Thursday, October 25, 2012

Attraverso: Supreme Court to hear major gray-market case

By Professor Jeffery Atik

On Monday, Oct. 29, the U.S. Supreme Court will hear arguments in *Kirtsaeng v. John Wiley & Sons, Inc.*, a case that promises to resolve (finally) whether the first-sale doctrine applies to copyrighted works produced and sold abroad and then imported into the United States. It is no small surprise that this is an open question, as the current U.S. copyright act has been in place since 1976. And the copyright first-sale doctrine is older than that.

Compare the situation in Europe, where the European Court of Justice has long ago established that exhaustion (corresponding to the first-sale doctrine) occurs with full effect throughout the European territory, notwithstanding the national character of most European IP rights. A copyright holder which sells a book in France may not use its German copyright to block the importation or resale of that book in Germany.

But not so with respect to IP protected goods first sold outside of Europe: these goods may be blocked by the IP right holder when introduced to the European market. Thus, it is said that the Europeans practice regional exhaustion (first-sales within European cut off IP rights), but not international exhaustion (IP right holder retain rights with respect to goods first sold outside Europe).

The Europeans largely treat intellectual property as a unified subject - and so exhaustion (i.e. the first-sale doctrine) is applied consistently across the three major branches of IP: copyright, patent and trademark. The American story is, to put it mildly, more complex. Each federal statute (the Copyright Act, the Patent Act, the Lanham Act) is independent of the other; each has its own peculiar (and arcane) formulations, defining the rights a holder enjoys.

And so the treatment of the first-sale doctrine with regard to foreign sales has largely depended on judicial clarification which has been slow in coming. As things stand, we are fairly sure that a foreign sale by an affiliate of a holder of a U.S. registered trademark does exhaust the trademark holder's ability to prevent importation. But - and this is a significant exception - this is not so when the imported good bearing the trademark differs importantly in some technical aspect that would lead to consumer disappointment. The patent story appears to have been finally resolved by the Jazz Photo rulings: a foreign sale of a product produced by the U.S. patent holder does not eliminate the right of the patent holder to block its subsequent importation.

Kirtsaeng should answer the counterpart exhaustion question for copyright. Kirtsaeng was a U.S.-based graduate student at the time of the asserted infringement. Through relatives in Thailand, he procured used copies of the "Asian editions" of textbooks produced and sold there by Wiley and then imported these into the United States. He then resold them (chiefly via eBay) at prices much lower than what Wiley charged on its American editions. Wiley sues Kirtsaeng for infringement; Kirtsaeng defends invoking the first-sale doctrine provided by Section 109 of the Copyright Act. Wiley maintains the first-sale doctrine does not apply to foreign sales.

The Copyright Act is a particularly messy statute - which accounts for an open dispute on what would appear to be a fairly basic principle. Section 602 provides that importation of copies without the authority of the U.S. copyright holder is an infringement - but it indirectly links infringement-by-importation to Section 109's first-sale doctrine. And so much of Monday's oral argument will focus on Section 109.

Section 109 provides that the first-sale doctrine applies to copies "lawfully made under this title," whatever that means. Wiley of course will assert that the "lawfully made under this title" limitation restricts the first-sale doctrine to copies made in the United States - and hence foreign produced copies, such as the books Kirtsaeng imported, infringe Wiley's copyright when imported into the United States. But "lawfully made under this title" may have different meanings. The "title" invoked by Section 109 (that is, the Copyright Act) extends protection to works of authorship wherever they are created - in this regard, the territorial scope of the U.S. Copyright Act is global. "Made" may not equate to 'manufactured'. And so the argument may focus on quite subtle textual distinctions.

Or not. There's enough textual confusion in the Copyright Act with regard to international exhaustion that the Court may reach its judgment on broader policy considerations. After all, Kirtsaeng only raises a question of statutory interpretation, and here Congress has the last word if its disagrees with the Court's eventual ruling. A recent attempt to resolve this same question, *Costco v. Omega*, ended with a deadlocked 4-4 vote, suggesting that there is considerable internal differences of view and that Justice Kagan, recused in Costco, will be the deciding vote.

Follow the author on Twitter @jefferyatik. The author thanks to Christina Perrone for research assistance.

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