23 December 2012

Does the first sale doctrine of copyright apply to extraterritorial works?

This is one of a series of posts about Justice Antonin Scalia and Bryan Garner's Reading Law: The Interpretation of Legal Texts. For similar posts, click here.

Section 109(a) of the Copyright Act provides, in part, that
...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.
Emphasis is mine. Contrast that with Section 602(a)(1) which states that
[i]mportation into the United States, without the authority of the owner of copyright under this title, of copies or phonorecords of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies or phonorecords....
As you can probably tell from reading these two relevant provisions, they appear to contradict one another. The first provision delineates the first-sale doctrine. This limits the rights of copyright holders and enables secondary markets by permitting resale without authority of the copyright owner. The second provision prohibits the importation of a work without the authority of the copyright’s owner.

This is the question presented in the case of Kirtsaeng v. John Wiley & Sons, Inc., which was argued before the Supreme Court on October 29. The Second Circuit summarized the facts:
To help subsidize the cost of his education, Kirtsaeng allegedly participated in the following scheme: Between 2007 and September 8, 2008, Kirtsaeng's friends and family shipped him foreign edition textbooks printed abroad by Wiley Asia. In turn, Kirtsaeng sold these textbooks on commercial websites....
The Supreme Court has already considered a very similar case in Quality King Distributors Inc., v. L'anza Research International Inc., 523 U.S. 135 (1998). In summary:
L'anza, a California manufacturer, sells its hair care products in this country exclusively to distributors who have agreed to resell within limited geographic areas and only to authorized retailers. L'anza promotes its domestic sales with extensive advertising and special retailer training. In foreign markets, however, it does not engage in comparable advertising or promotion; its foreign prices are substantially lower than its domestic prices. It appears that after L'anza's United Kingdom distributor arranged for the sale of several tons of L'anza products, affixed with copyrighted labels, to a distributor in Malta, that distributor sold the goods to petitioner, which imported them back into this country without L'anza's permission and then resold them at discounted prices to unauthorized retailers.
The Supreme Court found that the first sale doctrine endorsed in § 109(a) is applicable to imported copies. That would seem to be sufficient to decide Kirtsaeng (of course, if it were that simple, the Supreme Court probably wouldn't be hearing the case!). However, it is potentially distinguishing that the hair care products in L'anza were in fact manufactured within the United States (and the labels were copyrighted in the United States), distributed overseas, and then re-imported into the United States. The books at question in Kirtsaeng were manufactured and copyrighted overseas.

In 2010, the Supreme Court affirmed the 9th Circuit's decision in Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982 (9th Cir. 2008). According to the 9th Circuit:
Omega manufactures watches in Switzerland and sells them globally through a network of authorized distributors and retailers. Engraved on the underside of the watches is a U.S.-copyrighted “Omega Globe Design.” Costco obtained watches bearing the copyrighted design from the “gray market” 1 in the following manner:  Omega first sold the watches to authorized distributors overseas. Unidentified third parties eventually purchased the watches and sold them to ENE Limited, a New York company, which in turn sold them to Costco. Costco then sold the watches to consumers in California. Although Omega authorized the initial foreign sale of the watches, it did not authorize their importation into the United States or the sales made by Costco.
The Supreme Court vote was 4-4 (Kagan recused). A tie affirms the lower court; however, the ruling only becomes binding upon the 9th Circuit. So it seems obvious that the Court would take another similar case to establish a final rule on these apparently conflicting provisions.

From a textual perspective, there are three canons that immediately come to mind when considering this question:
  • Harmonious-Reading Canon. The provisions of a text should be interpreted in a way that renders them compatible, not contradictory (p. 180).
  • General/Specific Canon. If there is a conflict between a general provision and a specific provision, the specific provision prevails (generalia specialibus non derogant, p. 183).
  • Irreconcilability Canon. If a text contains truly irreconcilable provisions at the same level of generality, and they have been simultaneously adopted, neither provision should be given effect (p. 189).
There is another canon at play here--the Extraterritoriality Canon. A statute presumptively has no extraterritorial application (statuta suo clauduntur territorio, nec ultra territorium disponunt, p. 268). Let's start with this one.

In Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869, Justice Scalia, writing for the Court, wrote that "[i]t is a longstanding principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States." (quotation marks omitted) This is a restatement of the Extraterritoriality Canon.

Returning to the contextual canons, it is not immediately obvious that either one of the provisions here are more or less general or specific than the other. So for the purposes of this post, we'll pass by the General/Specific Canon for another day. And among these canons, the Irreconcilability Canon is a last resort. So we ought to look specifically at the Harmonious-Reading Canon.

The Second Circuit undertook a textual analysis of § 109(a):
In arriving at a satisfactory textual interpretation of the statutory language at issue, we focus primarily on the words "made" and "under," but this task is complicated by two factors: (1) the word "made" is not a term of art in the Copyright Act, and (2) "[t]he word `under' is [a] chameleon" and courts "must draw its meaning from its context." Wiley contends that we must interpret "lawfully made under this title" to mean "lawfully made in the United States." This view of the law — which was also adopted by the United States in its amicus brief before the Supreme Court in Costco — is certainly consistent with the text of § 109(a).
In other words lawfully made under this title in § 109(a) should read to mean lawfully made in the United States. But wait! You might wonder (rightfully so) how a textualist reading of the statute could simply change the meaning of the words!

In fact, it is the logical application of the Extraterritoriality Canon together with the Harmonious-Reading Canon. Here, these canons work together to help us understand how the law ought to be interpreted. Because the Copyright Act is presumed not to have extraterritorial application, the words lawfully made under this title really do mean lawfully made under the Copyright Act which is only applicable within the United States. Because the books in question were manufactured in Thailand, United States copyright law does not apply. And these reasons are precisely why the Second Circuit affirmed the District Court in favor of Wiley.

The EFF considers this a "dubious interpretation" that would "further undermine the 'first sale doctrine.'" I would argue that applying these two canons, the interpretation is rather straightforward. Also note that (whether you agree with it or not), the textualist interpretation does not consider any policy considerations. If you think "fair use" and "first sale doctrine" are good ideas, you are likely to find ways interpret those provisions to suit your policy outcome. In fact, from a policy perspective, I agree with the EFF and believe that the first sale doctrine ought to apply outside of the United States. But from a judicial perspective, the text of the relevant statutory provisions do not support that interpretation. Rather, should the Court decide in favor of Wiley, it is up to Congress to change the law to expand the first sale doctrine to extraterritorial works.

From a textualist perspective, I would expect Justice Scalia to affirm the Second Circuit on these grounds. Whether or not this view will prevail among the Court as a whole remains to be seen. My best guess is that this will be a 5-4 decision with Justice Kagan providing the swing to either side (because Omega S.A. v. Costco Wholesale Corp. was a per curiam decision, the positions of the justices on either side of the case were not published).
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