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Summary:

Is it legal to buy books or watches overseas and then ship them back to America to sell at a profit? For a long time, the law has been unclear. Now, the Supreme Court is set to weigh in.

U.S. Supreme Court
photo: flickr / dbking

Is it legal to buy books or watches overseas and then ship them back to America to sell at a profit? For a long time, the law has been unclear. Now, the Supreme Court is set to weigh in on a case that will have big implications for publishers, retailers, and consumers.

On Monday morning, the court broke a logjam when it agreed to hear the appeal of entrepreneur, Supap Kirtsaeng, a California man whose family in Thailand had sent him textbooks to resell. He reportedly sold $37,000 worth of John Wiley textbooks in the US.

The publisher sued Kirtsaeng for copyright infringement in eight textbooks and won to the tune of $75,000 in damages for each book.

Kirtsaeng argues that he is protected by the first sale doctrine — a rule that lets copyright owners exercise their right only the first time an individual book or record is sold. The first sale rule is what allows used book and record stores to do business.

While the first sale doctrine has long been an accepted in the case of goods made in the US, it gets more complicated when it comes to overseas goods — should the rule apply when the first sale in question took place in another country?

The Supreme Court had a chance to resolve the question in 2010 but failed to do so after it deadlocked in a rare 4-4- tie. The tie came after Justice Kagan had recused herself, leaving only eight judges to decide.

The 2010 case involved Costco reselling Omega watches in the US that it had legally purchased overseas.

The new John Wiley case, in which Justice Kagan will take part, will shape brand owners’ ability to maintain pricing power in the face of so-called “grey market” goods from overseas.

Public interest groups had urged the Supreme Court to take the appeal. Public Knowledge, for instance, has warned:

“[The appeal's court] ruling could cripple markets for used books, movies, CDs, toys, and any other goods that contain copyrighted works.”

The Supreme Court will likely hear the case in the fall.

  1. This report leaves the inaccurate impression that the case is about grey market goods, the act of importation, or hinges on where the first sale occurred. The Second Circuit’s ruling in issue holds that the codification of the first sale doctrine does not apply simply because the copy was made abroad — even if made by the U.S. copyright holder, imported into the U.S. by the U.S. copyright holder, and sold in the U.S. by the U.S. copyright holder. (Plus, the codification of the first sale doctrine does not require a sale at all. The Second Circuit’s holding means that if you download an App onto your mobile phone while just across the border in Canada, you will need the permission of the owner of the copyright in that App before you can let anyone borrow your phone.)

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    1. Thanks for your comment, CopyOwner. I wrote the piece based on my own knowledge of the Costco-Omega case and on SCOTUS Blog’s coverage today which said cert was granted in part because:

      “There is now a three-way split among the Circuit Courts: the Second Circuit declaring that foreign-made works can never be resold in the U.S. without the copyright owner’s consent, the Ninth Circuit ruling that such a foreign-made product sometimes can be sold in the U.S. without permission, but only after the owner has approved an earlier sale inside the U.S., and the Third Circuit deciding that such a product can always be re-sold without permission, so long as the copyright owner had authorized the first sale that occurred overseas.”

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  2. With most goods other than copyrighted items (e.g. watches and cameras), manufacturers typically withhold warranty coverage and customer service to discourage grey market purchase. End users (at least those who are aware of the grey market nature of the products) give up the expectation of in-country warranty coverage and customer service in exchange for lower prices. Books, however, generally don’t need any warranty or customer service. There’s nothing comparable to withhold, but there’s also no potential expense of providing such services. The real issue is whether the U.S. distributor has the rights to set prices and earn a profit just because the product is going to be consumed in the U.S.

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