Vedder Thinking | Articles Supreme Court Exhausts Copyright Owners' Rights in Gray Market Goods Dispute
If you sell products or other merchandise in international markets that are protected under U.S. copyright laws, the recent opinion by the U.S. Supreme Court in Kirtsaeng v. John Wiley & Sons, Inc. affects your ability to control the resale of such products. The opinion, issued on March 19, 2013, has wide-reaching effects for publishers of literary works (the category of works under which some software falls) and for other copyrighted goods. Under the first sale doctrine, the purchaser of a copyrighted work is free to distribute, sell, rent or dispose of the work as he or she sees fit. In a 6–3 decision, the Supreme Court decided that the first sale doctrine applies to copies of copyrighted goods lawfully made abroad. The purchaser was free to resell the purchased work in the United States at a much higher price than it was purchased for abroad.
The so-called “gray market,” or the sale of goods legally purchased abroad and then imported and resold at an increased price, is an issue that international sellers have struggled with for years, particularly as global trade has increased. One estimate places the cost to U.S. sellers at as much as $63 billion in sales each year. The incentive for such an arbitrage opportunity presents numerous difficulties for sellers who want to price their goods differently in different geographic locales around the globe. Individuals, companies and retail stores have taken advantage of the opportunity that the price differential presents, and the sellers of the goods struggle to keep pace and restrict these practices.
Supap Kirtsaeng is an individual who took advantage of the arbitrage opportunity presented by publisher John Wiley & Sons Inc. in the price differential between English-language textbooks sold in the United States and those sold abroad. After losing at the district and appellate court levels, he took his case all the way to the Supreme Court and prevailed. Kirtsaeng, a Thai citizen, came to the United States to attend college and eventually obtained his Ph.D. During his studies, Kirtsaeng arranged to have his family and friends purchase English-language textbooks in Thailand at a discount relative to U.S. prices and then sold them in the United States for a profit via the Internet. The unique nature of this case is that the textbooks purchased in Thailand were produced by John Wiley & Sons’ Asian affiliate. Despite the inclusion of a prohibition against importation into the United States printed in the textbooks, the Supreme Court held that the first sale doctrine applies to sales of goods lawfully manufactured and purchased abroad and thus the copyright owner’s rights were exhausted. Kirtsaeng was then allowed to dispose of the books as he wished, including reselling them for a profit in the United States.
In reaching the decision, the majority declined to read a geographic limitation into the copyright statute. In doing so, the responsibility for changing the law is in the hands of Congress. While there is no indication at this time that Congress will take up the issue, sellers of goods protected via copyright may take action and might need to revisit their practices for selling goods abroad at differing prices if the goods may easily be resold in the United States. While this decision limits a copyright owner’s remedies for lawful purchases of protected goods, there might be restrictions and/or protections that may be imposed on distributors or producers of the goods to protect sellers’ business practices.
If you have questions about this article, please contact John E. Munro at +1 (312) 609 7788 or your Vedder Price attorney.
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