Some Baffling Copyright Law

The Supreme Court has granted cert in Kirtsaeng v John Wiley, another of the series of rather baffling cases involving interpretation of the scope of copyright’s “importation right.”  It’s a rather wonderful example of how baroque the structure of copyright law has become, as well as the ways in which interpretation of some very arcane and obscure statutory formulations can have rather significant effects on the conduct of those subject to the law.

The statutory provisions at issue are these: First, sec 602(a) of the Copyright Act says that:

Importation into the United States, without the authority of the owner of copyright under this title, of copies . . .  of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies [of the work] [subject to certain exceptions not relevant here].

So if you buy 1000 copies of a copyright-protected work in Singapore and attempt to bring them into the United States, even if those copies are being sold with the authority of the copyright holder, you need an additional authorization from the copyright holder for the importation; without that authorization, you will be violating the copyright holder’s exclusive right to distribute copies of the work.

So far so good.  There is, however,  a well-established defense to a claim of unauthorized distribution:  the so-called “first sale doctrine.”  The first sale doctrine says that “notwithstanding the [copyright holder's exclusive distribution right,] the 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.”  That would seem to mean that if those 1000 copies were “lawfully made” under the Copyright Act, I can’t be liable for violating the copyright owner’s distribution rights when I bring them into the US.

It’s a bit of a conundrum.  Several years ago the Court resolved part of it: In Quality King v. L’Anza, the Court said:  the first sale defense is available against a claim of unlawful importation, at least if the copies that were involved were made in the US (and therefore “lawfully made under this title”).  Justice Ginsburg, concurring, noted that a different result  might be warranted if the copies themselves were made overseas — in that case, it’s not so clear that they’re being made “lawfully under this title” (because it’s not so clear that the Copyright Act has extraterritorial effect, and therefore one could argue that a copy actually made in Singapore was not lawfully made “under this title”), and if they’re not “lawfully made under this title” the first sale defense would not apply to them.

Life, of course, imitates concurring opinions, and soon after the Quality King case was handed down the 9th Circuit decided a case presenting these other facts — Omega v. Costco, where the copyrighted works (the Omega logo imprinted on each of their watches) were made overseas, purchased from an authorized overseas distributor, and then imported into the US by Costco.  [The economics of this should be clear:  Costco can buy Omega watches in the Philippines, perfectly lawfully, at a price that is low enough that even with the additional costs of transporting them into the US, they can be sold at a price cheaper than authorized US Omega distributors charge for the same watches].  The 9th Circuit took Ginsburg’s suggestion, and held that the Omega watches, because they had been manufactured overseas, were not lawfully made under the Copyright Act, and therefore the first sale doctrine would not protect Costco’s sales.  The Supreme Court heard that case, and split 4-4 (Justice Kagan recusing herself).

Now, in Wiley, the issue returns to the Court; the 2d Circuit followed the 9th Circuit lead, and the Court took the opportunity to take on the issue once again – this time, hopefully, with an odd number of Justices . . .

It’s one of the gnarliest statutory issues around – take a look at the opinion in the link in the first paragraph if you are interested.  When I teach these cases in my Copyright class, students generally emerge from the discussion dazed and confused, further demonstration that our Copyright Act is becoming more like the Tax Code every day.  But there’s a lot riding on the outcome.  Suppose you are, say, a book publisher (or a watch manufacturer, or anyone who sells items with some copyrighted material on or in them).  You want to price discriminate in the global marketplace – you know that you can sell your items at a higher price in the US than in Turkey, or in Argentina.  You want to maintain the ability to discriminate, and you are careful when you parcel out geographic territories to your distributors.  You don’t want to see the Costco’s of the world undercutting your carefully wrought scheme, through the use of this “gray market” overseas.

The competing interpretations have significant implications for your ability to keep the scheme intact.  Under the Omega v Costco/Wiley rule, you can prevent the importation of your items, but only if you manufacture them abroad.  Under the opposite view, the copyright holder gets one bite at the apple, worldwide: once you obtain compensation for the “first sale” of the copy, wherever you started and wherever the sale takes place, you can no longer control its distribution.

There are not many examples in copyright law where the two big copyright circuits (the 2d and the 9th) agree but the Supremes go in a different direction – but I hope this becomes one of them.  For complicated reasons, I think that the 2d and 9th Circuits’ reading is incorrect,  on purely textual grounds.  But putting that aside, I think the opposing view (the the first sale doctrine applies regardless of where an item is manufactured) is surely  preferable as a matter of policy.  The Omega/Wiley rule is a substantial incentive to outsource manufacturing activities overseas — which is a most peculiar policy for the US to have (and to hide away in the Copyright Act, of all places).

[Update - some factual errors about the decisions in the cases mentioned have been corrected in the above - thanks to Steven Horowitz for alerting me to the problems]