In Kirtsaeng v. John Wiley & Sons, the U.S. Supreme Court ruled that the “first sale” doctrine applies to copies of copyrighted works lawfully made and purchased outside the U.S. and then imported for resale in the U.S. – even if imported without the copyright owner’s permission.  This holding has substantial implications for businesses that make or have made products for sale or use abroad that are of a different quality or price point than those sold by the business in the U.S., as they could find themselves competing against sellers of less expensive versions of their own products in the U.S.

The “first sale” doctrine is part of the U.S. Copyright Act and gives the purchaser of a copyrighted work, such as a book, CD or DVD, that is “lawfully made under [the Copyright Act]” the right to sell or otherwise dispose of the copy without the copyright owner’s permission.   Until the “first sale” occurs, the copyright owner has the exclusive right to distribute the work.  In the case before the Court, a textbook publisher published textbooks both in the U.S. and abroad through a foreign subsidiary, with the foreign textbooks (that could be similar but not identical to the U.S. versions) often selling for a cheaper price.   Kirtsaeng, a Thai citizen attending Cornell University, had friends and family in Thailand buy the foreign, cheaper textbooks and ship them to him in the U.S., where he resold them online for a profit.

The publisher sued Kirtsaeng claiming his reselling constituted an infringement of the publisher’s exclusive right to distribute its copyrighted textbooks.  Kirtsaeng replied that the books were “lawfully made” and purchased abroad so the “first sale” doctrine permitted him to resell them.  The courts below ruled that Kirtsaeng could not raise the “first sale” defense because the books were manufactured outside the U.S., and thus were not “lawfully made under the [Copyright Act],” even if made abroad with the publisher’s permission.  But the U.S. Supreme Court disagreed,  stating that a plain reading of the phrase “lawfully made under the [Copyright Act]” means “in accordance with” or “in compliance with” the Copyright Act, and did not mention  geography nor did it impose a geographic limitation.  Thus, since the textbooks were lawfully made abroad (with the publisher/copyright owner’s permission) and purchased, the “first sale” doctrine entitled Kirtsaeng to resell the books in the U.S., irrespective of the publisher’s wishes.

So what can publishers or manufacturers do to combat the importation of their own “gray market” goods being re-sold in the United States?  First, make sure the imported goods are genuine.  The Court’s holding does not sanction the domestic resale of counterfeit goods made abroad.  A key point in the case is that the books re-sold by Kirtsaeng were lawfully made.  The “first sale” doctrine does not apply to counterfeit sales.  Second, the owner could license, rather than sell, copies of works abroad to avoid the application of the “first sale” doctrine.  The “first sale” doctrine only allows the owner of a copy, not a mere licensee, to sell or dispose of that copy. The owner could also sell its foreign products under a different trademark or title to distinguish them from domestic versions of the product, perhaps reducing the likelihood that domestic consumers will consider them equal.  A final option is to wait it out.  It is likely that certain industries, like publishing, will seek relief through federal legislation that overturns or limits the effect of the Court’s ruling.

For additional information, please contact Albert Carrion or Joe Orlet.

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Photo of Albert Carrion Albert Carrion

Albert is an intellectual property attorney on Husch Blackwell’s Technology, Manufacturing & Transportation team. He advises clients concerning the licensing, development, ownership and protection of intellectual property assets, such as software, trademarks, trade secrets, patents and domain names and the transfer of technology and IP in the context of corporate mergers, acquisitions and asset sales. He prosecutes trademark applications before the U.S. Patent and Trademark Office and handles trademark disputes at the Trademark Trial and Appeal Board. Albert also handles litigation relating to the ownership, use and infringement of all forms of intellectual property, with an emphasis on patent litigation.