Supreme Court mulls limits of first-sale doctrine when it comes to imports

DVDs and CDs may be going the way of the 8-track tape, but Hollywood is watching a Supreme Court case that has to do with what happens to all that stuff — namely whether buyers have complete leeway to resell such content at garage sales, at swap meets or even on eBay.

At issue is the “first-sale doctrine” and whether it applies to products that are manufactured abroad, brought in to the United States and then resold. The doctrine gives copyright owners right to control the first sale of a work, but that exclusivity generally ends after a buyer purchases it and makes a sale afterward.

Studios and record labels think the law clearly limits the first-sale doctrine to U.S. works, and, seeing the case’s outcome as a possible threat to their business model, warn that for the high court to rule otherwise could upend distribution windows, cannibalize foreign film releases in the U.S. and even cut into domestic film releases. Retailers and Internet firms say that without the first-sale doctrine applying to foreign-made works, copyright holders gain an almost absurd control over the distribution chain.

The case — set for oral arguments on Monday — concerns Supap Kirtsaeng, a Thai native who came to the U.S. to attend Cornell U. and found that the textbooks published in Asia by Wiley & Sons were much cheaper than the same editions available in the U.S. So he got relatives to buy them, ship the books to him in the U.S., and then sold them on eBay and other sites. John Wiley & Sons sued for copyright infringement, won in district court and again in appellate court.

The MPAA and the RIAA, which jointly filed an amicus brief in the case, say that a pro-Kirtsaeng ruling would impede their ability to divide markets. Studios and record labels, they say, “could face a significant threat of harm from unauthorized importation, contrary to the balance of rewards and incentives Congress struck in the Copyright Act.”

“Extending the first-sale doctrine to copies made abroad for distribution in a foreign market could impede authors’ ability to control entry into distinct markets, limit their flexibility to adapt to market conditions, or undermine territorial licensing agreements,” the two orgs said.

The language of the law is what has drawn conflicting interpretation. Under the “first-sale doctrine,” the buyer of a copyrighted work “lawfully made under” the Copyright Act can resell or “otherwise dispose” of it without getting permission from the copyright owner. Another provision, however, prohibits the importation of goods bought outside the U.S. without first getting permission of the copyright owner.

Those who side with resellers say that the latter provision can be taken to ridiculous lengths. As John Villasenor wrote on Slate this week, “You would think that the bookstores and newsstands in the airports in Toronto and London are fairly innocent enterprises. Yet, perhaps they are in infringement cahoots with the legions of airline passengers who purchase reading materials for their flights to the United States and — the gall — fail to abandon them on the plane when disembarking.”

Taking it a step further, he points out that it’s not easy to even determine where an item is manufactured. So if you buy a CD in the U.S., but it was manufactured overseas, and then resell it, are you guilty of infringement? That’s why there’s some consternation in the legal community that a ruling in favor of Wiley could mean that copyright holders move more production overseas as a way of controlling the resale in secondary markets — although Wiley dismisses this prospect. The MPAA and the RIAA call such dire scenarios a “parade of horribles,” and note that the Copyright Act includes many exceptions that shield isolated cases of unauthorized importation “that pose only insubstantial harm to the copyright owner.”

Nevertheless, museums and libraries already have expressed fears that a ruling in favor of Wiley could limit their ability to display artwork made overseas by U.S. artists, or lend out books produced in foreign countries.

Aaron Moss, partner at Greenberg Glusker, was part of the team that represented Costco when an issue came before the Supreme Court in 2010, ending in a deadlock. Watchmaker Omega argued that Costco violated its copyright when it imported watches from abroad without its consent and then sold them for far less than Omega’s retail price.

“Certainly there is a concern about having unauthorized copies of works disseminated without permission, but what we are really talking about in most of these cases is a situation where a copyright owner already has made an authorized sale,” Moss said. The ironic result, he says, is that “goods manufactured overseas enjoy greater protection that goods in the United States. It makes no sense.”

The case may have the air of a 20th century problem being hashed out in the digital age, but as many have pointed out, this involves a whole host of products made ever more available to consumers looking for bigger and better deals.

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