyright Act (Title
17), limits the distribution rights of a copyright owner (Section 106)
and allows the owner of a copy that is "lawfully made under" the
Copyright Act to sell or loan the copy without permission from the
copyright holder.

However, the Second Circuit, which heard arguments in May 2010, ruled
that the phrase "lawfully made under" means physically manufactured in
the United States, further narrowing the applicability of the first
sale doctrine, which underpins the ability of libraries to loan books.

The Ninth Circuit had previously ruled in a closely watched case
(Omega S.A. v. Costco Wholesale Corp.) that the first sale doctrine
applies to copies made outside the United States but only after the
copyright owner has authorized a sale here. The Supreme Court, in a
4-4 vote, left the Ninth Circuit ruling in place, but it is not
binding on any other circuit.

"The Second Circuit's decision is actually worse than the Ninth
Circuit's decision in Costco in a manner significant to libraries,"
wrote Jonathan Band on ARL Policy Notes.

Band goes on to say:

    "The Ninth Circuit realized that its interpretation had a negative
policy impact in that it encouraged the outsourcing of printing jobs
and it prevented a resale market in copyrighted goods. So, the Ninth
Circuit created an exception to its interpretation, and ruled that the
FSD [first sale doctrine] still applied to a foreign manufactured copy
if it was imported with the authority of the U.S. copyright owner.
Thus, if a library buys a foreign printed book from an authorized
dealer in the U.S., the FSD applies to that book and the library can
lend it."

The ruling by the Second Circuit, however, puts that exception in
jeopardy and could create uncertainty in the secondary market (which
includes libraries). District Judge J. Garvan Murtha, in a dissenting
opinion, wrote:

    An owner first would have to determine the origin of the
copy—either domestic or foreign—before she could sell it. If it were
foreign made and the first sale doctrine does not apply to such
copies, she would need to receive permission from the copyright
holder. Such a result would provide greater copyright protection to
copies manufactured abroad than those manufactured domestically: Once
a domestic copy has been sold, no matter where the sale occurred, the
copyright holder's right to control its distribution is exhausted. I
do not believe Congress intended to provide an incentive for U.S.
copyright holders to manufacture copies of their work abroad."

Murtha wrote that the place of manufacture was irrelevant if a copy
was authorized:

    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. Here, Wiley, the U.S. copyright holder, authorized its subsidiary
to manufacture the copies abroad, which were purchased and then
imported into the United States."

Band wrote that the majority's ruling means that libraries in the
Second Circuit that want to lend copies manufactured abroad "must
[now] rely on fair use or the ambiguous exception in 17 USC
602(a)(2)(C) that allows a library to import 5 copies (except
audiovisual works) for lending purposes, but doesn't specifically
allow the library to actually lend those copies."

However, the court's majority said that it was necessary to resolve
some of the tension between the fair use doctrine and Section
602(a)(1) of the Copyright Act, which "seemingly seeks to give
copyright holders broad control over the circumstances in which their
copyrighted material may be imported (directly or indirectly) into the
United States."

That section says that it is an infringement of a copyright owner's
rights to acquire a work abroad and import it into the U.S. if the
copyright owner has not given permission to do so.

That law "is obviously intended to allow copyright holders some
flexibility to divide or treat differently the international and
domestic markets for the particular copyright item," Judge Jose
Cabranes wrote.

Kirtsaeng's lawyer, Sam Israel, criticized the court's ruling for
"writing the first sale doctrine out of the statute," Reuters

The Second Circuit includes New York, Vermont, and Connecticut; the
Ninth Circuit includes California, Oregon, Washington, Idaho, Montana,
Nevada, Arizona, Alaska, and Hawaii.

Manon Anne Ress
Knowledge Ecology International
1621 Connecticut Ave, NW, Suite 500
Washington, DC 20009 USA
manon.ress at keionline.org

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