A Dubious Decision: First Sale Doctrine

Does Not Extend to Copyrighted Works Made Overseas

 

By Nicole Rizzo Smith

 

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very day, consumers purchase copyrighted materials – books, movies, music -  and every day those same consumers sell or give their used copies to other consumers. While copyright owners—authors, musicians, movie studios—have exclusive rights to make and distribute their work, no consumer who passes along  a used book or DVD needs to fear being sued for copyright infringement. 

Why? Because the “first sale” doctrine exempts the purchaser of a physical copy of a copyrighted work from liability for giving or selling that copy to another person. Until recently, however, an open question has been whether this principle applies to copies of a copyrighted work that have been lawfully manufactured abroad, then imported and sold in the United States. 

This question has now been answered, somewhat reluctantly, in the negative by a federal court in New York. In Pearson Education, Inc. v. Ganghua Liu, the court felt compelled by Supreme Court pronouncements to conclude that the import and sale in the U.S. of books which were published and first sold abroad indeed infringes the rights of the copyright owner. 

Pearson publishes educational books throughout the world and either owns the copyright or holds an exclusive license to reproduce and distribute the books in the U.S. Pearson also publishes lower-priced editions of their books for sale outside the U.S., and these foreign editions look different from their U.S. counterparts and typically indicate on the cover the country where they are sold. 

Defendants’ business model is to purchase Pearson’s lower-priced foreign editions abroad, import them into the U.S., and then sell them to customers through third-party websites. In defense of Pearson’s request for an injunction, defendants invoked the first sale doctrine.  

The court noted that, historically, the doctrine was intended to alleviate the restraint on trade created by the monopoly on distribution which the law grants to copyright owners. The rule is also intended to reduce the high transaction costs in requiring successive possessors of a copy to negotiate with the copyright owner each time they want to transfer the copy to another.  

The court pondered whether the doctrine is limited to copies of a work manufactured in the United States. The court examined the codification of the first sale doctrine at 17 U.S.C. § 109 (2006), which requires that the copy be “lawfully made under this title,” and concluded that this language does not mean that the copy must have been physically manufactured in the U.S., but only lawfully manufactured under U.S. copyright law.

The court added that it “provisionally” holds the view that nothing in the statute’s history, purposes and policies should limit the doctrine to copies manufactured in the U.S. Such a view would relieve the defendants here of liability.

Nonetheless, the court concluded that it must be guided by the Supreme Court’s statements in Quality King Distribs., Inc. v. L’anza Research Int’l, Inc., (1998), in which the justices commented obliquely on whether the first sale doctrine applies in this context. In Quality King, the plaintiff was a U.S. manufacturer which sold beauty products bearing its copyrighted labels to a foreign distributor with the understanding that the products would only be sold outside the U.S., and sold at a lower price than the U.S. versions.

The manufacturer sued salons that had purchased and resold its foreign products in the U.S., and the court held that the first sale doctrine applies in the context of a “round-trip journey,” where the copies were manufactured in the U.S., sent to places abroad, and then imported back into the U.S. 

The Supreme Court left open, however, the question of whether the first sale doctrine would apply in cases in which the copies were manufactured abroad. Yet, in dicta[1], the court suggested that the doctrine would not extend to copies of work manufactured abroad and imported into and distributed within the U.S., even if manufactured with the copyright owner’s authorization. 

Thus, the federal judge in New York was compelled by his “respect for the Supreme Court as an institution and the dedicated jurists who serve on it” to follow the court’s guidance. The judge did so reluctantly, characterizing his holding as “dubitante.” Indeed, the judge devoted nearly all of his opinion making the opposing argument, noting that this case comes close to presenting the exceptional circumstance in which it would be acceptable not to defer to the Supreme Court. 

The district court’s decision provides very little rationale or support for its holding other than its reasonable hesitation to openly dissent with the Supreme Court’s view. This outcome, while likely to be well received by copyright holders, may leave copyright scholars a bit “dubitante” themselves.