Monday, April 8, 2013

U.S Supreme Court applies International Exhaustion in Parallel Imports of Books

On the 19th of March, the United States Supreme court decided on the much debated question of parallel importation in books in what is possibly one of the most important copyright cases of the century. The court, through this decision in Kirtsaeng v. John Wiley, legitimized grey market goods by answering the long overdue question of whether the common law doctrine of first sale applies to copies of a copyrighted worked lawfully made abroad, in the affirmative.

Kirtsaeng, a student from Thailand studying in the US, in order to fund his education, resold textbooks in the US that were mailed to him by family and friends from Thailand. Being a lower segment market, textbooks in Thailand are available at a price much lower than in the US and through this, Kirtsaeng made profits that helped him get through college and supplement his scholarship from the Thai government.

Enter the respondent, John Wiley & Sons, publisher of textbooks, which prints, publishes and sells abroad through its fully owned subsidiary John Wiley & Sons (Asia). In 2008, Wiley sued Kirtsaeng for infringement of its exclusive right to distribute and import its copyrighted textbooks under 17 USC Section 106(3) and 602, respectively. 

Doctrine of First Sale:
To succinctly summarize, the doctrine of first sale allows the owner of a copyrighted work to sell or dispose the work in any manner as he wishes. The question under consideration in the present case was whether the Doctrine of First Sale as embodied in 17 U.S.C Section 109(a) applies to copies of a copyrighted work lawfully made abroad. Specifically, the issue was whether the textbooks imported from Thailand to be considered as ‘lawfully made under this title’. The doctrine is set out in the provision which reads as follows:

"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."

Section 109(a) is one of the many limitations on the exclusive right of a copyright owner to distribute copies of the copyrighted work to the public through sale which is provided for under Section 106(3).

The court, speaking through Justice Breyer, in a 6-3 decision, held that there is no geographical limitation on the operation of the doctrine, either in the language of the statute or in the intent of the legislature as deciphered from the history of the Copyright Act. It further clarified that the phrase ‘lawfully made under this title’ does not impose any such limitation on copies that are ‘lawfully’ made abroad.

The court identified 3 problems with reading geographical limitation into the provision. Firstly, that such an interpretation would render the word ‘lawfully’ redundant, as it is absurd to think of a situation where something is ‘unlawfully’ made under this title. Secondly, reading in such a limitation would not be in consonance with the ‘equal treatment’ principle between domestically manufactured copies and those made abroad. Thirdly, it was a parade of horribles. It was noted by the court that such an interpretation would result in disastrous consequences for libraries, the used book industry, museums as well as industries such as the automobile industry. 

The court noted as follows:

“Associations of libraries, used-book dealers, technology companies, consumer-goods retailers, and museums point to various ways in which a geographical interpretation would fail to further basic constitutional copyright objec­tives, in particular “promot[ing] the Progress of Science and useful Arts”

It is also pertinent to note the court’s observation that the doctrine prior to codification in the statute was a common law doctrine and the Congress is presumed to retain the substance of common law which does not impose geographical limitations.

The court ended with the following lines with a beautiful note to the respondents:

“Wiley and the dissent claim that a nongeograph­ical interpretation will make it difficult, perhaps impos­sible, for publishers (and other copyright holders) to divide foreign and domestic markets. We concede that is so. A publisher may find it more difficult to charge different prices for the same book in different geographic markets. But we do not see how these facts help Wiley, for we can find no basic principle of copyright law that suggests that publishers are especially entitled to such rights…. The Constitution’s language nowhere suggests that its limited exclusive right should include a right to divide markets or a concomitant right to charge different purchasers different prices for the same book, say to increase or to maximize gain”

Implications of the decision:
The decision is bound to have implications on pricing practices of copyright holders in the US. This holding against the interests of copyright holders reduces the incentives to engage in price discrimination across different markets. This may result in an increase in prices of such works in low and middle segment markets or result in their abandonment altogether.

The decision is also likely to resolve a similar case on the point, Pearson Education v. Liu, which is now pending before the US Supreme Court.

As the tremendously enjoyable IPKat blog notes, the ruling also confirms that the decision applies only to analogue copies of copyrighted works. Procuring a digital copy does not make the procurer the proprietor of such a copy (the procurer will merely be a lessee) and thus, the first-sale doctrine does not apply in such cases.

If the US, being a pro-copyright regime can allow parallel imports, India should perhaps take cue. Courts in India have time and again enlarged the scope of exclusive rights under copyright law by disallowing parallel imports in the book industry even where such copies have been lawfully procured.

Even post the decision in Penguin Books Ltd v. India Book Distributors courts have continued to hold parallel imports to be illegal despite the explanation added to Section 14 through the amendment in 1994. The explanation which states that ‘For the purposes of this section, a copy which has been sold once shall be deemed to be a copy already in circulation’ has been overlooked in subsequent cases such as Eurokids International Pvt. Ltd v. India Book Distributors Ltd. decided by the Bombay High Court.

As Mr. Ananth Padmanabhan, who in his excellent book Infringement and Remedies in Intellectual Property Rights (which has also greatly enriched my understanding on the point) notes on page 407, it is incorrect to manipulate the words of a statute by courts merely because the sale of low priced editions elsewhere is perceived to be unfair. It is the duty of the legislature to step in and make appropriate changes if such an end is, in fact, desired.

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