Last year, we wrote about the Supreme Court's deadlocked tie
over whether or not the "first sale doctrine" applies to goods made outside the US in the Omega v. Costco case (Justice Kagan recused herself due to her involvement
in the case while she was Solicitor General). Because of that the ruling
from the 9th Circuit effectively remains the law. The basic issue is that the US has long had a "first sale" doctrine when it comes to works covered by copyright. The basic idea is that if you buy a book, you can resell it. This is important, because without the first sale doctrine, any time you wanted to resell a product that had any parts covered by copyright, you'd have to go back and involve the copyright holder. That would, of course, strangle commerce in many areas. Imagine having to get permission (and probably pay a cut) every time you wanted to sell a book you had.
While the Omega case involved some additional sneakiness involving Omega figuring out a way to "copyright" a watch (don't ask), we noted at the time that this ruling could have horrifying consequences, such as making anyone who resells a book made outside the US liable for huge damages awards under copyright law.
And, now we have our first case testing that exact theory... and, indeed, the court has ruled that selling a book made outside of the US is copyright infringement
and there's no first sale defense. In this case, the bookseller was found guilty of willful
infringement, because he was selling textbooks legally bought in Asia
in the US, and told to pay $75,000 per infringement (in this case, eight books: $600,000), though it could have been as high as $150,000.
Applying these principles to the facts of this case, we conclude that the District Court correctly decided that Kirtsaeng could not avail himself of the first sale doctrine codified by § 109(a) since all the books in question were manufactured outside of the United States. In sum, we hold that the phrase “lawfully made under this Title” in § 109(a) refers specifically and exclusively to works that are made in territories in which the Copyright Act is law, and not to foreign-manufactured works.
The court basically says, hey, that's the law, pointing to the specifics in the statute, as well as the Omega ruling and a previous Supreme Court ruling. And, technically, the court may be right, as the law is drafted in an awkward way (the court says "ambiguous," but it's really just awkward), such that you can (but don't have to) read it to apply only to works first made in the US. But it's hard to see how this is not an insane
result that should be fixed by Congress as quickly as possible. In an age when books (and other products) travel over borders all the time, the fact that you could risk $75,000 punishment for selling what you legally bought... is out and out crazy.
Thankfully, at least one judge on the panel felt similarly. Judge Garvan Murtha dissented from the ruling, saying that first sale should apply to works made outside the US. Murtha's argument is that the judges (and other courts perhaps) are misreading the section of Copyright Law that everyone relies on here, the part that says that First Sale applies to works "lawfully made under this title." The argument that has prevailed so far is that a work made outside of the US doesn't get US copyright protection, and thus isn't "lawfully made under this title." Murtha claims that this is a misreading, and since a US copyright holder authorized the production of this work, it was legally made under US copyright law:
The statutory text does not refer to a place of manufacture: It focuses on whether a particular copy was manufactured lawfully under title 17 of the United States Code. 17 U.S.C. § 109(a). The United States law of copyrights is contained in title 17. Accordingly, the lawfulness of the manufacture of a particular copy should be judged by U.S. copyright law. A U.S. copyright owner may make her own copies or authorize another to do so. 17 U.S.C. § 106(1). Thus, regardless of place of manufacture, a copy authorized by the U.S. rightsholder is lawful under U.S. copyright law. Here, Wiley, the U.S. copyright holder, authorized its subsidiary to manufacture the copies abroad, which were purchased and then imported into the United States.
Murtha goes all the way back to the original Supreme Court ruling on the First Sale Doctrine, in pointing out that the court first allowed the First Sale Doctrine so as not to restrict trade -- which this new ruling clearly does. Furthermore, Murtha notes the ridiculous results here, in which works made outside the US now have more strict copyright controls inside the US, and that the incentive now is for publishers to make all their books elsewhere:
Economic justifications also support applicability of the first sale doctrine to foreign made copies. Granting a copyright holder unlimited power to control all commercial activities involving copies of her work would create high transaction costs and lead to uncertainty in the secondary market. An owner first would have to determine the origin of the copy -- either domestic or foreign -- before she could sell it. If it were foreign made and the first sale doctrine does not apply to such copies, she would need to receive permission from the copyright holder. Such a result would provide greater copyright protection to copies manufactured abroad than those manufactured domestically: Once a domestic copy has been sold, no matter where the sale occurred, the copyright holder’s right to control its distribution is exhausted. I do not believe Congress intended to provide an incentive for U.S. copyright holders to manufacture copies of their work abroad.
Either way this is a mess, and makes it ridiculously dangerous to sell products under the First Sale Doctrine in the US unless you're absolutely sure where the product was first made, and if it's been authorized for sale in the US. It's going to hit hard against libraries especially, who often get books whose provenance isn't entirely known. One would hope that Congress would fix the ridiculously awkward language in the Copyright Act and make it clear that First Sale applies across the board, but since when has Congress ever done anything right with copyright law?