Back in December 2010, in the case of Costco Wholesale Corp. v. Omega S.A., 131 S. Ct. 565, 96 USPQ2d 2025 (2010), Omega brought suit against Costco after Costco legally acquired Omega watches from a distributor and sold the watches for almost $700 less than the suggested retail price after the watches, which were manufactured overseas and intended for sale outside the U.S., were imported into the U.S. The case was notable because manufacturers typically attempt to block the importation of goods through counterfeit claims or claims of trademark infringement. In this case, however, the goods in question were genuine, so Omega attempted, with success, to block Costco’s sale of the gray-market goods through a copyright infringement action by asserting an interest in a copyright of a logo that was shown on the watch.
The U.S. Supreme Court’s even split (because Justice Kagan had to recuse herself) resulted in affirming the Ninth Circuit’s holding that the “first sale” doctrine applies only to copyrighted items that are made and distributed in the United States, without setting a precedent. The “first sale” doctrine, codified in 17 U.S.C. § 109, is essentially a concept that allows a purchaser of a copyrighted work “lawfully made under [Title 17]” the ability to dispose of their copy without the authority of the copyright owner. The Ninth Circuit reasoned that because Title 17 only applies in the United States, the “first sale” doctrine does not apply in the case because the Omega watches, which were not made in the United States, were therefore not “lawfully made under this title.”
The Supreme Court on April 16, however, accepted an opportunity to revisit the issue, when it granted certiorari in Kirtsaeng v. John Wiley & Sons, No. 11-697. The case, which will be heard the next term, involves Supap Kirtsaeng, a native of Thailand, who came to the U.S. for his college and graduate studies. Kirtsaeng decided to help pay for his education by selling textbooks online. Kirtsaeng’s family and friends in Thailand would purchase foreign editions of textbooks that were manufactured abroad and send them to Kirtsaeng to sell for a small profit on eBay. John Wiley & Sons (Wiley), a publisher of those textbooks, sold the textbooks abroad through an Asian subsidiary, with a percentage of the profits going back to the parent company.
Wiley brought suit in federal court for copyright (and trademark) infringement against Kirtsaeng. Kirtsaeng argued that his sales were permissible pursuant to the first-sale doctrine, i.e., that Wiley could not stop the reselling of its goods. His argument was rejected by the court, which stated that the doctrine did not apply to goods made overseas. A jury then found Kirtsaeng intentionally violated Wiley’s copyrights and awarded Wiley $600,000. The decision was upheld by the Second Circuit which, however, noted the “undesirable” public policy implication of following the Ninth Circuit’s reasoning in Costco, which essentially gives companies incentive to outsource their manufacturing. A dissent, however, argued that a copy of a work made outside the U.S., with the authorization of the copyright owner, could constitute a work “lawfully made” under the Copyright Act.
While it will be up to the Court to decide whether the first sale doctrine applies to goods that are produced abroad and are subsequently imported into the U.S., a spokesperson at Wiley commented that “[t]he 2nd Circuit correctly concluded that those seeking to profit from the creative works of others cannot evade our intellectual property laws by importing copies from overseas.” On the other hand, Orrick Rosenkranz, who will likely argue on Kirtsaeng’s behalf, observes that “[t]his notion that we would give foreign made goods greater protection than local goods makes no sense at all to me.”
The Court’s decision will likely be determined by Justice Kagan, who will be able to participate this time around and present the key vote. The outcome of the case will undoubtedly have a major impact on the gray market, that is, the trading of commodities through distribution channels which, while legal, are unofficial; unauthorized; or unintended by the original manufacturer, much like the Costco case. With the ever-increasing practice of producing goods overseas, businesses will also need to pay close attention for the Court’s decision, as they will need to be aware of whether goods that are lawfully manufactured and sold abroad may be subject to copyright infringement actions if they are imported into the U.S. without the copyright owner’s authorization.