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.

Facts:

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).

Decision:

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.

Delhi High Court: PIL on Section 107A(b) Dismissed as “Misconceived”

In a 3-page order dated August 22, 2012 which seems to have been uploaded on the Delhi High Court’s website only recently, the High Court has dismissed my PIL as “misconceived” on grounds of "locus standi". I thank an anonymous commentator for bringing the order to my attention.

Of the 5 Paragraphs in the order, Paras 1-3 reproduce excerpts from the PIL in toto. The operative portions of the order read as follows:

“3. We are afraid such a kind of writ petition cannot be entertained as PIL.   The petitioner is trying to advance the cause of those persons who are neither indigent nor illiterate nor vulnerable groups.  They are not persons who cannot approach the Court themselves. The persons concerned with such imports, who may be allegedly affected by the aforesaid provisions, are well off importers and, therefore, if there is any grievance of any such person, he can approach the Court. 

4. Moreover, provisions of a particular Statute or Circular which is statutory in nature cannot be challenged in vacuum. 

5. We are, therefore, of the opinion that this petition as PIL is totally misconceived and is accordingly dismissed.”

In short, according to the Court where it refers to "challenge in vacuum", since there was no immediate “lis”, meaning thereby a person who had been immediately affected by the Customs notifications, a PIL was not warranted. Further, the Court took the view that the ones who are bound to be affected by the Customs notification could approach the Court themselves, and therefore the PIL could not be entertained.

To me, this is surprising because if the Court believed that “locus standi” was an issue, then it ought not to have issued a notice on the very first date (May 23, 2012) if it wasn’t satisfied on locus/maintainability. Instead, the Court issued notice on the first date, and then dismissed the PIL on essentially technical grounds.

Subsequent to the issuance of notice on May 23, 2012, the matter was again listed on July 25, 2012 when no questions on maintainability were raised. Finally the matter was listed for arguments on August 22, 2012. On the said date, the Court primarily heard arguments on the interpretation of Section 107A(b).

After hearing me at length on the provision, at the fag end of the hearing the Court posed a question on “locus standi”. To this, I drew the attention of the Hon’ble Court to specific introductory portions of the PIL which are mandated by the Delhi High Court’s Public Interest Litigation Rules, 2010.

Under these Rules, it is imperative on the part of the Petitioner to make an averment which explains his locus, and that he has the ability to pay costs if they are imposed by the Court.

In the PIL, I had specifically taken the stance that the Customs notification has a bearing on consumers of patented products as well, since ultimately Section 107A(b) entails consumption of the imported patented products by Indian consumers. The only issue to be addressed was who could import and how. Therefore, there is a tangible public interest involved in deciding whether or not the provision envisages a “free for all” importation into India.

I also drew the High Court's attention to judgments of the Supreme Court on locus standi in PILs. Unfortunately, none of these judgments seem to have been addressed in the brief order of the Court. 

That said, the only silver lining in the order is that no adverse observation has been passed with respect to the interpretation of Section 107A(b). To this extent, the law on the provision still remains unsettled and inconclusive.

Update on PIL on Section 107A(b)

Yesterday, arguments were heard by the Acting Chief Justice of the Delhi High Court for close to an hour in the PIL I filed challenging the circular issued by the Central Board of Excise and Customs (CBEC) with respect to Section 107A(b) of the Patents Act, 1970. Judgment has been reserved in the PIL.

Update on PIL on Section 107A(b)

Last month, I had filed a PIL challenging a circular issued by the Central Board of Excise and Customs (CBEC) before the Chief Justice of the High Court of Delhi. The High Court had given the CBEC (Respondent No.1) and the DIPP (Respondent No.2) 6 weeks from May 23, 2012 to file their responses to my PIL. The said period ended on July 4, 2012, subsequent to which I filed an application for Stay of the CBEC Circular. Last evening, I received the response of the DIPP. I have not received the response of the CBEC.

The matter was listed for arguments today, however owing to the Court being held up with arguments in the Akbarabadi Mosque dispute, the PIL could not be heard. The next date before the Court in the PIL is August 22, 2012. 

Snippet: PIL Filed before Delhi HC Against Customs Clarification on Section 107A(b) of Patents Act

On May 21, 2012, I filed a Public Interest Litigation (PIL), which is basically a public-interest writ petition under Article 226 of the Constitution, challenging the legality of a Circular issued by the Central Board of Excise and Customs (CBEC) on May 8, 2012. The PIL is numbered W.P(C) 3165 of 2012 and is titled J.Sai Deepak v. Central Board of Excise and Customs and Union of India.

In the impugned circular, the CBEC, in consultation with the DIPP, has taken the position that Section 107A(b) of the Patents Act, 1970 allows “Parallel Imports” and therefore such imports do not fall within the scope of application of the IPR Enforcement Rules, 2007. Following is the portion of the Circular which states so:

“4.         In this regard, the Department of Industrial Policy and Promotion which is nodal authority for all matters relating to (i) Trade Marks Act, 1999 (ii) Patents Act, 1970 and (iii) Designs Act, 2000 has,interalia, stated that:

(i) Section 107A (b) of the Patents Act, 1970 provides that importation of patented products by any person from a person who is duly authorised under the law to produce and sell or distribute the product shall not be considered as an infringement of patent rights. Hence, in so far as Patents are concerned, Section 107A (b) provides for parallel imports.”

Readers of our blog know that I have written frequently on Section 107A(b) stating that the provision does not relate to or permit parallel imports by way of international exhaustion. I have taken the same position in the PIL. I have also filed an application seeking stay of the Impugned Circular in so far as it relates to the clarification on Section 107A(b).

The PIL came up before the Chief Justice of the High Court of Delhi (I appeared for me). The Hon’ble High Court has issued notice to the respondents asking them to file their counter-affidavits in response to my Petition. The next date of hearing is July 25, 2012.

“Duly Authorized under the Law”- Another look

“Duly Authorized under the law”- this phrase in Section 107A(b) of the Patents Act, 1970 has been the topic of quite a few of my posts on this blog and elsewhere. I was unable to find another legislation which uses this exact phrase, but I did find something in the mother of all Indian laws- the Constitution- which uses a phrase that captures the spirit of “duly authorized under the law”, namely Article 265 of the Constitution.

Article 265 reads thus:

“No tax shall be levied or collected except by authority of law”

Thanks to Mihir Naniwadekar, whose mind I deeply respect, I bought one of the most venerated commentaries on the law of income tax written by the Late Shri Jamshedji Kanga and Late Shri Nani Palkhivala. In this commentary, in a short exposition on Article 265, it is stated that the import of the Article is that “not only the levy but also the collection of a tax must be under the authority of some law”.

“Law” apparently, has been interpreted to mean law enacted by a competent legislature, and cannot include an executive order, or a rule without express statutory authority, or a custom. This seems to have been the position taken by the Indian Supreme Court in Ghulam Hussain v. State of Maharashtra, Krishi Utpadan v. Shree Mahalaxmi and State of Kerala v. Joseph.

I am yet to give these judgments a proper reading, but if the authors of the commentary, whose legal acumen and sagacity needs no introduction, are to be assumed as being true to the legislative intent, I think the interpretation of “except by authority of law” may apply to “duly authorized under the law” too.

If this be so, it would be extremely far-fetched to suggest that Section 107A(b) speaks of a "soft" principle such as international exhaustion...

Working of a Patent, Parallel Imports and Compulsory License: What is the Indian Position?

Over a series of posts in the last leg of 2010, I had discussed the import of Section 107A(b) of the Patents Act, 1970. To be honest, I don’t think the line of interpretation that I had explored is the only possible or sensible one, in fact it could well turn out that it’s way off the mark.

That said, the fundamental purpose of those posts was to subject the provision to rigorous analysis, instead of merely assuming that it speaks of international exhaustion. 

In this post, the idea is to continue with that line of enquiry, and use certain other provisions of the Act to try and support the interpretation I had advanced.

Before I proceed, let me pen down the gist of my earlier posts on Section 107A(b),  i.e. the provision could be referring to an alternative to international exhaustion. Section 107A(b) reads thus:

107A. Certain acts not to be considered as infringement- For the purposes of this Act-

(b) importation of patented products by any person from a person who is duly authorized under the law to produce and sell or distribute the product,

Shall not be considered as an infringement of patent rights.

In my earlier series of posts, I took the view that Section 107A(b) requires due authorization, not for importation, but to produce and sell or distribute the patented product.

In other words, so long as the patented product is imported from a person who’s been “duly authorized under the law” to produce and sell or distribute, importation from such a person would not amount to infringement of the patent. Since the provision uses “duly authorized under the law”, I took the view that the provision probably does not refer to authorization under foreign law to produce and sell or distribute the product, because that would eviscerate the patentee’s rights under the Indian Act; the authorization to produce and sell or distribute must be under Indian law.

Stated otherwise, lawful production of the product outside India does not necessarily legitimize its import into India. Also, “duly authorized under the law” must be taken to mean specific authorization, as opposed to implied consent by way of international exhaustion. Not just that, the provision may not even be referring to international exhaustion because nowhere does it allude to first sale or exhaustion of rights post the first sale.

As I said, I may or may not be right, but that isn’t the issue. The issue is, have we considered the Act thoroughly enough to rule out this interpretation as a possible approach to the provision? Honestly, since I found the answer to be in the negative, I had to ramble over 5 posts to dissect the provision.

In this post, I will take up a combined reading of Sections 48, 83, 84(7)(e) and 107A(b) to further this line of enquiry. How do I intend to connect all these provisions meaningfully? I shall try and keep this as un-convoluted and lucid as I can. Here it goes:

1. Section 48, as popularly understood, does not grant to the patentee the right to practice his invention. It merely vests in him an exclusive exclusionary right i.e. to preclude third parties from doing any of those acts enumerated in Section 48, without his consent. For ease of reference, here’s Section 48:

48. Rights of Patentees: Subject to other provisions contained in this Act and the conditions specified in Section 47, a patent granted under this Act shall confer upon the patentee-

(a) where the subject matter of the patent is a product, the exclusive right to prevent third parties, who do not have his consent, from the act of making, using, offering for sale, selling or importing for those purposes that product in India;

(b) where the subject matter of the patent is a process, the exclusive right to prevent third parties, who do not have his consent, from the act of using that process, and from the act of using, offering for sale, selling or importing for those purposes the product obtained directly by that process in India.

___

2. That said, in order for a patentee to justify the grant of the right and to avoid attracting an application for compulsory license, the Act emphasizes on working/practicing the invention within the territory of India. Here’s Section 83:

83. General principles applicable to working of patented inventions- Without prejudice to the other provisions contained in this Act, in exercising the powers conferred by this Chapter, regard shall be had to the following general considerations, namely:

(a) that patents are granted to encourage inventions and to secure that the inventions are worked in India on a commercial scale and to the fullest extent that is reasonably practicable without undue delay;

(b) that they are not granted merely to enable patentees to enjoy a monopoly for the importation of the patented article;.......

___

3. If that be so, a patentee has to ensure that he doesn’t fall within the circumstances/situations spelt out in Section 84, including 84(7)(e). Here’s Section 84(7)(e):

84. Compulsory Licenses: .....

(7) For the purposes of this chapter, the reasonable requirements of the public shall be deemed not to have been satisfied-

....

(e) if the working of the patented invention in the territory of India on a commercial scale is being prevented or hindered by the importation from abroad of the patented article by-

(i) the patentee or persons claiming under him; or

(ii) persons directly or indirectly purchasing from him; or

(iii) other persons against whom the patentee is not taking or has not taken proceedings for infringement.

Let’s try and understand what exactly is covered under Section 84(7)(e). The gist of the provision is that a patentee would not be deemed to have fulfilled the reasonable requirements of the public under the Act, if the working of the invention on a commercial scale is prevented or hindered by importation of the patented article. But importation by who?

The importation could be by:

A. the patentee or persons claiming under him or

B. persons directly or indirectly purchasing from the patentee or

C. other persons against whom the patentee is not taking action for infringement.

This is the critical part of the discussion- the Section deems the patent to have not been worked reasonably if working of the patent in India is hindered or prevented by importation of the patented article under any of the above 3 circumstances.

What is to be noted is that these circumstances also include a situation where importation involves importation of the patented article by the patentee or persons claiming under him or persons directly or indirectly purchasing from the patentee.

This means if Sony Corp has a patent in India, and a person purchases the patented product in Pakistan from a licensee of Sony Corp and imports it into India, such importation could also hinder or prevent the patentee from fulfilling the reasonable requirements of the Indian public.

In effect, this provision requires the patentee to ensure that such importation does not affect his ability to meaningfully work/practice the invention by manufacturing it in India. Again simply put, if the Indian market is flooded by imported goods, albeit of the patentee, the parallel importation could make it unviable for a patentee to manufacture the goods in India.

Assuming that this train of logic is correct, it becomes a tad bit difficult to argue in the same breath that Section 107A(b) endorses international exhaustion. In other words, if the Act requires the patentee to ensure that he fulfils his working requirements and requires him to take action against any hindrance which arises on account of parallel imports, I don’t think it would be consistent to argue that the very same Act, speaks of international exhaustion in Section 107A(b).

I’ll mull over this proposition a bit more and come back with a few thoughts in another post.