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Supreme Court Establishes International Copyright Exhaustion

The recent Supreme Court decision in Kirtsaeng v. John Wiley & Sons represents a significant victory for college students in their struggle with media companies over copyrighted media. In a 6-3 decision, the Supreme Court assented to college student Supap Kirtsaeng’s resale of textbooks in the United States that were bought in Thailand at low cost, reasoning that the Copyright Act does not create a right to divide foreign markets from domestic markets. Effectively, this decision establishes international copyright exhaustion, i.e., that the first sale of a copyrighted article, whether manufactured domestically or abroad, is sufficient to “exhaust” the copyright owner’s rights to that article.

John Wiley & Sons (Wiley), a textbook publisher, filed suit against Kirtsaeng based on § 602(a)(1) of the Copyright Act, which prohibits importation of a copyrighted work into the United States without the authority of the copyright owner. In his defense, Kirtsaeng successfully asserted the “first sale doctrine” of § 109(a) of the Copyright Act, arguing that Wiley’s rights had been exhausted by the first sale of the textbooks in Thailand. Under the first sale doctrine, an owner of a copyrighted article “lawfully made under this title,” i.e., the Copyright Act, can sell or otherwise dispose of his or her copy of the copyrighted article without interference from the copyright owner. However, the first sale doctrine had not previously been applied to articles manufactured abroad, and so the issue came down to whether works manufactured abroad are made “lawfully under this title.” After delving into the text and legislative history of the Copyright Act, the Court held that a copyrighted work manufactured in any one of the nearly 180 nations that have signed a copyright treaty with the United States is “lawfully published under this title” and is therefore subject to the first sale doctrine.

Of course, the implications of this decision reach far beyond one college student’s profit-making scheme. As the majority opinion suggests, the ruling permits libraries to continue their lending practices and museums to keep foreign works on display. However, there is widespread speculation and concern as to the negative consequences for media companies and their consumers. As Justice Ginsburg points out in her dissent, the decision limits a copyright owner’s right to bar importation of copyrighted goods to the rare circumstance where copyrighted articles are imported from a possessor who is not an owner and thus has not acquired the articles through a “first sale.” This could result in higher prices for copyrighted media, both in the U.S. and abroad, and an increase in amateur sales of copyrighted media.

Although the consequences of the decision are still uncertain, copyright owners may want to consider digital licensing of copyrighted media as a supplement to the sale of physical copies. In addition, copyright owners can consider additional intellectual property protection for some copyrighted goods. For example, some copyrighted articles may be eligible for a design patent or trade dress protection, which are not covered by Kirtsaeng.

Along with speculation about the impact on copyrightable media, there has been significant concern over the decision’s impact on patentable materials such as pharmaceuticals. To be sure, some of the policy considerations underlying the Kirtsaeng decision apply with equal force to patents. However, the majority opinion is deeply rooted in the text and legislative history of the Copyright Act. Moreover, patent law is far more country-specific than copyright law, and lacks a comparable international scheme to copyright law. Particularly given that the Supreme Court recently passed up an opportunity to address international patent exhaustion in the wake of Kirtsaeng by denying certiorari in Ninestar Technology Co. v. ITC, any impact that Kirtsaeng may have on patent law is unlikely to be seen anytime soon.

This advisory was prepared by Nutter's Intellectual Property practice. For more information, please contact your Nutter attorney at 617.439.2000.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

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Maximizing the protection and value of intellectual property assets is often the cornerstone of a business's success and even survival. In this blog, Nutter's Intellectual Property attorneys provide news updates and practical tips in patent portfolio development, IP litigation, trademarks, copyrights, trade secrets and licensing.

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