As Hurricane Sandy bore down on the east coast, the Supreme Court on Monday, October 29, managed to hear oral arguments in the much anticipated Kirtsaeng vs. Wiley case, a case that could decide once and for all whether long-held “first sale” rights under the Copyright Act apply to goods manufactured overseas.
While it is unclear from the proceedings how the judges may be leaning, it is clear from their questions that they are very much focused on the larger effects their decision will ultimately have—including whether a ruling for Wiley might harm secondary markets and incentivize manufacturers, including publishers, to move their operations overseas in a bid to further control downstream distribution.
In his arguments on behalf of Kirtsaeng, attorney Johsua Rosenkranz told the court that a U.S. manufacturer would have “an irresistible incentive” to offshore manufacturing “if the law is what Wiley says.”
Justice Ginsburg quickly asked whether any such off-shoring has actually occurred. Rosenkranz replied that it is likely that some has occurred—it just isn’t something that would be publicized. But more likely, he explained, the prior cases regarding First Sale have not been settled to the point that such off-shoring might occur. “But the moment that a manufacturer learns that this Court says you get what we've called the Holy Grail of manufacturing—endless eternal downstream control over sales and rentals; [the ability to] ruin secondary markets that are competing with you; the moment that happens,” Rosenkranz said, “that will be yet another reason for manufacturers silently to decide that they’re sending their manufacturing overseas.”
Monday’s arguments address the fallout from an August, 2011 ruling in John Wiley & Sons, Inc. v. Supap Kirtsaeng, in which Kirtsaeng, a Thai-born U.S. student was successfully sued by Wiley for importing and reselling in the U.S. foreign editions of Wiley textbooks made for exclusive sale abroad. In its verdict, a three-judge panel of the Second Circuit affirmed, by a 2-1 margin, that Kirtsaeng could not avail himself of the first sale doctrine because the law says that products must be “lawfully made.” The Second Circuit court held that “lawfully made” limited first sale “specifically and exclusively” to works that are made in territories in which the U.S. Copyright Act is law, and “not to foreign-manufactured works.”
The Second Circuit decision has raised alarms for a number of businesses, including libraries and the used book trade, and online sellers like Amazon, and eBay, as well as for consumers, who, if the Second Circuit definition is upheld, may no longer be able re-sell legally purchased goods, whether books, cars, or electronics. Publishers, meanwhile, have dismissed those concerns as "hypotheticals."
Former Solicitor General Theodore Olson was evasive when asked to disabuse the court as to the “parade of horribles” that might come from upholding the Second Circuit ruling.
“Imagine Toyota,” asked Justice Breyer. “Millions sold in the United States. They have copyrighted sound systems. They have copyrighted GPS systems. When people buy them in America, they think they're going to be able to resell them. Under [Kirtsaeng’s] reading, the millions of Americans who buy Toyotas could not resell them without getting the permission of the copyright holder of every item in that car which is copyrighted? Is that right? ”
“There are other defenses, but that is not this case,” Olson responded.
“Well, how do you distinguish?” Breyer pressed. “Explain to me, because, the horribles, if I summarize them, include millions and millions of dollars’ worth of items with copyrighted indications of some kind in them that we import every year; libraries with three hundred million books bought from foreign publishers that they might sell, resale, or use; museums that buy Picassos that now, under our last case, receive American protection as soon as that Picasso comes to the United States, and they can't display it without getting permission from the five heirs who are disputing ownership of the Picasso copyrights. Those are some of the horribles that they sketch. And if I am looking for the bear in the mouse hole, I look at those horribles, and there I see that bear.”
“First of all, I would say that when we talk about all the horribles that might apply in cases other than this—museums, used Toyotas, books and luggage, and that sort of thing—we’re not talking about this case,” Olson replied. “What we are talking about is the language used by the statute that does apply to this case.”
“But you have to look at those hypotheticals in order to decide this case,” Justice Kennedy interjected. “You're aware of the fact that if we write an opinion with rule that you propose, that we should, as a matter of common sense, ask about the consequences of that rule?”
While Olson was unable to voice a strong reply under the Justices persistent questioning, he ultimately uttered words that may eventually comfort some librarians—he cited fair use.
“I would like to know,” Breyer persisted, “if you were the lawyer for the Toyota distributor, and if you were the lawyer for the Metropolitan Museum of Art, or you are the lawyer for a university library, and your client comes to you and says, my God, I just read the Supreme Court opinion. It says that we can’t start selling these old books or lending them, or putting them in our word processor, or reselling the Toyota, or, displaying the Picasso without the permission of the copyright holder, who may or may not be Toyota itself, what, as their lawyer, do you tell them? Do you tell them, hey, no problem? Or, do you tell them, you might become a law violator? Or, do you tell them, I better litigate this? What do you tell them? “
Each situation has its own facts, Olson replied. “With respect to the museums, with respect to the person bringing books into the United States, there are other defenses, including fair use,” He continued. “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?” The point, Olson concluded, is that “Congress was clearly intending to talk about the vast gray market problem.”
Justice Ginsburg then raised the potential “outsourcing problem” and asked specifically whether Olson thought a ruling in support of the Second Circuit “invited” the outsourcing of manufacturing jobs.
“One, that’s Congress's concern,” Olson replied. “And there is no evidence that that would really actually happen. Congress was concerned with creating a segmentation of the market. But it’s entirely speculative as to whether or not people are going to start manufacturing books or other items outside the United States.”
The court then heard from U.S. attorneys, amici in the case, who argued for an odd middle ground solution derived from holdings in the 1908 Bobbs Merrill case, an argument neither the parties, nor the Justices seemed to buy. Justice Alito, however, was quick to ask U.S. attorney Malcolm Stewart about his view of the potential outsourcing issue, and the “horribles” raised by Kirtsaeng—and there, the U.S. attorney appeared to voice the government’s support for overturning the Second Circuit.
“Which of the following is worse,” Alito asked. “The horribles that the Petitioner outlines to the extent they are realistic, or the frustration of market segmentation?”
“Well, if they actually happened, then I think the horribles would be worse,” Stewart responded, taking the occasion to once again push the government’s proposed statutory reading of Bobbs Merrill as a middle ground solution.
“If that middle ground were found to be not viable,” Alito persisted, politely dismissing the U.S. position, “which of the two sets of consequences is worse from the government’s perspective?”
“I would say that the consequence that all foreign-made goods, even if imported into the United States with the authorization of the U.S. copyright owner, are subject to continuing licensing requirements, I would say that would be worse than the frustration of market segmentation that would occur under [Wiley’s] view.”