U.S. Supreme Court Deals a Blow to Copyright Owners With Foreign Licensees

March 2013

It is a fundamental principle of U.S. copyright law that the owner of a copyright has certain exclusive rights. These rights include the exclusive right to distribute the work in the United States. Section 602 of the Copyright Act prohibits importation into the United States of works that would have infringed a U.S. copyright if those works had been made here. There are certain limited exceptions; for example, scholarly, educational or religious organizations may import one copy of an audiovisual work solely for archival purposes.

The "first sale" doctrine provides that if someone lawfully purchases a copy of a work (for example, by going to a bookstore and buying a book), then that person may sell or dispose of the copy as she sees fit. (She may not, however, make copies of the book.) In other words, the copyright owner has no right to limit further distribution of a work once he authorizes that first sale.

The issue presented to the U.S. Supreme Court in Kirtsaeng d/b/a BlueChristine99 v. Wiley & Sons, Inc., 2013 U.S. LEXIS 2371 (March 19, 2013), was whether a copy that was made outside of the United States with the author's permission and then imported into the United States fell under the copyright owner's exclusive right to distribute (and to prevent others from importing his work into the United States) or the first sale doctrine (which would allow purchasers of authorized copies of the work to freely distribute them).

The majority held that in the situation where a copy of a work is printed abroad and sold with the copyright owner's permission (so there was no infringement in the foreign country), the copyright owner may not complain when those very same copies are imported into the U.S. In this case, the copyright owner argued that the first sale doctrine should apply only to copies made in the U.S. and that companies should not be able to print works abroad and then import them into the United States without the copyright owner's permission.

Although not expressly stated in the opinion, one of the facts undoubtedly taken into consideration by the Court was that the copyright owner (in this case, Wiley & Sons) would have received royalties based on the sale of copies of the work abroad. Why then should the publisher receive a second set of royalties when those same copies are imported into the United States? The publisher argued that the copies sold for less abroad than they would have in the United States and that, therefore, it was effectively cheated out of royalties that would otherwise have been due based on the higher U.S. prices.

The Court's decision emphasized the global nature of today's economy and expressed a concern for the repercussions of imposing a geographic limitation on the first sale doctrine. Had the Court ruled in favor of the publisher, such a decision may have (theorized the Court) resulted in a restriction of trade. The Court spoke of "free trade" and "readily movable" goods, the message being that publishers need to develop their business models (and pricing strategies) around global markets rather than country-centric policies.

There is no question that the Kirtsaeng case constitutes a blow for copyright holders in the United States. In this author's view, this case had echoes of the Court's decision in Bilski v. Kappos (click here for our article on Bilski), a case involving the patentability of business methods. Although the legal issues presented in these two cases were entirely unrelated, the Court in both cases expressed a desire to "modernize." In Bilski, the issue was allowing the law to evolve with technology. In Kirtsaeng, the issue is recognizing (or embracing, depending on your viewpoint) the global nature of our economy.

There is much speculation that Kirtsaeng will be followed by some sort of legislative action. Given Congress' fiscal priorities, it is unlikely that the legislature will act on this issue this year. In the meantime, copyright holders would be well advised to review their Foreign Rights Agreements to ensure that they are priced accordingly--that is, to cover the possibility, if not the eventuality, that those foreign copies may make their way into the United States.


Amicable photo of Toni

Antoinette M. Tease, P.L.L.C.