First sale doctrine under threat in US

image from here

While Hurricane Sandy has shut down most of the east coast of US, one of the only official buildings still open in Washington DC on Monday was the Supreme Court, as they heard arguments in the Kirtsaeng v. John Wiley & Sons case, a case revolving around the extent of 'protection' that copyright owners should get. 

Textbook prices, it appears, are a problem world over. It makes sense. Without getting into whether it is good policy or not, IP's focus is on ensuring incentives for production, not on ensuring access to the products. Keeping prices at the upper end of the possible price range, makes more business sense than not doing so. And students, especially while entering professional courses, need these books, so they will somehow manage. In the now famous case of Delhi University v. OUP, students managed so far by photocopying course materials (under what I would've considered the educational exception permitting this photocopying. Unfortunately, the court doesn't seem to agree).

The current case too, was due to high text book prices. However, while it may have stemmed from the price of text books, the judgment will have effects on the way business is done in many many sectors. 

Kirtsaeng, a Thai medical student in USA, noted the huge price difference for textbooks in USA as compared to Thailand, where the same, but different 'versioned' books were sold for much cheaper. He then (legitimately) bought several textbooks from Thailand and other countries and imported them to USA, where he could sell them for less than the marked up USA price. The publishers, John Wiley & Sons, charged into court, determined to stop this bleeding of their profits.

The issue here revolves around the application and validity of the first sale doctrine, also (in the case of importing of goods), known as exhaustion. 

The first sale doctrine allows goods to be re-sold after their first point of purchase without requiring permission from copyright owners even if the good in question contains a copyrighted component. 

This has enabled the existence of secondary markets, many online forums like e-bay and craigslist, libraries and more generally the rights of people to actually 'own' the goods they buy. (Note: the first sale doctrine does not cover making copies of a good. That would be infringement). Big media and software companies, in attempts to keep control over the goods even after sale, have in many places replaced 'sales' with 'licenses' (think shrink-wrap licenses) and these licenses often also throw in a bunch of other conditions with the usage of the product. 

The Second Circuit, from which the current appeal arose, held in favour of the publishers, interpreting the statute to mean that the US copyright was not exhausted since the goods were not made in USA. If this decision is upheld in the Supreme Court, it will bring a halt to much of secondary market sales, which accounts for billions of dollars annually, and would be considerably harmful to public interest in US. The right to resell one's stuff would be greatly curtailed, and possibly the absurd effect of needing permission to resell anything which has even one part made in another country, would come into being.

It will however, then allow companies to freely price-discriminate (ie, lower prices) for poorer countries. This doesn't necessarily mean they will, but it does more freely open up the option.

On the flip side, if the decision is overturned, it seems to make more sense for the American public considering the tremendous size of the secondary market, but it also reduces the incentives for companies to price discriminate based on paying ability of the median in other countries. 

During the course of arguments on Monday, the Solicitor General's office argued for a middle ground, between the positions of Kirtsaeng and John Wiley; however Justice Alito put him on the spot when he asked him to choose between the two evils, that the two sides were presenting. He went along with Kirtsaeng's (lawyers') interpretation of the statute (as being the better of the two evils), that the first sale doctrine does apply, noting that it would be less harmful than creating a situation where the copyright holder would get these extra rights giving them control over secondary markets for them to extract more rents from. 

It's currently hard to tell which way the Court will go. Prof Mark Lemley, noted IP expert, seems to feel  that the petitioners (Kirtsaeng) may have gotten the upper hand during the oral arguments. The transcript of arguments are available here and are worth a read. 

Side note: It seems that John Wiley & Sons happen to like this issue. A few years ago, they successfully took action in the Delhi High Court, restraining 2 sets of defendants from exporting low priced edition books to foreign markets. Both judgments seemed to have ignored the very relevant first sale doctrine though. Prashant's analysis of the 2 cases is available here. 

KEI writes about it here; And Patently O covers it here.