At a rare New York-based Congressional hearing, Wiley president and CEO Stephen Smith told members of the House Subcommittee on Courts, Intellectual Property and the Internet, that Congress should address the fallout from a key 2013 Supreme Court decision that has hurt the company's international business.
The remarks came at the first “field hearing” in what subcommittee chairman Bob Goodlatte (R-VA) called Congress’ "ongoing comprehensive review of our nation’s copyright laws," this one focused on the doctrine of first sale. In a little over two hours, the subcommittee heard testimony from nine panelists—including two principals in two recent lawsuits: Wiley president and CEO Stephen Smith, and ReDigi CEO John Ossenmacher.
Smith opened the day’s testimony by telling legislators that the Supreme Court’s 2013 landmark ruling in Kirtsaeng vs. Wiley has hobbled the publisher's ability to practice market segmentation, hurt its ability to sell textbooks in foreign markets, "damaged export revenue," and denied students overseas access to leading texts. In written testimony, he also said the decision has led to “a disturbing increase in piracy,” and suggested that Congress should step in and provide a legislative fix.
And in his prepared testimony, Smith suggested just such a fix: amending Section 602(a)(1) of the Copyright Act to distinguish between the “distribution” of goods and their “importation.”
The issue at hand stems from the case of John Wiley & Sons Inc. v. Supap Kirtsaeng, in which Wiley sued Supap Kirtsaeng, a Thai-born U.S. student for importing and reselling in the U.S. English-language editions of textbooks made for exclusive sale abroad. Wiley attorneys claimed the copies, which were made abroad for exclusive sale abroad, were “unauthorized.”
In his defense, however, Kirtsaeng invoked first sale—after all, the books in question were not knock-off, pirated editions of Wiley texts, but the real thing. Kirtsaeng’s family and friends legally purchased the copies overseas and shipped them to him, and as the legal owner, he contended, he was free to resell them. By a 6-3 margin, the Supreme Court agreed.
The decision has set off fears that in an age of global e-commerce and cheap shipping, cheaper-priced goods made for sale overseas would come flooding back into the states, swamping the domestic market.
“If Kirtsaeng can import inexpensive international editions, so can Amazon, or anyone,” explained PW contributing editor for legal affairs James Grimmelmann, at the time of the verdict. “All English-language editions will be competing against each other, which means licensing a U.S. edition, a Canadian edition, and an Indian edition is inviting all three publishers to compete against each other on price.”
Smith told Congress that the ruling was in conflict with Congress' clear intent to restrict parallel importation, and urged Congress to clarify the law.
Countering Smith at the hearing, however, was Washington-based attorney Jonathan Band, representing the Owners’s Rights Initiative (ORI), an organization of over 20 companies and trade associations, including libraries. Formed in the wake of the Kirtsaeng suit, the ORI, Band said, advocates for a simple, fundamental premise: “if you bought it, you own it.”
In his testimony, Band argued that the Supreme Court’s legal decision also yielded the right “policy outcome,” and that “there is no reason for Congress to disturb it.”
In prepared testimony, Band argued that protecting foreign price segmentation for U.S. copyright holders does not necessarily aid the U.S. economy, because many of the goods in question are neither made in the U.S. or by U.S. companies. Overly restricting First Sale could give companies incentive to use copyright as a way to kill secondary markets, he explained, by claiming copyright protection on software in cars or toasters, which could then be used to bar the resale of the object that software powers. Or, the restrictions could create an incentive for publishers to print overseas in an effort spike secondhand book sales.
The majority of the hearing, however, focused on the idea of extending first sale to the digital realm, and the committee had a lot of questions for Ossenmacher, whose company, ReDigi suffered a major loss last year in a New York Court.
ReDigi is a service that enabled users to sell their old iTunes tracks. ReDigi's technology effectively removed the tracks from the original user’s computer, and transferred them to the buyer. But in his ruling last April, Judge John Sullivan never got past a key element of the ReDigi system—that it appeared to create temporary but unauthorized copies. The model has also been touted for e-books.
In their questions, the subcommittee members seemed skeptical that extending first sale to licensed digital content was viable. Because a resold digital file is not subject to degradation, they questioned whether a digital resale market would compete directly with the primary market, whether old copies were truly deleted, and the impact on piracy. They also questioned whether it would be worth more clearly labeling content and "buy" buttons to let consumers know they are licensing content rather than owning it.
But Ossenmacher said concerns abut degradation were misplaced. "The content may not degrade, but public tastes change," he noted. He also argued that a secondary market supported by digital First Sale would actually diminish piracy, because the files would be given more value, and people tend to take more care with things that they are invested in.
Notably, the ReDigi case turned in large part on the same phrase at issue in Kirtsaeng—whether the copies at issue were “lawfully made” under [the Copyright Act]. And, also like Kirtsaeng, the court said the proper venue to decide the core issue—whether buyers of digital products can resell them—is Congress.