A ‘gray market’ gray area in copyright law

In a battle pitting copyright owners against consumers and retailers, the Supreme Court heard a case Monday that could decide how much control manufacturers can exert over their products after they’ve been sold. At issue is whether the “first sale” doctrine — which lets people who buy copyrighted works resell, rent or donate them as they please — applies to goods made outside the United States and then imported into the country. If it doesn’t, that could spell trouble not just for “gray market” retailers — who buy products in foreign countries at a discount, then resell them here — but also for libraries, second-hand stores, used-car dealers and others who lend or resell imported goods.

The case focuses on the book-reselling feats of Supap Kirtsaeng, a Thai native who studied math at Cornell University and USC. Kirtsaeng’s family shipped him low-cost textbooks made in Thailand that he resold on EBay, earning $900,000. But publisher John Wiley & Sons sued him in 2008, alleging that he infringed the copyrights of eight of its textbooks that he resold. Because the books weren’t made in the United States, a federal judge rejected Kirtsaeng’s claim that he was protected under the first-sale doctrine, and the U.S. 2nd Circuit Court of Appeals agreed.

Federal law says that the owner of any “lawfully made” copy of a work may “sell or otherwise dispose” of it without the copyright owner’s authorization. But it also says that importing copies made overseas violates the copyright owner’s exclusive right to distribute that work in the United States, with limited exceptions.

The courts have struggled to balance those competing clauses, with three appeals courts issuing conflicting rulings and the Supreme Court deadlocking in 2010. Kirtsaeng’s attorneys, however, offer a sensible interpretation consistent with the long-standing meaning of the first-sale doctrine. Under their view, the import ban applies to goods made in ways that would violate U.S. copyright law, and to imports of goods that hadn’t been sold — for example, when the copy had been rented or stolen. In all other cases, they argue, buyers should receive the full protection of the first-sale doctrine.

Manufacturers understandably chafe at the gray market because it undermines their ability to set lower prices in less-developed countries. But they have other ways to discourage this kind of importing. And denying first-sale protection to all goods made outside the United States would give manufacturers a perverse incentive to shift production to other countries or seek copyright protection for products that wouldn’t otherwise qualify for it. The gray market may be a problem for manufacturers, but the Supreme Court shouldn’t stretch copyright law to solve it for them.