The Kirtsaeng Decision: Copyright, Logic, and Libraries

The U.S. Supreme Court has handed down a major copyright decision (Kirtsaeng v. John Wiley & Sons) that tells much about the future of books, the logic of the law, and the pressures of international trade agreements.  It all began with a graduate student from Thailand seeking to pay the high cost of an American education.  He imported and resold lower-priced foreign editions of U.S. textbooks and earned a significant profit.  This business model did not sit well with the publishers, who saw him as an infringer of their right to control import and sale of foreign-made books.  In a ruling handed down on March 19, the Supreme Court held that Supap Kirtsaeng was indeed acting within the law.  The Court’s opinion is also a positive development for libraries, museums, booksellers, and probably every person in the U.S. who buys or sells books, music, movies, software, or any other copyrighted work.  In other words, this decision might affect everyone.

Here are the legal fundamentals.  One of the rights of a copyright owner is the right to distribute copies of the work to the public.  That right is significantly tempered by the “first-sale doctrine” in Section 109(a) of the Copyright Act (also known as the doctrine of exhaustion).  In summary, that rule provides that once a particular copy of a copyrighted work has changed hands, possession of that copy may be further transferred.  In other words, the copyright owner controls only the first sale, and cannot control the downstream selling, lending, renting, and other dispossession of that copy of the work.  Hence, a bookstore can sell a book, the customer can resell it online, the new owner can donate it to a library, and the library can let a reader check it out.  Without the rule of first sale as a copyright exception, those downstream transactions could be unlawful distributions.

That statute, however, applies the doctrine only to works “lawfully made under this title,” a reference to Title 17, the U.S. Copyright Act.  The argument by the copyright owners was that these word mean that the books can be bought and sold without permission only if the physical books had been manufactured only where Title 17 applies, i.e., only within the United States.  Because Kirtsaeng had been buying and selling books made in Thailand, his enterprise drew a lawsuit.  The lower courts agreed, finding that Kirtsaeng infringed the distribution right and holding him liable for statutory damages.

These rulings sent a chill through the library community.  Libraries are arguably engaged in the distribution of copyrighted works whenever they acquire materials for the collections and permit patrons to check them out.  Distributions are often a core function of libraries, and many works in library collections are made outside U.S. borders.  In fact, everyday life in the U.S. is rich with foreign made works that could be hamstrung by the decisions of the lower courts: American novels outsourced for printing, foreign movies on DVDs, letters mailed home from Europe, software inside an iPod or mobile phone, semiconductor code on computer chips, and even the computer programs embedded in the workings of a Honda, Toyota, Volkswagen, or other imported car.  Regardless of where the copyright work originated, the constraint applied if the specific copy had been produced outside American borders.

The Kirtsaeng case was addressing the same statutory language in the context of importation of copyrighted works, and the Court spelled out the legal questions—and answers—in simple and clear terms:

"Putting section numbers to the side, we ask whether the “first sale” doctrine applies to protect a buyer or other lawful owner of a copy (of a copyrighted work) lawfully manufactured abroad.  Can that buyer bring that copy into the United States (and sell it or give it away) without obtaining permission to do so from the copyright owner? Can, for example, someone who purchases, say at a used bookstore, a book printed abroad subsequently resell it without the copyright owner’s permission?

"In our view, the answers to these questions are, yes.  We hold that the “first sale” doctrine applies to copies of a copyrighted work lawfully made abroad."

The opinion of the court was drafted by Justice Stephen Breyer and joined by five of the eight other justices.  It is an especially lucid and well-conceived argument.  Breyer takes to task the simple logic of the statutory language, the relevant history of American copyright law, and the general notion of jurisprudence to avoid geographical delineations.

One of the most persuasive sections of Breyer’s opinion is his forecast of the implications of ruling the other way.  He cites a brief filed by the Library Copyright Alliance (comprising the American Library Association and others) making the point that libraries hold an estimated 200 million copyrighted books that were produced in foreign countries.  Without tracking rightsholders and securing permissions, libraries would be barred from lending these enormous segments of the collections.  Other parties noted the software embedded in foreign computers and cars, and that copyrights that are part of diverse products and even bottle labels imported into the U.S.  A ruling in favor of the publishers would leave trillions of dollars of works subject “to the disruptive impact of the threat of infringement suits.”

In similar fashion, the Court noted that several other provisions of the Copyright Act also repeat the clause “lawfully made under this title.”  For example, a ruling otherwise would mean that a museum could not display a copyrighted painting by Picasso, because the provision allowing displays (Section 109(c)) would be limited to works made within the geographic reach of U.S. law.  Similar language would constrain showing foreign films in a classroom (Section 110(1)) and enjoying Japanese video games in an arcade (Section 109(e)).  In listing these possible “horribles” that might result, the Court acknowledged the sparse litigation but that could be because rights under the law were only now becoming settled.  Moreover, the Court did not want to interpret the law in a manner that created violations to be systematically overlooked:

"Finally, the fact that harm has proved limited so far may simply reflect the reluctance of copyright holders so far to assert geographically based resale rights.  They may decide differently if the law is clarified in their favor.  Regardless, a copyright law that can work in practice only if unenforced is not a sound copyright law.  It is a law that would create uncertainty, would bring about selective enforcement, and, if widely unenforced, would breed disrespect for copyright law itself."

Breyer concludes his opinion with a detailed examination of policies underlying the law and a carefully reasoned examination of earlier rulings.  Justices Kagan and Alito filed a concurring opinion pointing up the difficulties in the importation laws, and suggesting that Congress could modify the import restrictions without altering the first-sale doctrine.  Justice Ginsburg, joined by Justices Kennedy and Scalia, dissented.

The entire case, and the diverse views of the justices, offer ample fodder for evaluation and critique, but one result is clear: Libraries, bookstores, and citizens need not limit their rights to buy, sell, and lend copyright works based on arbitrary fact of where the specific object might have been manufactured.  On the other hand, we might contemplate some possible reactions to the Kirtsaeng decision and the creation of an “international first-sale” principle:

The Growth of Licensing.  Libraries and consumers are increasingly acquiring ebooks, music, and movies under the terms of licenses, rather than as purchases.  Under the doctrine of first sale, only owners of particular copies are allowed to make the downstream transfers of possession.  Licenses, by contrast, often purport to grant rights of use without conveying ownership.  Licenses will likely become more prevalent as a means of control.

Electronic First Sale.  A debate has raged for years about whether a digital file may be transferred to a new owner under the doctrine of first sale.  The statute itself is not limited by technology, but when a file is transferred, it is actually reproduced.  If the transferor promptly deletes the file, is that functionally an exercise of the first-sale right?  This case gives no answer, but its strong endorsement of allowing transfers of copyrighted works may well bolster the argument for solving this dilemma.

Bills in Congress.  The Supreme Court included in its ruling some discussion of the constitutional objectives of copyright, but this decision is a matter of statutory interpretation.  As a result, Congress can change the law.  The easiest congressional reaction may be to accept the suggestion of Justice Kagan and amend the importation law.  Thus, an entrepreneur such as Kirtsaeng might not be able to import the books, but once works are in the country, citizens, libraries, and stores would have the protection of first-sale rights.

International Treaty Negotiations.  Restrictions on the first-sale doctrine have been part of the negotiations of at least one multinational treaty, a regional trade agreement in discussion known as the Trans-Pacific Partnership.  The parties will likely have to revisit the issue.  More serious, if the agreement does call on countries to restrict transfers of ownership of foreign-made works, Congress will have to amend the statute in order to comply with the treaty.  The more that Congress has to change the law, the less likely that the U.S. can comply.  The negotiators will have to rethink their strategy.

A few more thoughts about libraries and the Kirtsaeng case are in order.  First, libraries deserve enthusiastic credit for helping persuade a majority on the Supreme Court.  The Court cited the brief filed by the Library Copyright Alliance, and libraries were in an excellent position to point up some hazards of the lower court rulings.  Second, we cannot stop thinking about those licenses.  We should expect to see more license agreements for acquisition of materials, in hard copies or as digital files, to include restrictions on transfers of ownership.  This is a good time to reiterate some general principles: read and negotiate carefully, and resist whenever possible restrictive terms.

The Kirtsaeng case is an important and constructive development in the law.  Obviously, many interested parties will not be pleased with the ruling, but the decision is a victory for practical and well-reasoned interpretations of copyright law.  The outcome of this case is positive in many respects, but most of all the Court interpreted the law to prevent some possibly disastrous outcomes.

Kenneth Crews March 19, 2013