Kirtsaeng got friends and family members to buy English-language textbooks produced for sale in Asia and ship them to the United States, where he sold them on eBay and elsewhere.
Kirtsaeng said he was pretty sure what he was doing was legal. He had checked it out in several places, including Google Answers, and found what is known as the “first-sale doctrine” of U.S. copyright law.
That means that the publisher’s copyright is exhausted once a book is lawfully purchased, and it can be resold, lent or given away however the purchaser chooses.
Textbook publisher John Wiley & Sons disagreed. It sued Kirtsaeng for violating its copyright on eight books it produced exclusively for sale overseas.
A jury found for Wiley, awarding the company $75,000 for each of the editions Kirtsaeng sold, and the U.S. Court of Appeals for the 2nd Circuit upheld the verdict.
The first-sale doctrine, the courts agreed, does not apply to works manufactured outside this country and imported to the United States for sale.
That question was scheduled to reach the Supreme Court on Monday, and a broad coalition is warning that more than Kirtsaeng’s enterprise is at stake.
Used-car sales, Netflix rentals, flea-market finds, eBay bargains, cheap shampoo from Costco and even books from the library are threatened, they say, by the 2nd Circuit ruling that would give copyright holders “downstream” control over goods manufactured overseas.
Part of it is the country’s estimated $60 billion “gray market,” in which retailers purchase through unauthorized distribution channels authentic goods from overseas at low prices and resell them in the United States.
These are not pirated goods, but ones in which the brand owner has already earned its profit on the first sale, those supporting Kirtsaeng say.
“If you buy a legitimate, authentic good, then you own it, plain and simple,” Hillary Brill, eBay’s global general counsel said in a conference call with reporters last week. “You have a right to resell it,” or dispose of it however you wish, Brill said.
Goodwill told the justices that the lower court’s decision would mean that “every charity in the United States that relies on public donations would need to somehow investigate the origin of each donation or risk being sued for infringement.” Used-book stores said it would require investigations of where the book was originally published.
And Kirtsaeng’s attorney Joshua Rosenkranz said the court’s reading would result in a perverse incentive for companies to move production overseas, since those products would not be subject to the first-sale doctrine.
Wiley is backed by publishers, music and movie producers, software developers, and the Obama administration.
Wiley argues that businesses must be able to set different prices for their products in different markets and that Congress understood that in writing the copyright laws. Offering cheaper textbooks in poorer countries is a good thing for society and should not be undermined by cutting the profits the company can make in richer markets.
As for the concerns expressed by Kirtsaeng and his supporters, Wiley’s attorney, Theodore Olson, said the publisher’s view of the law has been in place “for over 30 years, and yet none of the supposedly dire consequences that he predicts have ever occurred.
“There is a good reason for this: If a manufacturer attempted to manipulate the secondary markets as Kirtsaeng describes, Congress would surely consider whether to amend [the law] to cover foreign-made copies that have been subject to an authorized sale in the United States,” Olson said.
Rosenkranz disputes Wiley’s view. “The one thing we know about the law is the last 30 years have been a roller coaster,” he said.
Indeed, the question for the court is something of a redo. Two years ago, the justices heard a similar case involving Costco’s sale of Omega watches and deadlocked 4 to 4. Justice Elena Kagan was recused in that case because she had worked on it while serving as President Obama’s solicitor general.
The administration in the Costco case supported the copyright holder. The outcome in this case might depend on whether that was a position that reflected Kagan’s personal view of the law, or the administration’s.