Does first sale doctrine allow infringement claims for imported genuine goods?

Introduction
Among the rights enjoyed by copyright owners is the right to block importation into the United States of infringing goods (17 USC § 602). However, among the rights enjoyed by lawful purchasers of copyrighted articles is the right to resell those articles to others, as codified in the first sale doctrine (17 USC § 109).

Which rule applies when someone buys a copyrighted article outside the United States and then imports it? Is the importation an act of infringement under Section 602 or a permitted activity under the first sale doctrine? These questions are raised in cases pending before the Supreme Court and the Court of Appeals for the Second Circuit; the answer may depend on whether the article was manufactured in the United States or overseas.

Second Circuit case
In the Second Circuit the conduct at issue might be called "textbook arbitrage". Because US editions are sometimes more expensive than foreign editions of the same work, it is possible to profit by purchasing copies of a foreign edition overseas, bringing them to the United States and reselling them in competition with the more expensive US edition. Supap Kirtsaeng did this with textbooks printed by publisher John Wiley & Sons, and Wiley sued him for copyright infringement. The success of Wiley’s suit and the propriety of Kirtsaeng’s actions turned in large part on the scope of the first sale doctrine, which applies to copies “lawfully made under this title" (ie, the Copyright Act) (17 USC § 109). Wiley contended that its foreign editions were not made under the provisions of the US copyright laws because they were printed overseas (ie, outside the territorial scope of the US copyright laws). Kirtsaeng countered that the first sale doctrine is not so limited, and that copyright law cannot prohibit the purchaser of a legitimate copy of a tangible copyrighted item from reselling the item.

In the case now pending at the Second Circuit, the trial court ruled in Wiley’s favour and entered judgment against Kirtsaeng for US$600,000 for wilful infringement of the copyrights on eight Wiley textbooks. Briefing has been completed and oral argument in the appeal is due to take place on 19th May 2010 (John Wiley & Sons, Inc v Kirtsaeng, No 09-4896-cv (Second Circuit), on appeal from 93 USPQ2d 1432 (SDNY 2009)).

Supreme Court case
After briefing was completed in the Wiley case, the Supreme Court accepted an appeal in a different case concerning the same issue. In that case retailer Costco bought genuine Omega watches outside the United States and imported them to sell at its discount stores. By purchasing the watches overseas, Costco was able to undersell Omega’s authorised US distributors. Omega sued Costco for copyright infringement based on a small decorative emblem engraved on the watches that Omega had registered with the Copyright Office. The Court of Appeals for the Ninth Circuit, like the trial court in the Wiley case, rejected the first sale defence and held that importation of the watches was an act of infringement.

Costco asked the Supreme Court to hear an appeal from the Ninth Circuit’s judgment. Before deciding whether to take the case, the Supreme Court invited the solicitor general to file a brief expressing the views of the government. The solicitor general responded that the court should not hear the appeal because the legislative history of the Copyright Act supported Omega’s position that the first sale doctrine does not apply to goods manufactured abroad. The solicitor general also stated that the Ninth Circuit’s decision was consistent with the Supreme Court’s 1998 decision in Quality King Distributors, Inc v L’anza Research International, Inc (523 US 135 (1998)), in which the court held that copyrighted goods that are manufactured in the United States, exported, purchased overseas and then reimported were subject to the first sale doctrine. As the solicitor general explained, the court’s emphasis in Quality King on the place of manufacture supported the opposite result in the Costco case, where the watches were manufactured overseas.

Nevertheless, the Supreme Court decided to hear Costco’s appeal. Briefing will occur in the coming months and the court will hear oral argument in Autumn 2010 (Costco Wholesale Corp v Omega SA, No 08-1423 (Supreme Court), on appeal from 541 F3d 982 (9th Cir 2008)).