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Refocusing Kirtsaeng Analysis on Extra-Territoriality Principles

Written by Kevin Tottis
Law Offices of Kevin Tottis
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Posted: February 14, 2013 @ 8:58 am
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In Kirtsaeng v. John W. Wiley and Sons, Inc., the Supreme Court is set to decide whether the right of an owner of lawfully-made copies under Section 109(a) of the Copyright Act to “sell or otherwise dispose of”  those copies  trumps a copyright owner’s right under Section 602(a)(1) to bar importation of those copies when they were made and sold outside the United States.

The parties and amici have filed over 25 briefs in this case, almost none of which address or even consider whether the actual right granted under Section 109(a)—to “sell or otherwise dispose of” copies—applies outside the United States; instead, they have focused almost exclusively on Section 109(a)’s “lawfully made under this title” preamble, resulting in unsatisfactory readings of the Copyright Act as a whole.  As the American Intellectual Property Law Association has urged the Supreme Court in its amicus filing, applying long-standing extra-territoriality principles to the actual right created by Section 109(a) handily harmonizes both Sections 109(a) and 602(a)(1).  It also avoids damage to the rest of the Act caused by undue emphasis on the prefatory “lawfully made under this title” language.

Kirtsaeng’s path to the Supreme Court

By way of background, in this case, Petitioner Supap Kirtsaeng came to the United States from Thailand in the late 1990s to study.  Back home, his family bought cheaper versions of Respondent Wiley’s textbooks published in Asia, which they shipped to Kirtsaeng to resell in the United States.   Even though much of the content of the Asian books (sold at a fraction of the U.S. price) was the same as the U.S. versions, the Asian books didn’t contain the same supplemental content and often employed lesser-quality printing material.

Wiley sued Kirtsaeng for copyright infringement under Section 602(a)(1) of the Copyright Act.  That section expressly provides that importation into the United States of copies acquired abroad without the O.K. of the copyright holder “…is an infringement of the exclusive right to distribute copies…”.  (Section 602(b) of the Act contains several exceptions frequently ignored in discussions of this case, including the right of travelers to bring into the U.S. a copy of “…any one work at any one time…”.)

On appeal to the Second Circuit,  Kirtsaeng argued that the Supreme Court’s holding in Quality King Distribs., Inc. v. L’Anza Research Int’l, Inc.  523 U.S. 135 (1998) rendered Section 602(a)(1) inapplicable.  There, L’Anza sold products with copyrighted labels from the United States to a foreign distributor.  The products ended up back in the United States where Quality King tried to sell them.  L’Anza sued for infringement under Section 602.

In Quality King,  the Supreme Court  said that Section 109(a) trumps Section 602(a) because the distribution right is subject to Section 109(a) and a violation of Section 602(a) constitutes infringement of the distribution right. Importantly,  though, the Court found that “ . . .once the copyright owner places a copyrighted item in the stream of commerce by selling it, he has exhausted his exclusive statutory right to control its distribution.” Id. at 152.  Because the imported copies in Quality King were initially sold from the United States, however, the Court wasn’t faced with the question of whether Congress intended to provide for the extraterritorial application of the distribution right and the exception found in Section 109(a) to foreign-made copies.

Wiley didn’t discuss whether the Copyright Act could regulate the right “to sell or otherwise dispose of” copies in foreign countries. Instead, to avoid Quality King, Wiley claimed that the prefatory language in Section 109(a) applying  to copies “lawfully made under this title” created  a domestic manufacturing requirement  in Section 109(a), rendering it inapplicable to  foreign-made  copies.

After much back and forth, the Second Circuit, stating that it was “[c]onfronted with an utterly ambiguous text,” concluded that to save Section 602(a)(1) from irrelevance, it must find that “lawfully made under this title” means made in the United States.  John Wiley & Sons, inc. v. Kirtsaeng, 654 F. 3d 210, 220-222 (2d Cir. 2011).  To find otherwise, the court found, would more or less gut Section 602(a)(1). Its purpose, the court said, is to give copyright owners the ability “…to control the circumstances in which copies manufactured [can] be legally imported into the United States.” Id.  The Supreme Court granted certiorari.

Misreading “lawfully made under this title”

As AIPLA argues in its brief, Kirtsaeng is right about one thing. Congress never intended to impose a domestic manufacturing requirement on Section 109(a) through the phrase, “lawfully made under this title.”   When read in the context of the entire statute, this prefatory language simply means made “in compliance with” or “in accordance with.”

To adopt Wiley’s (and the Second Circuit’s) cramped reading would create untenable distinctions in the Copyright Act and otherwise do violence to the statute as a whole.  For example, the Copyright Act expressly provides that unpublished works anywhere in the world and published works created in treaty party nations “are subject to protection” under the Act.  17 U.S.C. § 104.    Quite clearly, then, foreign-made originals are “made under this title.”   Originals are also copies. 17 U.S.C. § 101.  To adopt Wiley and the Second Circuit’s construction, then, would mean that foreign-made originals enjoy 109(a)’s protection, but foreign-made copies do not. Nothing in the Act suggests Congress intended this inconsistent distinction.

Likewise, reading a domestic manufacturing requirement into the “lawfully made under this title” would result in a downright silly—and dangerous—reading for 109(a)’s near-identical first cousin,  the display right exception of Section 109(c).   That subsection provides that the owner of a copy “lawfully made under this title” is entitled to publicly display that copy.  Concluding that Section 109(c) applies only to copies made in the United States not only would jeopardize the display of many foreign works of art hanging today in museums (as the Association of Art Museum Directors argues in its amicus brief), it would require the Court to conclude that Congress actually intended to create this special display right exception for domestic works, but not foreign works.

In short, trying to save Section 602(a)(1) by misreading one prefatory phrase out of context could do a whole lot more damage to the rest of the statute.  There’s a better way.

Focus on the actual conduct at issue

Properly construing the “lawfully made under this title” preface doesn’t end the analysis in this case.  As AIPLA has argued, the parties’ single-minded focus on “lawfully made under this title” ignores the real issue facing the Court:  whether the exception to the distribution right contained in Section 109(a) applies extraterritorially.  Under long-standing principles of statutory interpretation, it does not.

As recently reaffirmed by the Supreme Court in Morrison v. Nat’l Australia Bank, Ltd., 130 S. Ct. 2869 (2010), statutes regulating conduct are presumed to apply only domestically absent a clear indication that Congress intended otherwise.  Here, Section 109(a) regulates conduct—the sale or other disposal of a copy—that occurs only within U.S. borders.

Not only is the statute silent on this right’s extraterritorial application, but in addition, courts have long recognized that Section 106 rights (the “bundle” of rights granted owners) don’t apply outside the United States.  See, e.g. Subafilms, Ltd. v. MGM-Pathe Communications Co., 24 F.3d  1088, 1095 (9th Cir. 1994) (“[W]e are unwilling to overturn eight years of consistent jurisprudence on the extraterritorial reach of the copyright laws without further guidance from Congress.”)  If Section 106 rights apply domestically, there’s no reason to conclude that exceptions to those rights (like the ones found in Section 109(a) ) reach across borders without a clear signal from Congress.

Application of this presumption, however, doesn’t mean the Ninth Circuit was right in Omega S.A. v. Costco Wholesale Corp.,  541 F.3d 982, 988  (9th Cir. 2008) when it suggested that finding foreign-made copies to be “lawfully made under this title” would somehow require extraterritorial application of the entire statute.  The presumption applies only to conductSee, Shady Grove Orthopedics Assocs. P.A. v. Allstate Ins. Co.,  130 S. Ct. 1431, 1457, n.16 (2010) (Steves, J., concurring.)  Recognizing the fact that copies made abroad are “lawfully made under this title” when they arrive in the United States, is a far cry from regulating conduct abroad.

Indeed, the Supreme Court’s Morrison decision illustrates the distinction.   There, the Court held that in a securities fraud action, Section 10(b) of the Securities Exchange Act of 1934 didn’t apply to the purchase and sale of securities traded on Australian exchanges, even if part of the underlying fraud occurred in the United States.  130 S. Ct. at 2883-2885.    (“Those purchase-and-sale transactions are the object of the statute’s solicitude.  It is those transactions that the statute seeks to ‘regulate’ . . . . “) (citations omitted) (emphasis added).  Section 10(b) wasn’t rendered inapplicable because the securities traded originated abroad—foreign securities are routinely traded on U.S. stock exchanges and are subject to regulation—it didn’t apply because the actual transaction it regulates occurred outside the United States.

Saving both 109(a) and 602(a)

Shifting the focus of territorial analysis to the statutory language actually regulating conduct (as the Supreme Court has done for decades) harmonizes both Sections 109(a) and 602(a)(1) and gives them the full effect Congress intended.

Recall that Section 106 of the Copyright Act provides the copyright owner’s “bundle” of rights.  That includes the right to distribute copies “…to the public by sale of other transfer of ownership, or by rental, lease, or lending . . . .” 17 U.S.C. § 106(3) (emphasis added).

Section 602(a)(1), on the other hand, requires no such public conveyance. It simply provides that importing copies without the O.K. of the copyright owner “…is an infringement of the exclusive right to distribute copies…” under Section 106.  In other words, the simple act of carrying unauthorized copies across the border constitutes infringement.  No sale.  No transfer.  Crossing the border is all it takes.  To the extent the statutory language isn’t straightforward enough , both the House and Senate report make it crystal clear: “…[A]ny unauthorized importer of copies…could be sued for damages and enjoined from making use of them even before any public distribution in this country has taken place.”

On the other hand, the Section 109(a) right to sell and dispose of copies doesn’t kick in until the goods are actually within U.S. borders.  As long as those copies remain outside the United States, they can be transferred, sold, rented, leased, destroyed, modified and resold without ever invoking the reach of Title 17.  It’s only when they cross the border that the Copyright Act gives a plaintiff the right to sue for infringement.

Before this time, no Section 106 rights have been exercised, let alone exhausted, because no conduct regulated under the Copyright Act has occurred.  Likewise, no Section 109(a) first-sale defense exists because it, too, is not triggered until after the copies are imported and after they have been sold or disposed of.

It’s true that in Quality King, the Court said it wasn’t going to focus on the word “importation” in finding that Section 109(a) could defeat Section 602(a).  But there was a big difference in Quality King. As the Court explained, “The whole point of the first-sale doctrine is that once the copyright owner places a copyrighted item in the stream of commerce by selling it, he has exhausted his statutory right to control its distribution.”  523 U.S. at 152.  There, the copyright owner’s rights had long since been exhausted under Title 17 because the copies had been made in the United States and sold.  It would make little sense (without any statutory support) to suggest that exporting the U.S. copies somehow “reanimated” the copyright owner’s rights of alienation because they hit foreign soil  The difference here, of course, is that, prior to the time the books were imported, no transactions involving the copies at issue were ever subject to U.S. law.

To apply the Court’s statement regarding “exhaustion” to the facts in this case, when all transactions occurred abroad, would constitute a bold and unsupported extension of the territorial reach of both Sections 106 and 109 without any express direction from Congress in direct contradiction to the long-held teachings the Court reiterated in Morrison. Instead, applying the straightforward and decades-old presumption against extraterritoriality saves Section 602(a)(1) from irrelevance without causing damage to the rest of the Copyright Act.

Editorial Note: Kevin Tottis is counsel of record on the AIPLA amicus brief filed in Kirtsaeng.


About the Author

Kevin heads up a commercial and intellectual property litigation boutique in Chicago which he founded in 1996 after several years as a partner in a major U.S. law firm. He was counsel of record before the United States Supreme Court on the American Intellectual Property Law Association’s amicus filing in Kirtsaeng v. John Wiley & Sons. A litigator with over 25 years experience, Kevin frequently speaks throughout the country on intellectual property issues. He has served on the faculty of the Practising Law Institute, is a Martindale Hubbell AV Preeminent-rated attorney and has been named an Illinois Super Lawyer for several years. Kevin also sits on AIPLA’s Board of Directors. He received both his undergraduate and law degrees from The University of Michigan (A.B. 1983, with Distinction and Honors in English; J.D. 1986).

All of the opinions expressed in this article are his own and not necessarily those of his clients.

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  1. Kevin-

    Thanks for the very thorough and learned analysis in the matter. This case would seem to suggest that this same sort of reasoning by the Supreme Court might soon be used to make a similar sort of decision in the case of US patents. Do you think that might be likely in the near future?

    The reason I ask is that filing a complaint with the ITC to seek to prevent the importation of patented products is very important for smaller entities who have limited budgets to work with. With the implementation of the AIA the possibility of contingency litigation representation would seem to be very questionable right now, until the courts have defined the AIA it a little more clearly.