First-Sale Doctrine Includes Goods Made and Sold Abroad, Supreme Court Rules

Copyrighted material legally manufactured and sold abroad may be imported and sold in the U.S. without the copyright holder’s permission, the Supreme Court ruled. The decision reversed the 2nd U.S. Circuit Court of Appeals’ ruling in the case, and also settled splits between several circuits on whether the doctrine applies to goods legally made and sold abroad.

During oral argument in October, Justice Stephen Breyer, who wrote the majority opinion, voiced concern that affirming the lower court’s ruling would mean that U.S. copyright holders would maintain control over all “downstream” sales of copyrighted goods that have been manufactured abroad.

The case hinged on interpretation of the phrase “lawfully made under this title,” Breyer wrote. Wiley said the phrase means that the first-sale provision only applies to works legally made under the Copyright Act, where the Copyright Act is applicable. To be made “under this title,” a work must be made in the U.S., Wiley argued. The doctrine therefore doesn’t apply to foreign-made works, and Wiley retains its copyright on foreign-made works even when ownership is transferred, it said.

The Supreme Court, however, said the phrase “lawfully made under this title” does not restrict the doctrine to U.S.-made works. First, works can be made in accordance with the Copyright Act even if manufactured abroad, it said. “Under” in the context of Copyright Act Section 109 can be reasonably interpreted as “in accordance with,” and other provisions of the Copyright Act apply to foreign-made works. A ruling in favor of Wiley would also be contrary to long-held tenets of common law, the ruling said. Where a statute covers an issue previously governed by common law, Congress presumably intended to retain the common law’s substance, the majority said.

Finally, a finding for Wiley would also result in serious practical problems, said the majority. “Reliance on the ‘first sale’ doctrine is also deeply embedded in the practices of booksellers, libraries, museums, and retailers, who have long relied on its protection,” the court said. Consumer electronics devices often incorporate “copyrightable software programs or packaging,” the court said. “A geographical interpretation would prevent the resale of, say, a car, without the permission of the holder of each copyright on each piece of copyrighted automobile software. ... Without that permission a foreign car owner could not sell his or her used car.” It is unlikely these consequences would prove to be insignificant, the court said, “particularly in light of the ever-growing importance of foreign trade to America.'

Justices Elena Kagan and Samuel Alito filed a concurring opinion that encouraged any discrepancies with the ruling to be resolved by reconsidering Quality King Research v. L'anza Research. “If Congress thinks copyright owners need greater power to restrict importation and thus divide markets, a ready solution is at hand -- not the one John Wiley offers in this case, but the one the Court rejected in Quality King,” Kagan wrote.

In a dissenting opinion, Justices Ruth Bader Ginsburg, Anthony Kennedy and Antonin Scalia challenged the court’s non-geographical interpretation and “the absurd consequences imagined” in the opinion. “A ruling in Wiley’s favor, the Court asserts, would shutter libraries, put used-book dealers out of business, cripple art museums, and prevent the resale of a wide range of consumer goods, from cars to calculators,” Ginsburg wrote. But these consequences could be handled with “other statutory provisions,” she said. “Principles of fair use and implied license (to the extent that express licenses do not exist) would likely permit the car to be resold without the copyright owners’ authorization.”

Library, fair-use and other groups cheered the ruling. It’s a “total victory for libraries and our users,” the American Library Association and Library Copyright Alliance said in a joint statement. They said the decision “ensures that libraries can rely on the critically important principle of first sale to continue lending the estimated 200 million foreign-made volumes in our collections,” and rejects those who “sought a right of perpetual control” over sold materials. New America Foundation fellow Marvin Ammori said a ruling for Wiley “would have been modern ’stuff-feudalism.’ We wouldn’t own the physical stuff we bought. We'd be renters” (http://bit.ly/14ajype).

The ruling affirms that “you bought it, you own it,” said Andrew Shore, executive director of the Owners’ Rights Initiative. It includes the Computer and Communications Industry Association, eBay, Etsy, Internet Commerce Coalition, Overstock.com and Redbox. But the group expects “some will continue attempts to eliminate owners’ rights, reduce competition in the marketplace and restrict the global trade of authentic goods,” he said. It’s “unsettling” that Wiley and allies “made it to the Supreme Court,” said Public Knowledge Vice President of Legal Affairs Sherwin Siy. “We were almost in a situation where anyone that held a garage sale or loaned a book to a friend could be in violation of copyright law.” That close call should prompt “a larger conversation about copyright reform ... to restore the balance of the law between the interests of authors, copyright holders, and the public,” he said. (http://bit.ly/1381psK).

A leaked draft of text in the Trans Pacific Partnership agreement shows the agreement would require a change in U.S. law following the high court ruling, said Sean Flynn, associate director of American University’s Program on Information Justice and Intellectual Property. That draft says parties to the treaty would give “phonogram” copyright owners the right to prohibit importation of copies without authorization, and other free-trade agreements in effect now have “pretty much this precise language,” he said. That means publishers and others will probably demand a change in U.S. law to comply with existing agreements, he said.

Copyright groups said it would be harder for U.S. companies to compete abroad under the ruling. It will be “to the detriment of the long-term economic interests of the United States, and particularly its creative industries,” said MPAA. “We plan to study the decision further before determining the most appropriate action for us to take.” Quoting Ginsburg’s dissent, Association of American Publishers President Tom Allen said the ruling was a “'bold departure’ from Congress’ intention ’to protect copyright owners against the unauthorized importation of low-priced, foreign made copies of their copyrighted works’ that is made ‘more stunning’ by its conflict with current US trade policy.” The ruling was based on a “narrow question of statutory construction” and it will “discourage the active export of US copyrighted works,” Allen said in a statement: “It will also reduce the ability of educators and students in foreign countries to have access to US-produced educational materials, widely considered the world’s gold standard.” He said the group is “prepared to participate” in congressional review of the decision.