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"A Bookseller's Worst Nightmare" by Margarita Golden

A Bookseller's Worst Nightmare

by Margarita Golden

The start of the fall and spring semesters in medical schools, law schools and graduate schools across the country, marks the commencement of textbook season. Students experienced in the art of discount scour websites such as Half.com and Amazon in order to get books in as good of a condition as possible, without paying a sum of money that could make up half of one's monthly rent. And if the student has chosen to load up on classes, then maybe even the whole of one's monthly rent. During textbook season, many students double as educated consumers and reputable, sometimes profitable, textbook resellers. Careful with their books throughout the year, they prepare them for resale when the time comes, and sometimes sell at a profit high enough to buy another textbook, and maybe if they're lucky, a pack of highlighters.

Within any community of students, it is well understood that when a publisher creates a subsequent edition to a textbook, very little key information has changed and while it is enticing to be frugal and get an earlier edition, it is likewise common to purchase the newer edition for the sake of owning a brand new textbook and not having to worry about information that may not have been included in the earlier edition. Therefore, while many students engage in reselling used books, others are sellers of brand new copies, and it is unlikely that either set of students would think to worry about copyright infringement when they act as resellers. But should they?

Section 106 of the Copyright Act lays out the exclusive rights of the copyright owner and her ability to authorize the reproduction of the copyrighted work in copies or phonorecords, her right to derivative works, and among other rights, the right "to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease or lending." See 17 U.S.C. §106. It therefore follows that any unauthorized public distribution of copies or phonorecords that were unlawfully made will result in an infringement.

Section 109 of the Copyright Act, on the other hand, provides that while the above is true, the copyright owner's exclusive right to distribution is limited, and ceases to exist with respect to the particular copy or phonorecord once he has parted with ownership of it. See 17 U.S.C. §109(a). Section 109, also known as the first sale doctrine, functions as an exception to Section 106(3), in that it substantially limits the right of distribution.

The seminal case in this area, Bobbs-Merrill Company v. Straus, begs mention here. See 210 U.S. 339 (1908). In Bobbs-Merrill, the publisher was engaged in the sale of a copyrighted novel and notified the public that no other may sell the book for a lower price, and doing so would be an infringement. Id. at 341. Defendant R.H. Macy & Co. subsequently purchased the novel in bulk from a wholesaler and began to sell it on their own, and this suit followed. Id. At issue in the case was whether a copyright owner's Section 106(3) "sole right to vend secure to the owner of the copyright the right, after a sale of the book to a purchaser, to restrict future sales of the book..." Id. at 350. The Court's ruling established what came to be known as the "first sale doctrine", finding that copyright law gave the copyright owner the right to restrict others from making their own copies of a work. See id.

However, in doing so, the Court did not also confer upon copyright owners a right to control what happens to the books after the sale is done and over with. Additionally, while the Court held that a copyright owner's right to "multiply and sell" the work on their own terms is protected by the copyright statutes, the statutory right to sell did not simultaneously create a right to limit the resale of said books. See id.

Like many of the students mentioned above, Supap Kirtsaeng, a graduate student and Thai native, resold college textbooks in order to help recoup the cost of his education. The textbooks, however, were manufactured overseas by the Asian subsidiary of the John Wiley & Sons Publishing Company, and as a result, Kirtsaeng was able to resell the books for a higher price on eBay. See Utsav Rai, Supreme Court Hears Case Over Textbook Resale, CORNELL SUN, Nov. 5, 2012, http://www.cornellsun.com/section/news/content/2012/11/02/supreme-court-hears-case-over-textbook-resale. The Publishing Company subsequently sued Kirtsaeng in District Court, arguing that Section 602(a) of the Copyright Act made it unlawful to "import a work without the authority of the owner." Id.; see also 17 U.S.C. §602(a)(2) (providing that such importation into the United States of unauthorized copyright works constitutes an infringement of the exclusive right to distribute copies or phonorecords under Section 106).

In response, Kirtsaeng asserted the first-sale doctrine codified in Section 109(a) of the Copyright Act, arguing that a legally purchased copyrighted work may be sold without obtaining the copyright owner's permission. The district court as well as the Second Circuit sided with the Publishing Company, in that Section 602(a) provides for infringement where importation to the United States consists of copyrighted works acquired outside of the States and without the authority of the copyright owner. According to the courts, it therefore follows that Section 109(a), likewise only applies to works that are made in the United States, thereby causing Kirtsaeng's defense of the first-sale doctrine to fail. Id. The issue in front of the Supreme Court was the meaning of "lawfully made under this title" as stated in Section 109(a). 17 U.S.C.A. § 109(a). If the Publishing Company is correct, then "lawfully made under this title" directly refers to the part of Section 602(a) that reads "in the United States" and then Kirtsaeng's defense truly does fail.

Enter Quality King Distributors Inc. v. L'anza Research International, Inc. In that case, L'anza, a California manufacturer of hair care products sued Quality King Distributors for "importing" its U.S. made products via L'anza's United Kingdom distributor. 523 U.S. 135. The arrangement was quite simple and, just like Kirtsaeng's above, a lucrative one. L'anza, in an effort to widen its business's reach, engaged in sales in foreign markets by establishing strong relationships with distributors who were to sell L'anza products to its local retailers. See id. Quality King, a large New York based reseller of products at discounted prices, arranged for purchase of the L'anza products through the U.K distributor: a plain vanilla, gray market maneuver.

At the trial level, Quality King's first sale defense under Section 109(a) was rejected and the district court claimed that allowing such a defense would swallow up the purpose of Section 602(a), which gave copyright owners the right to prohibit the unauthorized importation of copies. Id. at 136. Just like for Kirtsaeng at the trial level, Quality King's defense failed. When Quality King made its way to the Supreme Court, however, its luck turned around. Id. The Court held that Section 602(a) "merely provides that unauthorized importation is an infringement of an exclusive right," and since 602(a) refers to the distribution right in 106(3), that right is not violated when the importation or resale results from a lawful owner. Id. Moreover, "§602(a)'s literal text is simply inapplicable to both domestic and foreign owners of L'anza's products who decide to import and resell them here." Id. ("After the first sale of a copyrighted item "lawfully made under this title," any subsequent purchaser, whether from a domestic or a foreign reseller, is obviously an "owner" of that item. Read literally, § 109(a) unambiguously states that such an owner "is entitled, without the authority of the copyright owner, to sell" that item.").

The Court ruled for Quality King, and when the Court addressed the question of what "lawfully made under this title" means, the answer flowed smoothly. Section 109(a) states, "[t]he owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord." Id. The Court interpreted "lawfully made under this title..." to mean "made in the United States." In Quality King, therefore, the first sale defense worked to its advantage.

Kirtsaeng's defense would have been a home run if it weren't for Omega S.A. v. Costco Wholesale Corp. See 541 F.3d 982, 987 (9th Cir. 2008). In Omega's suit against the bulk-buying club Costco, the Ninth Circuit ruled that Section 109(a) was not a defense to the issue at hand. Being careful not to arrive at a ruling that was contra Quality King, it expressly held that Section 109(a) wasn't a defense, but for different reasons. Omega, a watchmaker, made copies of its Omega Globe Design in Switzerland, and Costco thereafter sold the copies without Omega's authority in the United States.

Given these facts, Omega's main argument was that Quality King doesn't apply because unlike L'anza's products in Quality King, Omega's products were designed and manufactured overseas. Section 109(a), therefore, is no defense to Section 602(a) infringement claims, since items made overseas were not "lawfully made under this title . . . " a factor that must be met in order for the 109(a) defense to apply. Id. Quality King, on the other hand, used the Section 109(a) defense, and rightfully so. The Ninth Circuit in Omega described the actions in Quality King as a round-trip importation, specifically, "a product with a U.S.-copyrighted label was manufactured inside the United States, exported to an authorized foreign distributor, sold to unidentified third parties overseas, shipped back into the United States without the copyright owner's permission, and then sold in California by unauthorized retailers." Id.

Therefore, as both the Supreme Court in Quality King and the Ninth Circuit in Omega demonstrated, Quality King was properly decided, and Section 109(a) applied as a defense to Section 602(a). But according to the Ninth Circuit, only because the copies were initially made in the United States, and then exported to the foreign distributor. Whilst here, Omega's copies were originally manufactured and designed in a foreign market. See id.

Additionally, the court in Omega brought up an argument from Quality King that almost literally speaks to Kirtsaeng's case. The Court opined:

[A] publisher of [a] U.S. edition [of a work] and a publisher of [a] British edition of the same work, each such publisher could make lawful copies. If the author of the work gave the exclusive United States distribution rights-enforceable under the Act-to the publisher of the United States edition and the exclusive British distribution rights to the publisher of the British edition, however, presumably only those made by the publisher of the United States edition would be 'lawfully made under this title' within the meaning of § 109(a). The first sale doctrine would not provide the publisher of the British edition who decided to sell in the American market with a defense to an action under § 602(a). Id. at 989 (citing Quality King, 523 U.S. at 148) [emphasis added].

Therefore, if Quality King, and, in turn, the Omega rulings, are consistent, it should also follow that Kirtsaeng's defense fails. The court in Omega brings up several points that are definitely worth mentioning. First, if Section 109(a) were to equally apply to works manufactured inside and outside of the United States, then United States Copyright law would be extending itself extraterritorially. Id. at 987. Needless to say, countries other than the United States are well equipped to protect their own copyrights without having to subject themselves to U.S. law. Another key point is that Section 602(a) would be rendered meaningless "as a tool against the unauthorized importation of non-piratical copies because importation is almost always preceded by at least one lawful foreign sale that will have exhausted the distribution right on which § 602(a) is premised." Id. at 986.

At oral argument, Kirtsaeng's attorney brought up some important points in front of the Court. See James G. Ryan, Copyright Issues in Textbook Case, Nov. 19, 2012, http://www.jdsupra.com/legalnews/copyright-issues-in-textbook-case-26428. He argued that secondary markets, such as eBay, Craigslist, and the typical garage sale, all of which thrive off of the resale business, would all be forced to shut down if individuals were not permitted to resell works in the United States which they have brought in from other parts of the world. Id. Additionally, during the same oral argument, Justice Stephen Breyer brought up some important hypothetical situations. He asked, "[d]oes that mean that consumers violate copyright law when they resell their cars?" Id.

Naturally, we want to encourage the resale of products that have already been entered into the marketplace by the copyright owner. While the copyright owner has the "right to vend", this exclusive right is limited to the first sale of the copyrighted work. Quality King, 523 U.S. at 135 (see also Bobbs-Merrill Co., 210 U.S. 339). Indeed, eBay wouldn't be eBay without the gray market and without consumers endlessly turning to the gray market for all sorts of goods. According to a 2009 Deloitte LLP analysis conducted by Bloomberg, approximately $63 billion in sales resulted from goods that were entered into the gray market. Greg Stroh, Discounted 'Gray Market' Goods Draw Top U.S. Court Review, BLOOMBERG, Apr. 16, 2012, http://www.bloomberg.com/news/2012-04-16/discounted-gray-market-goods-draw-top-u-s-court. This in turn, represents a multi-billion dollar benefit to American consumers, a benefit which the Retail Industry Leaders Association highlighted in their brief, urging the Court to take on Kirtsaeng's case. The Retail Industry Leaders Associations is comprised, among others, of Wal-Mart, Target Corp, Costco Wholesale Corp, and EBAY, Inc. Id.

Kirtsaeng is effectively asking the Court to turn a blind eye on the source of manufacture, an important consideration for deciding issues such as these. Without this consideration, the logical conclusion is easy: as long as the goods were, at some point, purchased legitimately from the copyright owner, the rest is history. The first sale doctrine and the language of 109(a), "lawfully made under this title . . . " would wholeheartedly apply to goods that were purchased (and made) inside or outside of the United States; in effect, cancelling out Section 602 by using 109(a) as the ultimate defense. 17 U.S.C.A. § 109.

This case deserves a close watch, as its result will surely take a toll on eBayers and their equivalents everywhere. And as the next textbook season rolls around, students needing money for textbooks may find themselves filling out employment applications at the local Starbucks.

Margarita Golden is a third-year law student at the Benjamin N. Cardozo School of Law, with concentrations in both Intellectual Property and Litigation. In addition to being an Associate Editor of the Cardozo Arts and Entertainment Journal, she is currently a legal intern for the Business and Legal Affairs Department at Sony Music, and summered at the St. Petersburg office Hannes Snellman.

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This page contains a single entry from the blog posted on February 17, 2013 6:06 PM.

The previous post in this blog was "A New Asylum: Examining The Insanity Of Solitary Confinement For Mentally Ill Inmates" by Benjamin Pomerance.

The next post in this blog is "Beyond Boilerplate: Drafting Considerations For The Force Majeure Clause In Real Estate Deals" by Michael Liptrot .

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