Supreme Court to Hear International Copyright Exhaustion Case

By Dennis Crouch

Kirtsaeng v. John Wiley & Sons, Inc. (Supreme Court 2012)

The Supreme Court has granted certiorari in another international copyright exhaustion case. Previously, in Omega v. Costco, the court stalled in a 4-4 tie and left the case without an opinion. Copyright exhaustion – also known as the “first sale doctrine” – is codified under 17 U.S.C. § 109(a) and allows the holder of a copy of a work “lawfully made under this title” to sell or otherwise dispose of the copy without the copyright holder’s permission. Without this doctrine, such a sale could be considered a violation of the copyright holder’s exclusive distribution rights under section 106(3). The question in this case is whether the exhaustion doctrine applies to authorized copies manufactured outside of the US and then imported. Copyright holders argue that exhaustion does not apply because the foreign copies were not “lawfully made under this title,” but instead were lawfully made in a region not subject to US copyright law. A win for the copyright holders would support a system of price discrimination that would allow a rights-holder to block third-party imports of legitimate (non-counterfeit) products into the US. The rule would also tend to encourage foreign manufacture.

The question presented:

How do Section 602(a)(1) of the Copyright Act, which prohibits the importation of a work without the authority of the copyright’s owner, and Section 109(a) of the Copyright Act, which allows the owner of a copy “lawfully made under this title” to sell or otherwise dispose of the copy without the copyright owner’s permission, apply to a copy that was made and legally acquired abroad and then imported into the United States?

The case is expected to be argued this fall.

Exclusive Rights of Importation: The particular facts of the case are interesting. John Wiley sells textbooks at a reduced rate in Thailand. Kirtsaeng imported eight Wiley books and resold them in the US. Although Wiley had profited from the original sale in Thailand, the company argued that the importation also violated US law because the foreign sale did not exhaust the copyright and that, therefore, Wiley maintained exclusive rights of importation and distribution. A jury awarded Wiley statutory damages of $75,000 per copy for a total of $600,000 for the eight books. The Second Circuit affirmed that judgment.

Patent Law: Patent law’s exhaustion doctrine is not based upon a statute but does run roughly parallel to the copyright law as outlined above. In the Jazz Photo cases, the Federal Circuit ruled that international sale does not exhaust US patent rights. If the Supreme Court reverses in Kirtsaeng, this will likely be seen as an implicit reversal of Jazz Photo and its progeny. Thus, the case will obviously impact patent law. The AIPLA filed a brief in support of the petition – focusing on the need for resolving the circuit split.

John Wiley’s cases are still pending against various patent law firms for failing to obtain a license to make copies of prior art documents before making copies and submitting those to the USPTO as required by law. The defendant law firms are expected to file their answers later this month.

About Dennis Crouch

Law Professor at the University of Missouri School of Law. Co-director of the Center for Intellectual Property and Entrepreneurship.

51 thoughts on “Supreme Court to Hear International Copyright Exhaustion Case

  1. The insanity will continue until lawyers stop twisting the law to benefit thugs and start behaving like rational people.

    There is no real argument here. Once the product is sold, patents and copyrights on that instance are exhausted. Any claim otherwise is just lawyers deliberately misinterpreting the laws for money.

    The biggest problem with copyright and patent monopolies is that they serve no purpose other than to enrich thugs and liars. They are a failed experiment. Almost everything that exists was created without the benefit of copyrights or patents. Things will get worse before they get better, but as the “rights holders” turn the screws and send out their thugs to destroy culture, eventually the public will wake up and demand an end to this mess.

    Have you looked at what it would cost to let your mother and father listen to ONE song over the internet with you? Just one? Over 800 dollars! This is insane. The “rights holders” talk about theft, but that is just a classic case of projection. The only one guilty of theft here is Congress, the rights organizations, and the “rights holders.” Criminals all.

    Shakespeare did not need copyrights to create great works.
    Fire was not invented because inventor expected huge patent royalties.
    The claim that patents and copyrights “promote innovation” is the most absurd lie of all.

    Just stop it. Get an honest job. Stop stealing from society. Lawyers are supposed to tell their clients when they are commiting crimes. Do that. Stop helping them commit their crimes.

  2. I paid several bucks for a copy of “Sgt. Pepper’s Lonely Hearts Club Band” LP in 1967. Then I paid several bucks more for the cassette copy of it in the 1970s. Then I paid a few more bucks for practically the same thing on CD in the 1980s. …

    Unless you used your LP as a candle holder, I guaranteee you the CD issued in the 1980s was not “practically the same thing.” It sounded like dogpoop, like nearly all the original CD issues of the Beatles catalog. Those vintage vinyl LPs on Capitol still sound incredible.

  3. I don’t find any basis for your conclusion that “its sale price in that country cannot include any compensation or margin for any patent”. If the initial sale conveys the right to resell the product in jurisdictions where patents apply, why wouldn’t that be included in the bargained-for price? At most, a reversal of Jazz Photo would simply change the default rule and make foreign sales of US-patented products more expensive. But the default rule can be contracted around if the parties want a cheaper price with fewer rights.

  4. Copyright pertains to publication, the disposition of lawfully made and previously lawfully purchased instances of a copyright work are not regulated by Congress under the statute.

    The fiction of “provision of license” is unavailable to the publisher of a hardcopy instance of an assemblage of words and phrases, no matter the ostensible “creativity” of the original author (license granted to read is still too preposterous a reach for “IP” lawyers to stretch to, go figure).

    The putative extension to patented products or “processes” (even if those “processes” amount to nothing more than ordinary procedures simply carried out) is inapt, since Congress is argued to have inveighed directly against the importation of such “materials” (in the case of manufactured articles directly and in the case of procedural mumbo-jumbo by circumlocuitous lawyerly argumentation). The fixated instances of copyright materials has received the opposite treatment.

    The world seems unprepared to end on the basis of this tempest.

  5. Are you asking how 106(3) applies apart from 109(a)?

    It does that to have the one, but not the other is indeed like being “a little bit pregnant.”

  6. Consider they wanted the right to unilaterally and remotely turn off your software for whatever reason they put in their license agreements.

    Or even for a reason that they did not put in their license agreement…

    Can anyone say “Kindle?”

  7. I have no idea how could anyone charge $100 or $200 for a copy of college-level textbook. You still make a profit selling old versions of calculus for $20 a copy.

    Without draconian copyright laws and the professor’s demand to buy a specific textbook, no one would buy these textbooks. Now thanks to the copyright laws, they “update” these textbooks in many well-established fields almost every year just to keep students from buying rights-exhausted 2nd hand copies.

    Could you invent a really new and useful way to teach first year Newtonian physics each and every year? They why do they update their textbooks?

  8. Consider they wanted the right to unilaterally and remotely turn off your software for whatever reason they put in their license agreements.  For example, if you used an old OS, then they could simply turn it off.

    Like that?

    Sent from iPhone

  9. The blood-sucking publisher had already made a profit in Thailand selling these books at a reduced profit margin. It’s much different from being reproduced without copyright owner’s permission.

    I they really don’t like international exhaustion, they can sell these books in Thailand at their U.S. full prices and risk to lose all of their market shares. Otherwise, they can BUY BACK all international copies at the end of the semester.

    Otherwise, I can publish books with my state-specific trademarks and restrict the resale of my books in another state. I think this is not possible but you get the point.

  10. The whole idea of copyright’s license instead of purchase is a joke. I paid several bucks for a copy of “Sgt. Pepper’s Lonely Hearts Club Band” LP in 1967. Then I paid several bucks more for the cassette copy of it in the 1970s. Then I paid a few more bucks for practically the same thing on CD in the 1980s. … I am now paying for it for the iTunes.

    Why couldn’t I just pay for the materials of the upgrade?

  11. “John Wiley’s cases are still pending”

    Dennis, if you are going to link to past articles you should fix those past article sso tha tall comments are viewable.

    Just a suggestion.

  12. backup coppies are expressly permissible.

    You have been talking (lisening?) to the wrong people.

    Planned obselence (and control thereof) is a different tactic.

  13. Why does the devil make you sign in blood?

    He has a tough appeals court. This is the difference. Today’s courts want a way to enforce EULAs because it serves their philosophy. If they had that old book case to decide they would rule the other way. Look for fine scholarly rationalizations to support new results without admitting to a complete reversal.

  14. There must be a difference or software companies would not be able to get away with the things they do.

    For example, if you assemble your own PC so you can decide what goes into it (motherboard, hard drive, memory vendor, etc) you will need to choose an operating system.

    Suppose you choose Microsoft Windows and buy an OEM Version because the Retail Version is hideously expensive.

    Then, at some point, your motherboard dies and you replace it.

    Microsoft will tell you that your OEM license died with the first motherboard. If you want Microsoft Windows to run on the new motherboard you have to buy a new license. (That’s what they told me when my XP machine died.)

    Actually, you can usually install (and register) Microsoft Windows on maybe two successive machines, just not at the same time. But don’t count on it.

    This isn’t even about selling your copy to someone else. This is a product/license that you bought that, eventually, you will not be allowed to use. It’s even worse than my textbook example.

    Another example is Windows 98SE. Even if you run it under virtualization you cannot fully install it because Microsoft has taken down their Web site needed to update it to the last working version. Without these updates Windows 98SE is completely worthless. (It comes with Internet Explorer 5).

    Microsoft never released a CD/DVD with the updates so without their update Web site you are SOL.

    Microsoft Windows is a textbook from Mission Impossible: This textbook will automatically Self-Destruct in three years (or four, or whatever).

  15. The problem with pegging a loss to an actual digital copy is that the material loss becomes de minimus.

    At a fraction of a cent, how big of a multiplier will you need to affect behavior through punishment?

    Factors of ten or ten million?

  16. Too bad they aren’t taking up the constitutionality of statutory damages in the copyright act. Multipliers of over 10 in punitive damages for tobacco companies may be a violation of due process. Multipliers of tens of thousands are a-okay for copyrights, huh? I don’t see the logic, and don’t think statutory vs punitive disrinction should matter.

  17. EURAND v. MYLAN
    link to cafc.uscourts.gov

    Court distinguish burden of proof of objective evidence of non obvious between the PTO and the Courts.

    In the PTO, the objective evidence is in rebuttal to an examiner’s prima facie case.

    In court, the objective evidence is considered before a court decides obviousness. The DC, overruled by the Feds in this case, had decided that the claims were obvious over prior art and then shifted the burden of proof to the PO to overcome that conclusion with the objective evidence.

  18. Unintended: I think the court will come down on the side of exhaustion. If they do, the current inventory in libraries and with students to the extent they were purchased from foreign first sales by the copyright holder will not be infringing.

    But the copyright holder will now have more of an incentive to manufacture books in the US to the extent that they wish to maintain prices and profits in the US. That has to good for the US economy.

    I haven’t thought through the implications of digital copies. Just how would an author prevent Americans from downloading copies from its foreign sites?

    I suspect the answer might be to only publish non English versions outside the US, and to publish everything in English inside the US.

  19. For a different view… (from link to acrlog.org )

    Kevin Smith on the Scholarly Communications @ Duke blog has a great, clearheaded explanation of the implications of this decision for libraries:

    One of the problems that the Wiley decision creates is uncertainty about library lending. Libraries do not even know, I am afraid, how much of their collections are manufactured abroad. In the Second Circuit, however, lending anything that was manufactured outside the U.S. is now in question, regardless of where it was purchased (even directly from the publisher).

    Even more disturbing are the potential effects this ruling could have on students:

    If libraries are in a difficult position, students may be even worse off under the Second Circuit’s ruling. Again, publishers now have an incentive to manufacture their textbooks abroad and sell them to U.S. students. Such students would no longer have the right to re-sell their textbooks or to purchase used texts.

  20. > How do you distinguish Bobbs Merrill, a SC case that already dismissed the idea of a license as a distinction without a difference?

    The same way the software companies do it.

    Bobbs Merrill involved putting a restriction on an item that was *sold*.

    Software companies do not *sell* software. They rent it to you.

  21. There wasn’t an opinion.

    In its entirety:

    The judgment is affirmed by an equally divided Court.

    JUSTICE KAGAN took no part in the consideration or decision of this case.

  22. Just curious, but in Omega did the opinion include which way the particular justices vote (i.e. was Omega decided by a conservative/liberal split?).

    Considering this case is Omega with Kagan not recused, then this decision would be 5-4 with Kagan casting the deciding vote, right?

  23. The Supreme Court can avoid exhausting itself on this case by noting that companies that sell printed material like textbooks can use the same methods used by companies that sell software.

    Don’t sell the textbook, license it, and you can make the license agreement as restrictive as you want.

    For example:

    1. The purchaser of this textbook may read the textbook as many times as he/she wishes, but it may only be read by the purchaser. Allowing the textbook to be read by any other person is a violation of this license agreement.

    2. This license agreement may not be assigned to any other person. (And companies are people, just like Soylent Green.)

    3. Any violation of this license agreement will require the licensee to destroy the textbook.

    Then, attach the license agreement to the textbook and shrink wrap it so that it cannot read read until you open the package. And after you open the package you cannot return it.

    Problem solved.

  24. AFP…

    Really?

    Is that the AFP that claims: “In a world where the lines are often blurred between news, rumour, gossip and spin, AFP delivers the facts: accurate, fast, clear and balanced news.

    Lolz at the “and balanced.”

    They kind of forgot the balance here in the use of the pejorative “troll” when those same “trolls” are actually busy busting the patent thickets.

    Or is it the AFP that headlines a story like: “The Holocaust Hoax Exposed.”

    Either way, 6, consider the source.

  25. Does anyone else note the irony that John Wiley & Sons, Inc. is seeking remedy under the same law that they claim doesn’t apply because the items in question were not made under that law?

    The whole question of “exhaustion” would only apply to articles protected under US law.

    If John Wiley & Sons, Inc. are to be believed, the offending articles are not exhausted, but likewise, don’t fall under the protection of US law.

    Somehow, some way, John Wiley & Sons, Inc. are imporing that US law does apply. Are they just “a litle bit” pregnant?

    They fall under the law, or they do not. No remedy or exhaustion, take your pick.

  26. sale price in that country cannot include any compensation or margin for any patent

    An unwarranted assumption.

    Try again.

  27. “But if the product is made and first sold in a country where it is not patented”

    Why would you make and sell it in such a province? And even presuming you would, who cares?

  28. “A jury awarded Wiley statutory damages of $75,000 per copy for a total of $600,000 for the eight books.”

    600000 for 8 books? Please.

  29. Paul, I forgot to add that had the patentee performed the process steps abroad, the result in Zoltek would have been different. The foreign practice of the process by the patentee would, had they been performed by another, have been a direct infringement wrt the items imported into the US.

    If the patentee performs the steps, that would have exhausted his US patent rights in the manufactured items subsequently imported.

  30. ? Ned, if a foreign first sale exhaustion is held to apply [contrary to Jazz Photo], the imported product will NOT be infringing in the U.S.

  31. But if the product is made and first sold in a country where it is not patented, its sale price in that country cannot include any compensation or margin for any patent, hence how can there be any “exhaustion” of any patent rights, much less exhaustion of all patent rights in all other countries?

  32. The idea is consistent with the recent Zoltek case where the en banc Federal Circuit held that a US process patent was directly infringed where the critical process steps (relying on Quanta) were conducted outside the US on an item, and where the partly finished item was then imported.

  33. No, the rule of law could simply be that goods sold by the patentee (or authorized sales) exhaust the US patent as to that particular item sold, regardless of the location of the sale.

  34. Dennis, IF this Sup. Ct. decision DOES result in implicitly overruling the Fed. Cir. Jazz Photo decisions, would that not lead to the bizarre result that a patent owner who obtains foreign patents is worse off than a patent owner with NO foreign patents for infringement of products being imported into the U.S.?

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