John Wiley & Sons v. Kirtsaeng

In John Wiley & Sons Inc., v. Kirtsaeng, __ F.3d __, 2011 WL 3560003 (2d Cir. Aug. 15, 2011), the Second Circuit took a stand against parallel importation of copyrighted works made under the authority of the U.S. copyright owner in a foreign country. In doing so, it aligned itself with the Ninth Circuit in Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982 (9th Cir. 2008), aff'd 131 S. Ct. 565 (2010) and four of the eight Supreme Court Justices ruling on Costco's appeal. Justice Elena Kagan had recused herself, having opposed Costco's petition for certiorari when still in the Justice Department.

At issue in Wiley was an interpretation of what it means for a work to have been “lawfully made under” the Copyright Act. For some, the answer is simple. They believe it means that the work must be made in the United States, noting that the Act has no extra-territorial effect. Others counter that it means made anywhere, as long as it is made by the U.S. copyright owner, reasoning that lawfully made under the Act means not unlawfully made under the Act. For some, the issue seems to turn on whether they believe that the answer will affect where U.S. book publishers make their books. In any event, unless this case makes it to the Supreme Court, the Ninth and Second Circuits have now spoken on this issue and supported the use of copyright law to combat parallel imports.

The District Court Rules in Favor of Wiley

John Wiley & Sons, Inc. (“Wiley”), the owner of the U.S. and foreign copyrights, assigned the rights to publish certain foreign editions of its copyrighted textbooks to its Asian subsidiary and limited sale of such books to foreign countries. John Wiley & Sons Inc., v. Kirtsaeng, 2011 WL 3560003, at *1. Wiley retained the U.S. copyright and the rights to distribute its books within the United States. Id.

Supap Kirtsaeng was an undergraduate student at Cornell University, later moving to California to pursue a doctoral degree. Id. at *2. He realized that foreign editions of textbooks sold for much less in Asia than they did in the United States. Id. He arranged with friends and family to purchase the foreign editions in Thailand and ship them to the United States, where he sold them on eBay and other commercial websites. Id. Wiley sued Kirtsaeng for, inter alia, infringing its U.S. copyright under 17 U.S.C. ' 501. Id.

Kirtsaeng argued that the first sale doctrine (codified in 17 U.S.C. ' 109(a)) was a defense to Wiley's charge of copyright infringement on the grounds that Wiley itself had authorized the sale of the books, thereby allegedly exhausting its U.S. copyright. Id. However, the district court held that the first sale doctrine was not a defense to infringement for works manufactured outside the United States, since such items are not “lawfully made under” the Copyright Act. John Wiley & Sons, Inc v. Kirtsaeng, No. 08 Civ. 7834, 2009 WL 3364037 at *5 (S.D.N.Y. Oct. 19, 2009). Accordingly, the district court rejected Kirtsaeng's application of the first sale defense, on the grounds “there [was] no indication that the imported books at issue here were manufactured pursuant to the U.S. Copyright Act.” Id.

At trial, the jury found that Kirtsaeng was liable for willful copyright infringement and imposed damages of $75,000 for each infringed work. John Wiley, 2011 WL 3560003, at *3. On Kirtsaeng's appeal, the Second Circuit addressed the question of whether the first sale defense applied to works made outside the United States under the authority of the U.S. copyright owner.

Second Circuit Debates Quality King Dicta

Under ' 109(a), an “owner of a particular copy ' 'lawfully made under this title' ' is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy.” 17 U.S.C. ' 109(a). The Second Circuit reasoned that the extent to which ' 109(a) applies to items manufactured abroad depends on the meaning of “lawfully made under [the Copyright Act, 17 U.S.C. et seq.].” Id. at *4. In its analysis, the Second Circuit relied on the text of the statute, the structure of Title 17, and the Supreme Court's dicta in Quality King Distributors, Inc. v. L'anza Research Int'l, Inc., 523 U.S. 135 (1998). Id. at *6.

Wiley contended that “lawfully made under this title” as used in ' 109(a) means “lawfully made in the U.S.” Id. It argued that since Title 17 only applies in the United States, copyrighted items can only be made under Title 17 “if they were physically made in this country.” Id. The Second Circuit disagreed with Wiley's argument at least on a textual reading of the statute, stating that the “relevant text is simply unclear” and finding that the text supported a number of different interpretations. Id. at *7.

The Second Circuit then looked to 17 U.S.C. ' 602(a)(1) and the Supreme Court's opinion in Quality King. Id. Section 602(a)(1) prohibits importation of copyrighted works acquired abroad, without the copyright holder's authorization. The Second Circuit reasoned that if ' 109(a) applied to every U.S. copyrighted work manufactured abroad, then ' 602(a)(1) would essentially have no force. Id. On the other hand, they reasoned that if ' 109(a) applied only to copyrighted works manufactured domestically, a copyright holder could control the importation of the copyrighted items. Id. Accordingly, because of the interplay between ' 602(a)(1) and ' 109(a), the Second Circuit concluded that the first sale defense should only apply to domestically manufactured works. Id.

In addition, although the Second Circuit noted that the Supreme Court's Quality King decision did not specifically address this issue, the Second Circuit found that dicta therein suggested that copyrighted material manufactured abroad is not subject to the first sale doctrine. Id. at *5. The Second Circuit relied on the following hypothetical in Quality King as supporting the “made in the U.S.” limitation:

If the author of the work gave the exclusive U.S. 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.

The Second Circuit also relied on the Supreme Court's observation that ' 602(a)(1) had a broader scope than ' 109(a), because ' 602(a)(1) also encompasses copies that were “lawfully made” under the laws of another country. Id. at *7. The Second Circuit reasoned that the Court viewed works lawfully made under the laws of a foreign country are not necessarily “lawfully made” under
' 109(a). Id.

Accordingly, the Second Circuit held that the first sale doctrine is “best interpreted as applying only to works manufactured domestically.” Id. Therefore, the first sale defense was unavailable to Kirtsaeng because the books in question were manufactured abroad. Id. at *8.

Judge Murtha's Dissent

In dissent, Judge J. Garvan Murtha, sitting by designation, argued that the first sale doctrine should apply to works that enjoy U.S. copyright protection wherever they are manufactured. John Wiley, 2011 WL 3560003, at *10 (Murtha, J. dissenting). Specifically, Judge Murtha argued that “lawfully made under this title” refers to the lawfulness of its manufacture under U.S. copyright law. Id. at *11. Accordingly, regardless of the place of manufacture, a copy authorized by a U.S. rights-holder is lawful under U.S. copyright law, since a U.S. copyright owner may make its own copies or authorize another to do so. Id.

The dissent's conclusion is based, in part, on the fact that in portions of the Copyright Act where the place of manufacture was important, Congress specifically referred to the place of manufacture. Id. The dissent contends that because Congress did not specify “manufactured in the U.S.” in ' 109(a), Congress did not intend to limit ' 109(a) to only copyrighted works “manufactured in the U.S.” Id. at *12. The dissent further supports its conclusion with policy reasons and economic justifications, positing that the majority's decision will incentivize U.S. publishers to shift book manufacture outside the United States. Id. at *12-*13.

Furthermore, the dissent disagrees with the majority's position that ' 602(a) would be meaningless if the first sale doctrine applied to foreign-made copies. The dissent contends that regardless of the application of ' 109(a), ' 602(a) will still apply to unsold or piratical works. Id. at *13. The dissent also disagrees with the majority's interpretation of the Quality King dicta. Judge Murtha viewed the hypothetical presented therein as inapposite, because the issue in Wiley was whether the first sale defense was available to a subsequent purchaser after the U.S. copyright owner sold the copies abroad, not where a first sale had not taken place as in the hypothetical. Id. The dissent also notes that four out of eight Justices presumably did not agree with the majority's interpretation of dicta in Quality King when the issue was squarely before the Court in Omega S.A. v. Costco Wholesale Corp., 131 S. Ct. 565 (2010). Id. at *14.

Conclusion

The Wiley and Omega cases represent strong precedent that copyright law can be used to protect manufacturers against parallel importations of foreign-made copyrighted works. Differences between the foreign-made works and the U.S.-made works, exhausted by actual authorized sales in the United States, can be strong evidence that particular copies were not simply re-sold U.S. copies. Whether Wiley and Omega will have any effects on U.S. manufacturing or parallel importations in general, remains to be seen.

Matthew Siegal is a partner and Binni Shah is a law school graduate awaiting admission in the Intellectual Property department of Stroock & Stroock & Lavan LLP. The views expressed are their own.

In John Wiley & Sons Inc., v. Kirtsaeng , __ F.3d __, 2011 WL 3560003 (2d Cir. Aug. 15, 2011), the Second Circuit took a stand against parallel importation of copyrighted works made under the authority of the U.S. copyright owner in a foreign country. In doing so, it aligned itself with the Ninth Circuit in Omega S.A. v. Costco Wholesale Corp. , 541 F.3d 982 (9th Cir. 2008), aff'd 131 S. Ct. 565 (2010) and four of the eight Supreme Court Justices ruling on Costco's appeal. Justice Elena Kagan had recused herself, having opposed Costco's petition for certiorari when still in the Justice Department.

At issue in Wiley was an interpretation of what it means for a work to have been “lawfully made under” the Copyright Act. For some, the answer is simple. They believe it means that the work must be made in the United States, noting that the Act has no extra-territorial effect. Others counter that it means made anywhere, as long as it is made by the U.S. copyright owner, reasoning that lawfully made under the Act means not unlawfully made under the Act. For some, the issue seems to turn on whether they believe that the answer will affect where U.S. book publishers make their books. In any event, unless this case makes it to the Supreme Court, the Ninth and Second Circuits have now spoken on this issue and supported the use of copyright law to combat parallel imports.

The District Court Rules in Favor of Wiley

John Wiley & Sons, Inc. (“Wiley”), the owner of the U.S. and foreign copyrights, assigned the rights to publish certain foreign editions of its copyrighted textbooks to its Asian subsidiary and limited sale of such books to foreign countries. John Wiley & Sons Inc., v. Kirtsaeng, 2011 WL 3560003, at *1. Wiley retained the U.S. copyright and the rights to distribute its books within the United States. Id.

Supap Kirtsaeng was an undergraduate student at Cornell University, later moving to California to pursue a doctoral degree. Id. at *2. He realized that foreign editions of textbooks sold for much less in Asia than they did in the United States. Id. He arranged with friends and family to purchase the foreign editions in Thailand and ship them to the United States, where he sold them on eBay and other commercial websites. Id. Wiley sued Kirtsaeng for, inter alia, infringing its U.S. copyright under 17 U.S.C. ' 501. Id.

Kirtsaeng argued that the first sale doctrine (codified in 17 U.S.C. ' 109(a)) was a defense to Wiley's charge of copyright infringement on the grounds that Wiley itself had authorized the sale of the books, thereby allegedly exhausting its U.S. copyright. Id. However, the district court held that the first sale doctrine was not a defense to infringement for works manufactured outside the United States, since such items are not “lawfully made under” the Copyright Act. John Wiley & Sons, Inc v. Kirtsaeng, No. 08 Civ. 7834, 2009 WL 3364037 at *5 (S.D.N.Y. Oct. 19, 2009). Accordingly, the district court rejected Kirtsaeng's application of the first sale defense, on the grounds “there [was] no indication that the imported books at issue here were manufactured pursuant to the U.S. Copyright Act.” Id.

At trial, the jury found that Kirtsaeng was liable for willful copyright infringement and imposed damages of $75,000 for each infringed work. John Wiley, 2011 WL 3560003, at *3. On Kirtsaeng's appeal, the Second Circuit addressed the question of whether the first sale defense applied to works made outside the United States under the authority of the U.S. copyright owner.

Second Circuit Debates Quality King Dicta

Under ' 109(a), an “owner of a particular copy ' 'lawfully made under this title' ' is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy.” 17 U.S.C. ' 109(a). The Second Circuit reasoned that the extent to which ' 109(a) applies to items manufactured abroad depends on the meaning of “lawfully made under [the Copyright Act, 17 U.S.C. et seq. ].” Id. at *4. In its analysis, the Second Circuit relied on the text of the statute, the structure of Title 17, and the Supreme Court's dicta in Quality King Distributors, Inc. v. L'anza Research Int'l, Inc. , 523 U.S. 135 (1998). Id. at *6.

Wiley contended that “lawfully made under this title” as used in ' 109(a) means “lawfully made in the U.S.” Id. It argued that since Title 17 only applies in the United States, copyrighted items can only be made under Title 17 “if they were physically made in this country.” Id. The Second Circuit disagreed with Wiley's argument at least on a textual reading of the statute, stating that the “relevant text is simply unclear” and finding that the text supported a number of different interpretations. Id. at *7.

The Second Circuit then looked to 17 U.S.C. ' 602(a)(1) and the Supreme Court's opinion in Quality King. Id. Section 602(a)(1) prohibits importation of copyrighted works acquired abroad, without the copyright holder's authorization. The Second Circuit reasoned that if ' 109(a) applied to every U.S. copyrighted work manufactured abroad, then ' 602(a)(1) would essentially have no force. Id. On the other hand, they reasoned that if ' 109(a) applied only to copyrighted works manufactured domestically, a copyright holder could control the importation of the copyrighted items. Id. Accordingly, because of the interplay between ' 602(a)(1) and ' 109(a), the Second Circuit concluded that the first sale defense should only apply to domestically manufactured works. Id.

In addition, although the Second Circuit noted that the Supreme Court's Quality King decision did not specifically address this issue, the Second Circuit found that dicta therein suggested that copyrighted material manufactured abroad is not subject to the first sale doctrine. Id. at *5. The Second Circuit relied on the following hypothetical in Quality King as supporting the “made in the U.S.” limitation:

If the author of the work gave the exclusive U.S. 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.

The Second Circuit also relied on the Supreme Court's observation that ' 602(a)(1) had a broader scope than ' 109(a), because ' 602(a)(1) also encompasses copies that were “lawfully made” under the laws of another country. Id. at *7. The Second Circuit reasoned that the Court viewed works lawfully made under the laws of a foreign country are not necessarily “lawfully made” under
' 109(a). Id.

Accordingly, the Second Circuit held that the first sale doctrine is “best interpreted as applying only to works manufactured domestically.” Id. Therefore, the first sale defense was unavailable to Kirtsaeng because the books in question were manufactured abroad. Id. at *8.

Judge Murtha's Dissent

In dissent, Judge J. Garvan Murtha, sitting by designation, argued that the first sale doctrine should apply to works that enjoy U.S. copyright protection wherever they are manufactured. John Wiley, 2011 WL 3560003, at *10 (Murtha, J. dissenting). Specifically, Judge Murtha argued that “lawfully made under this title” refers to the lawfulness of its manufacture under U.S. copyright law. Id. at *11. Accordingly, regardless of the place of manufacture, a copy authorized by a U.S. rights-holder is lawful under U.S. copyright law, since a U.S. copyright owner may make its own copies or authorize another to do so. Id.

The dissent's conclusion is based, in part, on the fact that in portions of the Copyright Act where the place of manufacture was important, Congress specifically referred to the place of manufacture. Id. The dissent contends that because Congress did not specify “manufactured in the U.S.” in ' 109(a), Congress did not intend to limit ' 109(a) to only copyrighted works “manufactured in the U.S.” Id. at *12. The dissent further supports its conclusion with policy reasons and economic justifications, positing that the majority's decision will incentivize U.S. publishers to shift book manufacture outside the United States. Id. at *12-*13.

Furthermore, the dissent disagrees with the majority's position that ' 602(a) would be meaningless if the first sale doctrine applied to foreign-made copies. The dissent contends that regardless of the application of ' 109(a), ' 602(a) will still apply to unsold or piratical works. Id. at *13. The dissent also disagrees with the majority's interpretation of the Quality King dicta. Judge Murtha viewed the hypothetical presented therein as inapposite, because the issue in Wiley was whether the first sale defense was available to a subsequent purchaser after the U.S. copyright owner sold the copies abroad, not where a first sale had not taken place as in the hypothetical. Id. The dissent also notes that four out of eight Justices presumably did not agree with the majority's interpretation of dicta in Quality King when the issue was squarely before the Court in Omega S.A. v. Costco Wholesale Corp. , 131 S. Ct. 565 (2010). Id. at *14.

Conclusion

The Wiley and Omega cases represent strong precedent that copyright law can be used to protect manufacturers against parallel importations of foreign-made copyrighted works. Differences between the foreign-made works and the U.S.-made works, exhausted by actual authorized sales in the United States, can be strong evidence that particular copies were not simply re-sold U.S. copies. Whether Wiley and Omega will have any effects on U.S. manufacturing or parallel importations in general, remains to be seen.

Matthew Siegal is a partner and Binni Shah is a law school graduate awaiting admission in the Intellectual Property department of Stroock & Stroock & Lavan LLP. The views expressed are their own.