The Second Circuit Agrees: Just Say No to Gray Market Goods

Under U.S. law, a copyright holder possesses the exclusive right to copy and distribute the copyrighted work. However, after the copyright owner sells a copy, the First Sale Doctrine permits the subsequent owner to re-distribute the copy without consent or interference from the copyright holder. This is why, once you buy a book or a CD, you can give it away or resell it with no fear of being sued for copyright infringement. This seems a pretty cut and dry proposition if you stop into your local book or record store (if you are lucky enough to find one these days) and pick up a copy of the new best seller or chart topper and then later decide to sell it on eBay – but what if you buy hundreds or even thousands of copies of a book printed and sold in Asia at a much lower price than you can in the U.S. and then sell them to U.S. bargain hunters on eBay for a tidy profit? Will the First Sale Doctrine protect you against being held liable for infringement?

The answer, according to the Second Circuit Court of Appeals, is “no.” In two recent decisions, the Second Circuit first held, and then soon after affirmed, that the First Sale Doctrine as set forth in the U.S. Copyright Act does not apply to copies both lawfully made and first sold outside of the United States. In John Wiley and Sons, Inc. v. Kirtsaeng, the defendant did, in fact, sell textbooks printed and purchased in Asia for a lower price (and according to the plaintiff of a lower quality) on the Internet in the U.S. for a profit. The defendant, apparently emboldened by legal advice solicited on “Google Answers,” believed his actions to be lawful and raised the First Sale Doctrine in his defense. Too bad that Kirtsaeng didn’t know about the Ninth Circuit’s decision in Costco Wholesale Corp. v. Omega, S.A., which we previously wrote about here.  If he had, he might have exercised a little more caution. As it turns out, the U.S. Copyright Act protects copies “lawfully made under” the Act. The Ninth Circuit has already held that copies made and sold outside the U.S. and, therefore, outside the reach of and not “under” the umbrella of U.S. copyright law, don’t qualify for a First Sale Doctrine defense. The Second Circuit reached the same conclusion, which means that Kirtsaeng is on the hook for copyright infringement.

Just in case the Kirtsaeng decision left any doubt in the minds of those who might want to sell textbooks sourced in Asia for profit in the Second Circuit’s back yard, Pearson Education, Inc. v. Kumar should put it to rest. In this case, defendants again were reselling textbooks printed and bought in Asia on the Internet in the U.S. for profit. Perhaps hoping that the Second Circuit was eager to change its recently made up mind, the Pearson defendants argued that Kirtsaeng had been wrongly decided. Unfortunately for them, the Second Circuit didn’t see it that way. In a short, three-page order, the three-judge panel affirmed the precedential weight of Kirtsaeng and upheld the Southern District of New York judgment holding the defendants liable for copyright infringement.

But is this issue settled for good? Not necessarily. The Supreme Court recently reviewed the Ninth Circuit’s Costco decision, but, because Justice Kagan recused herself, the final decision was four in favor and four against — resulting in no national precedent being set, previously discussed here. So the circuit courts will continue to develop their own jurisprudence as to this issue, at least for now. Perhaps the defendants in Pearson or Kirtsaeng will attempt an appeal to the High Court as well, in hopes of swinging Justice Kagan in their favor. Though it’s probably best if they don’t sell any more text books online to pay for the appeal, just in case.

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