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Supreme Court case could determine the future of reselling online

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Are you planning to sell your Japanese car, unload unwanted stuff on eBay, buy gifts while vacationing overseas, or borrow a library book? Then you’d better hurry – the Supreme Court is currently hearing a copyright case that might render all these actions illegal.

On Monday, the court started hearing oral arguments in Kirtsaeng v. John Wiley and Sons. In legalese, the case involves fine points of copyright law and first sale doctrine, parsing the meaning of the phrase “lawfully made,” and the gray market practice of buying low-priced items overseas to avoid higher prices in the U.S.

But in layman’s terms, the case ultimately addresses the question, “Can U.S. citizens ever truly own anything, or do we merely rent our possessions from their respective copyright holders?”

Supap Kirtsaeng is a Thai native who came to America in the late 1990s to study at Cornell University. John Wiley and Sons is a textbook publisher whose books (like most books) sell in foreign markets for much lower prices than in the U.S. Kirtsaeng took advantage of this price differential by buying textbooks in Thailand, then selling them at a profit to bargain-hunting American students.

Back in 2003, when “finding bargains on the Internet” was still a relatively new concept, the New York Times reported that college textbooks which sold for $110 in America could be had for less than $50 in Britain (or on British book-selling websites), and even lower prices in Asia. A lawyer for the American Association of Publishers justified this with arguments the Times summarized as follows: “foreign textbook prices are pegged to the per capita income and economic conditions of the destination countries -- and that foreign sales are a boon to America's standing in the world […] and even to American consumers, since each extra copy sold overseas, even at a low price, helps to spread the high costs of putting out a new textbook. As more and more customers turn to reimporting books, it is an open question how long the overseas price differentials will last.”

But nine years later, those differentials still exist, and publishers like Wiley hope copyright law will prevent American students from taking advantage of them.

In the world of high finance, the practice of buying something in a low-priced market to resell in a higher-priced one is called “arbitrage.” But when Kirtsaeng the college student did it, Wiley deemed his actions copyright infringement, and sued. In August 2011, the Second Circuit Court of Appeals ruled against Kirtsaeng.

In the court opinion, Circuit Judge Jose Cabranes noted: “The ‘first sale doctrine’ in copyright law permits the owner of a lawfully purchased copy of a copyrighted work to resell it without limitations imposed by the copyright holder [….] The principal question presented in this appeal is whether the first sale doctrine, 17 U.S.C. § 109(a), applies to copies of copyrighted works produced outside of the United States but imported and resold in the United States.”

Ultimately, the court ruled that “The first sale doctrine does not apply to goods produced outside of the United States.” District Court Judge J. Garvan Murtha dissented, arguing that first sale doctrine should apply for all legally purchased items, regardless of where they were first made or sold.

Kirtsaeng appealed to the Supreme Court, which agreed to take the case. The court started hearing oral arguments on Monday, and later released a 65-page .pdf transcript of the day’s arguments (with the caveat that the transcript is still “subject to final review”).

Three attorneys presented arguments to the court: E. Joshua Rosenkranz, arguing on Kirtsaeng’s behalf; Theodore B. Olson, arguing for Wiley; and Malcolm L. Stewart, a deputy solicitor general with the Department of Justice, which made friend of the court arguments to support Wiley’s position against Kirtsaeng.

Rosenkranz spoke first, arguing that the case ultimately rests on the proper definition of the phrase “lawfully made,” as used in current U.S. copyright and first-sale law. Basically, Kirtsaeng and Rosenkranz are saying first-sale rights apply to anything made or purchased legally, as opposed to illegally.

Justice Ginsberg summarized this as “Essentially, once a copy is sold anywhere, the copyright holder loses control of distribution everywhere. That is essentially your argument.” Rosenkranz agreed.

But Olson argued that first-sale rights do not apply to “copies of books that were lawfully made not under the United States’ Copyright Act, but under the law of some other country.” In other words, unless a book (or anything else) was manufactured and first sold in the U.S., you can’t resell it under the first sale doctrine because it wasn’t “lawfully made” for U.S. copyright purposes.

Justices Breyer and Sotomayor suggested that Olson’s argument might result in a complete ban on foreign books imported to the US without express permission of the books’ copyright holders, and posed hypothetical questions about library purchases and American tourists buying books in British stores.

BREYER: “The question is what happens when  […] you and I go in and buy it and we want to give a copy to our wife when we get back to the United States. The question, is, did – is that unlawful?”

OLSON: Well, we’re – well, if we’re reading the provisions of the statute, is that copy – now, there are exceptions for the books that are brought in –

BREYER: No, no exception I take it once I bring back five copies and I give one to my son.

OLSON: Well, there are fair use exceptions and there’s –

BREYER: Oh, fair use.

OLSON: Other exceptions and – and there are exceptions for the one that you bring back for your wife and your –

SOTOMAYOR:  I’m sorry. Is your reading now that when the library imports in a book or a film or whatever it’s importing in, it goes to the customs agent and it says to the customs agent: I don’t have the express authorization of the copyright owner, but I’m a library, so I can import this book in?

OLSON: It says –

SOTOMAYOR: I’m – I’m a person who’s bought this book in England and I’m bringing it to my wife? What provision gives me the right to do that?


There’s far more at stake here than just buying, selling or lending foreign book editions. Justice Breyer later mentioned the millions of Toyota cars sold in the United States, with copyrighted GPS and sound systems, and suggested that according to Olson’s reading of the law, Americans who bought Toyotas can not legally resell them “without getting the permission of every copyright holder of every item in that car which is copyrighted.”

Olson suggested that libraries seeking to lend books or museums wishing to display foreign artworks could simply get permission from the copyright holders: “if you’re going to use the product created by someone else in a way that’s contemplated by the copyright laws, maybe it’s required that you actually comply with the copyright laws by going to the owner of the copyright and saying, look, here’s what I propose to do, can I have a license to do this? It’s a nonprofit. It’s a museum.”

Other justices, including Ginsburg, later pointed out that if first-sale rights only apply to items manufactured in the U.S., that gives manufacturers strong incentive to make things overseas instead, so they could retain control over the copyright even after the first sale.

GINSBURG: Mr. Olson, do you have an answer to the outsourcing problem and the charges that if you read the statute as you are urging, then you are inviting the outsourcing of manufacturing jobs?

OLSON: There are several answers to that. One, that’s Congress’s concern. And – and there is no evidence that that would really actually happen.

Cynics might disagree with Olson’s assertion of “no evidence” that companies would pull manufacturing jobs out of America and move them overseas. But the Electronic Frontier Foundation agrees that the Kirtsaeng v. Wiley case is Congress’ concern – and the concern of ordinary Americans as well.

That’s why EFF put out a call for Americans to “Take Action,” pointing out that “when it comes to the digital world, first sale is already under attack. Copyright holders are trying to undermine our first sale rights by forcing users to license items they would rather buy. The copyright industry wants you to ‘license’ all your music, your movies, your games — and lose your rights to sell them or modify them as you see fit. These ‘end user license agreements’ back up the same sort of short-sighted policies which prevent us from lending ebooks to friends.”

Bad as that is, the copyright law interpretation John Wiley and Sons seeks from the Supreme Court is even worse. One difficulty in applying traditional copyright law to new digital media is that “sharing” digital media often boils down to “making new copies” of it. Under traditional first-sale doctrine, after you buy a copyrighted book you’re free to sell or lend it – but you can’t print and sell new copies of that book. Only the copyright holder can do that.

In this regard, digital copyright law is already stricter than traditional law. Right now, for example, if you buy a paper book with a title like Let’s Learn Spanish, it’s legal for you to re-sell it later (though you still can’t make new copies). But you can’t sell your e-reader copy of Let’s Learn Spanish. And if you buy a copy of Rosetta Stone’s Spanish-language software, it’s not only illegal to make and sell copies of it; you can’t even sell your original physical discs of the software. You cannot “own” a copy of Rosetta Stone or an e-copy of anything; you can only buy a license giving you permission to use it.

And if the Supreme Court rules in Wiley’s favor, the same rules will apply to any physical object not stamped “Made In USA” (and some that are): your car and books, watches and jewelry, even designer clothes or those cool souvenirs you bought dirt-cheap when you vacationed overseas. You won’t legally be able to sell these things or give them away because you can never legally buy them; you can only buy permission to use them and nothing else, unless the copyright holder says so.

Photo via opensourceway/Flickr