The First Sale Doctrine: Further Issues

Ivan Hoffman, B.A., J.D.

 


In “The First Sale Doctrine” I discussed some of the issues related to this matter.  However, since then, other cases have dealt with other aspects of this doctrine.

 

The doctrine is codified in the United States Copyright Act (17 U.S.C. section 109) which reads in part:

 

 

§ 109 . Limitations on exclusive rights: Effect of transfer of particular copy or phonorecord42

 

(a)   Notwithstanding the provisions of section 106(3), the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.

 

The ReDigi Case

 

 

 

In the case of Capitol Records, LLC vs. ReDigi, Inc., a United States District Court ruled that the first sale doctrine did not apply to the “re-sale” of lawfully acquired digital recordings.  Capitol had sued Re-Digi, the latter being in the business of re-selling legally acquired digital music files containing copyrighted materials, claiming that the service infringed on Capitol’s rights to certain sound recordings.  The technology involved in Re-Digi’s operation is important.  The company took care so that its “Media Manager” software would only allow transfers of lawfully acquired recordings from either iTunes or another Re-Digi user.  Once the file is transferred from the user’s computer to a “Cloud Locker,” the file is deleted from the user’s computer.  Thus the file does not exist in 2 places at once.  The file can then be accessed by the user to either stream it or to sell it.  

 

One of the issues faced by the Court was whether the unauthorized transfer of a digital file containing copyrighted works (in this instance, Capitol’s copyrighted sound recordings) where only 1 file exists before and after constitutes a “reproduction” and therefore an infringement of the copyright owner’s exclusive rights to reproduce a copyrighted work.  The Court held that it did.  The Court reasoned that when a sound recording (the copyrighted work) is reproduced in another medium (such as a “phonorecord” which is the actual record, or in any other format in which the sound recording can be heard such as the receiving party’s hard drive), it is a reproduction within the meaning of the statute.  The Court ruled that this is so irrespective of whether there is only 1 copy at any given time.  In other words, the first sale doctrine was only an “exception” to the right to distribute, another right of copyright, and not to the right to make copies.

 

The Court stated that because the digital files constituted an infringement of Capitol’s rights, that made the files not “lawfully obtained.”   The Court also stated that the first sale doctrine only applied when the “owner” of the legally obtained file sold it.  However through the act of transferring the digital file to the “Cloud Locker,” a new file was created which was then transferred to the new owner by Re-Digi and not the original owner.  Thus, the Court reasoned, the first sale doctrine did not apply because the item being sold was not the “particular” item (i.e. the phonorecord in this instance) that Capitol put into the stream of commerce but an infringing copy thereof.

 

ReDigi argued that technological change has rendered the statute ambiguous and the courts should interpret the statute in line with today’s realities.  The Court disagreed for, among other reasons, the role of amending the statute is a legislative role, not a judicial role. 

 

The Kirtsaeng Case

 

In Supap Kirtsaeng, dba Blue Christine99 vs. John Wiley & Sons, Inc., the United States Supreme Court had to decide if books lawfully purchased outside of the United States and then imported into the United States could be sold by the Petitioner under the protection of the first sale doctrine.

 

 

Thus this case involved the application of another provision of the copyright law, that dealing with the rights to import goods.  Section 602 (a)(1) provides, in part:

 

“[i]mportation into the United States, without the authority of the owner of copyright under this title, of copies . . . of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies . . . under section 106 . . . .” 17 U. S. C. §602(a)(1)).

 

The Court reviewed an earlier case (Quality King Distributors, Inc. v. L’anza Research Int’l, Inc., 523 U. S. 135, 145 (1998)).  The Court stated:

 

 

“that §602(a)(1)’s reference to §106(3)’s exclusive distribution right incorporates the later subsections’ limitations, including, in particular, the “first sale” doctrine of §109. Thus, it might seem that, §602(a)(1) notwithstanding, one who buys a copy abroad can freely import that copy into the United States and dispose of it, just as he could had he bought the copy in the United States.

 

But Quality King considered an instance in which the copy, though purchased abroad, was initially manufactured in the United States (and then sent abroad and sold). This case is like Quality King but for one important fact. The copies at issue here were manufactured abroad. That fact is important because §109(a) says that the “first sale” doctrine applies to “a particular copy or phonorecord lawfully made under this title.” And we must decide here whether the five words, “lawfully made under this title,” make a critical legal difference.”

 

The Court reviewed the facts.   Wiley publishes a different edition of a book for the Asia market as compared to for the American market.  The text may be the same but the copyright notice and restrictions on sale language is different including that the Asian version contains restrictions on exporting that version to another territory. 

 

 

Mr. Kirtsaeng is a citizen of Thailand but studied in the United States and while in the U.S., asked friends and relatives to purchase his text books in Thailand at prices lower than they sold for in the U.S. and send them to him in the U.S. for his use and eventually for his resale.

 

 

The Supreme Court had to respond to whether “lawfully made under this title” restricted the application of the statute to only books manufactured within the United States.   Some lower courts had interpreted that language to refer to only goods manufactured under the United States copyright law, which only has applicability within the United States.  Mr. Kirtsaeng, on the other hand, argued that the language referred to goods manufactured anywhere as long as they were in compliance with United States law such as in this case where the books were manufactured outside of the U.S. but with the copyright proprietor’s permission.

 

 

The Court agreed with the latter argument.  And in doing so, the Court essentially said that the first sale doctrine controls over the provisions dealing with the right of a copyright owner to control importation.  (See Important Lesson below) 

 

 

But the Court also pointed out that the statute does not allow a party to sell a copy of a copyrighted work even if they lawfully acquired it unless that party is the owner of that lawfully acquired copy.  This would prevent lessees of copies, even though lawfully in possession of the copy, from selling their copy.

 

 

Because the theater owners were lessees, not owners, of their copies, the change in language makes clear that they (like bailees and other lessees) cannot take advantage of the "first sale" doctrine. (Those who find legislative history useful will find confirmation in, e.g., House Committee on the Judiciary, Copyright Law Revision, Supplementary Report of the Register of Copyrights on the General Revision of the U. S. Copyright Law: 1965 Revision Bill, 89th Cong., 1st Sess., pt. 6, p. 30 (Comm. Print 1965) (hereinafter Copyright Law Revision) ("[W]here a person has rented a print of a motion picture from the copyright owner, he would have no right to lend, rent, sell, or otherwise dispose of the print without first obtaining the copyright owner's permission"). See also Platt & Munk Co. v. Republic Graphics, Inc., 315 F. 2d 847, 851 (CA2 1963) (Friendly, J.) (pointing out predecessor statute's leasing problem)).

 

 

As a dissent in the case indicates:

 

 

As the Court appears to acknowledge, see ante, at 26, the only independent effect §602(a)(1) has under today's decision is to prohibit unauthorized importations carried out by persons who merely have possession of, but do not own, the imported copies.

 

 

Important Lesson to be Learned

 

The effect of the Kirtsaeng decision is that the restrictions on importing take a back seat to the rights under first sale and thus upon such sale, the rights of a copyright owner to control the distribution of its works is essentially non-existent.  Thus, if you are a United States copyright proprietor, you have to have thoroughly written agreements with foreign parties covering their status and the nature and extent of their rights.  All U.S. parties should have their foreign (as well as digital) agreements immediately reviewed by an experienced publishing attorney.   

 

Copyright © 2013 Ivan Hoffman.  All Rights Reserved.

 

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This article is not legal advice and is not intended as legal advice.  This article is intended to provide only general, non-specific legal information.  This article is not intended to cover all the issues related to the topic discussed.  The specific facts that apply to your matter may make the outcome different than would be anticipated by you.  This article is based on United States law.  You should consult with an attorney familiar with the issues and the laws of your country.  This article does not create any attorney client relationship and is not a solicitation.

 

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No portion of this article may be copied, retransmitted, reposted, duplicated or otherwise used without the express written approval of the author. 

 


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