Kirtsaeng v. Wiley: Supreme Court Creates New Class of Business Venture

The Supreme Court decided this week the case of Kirtsaeng v. John Wiley & Sons. The opinion will undoubtedly have a large impact on intellectual property law.

This case deals with a Thai national who was subsidizing his college tuition in the U.S. by having his relatives in Thailand buy textbooks for cheap, shipping them to him in the US, and then selling the text books to Americans on sites such as eBay. He made about a $100,000 profit off this enterprise. Eventually, the publisher caught wind, and sued.

This enterprise is known as the “gray market”. Exploiting the price differential between the US and overseas can be quite profitable. The legality of this practice differs depending on the type of good being sold. Prior to this ruling, on copyrighted goods purchased overseas, most judges were ruling against the gray marketeers.

Kirtsaeng argued that the ‘first sale doctrine’ creates an exception that validates his actions. The “first sale doctrine” in copyright law permits the owner of a lawfully purchased copy of a copyrighted work to resell it. Once you buy a copy of something, you own that copy. You can do as you wish with it. This is codified at 17 U.S.C. § 109(a) of the Copyright Act of 1976. However, Congress also enacted 17 U.S.C. § 602(a)(1).That section provides that importing goods into the United States without the authority of the copyright holder is illegal. The Supreme Court has now decided that §109(a), does in fact, limit the scope of §602(a)(1), and ruled for Kirtsaeng.

Previously, the Supreme Court opinion which was most influential in ‘gray market’ dealings was Quality King Distributors, Inc. v. L’anza Research International, Inc., 523 U.S. 135, (1998). In Quality King, L’anza Research International, a California shampoo company, sold to foreign distributors at rates which were 35% to 40% lower than the prices charged to its domestic distributors. Quality King Distributors, Inc. purchased shipments of L’anza’s products from one of L’anza’s foreign distributors and then reimported the products into the United States for resale. L’anza sued, alleging that Quality King’s actions violated its “exclusive rights under 17 U.S.C. §§ 602. The Supreme Court heard the case to decide the question of “whether the `first sale’ doctrine endorsed in § 109(a) is applicable to imported copies.” The Supreme Court held that § 109(a), limits the scope of § 602(a), and ruled for Quality King.

While this may seem like it is the exact same facts as Kirtsaeng, there was a key difference. In Quality King, the copyrighted items in question had all been manufactured in the United States. In Kirtsaeng, the books were printed overseas. Since these books were intended to be sold in Thailand, it was cheaper and easier for Wiley to print them over there.

With the opinion in Kirtsaeng, the Supreme Court has overruled Omega S.A. v. Costco Wholesale Corp, 541 F.3d 982 (9th Cir. 2008).That case involved the importation into the United States of Omega-brand watches. The watches were ultimately purchased and resold by Costco Wholesale Corporation. The Ninth Circuit had held that § 109(a) (First Sale Doctrine) does not apply to items manufactured outside of the United States. But, the Court’s ruling was 4-4 (with Justice Kagan recused), and therefore the opinion of the Ninth Circuit stood.

The ruling in Kirtsaeng will legitimize the ‘gray market’. Now, copyrighted materials which are sold overseas for cheap, can be purchased, imported into the U.S., and sold for close to market value. This could mean that American consumers can soon purchase high quality, copyrighted goods for the price of cheap foreign knock offs. It will also mean that until the market adjusts, quite a few entrepreneurs will follow in Kirtsaeng’s footsteps and start searching overseas markets for good value without the fear of copyright infringement lawsuits. Places such as Costco, Walmart, and other large retailers will also likely scour foreign markets for cheap sources of goods. Once these practices become widespread, either manufacturers will lower their prices, or pull out of foreign markets all together. Until this happens, the next time you are on vacation overseas, it might just be worth it to pop your head into the local bookstore and pick up a few copies of whatever English texts they have.