HOW A SUPREME COURT RULING MAY STOP YOU FROM RESELLING JUST ABOUT ANYTHING
Wiley v. Kirtsaeng may be the IP case of the decade—affecting all from eBay to libraries.
On Monday, the US Supreme Court will hear arguments in a case that pits a major textbook publisher against Supap Kirtsaeng, a student-entrepreneur who built a small business importing and selling textbooks.
Like many Supreme Court cases, though, there's more than meets the eye. It's not merely a question of whether the Thai-born Kirtsaeng will have to cough up his profits as a copyright infringer; the case is a long-awaited rematch between content companies seeking to knock out the "first sale" doctrine on goods made abroad (not to mention their many opponents). That makes Wiley v. Kirtsaeng the highest-stakes intellectual property case of the year, if not the decade. It's not an exaggeration to say the outcome could affect the very notion of property ownership in the United States. Since most consumer electronics are manufactured outside the US and include copyrighted software in it, a loss for Kirtsaeng would mean copyright owners could tax, or even shut down, resales of everything from books to DVDs to cellphones.
"First sale" is the rule that allows owners to resell, lend out, or give away copyrighted goods without interference. Along with fair use, it's the most important limitation on copyright. So Kirtsaeng's cause has drawn a wide array of allies to his side. These include the biggest online marketplaces like eBay, brick-and-mortar music and game retailers, and Goodwill—all concerned they may lose their right to freely sell used goods. Even libraries are concerned their right to lend out books bought abroad could be inhibited.
John Wiley and Sons, the textbook publisher suing Kirtsaeng, has its share of backers as well, including the movie and music industries, software companies, and other book publishers. Those companies argue differential pricing schemes are vital to their success, and should be enforced by US courts. Nearly 30 amicus briefs have been filed in all.
Supporters of Kirtsaeng are mobilized, following an alarming—but not precedential—loss in an earlier case, Omega v. Costco. On a call with reporters this week, librarians and lawyers for pro-Kirtsaeng companies painted a stark picture of what might happen should he lose the case. If the appellate court ruling against Kirtsaeng is allowed to stand, they suggest copyright owners could start to chip away at the basic idea of "you bought it, you own it."
"This case is an attempt by some brands and manufacturers to manipulate copyright law, to control the distribution and pricing of legitimate, authentic goods," said eBay's top policy lawyer, Hillary Brill. "When an American purchases an authentic item, he shouldn't have to ask permission from the manufacturer to do with it what he wants."
Without "first sale" doctrine in place, content companies would be allowed to control use of their goods forever. They could withhold permission for resale and possibly even library lending—or they could allow it, but only for an extra fee. It would have the wild effect of actually encouraging copyrighted goods to be manufactured offshore, since that would lead to much further-reaching powers.
"When we purchase something, we assume it's ours," said Overstock.com general counsel Mark Griffin. "What is proposed by [the content companies] is that we change the fundamental notion of ownership rights."
Book publishers and their content-industry allies say those concerns are overblown. No assault on libraries and garage sales is forthcoming, they argue. These organizations simply have a right to set different prices abroad, without being undermined in the US by importation they say is illegal.
Thrifty students, textbooks, and the Internet: A brief history
The road to the Kirtsaeng clash has been a long one. Ultimately, this confrontation has been brewing since the rise of Internet marketplaces like eBay and Amazon in the mid-1990s. It became easier to get price information about goods being sold overseas, and consumers could see that identical or good-enough products were often being offered for prices much lower than the products being hawked in the US. At the same time, the big shopping sites made it simple for anyone to become their own business, selling and shipping around the globe.
The textbook market was an obvious place to look for arbitrage. Students have been complaining about the high cost of books for many years; they also became the first group to enthusiastically embrace life online, and naturally looked for ways to cut costs.
Foreign-born students, exposed to the lower-priced textbooks on trips home, became some of the first to see the opportunity. The same textbooks they were using to study medicine, engineering, and mathematics in the US were being sold in their home countries for a fraction of the cost. Often a Chinese, Thai, or Indian edition of a textbook had a more cheaply bound cover, sometimes with the local lettering on the front, and perhaps cheaper paper. The internal contents, however, were often the exact same English words being read by their classmates buying high-priced US editions.
By 2003, the secret was out. Students' Internet-age solution to the problem of costly textbooks hit the front page of the New York Times. For some students, it was as simple as logging on to Amazon's UK site to comparison-shop. A biochemistry text was $146.15 on the American Amazon site, but sold on the UK site for a mere $63.48, plus $8.05 shipping, one student found. A math textbook cost $110 in the US, but sold for $41.76 plus shipping in Britain.
Even cheaper prices were found in Asia on English textbooks. The local college bookstore at Purdue University began buying overseas after it had to start competing with student-resellers—the Indian Association at Purdue bought hundreds of books on their own.
Neither the students nor the bookstores quoted by the Times in 2003 thought they were doing anything illegal. It was thought to be settled law; in a 1998 Supreme Court case called Quality King, the high court found that copyright owners couldn't control the re-importation of goods. They were limited by the "first sale" doctrine, which meant the rights held in a particular copy of a work expired once it was sold or given away.
Years passed, and copyright owners found a wrinkle in that ruling. The shampoo bottles in Quality King had been made in the US but then shipped abroad, and re-imported. In cases where goods were actually produced abroad—as foreign textbooks generally were—copyright owners argued unauthorized importers were guilty of infringement. Because imported foreign textbooks were not "made legally under this title [the Copyright Act]," they weren't subject to first sale at all. Or so the thinking went.
It seems like an audacious argument, but sure enough, student book-sellers were hit with copyright lawsuits. They fought back hard—but, for the most part, they have lost.
Kirtsaeng in court
Supap Kirtsaeng lost first and lost hardest. He came to the US from Thailand in 1997 to study at Cornell University, and later went on to get a PhD in mathematics from the University of Southern California. From 2007 to 2008, he financed his education—and made extra money, doubtless—by importing textbooks from Thailand and selling them under his eBay handle, bluechristine99.
Kirtsaeng didn't abide by those warnings. He talked to some Thai friends; he consulted "Google Answers;" and he went ahead and sold books.
The warning in the books was not an idle one. Wiley and Sons followed through on their threat and sued Kirtsaeng in 2008. Kirtsaeng's lawyer was unable to get the case thrown out on "first sale" grounds. By the end of 2009 Kirtsaeng was in court, justifying his importation business to a jury.
Lawyers portrayed Kirtsaeng to the jury as a Thai "gray market" mogul who had gone far beyond financing his own college education—a portrayal that US publishers continue to push. Working with friends and family who packaged and shipped his books, he made plenty of money selling extra books on eBay. Publishers' lawyers tallied up his receipts for the jury: $1.2 million in a few short years.
The jury found Kirtsaeng guilty of infringing copyrights in eight books he had sold, and he was ordered to pay $600,000 in damages—$75,000 per book. He appealed, but a panel of judges ruled 2-1 in the publishers' favor.
Kirtsaeng returned to Thailand in 2010 after earning his doctorate from USC, but his court case continues.
The other Kirtsaengs
Supap Kirtsaeng wasn't the only student bookseller that textbook publishers went after. In New York federal courts, the publishers' preferred venue, they've sued at least four student-resellers, and won every case.
While the publishing companies have made hay out of the $1.2 million in revenue, they have gone after students with far smaller businesses than Kirtsaeng, said John Mitchell, a Washington DC lawyer who defended two of those students.
Ganghua Liu (who goes by Linda) was a medical student in Texas when she started buying some of the textbooks she needed from China. The price difference was significant, said Mitchell. "It was something like a $250 textbook being sold for $50," he said. "In some cases the cover was in Chinese, but the content was all in English."
Liu started buying more textbooks and selling them online, but she never had a big operation.
"Her sales were peanuts compared to Kirtsaeng," said Mitchell, no more than a "few thousand dollars" annually. "They [the book publishers] were trying to get her to pay $15,000, and they might have taken less. They just wanted to shut down anyone who was selling, but she was a feisty individual."
The lawsuit was defended through the US Court of Appeals for the 2nd Circuit, where Liu ultimately lost. The facts in the case mirrored Kirtsaeng's, which had already been decided. Mitchell has appealed the Liu case up to the Supreme Court, but its results now seem likely to follow Kirtsaeng's.
Mitchell took on a second student bookseller client, Mohit Arora, who had resold books he bought in India. Like Liu, he appealed to the 2nd Circuit, but couldn't get around the precedent of Kirtsaeng.
Liu has been exhausted by the lawsuit against her, said Mitchell. "She has been struggling, due to illness in her family and severe financial hardship," said Mitchell. "Right now, she's neither studying nor practicing medicine. This really knocked the wind out of her sails."
Round One: How copyright got "hacked" in Costco v. Omega
The Supreme Court has considered the issue of "parallel importation" or "gray market" goods once before, in Costco v. Omega. However, the case resulted in an unusual 4-4 split and no published opinion. Justice Elena Kagan was unable to vote, because she had argued the case as Solicitor General, supporting copyright owner Omega.
Omega was upset that Costco imported a bunch of its Seamaster watches into the US, and was selling them for $1,299—a solid $700 less than Omega's suggested US retail price. Angered by importations that undercut its prices, Omega attempted a clever "hack" of copyright law that nearly worked. Unable to copyright wristwatches, Omega slapped a small globe design—less than 5 millimeters across—on the back of each watch. The sole purpose, Omega later admitted, was to make the watch a "copyrighted" good with the hope of restricting resale of its products.
Again, it almost worked. The 4-4 split at the high court meant Omega had won, since the 9th Circuit ruling supporting the watch company held up. Ultimately, though, Omega's case fell apart. The lower court found that sticking its copyrighted logo onto the back of an item that couldn't be copyrighted—a wristwatch—was actually an example of "copyright misuse."
The 4-4 result of Costco v. Omega doesn't bode well for the consumer advocates, online marketers, and resellers who are supporting Kirtsaeng. Four justices decided to support the copyright-owner even in a case where the copyright itself was dubious; the 'swing vote' is Justice Kagan, who is on record as supporting Omega when she worked for the government.
But this new case presents different facts, and different characters. Mitchell, the lawyer who represented Linda Liu, is optimistic the Kirtsaeng case will be seen differently from Costco, by both the court and the public.
"Nobody has to buy a $2,000 watch, or a $1,300 watch, so it didn't affect people in general," says Mitchell. "But anyone who wants a college degree is going to need to get their hands on textbooks. It affects millions of people, and I'm hopeful that now the Supreme Court is going to look at this as a case of importance to everyone in the US"
Emboldened support for "owners' rights"
"First sale" doesn't just protect the Supap Kirtsaengs and Linda Lius of the world. It exists to protect their customers, too—people who might never be "first owners" of books, games, or much of anything.
The companies and institutions affected by the resale-rights issues brought up in Kirtsaeng have certainly snapped to attention. They've formed a wide-ranging coalition called the "Owners' Rights Initiative," emphasizing to the public that the right to re-sell, lend out, and give away books, movies, and music is under threat. Members include Internet commerce companies, library associations, book-sellers, Goodwill Industries, and Redbox. The ORI website shouts in bold red: "You bought it, you own it—you have a RIGHT to resell it!"
In court briefs, content companies have characterized the stories being put forward by ORI as a mythical parade of horribles. If content-company lawyers were going to shutter libraries or march into garage sales, why weren't there any examples?
"Kirtsaeng and his amici contend that if the Court accepts this natural reading, economic ruin will follow for a litany of interested parties, from commercial retailers to charitable organizations to factory workers to flea-market sellers," write lawyers representing the MPAA and RIAA in their amicus brief [PDF]. "[T]here is no evidence this long-recognized principle has actually impaired any important secondary markets or led to imposition of liability on well meaning librarians, teachers, or garage-sale hosts. Indeed, almost every court to have considered the issue has come out the same way, and Congress has amended the Copyright Act on numerous occasions without disturbing that construction."
Copyright owners have little interest in policing garage sales, and legal exemptions already exist for libraries and small-scale importation (such as books in a tourist's carry-on). Copyright owners say they're concerned with "gray market" goods as big business, that will threaten their ability to succeed and profit at home.
"The genuine threat at issue is the prospect of systematic, unauthorized importation on a mass scale of copies of movies, sound recordings, or other protected works that could undercut the market for copies intended for sale in the United States or constrain copyright holders’ ability to control the timing and terms of entry into different markets."
An IP battle that stretches across industries and classes
The Kirtsaeng battle is a reflection of digital commerce today. Online marketplaces happily ignore borders, and have created a world in which almost any scrappy student could be another Supap Kirtsaeng, shattering long-standing pricing schemes by movie and book companies. That reality has made some very well-established US corporations very unhappy, and they know how to use courts to fight back.
So far, they're winning. Even their equally well-heeled corporate opponents are aware this fight may have to ultimately turn to Congress—no matter which way the Supreme Court decision turns out.
"I think the likelihood of a crystal clear decision by the court is not high, and we want to be prepared for that," said Overstock.com GC Mark Griffin. "And if they decide for Kirtsaeng, I wouldn't expect [the other side] to sit back and do nothing."
Copyright battles that pit technology companies against content owners are becoming a fixture of the Internet age. But those fights can seem abstract and distant to those without a vested interest. It's a rare IP lawsuit that so clearly reaches into every social class—but Kirtsaeng is one of those cases.
"First sale" doesn't just protect the Supap Kirtsaengs and Linda Lius of the world. It exists to protect their customers, too—people who might never be "first owners" of books, games, or much of anything.
Liu's lawyer John Mitchell reminded me of those stakes in an e-mail he sent after our interview.
"There are millions of people living in poverty or near poverty in this country," wrote Mitchell. "They scarcely buy new shoes or new clothes, instead shopping at Goodwill Industries or other establishments catering to their needs. They buy used cars, used phones, and used computers. For the person who always buys new, for whom price is not a big factor, the next 'point of distribution' is probably the trash. (And, yes, there is case law supporting the right to take copies intended for the trash, clean them up, and resell them.) 'First sale' protects those downstream individuals who will never buy new and who would otherwise be left out."