Supreme Court endorses international copyright arbitrage

In a much-anticipated decision, Kirtsaeng v John Wiley & Sons, Inc, the Supreme Court held that the copyright law’s “first sale” doctrine trumps the import restriction for a lawfully purchased copyrighted work, lawfully manufactured outside the United States. As a result, someone who purchases works outside the United States, with the copyright owner’s permission, can bring those works into the United States and resell them as desired, without requiring the copyright owner’s permission.  

Publisher John Wiley & Sons, Inc had sued a student, Supap Kirtsaeng, who came from Thailand to pursue collegiate studies in the United States. Kirtsaeng created a profitable business by reselling, in the United States, textbooks lawfully purchased at much lower prices in Thailand. These textbooks were editions directed by Wiley to the Asian market, and not intended for sale in the United States. This “textbook arbitrage” by Kirtsaeng cut into US profits that Wiley enjoyed for the equivalent US editions.

The Supreme Court’s ruling in favour of Kirtsaeng means that this kind of arbitrage is permitted under US copyright law. The ruling relieves numerous US businesses, from libraries to used booksellers to art galleries – even automobile and equipment manufacturers whose products run software – from having to police their inventories to determine whether individual copyrighted works – based on their situs of manufacture – require the copyright owner’s permission before being lent, resold or displayed.

For international publishers like Wiley, one response, at least for physical works, would be to increase prices abroad, thereby making arbitrage less attractive. An alternative would be to "license" electronic copies of the textbooks for use on e-readers, tablets and personal computers, following the model adopted for software, music, video and books. This approach would not invoke the “first sale” doctrine, because a licence is, by definition, not a sale.

In Kirtsaeng the Supreme Court noted that cinema operators lawfully acquire, but do not own, the films that they receive from the film studios. These operators are “bailees” or “lessees” (ie, owners of fewer than all rights in a work), and so are not entitled to do whatever they please with the acquired works. Going to an electronic “licensing” model for textbook distribution would similarly enable publishers to retain control and prevent resale.