Will the Supreme Court Kill Used Bookstores?

The ruling in Kirtsaeng v. Wiley & Sons just may do that.

On October 29, the Supreme Court heard the arguments of a copyright case involving the right to resell imported goods in the United States. The goods in question were college textbooks but the outcome could affect whether copyrighted goods made overseas can be resold in the U.S. without consent from the copyright holder. Kirtsaeng v. John Wiley & Sons, Inc. may focus on the five-pound appendages lugged around by undergraduates, but any product made overseas with a U.S. copyright—from shoes to laptops—could be affected. That makes Kirtsaeng potentially one of the most important decisions the Court will make this season.

Here's the back story: Supap Kirtsaeng traveled to the U.S. from Thailand to attend Cornell and to earn a doctorate in math from University of Southern California. Along the way, Kirtsaeng set up his own business of sorts through eBay and sold $900,000 worth of books printed abroad by Wiley & Sons. He used the profits, among other things, to pay for his education.

In 2009, Wiley won a copyright infringement lawsuit against Kirtsaeng in the U.S. District Court for the Southern District of New York (SDNY). Kirtsaeng then appealed to the U.S. Court of Appeals for the 2nd Circuit in New York. The 2nd Circuit sided with SDNY. Kirtsaeng was ordered  to pay $600,000 for infringing a textbook publisher's copyrights when he resold eight textbooks that had been printed by the Asian subsidiary of the U.S.-based Wiley & Sons. Each international edition ended up costing Kirtsaeng $75,000 per book.

Kirtsaeng appealed the decision, claiming that Wiley lost its right to control sales of the book when his friends and family legally bought them in Thailand. This is known as the "first sale doctrine," which holds that the publisher of a book only gets to control the original purchase of a book. After that, whoever bought the book can resell the book. The first sales doctrine is what makes used bookstores (and used record stores, along with many other retail shops) possible.

There are two relevant provisions of copyright law that are at hand—and in apparent conflict. The first, 17 USC § 109(a), states that "the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord." But another provision, 17 USC § 602(a)(1), states that the "importation into the United States, without the authority of the owner of copyright under this title, of copies or phonorecords of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies or phonorecords under section 106, actionable under section 501."

The two provisions create a precarious situation and raise the question now before the Court: Does the first sale doctrine apply when applying to imported books? The difficulties in answering that question raise another, which has never quite been settled once and for all: Do U.S. copyright laws actually cover products made outside the U.S.?

These questions have been raised before, in the case Costco v. Omega, which was a 4-4 split decision, since Justice Elena Kagan recused  herself from any decision. In that case, watchmaker Omega claimed the Costco had infringed on Omega's right to authorize retailers in the U.S. by selling merchandise it bought from third parties. Because Omega watches have a copyrighted design on them, the suit proceeded under copyright law and Costco claimed that the first-sale doctrine immunized them from any sort of infringement. A trial court ruled in favor of Costco, but then the U.S. Court of Appeals for the 9th Circuit reversed the decision, saying that the first sale doctrine didn't cover this instance. With the deadlock in the Supreme Court, the 9th Circuit's decision was upheld. In a 1998 case, Quality King v. L'anza , the Supreme Court decided that the first sale doctrine did cover exported copies made in the U.S. that are then re-imported back to the U.S. for sale without the owner's consent.

While the Kirtsaeng case has obvious connections to those two earlier rulings, something different is at stake. According to the SDNY document these books were printed overseas by Wiley & Sons' subsidiary Wiley Asia. These books also included "notices stating that the books are copyrighted in the U.S."—these notices were then decided insufficient "to satisfy" the act. Yet, on the back cover of these editions it states plainly, "this book may not be exported….importation of this book to another region without the Publisher's authorization is illegal and is a violation of the Publisher's rights." The SDNY court decided for Wiley & Sons that its copyright was indeed infringed upon by Kirtsaeng, considering that Wiley still owns the copyright within the overseas subsidiary.

The Supreme Court will try to further decipher the law and decide if first sale applies. During the oral argument, the justices and lawyers walked through a "parade of horribles"—the moniker the given to hypothetical negative situations that might occur under different situations. The idea is to show the implications of a ruling that goes one way or another. The nightmare scenarios ranged from banning the reselling of cars to preventing libraries from lending books to stopping museums from buying art from collectors (rather than directly from artists).

Justice Stephen Breyer and Ted Olson, the attorney representing Wiley, duked it out in a discussion of what "horribles" could happen if Wiley prevailed (read the transcript here). Breyer asked Olson whether people would be able to resell their foreign cars, especially if they are loaded with copyrighted sound systems and copyrighted GPS systems. "Now, under your reading," Breyer asked, "the millions of Americans who buy Toyotas could not resell them without getting the permission of the copyright holder of every item in that car which is copyrighted?"

After multiple attempts, during which they sounded like a married couple fighting over who left the stove on, Breyer coaxed an answer of sorts out of Olson:

MR. OLSON: There may be —

JUSTICE BREYER: Is that right?

MR. OLSON: There may be just –

JUSTICE BREYER: Am I right or am I wrong? Am I off base or am I wrong — am I right?

MR. OLSON: There are other defenses, but that is not this case. This case is not —

JUSTICE BREYER: Well, how do you distinguish? How do you distinguish?

MR. OLSON: The government — the government would argue for a broader interpretation under what was made under this statute, whether that would include the importation or the distribution in commerce. That's an argument that the government makes, but it's not necessary to decide this case.

Breyer gave more examples of hypothetical horribles where buyers might get screwed after buying imported products that contain copyrighted material. His list included "libraries with three hundred million books bought from foreign publishers that they might sell, resell or use" and "museums that buy Picassos." Olson replied, "When we talk about all the horribles that might apply in cases other than this—museums, used Toyotas, books and luggage, and that sort of thing—we're not talking about this case."

On the other side, E. Joshua Rosenkranz, the attorney for Kirtsaeng, posed the idea of how this could impact manufacturing jobs. Rosenkranz tried to explain that a ruling for Wiley & Sons would entice publishers and copyright holders to keep manufacturing overseas, so they could control resale rights at a global scale.

"A U.S. manufacturer who wants to sell into the U.S. market has this incentive to go and send jobs overseas. It's an irresistible incentive if the law is — if this Court says the law is." Justice Ruth Bader Ginsburg questioned Rosenkranz if this has in fact ever happened. Rosenkranz swears by it, but came up short on providing a case.

After all is said and done with the hearing, this case has gone beyond the walls of the Court of Last Resort. The case has attracted internet big shots like eBay and Overstock as well as other stakeholders in second-hand stuff such as The American Library Association and Goodwill Industries. Together, along with many other businesses, associations and organizations, they have created a coalition called the Owners' Right Initiative (ORI).

If the Court sides with Kirtsaeng, copyright holders could have a mess on their hands—trying to get ahold of royalties, not only for publishing companies, but for authors, artists, and content creators. A snowball effect could occur. If the creators of content aren't receiving any royalties due to re-importation, then they might not be as keen to put out so many versions. But then they may increase prices to compensate for that lost revenue stream.  

The resellers could see some major damage too—from cultural exchange to online businesses. Damn near everyone has resold something in their lives, at a garage sale or on Craigslist. A victory for Wiley could mean a bigger snowball could roll down the hill, running right over eCommerce, small businesses, libraries, museums, and the lady down the street who is trying to sell foreign knick-knacks.

Whatever decision is rendered, it seems safe to say that it won't be a perfect solution. Who out of the two groups will take a bigger fall? Publishers, movie studios, and others in the entertainment industry will suffer by not being able to stop imports from their cheapest markets abroad. If that happens, we can expect the price of all licensed goods, from textbooks to DVDs, to spike as copyright holders try to make as much as possible on domestic sales. But resellers could have a cliff that is sharper on the way down.

What needs to change is the mentality around doing business. Kirtsaeng may seem like a entrepreneurial David taking on a corporate Goliath, but that's not quite right in the bigger picture. You have major companies such as eBay, Google, and Costco embracing the idea of reselling, while other business, as large or larger, favor making the practice a crime. Copyright is enshrined in the Constitution specifically as a means to benefit society, not particular industries or business models, a point which often gets lost in legal battles. After decades of copyright-holder-friendly legislation plainly at odds with technological innovation that undercuts everybody's ability to control distribution and reproduction, it's increasingly difficult to argue that consumers are well served by strict enforcement of existing laws.

The Supreme Court's decision will be announced sometime in the coming months. Depending on that decision—and it's far from clear how the majority will rule—we may start to see a real-life "parade of horribles" by the beginning of next summer. And no matter what this decision says, you can expect to see a flood of similar cases in the future.