Supreme Court Decision in Kirtsaeng v. John Wiley & Sons: An SIIA Briefing to Discuss What the Court Said and the Potential Fallout Keith Kupferschmid General Counsel and SVP, Intellectual Property March 21, 2013

Today’s Webcast Necessary background What the Supreme Court said and why What it means Next steps Questions

What’s at Issue in the Case? A defense to copyright infringement called the First Sale Doctrine.  Codified in Section 109(a) of the Copyright Act  Allows a person who buys (rather than licenses) a copy of a copyrighted work to resell, distribute or otherwise dispose of the copy without the publisher’s permission. Issue in Kirtsaeng:  Whether the first sale doctrine applies to copyrighted products that were legally manufactured abroad.

Origins of the First Sale Doctrine Bobbs-Merrill Co. v. Straus  Supreme Court first applies the “first sale” doctrine  the copyright laws were not “intended to create... a restriction upon the subsequent alienation of the subject-matter of copyright after the owner had parted with the title to one who had acquired full dominion over it.” First Sale Codified in the 1909 Copyright Act:  S.27: “…nothing in this Act shall be deemed to forbid, prevent, or restrict the transfer of any copy of a copyrighted work the possession of which has been lawfully obtained.”

The First Sale Defense: Sec. 109(a) of the Copyright Act Limitations on exclusive rights: Effect of transfer of particular copy or phonorecord (a)Notwithstanding the provisions of section 106(3), the owner of a particular copy … 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….

The Distribution Right: Sec. 106(3) of the Copyright Act Section 106 of the Copyright Act: Exclusive rights in copyrighted works Subject to sections 107 through 122, the owner of copyright under this title has the exclusive rights to do and to authorize any of the following: … (3) to distribute copies … of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending;….

The Importation Right: Sec. 602(a) of the Copyright Act Infringing Importation of Copies or Phonorecords (a) 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 under section 106.

Quality King v L’Anza 1998 SCOTUS case holding that that Section 602(a)’s reference to Section 106 incorporates the Section 109’s first sale doctrine. The Result: First Sale Doctrine applies to works made in the United States even if they were never sold in the U.S. Copy in Quality King was initially manufactured in the United States and then sent abroad, sold and then –re-imported into the United States. What about goods made outside the U.S.?

Kirtsaeng v John Wiley & Sons: The Facts Copyrighted works involved in the case:  Wiley’ nursing and other textbooks  Made in Thailand, not in the U.S.  Sold in Thailand. Kirtsaeng’s friends and family purchased textbooks from Thailand and ship them to him in the U.S. where he sold them at a profit without authorization from the publisher.

Kirtsaeng v John Wiley & Sons: The Issue Whether the first sale doctrine applies to copyrighted products that were legally manufactured abroad and then imported into the United States without the authority of the publisher (Wiley).  Appellate court in New York said “No, the first sale doctrine does not apply” and found Kirtsaeng liable for copyright infringement.

Kirtsaeng v John Wiley & Sons: The Holding In a 6-3 decision, the Court overturned the appellate court decision and held that the first sale doctrine applies to copies of copyrighted works that are legally manufactured abroad.  Majority opinion: Written by Justice Breyer, joined by the Chief Justice and Justices Thomas, Alito, Sotomayor, and Kagan  Concurring opinion: Written by Justice Kagan, joined by Justice Alito  Dissenting opinion: Written by Justice Ginsburg, joined by Justices Kennedy and Scalia.

Kirtsaeng v John Wiley & Sons: The Decision Issue  whether the words ‘lawfully made under this title’ restrict the scope of … the first sale doctrine geographically. The Court found that the statutory language, its context, and the common-law history of the first sale doctrine, taken together favored a non-geographical interpretation. The Court held that the five-word phrase meant nothing more than “in compliance with” or “in accordance with” and “says nothing about geography.”

Kirtsaeng v John Wiley & Sons: “Everybody Loves a Parade” The majority was sympathetic to the “parade of horribles” complained of by libraries, book sellers, technology companies, consumer- goods retailers and museums. Rejected Ninth Circuit and Solicitor General’s compromise approach. Majority acknowledge the potential havoc it was wreaking on publishers’ business models

Kirtsaeng v John Wiley & Sons: The Concurrence Justice Kagan: Kirtsaeng decision in combination with L’anza decision destroys the copyright owner’s ability to engage in market segmentation and price differentiation. result is due to an incorrect decision in L’Anza, not the decision in Kirtsaeng. Not what Congress intended. Calls on Congress to fix the problem (with importation right in section 602).

Kirtsaeng v John Wiley & Sons: The Dissent Called the Court’s decision “absurd” and the majority’s interpretation of the five word phase an “unnatural construction.” Majority position contrary to U.S. policy and legislative history. Justice Ginsburg rains on the “parade of horribles”  Fair use and Implied license defense

Kirtsaeng v John Wiley & Sons: Lemonade? Majority concludes that Copyright Act applies extraterritorially. Good language in the opinion that can be used to bolster existing position that the first sale doctrine does not apply to software or digital content that is licensed.

Kirtsaeng v John Wiley & Sons: The Fallout Does not apply to licensed products. such as software. Market segmentation and price differentiation at your own risk. Flooding of U.S. market with foreign products – even licensed product.

Kirtsaeng v John Wiley & Sons: Next Steps? Follow the suggestion of the concurrence and push a congressional fix to section the importation right in 602(a)? What that would mean Fix first sale defense in 109(a)? Publishers alter business models: move more quickly to a licensing model? pricing and other business models change?

QUESTIONS? Keith Kupferschmid General Counsel & SVP, Intellectual Property Software & Information Industry Association (202) Thank You