Source: http://privacyandip.blogspot.com/2011/08/
Timestamp: 2017-05-24 06:08:04
Document Index: 185685822

Matched Legal Cases: ['§ 109', '§ 109', '§ 109', '§ 501', '§ 1114', '§ 502', '§ 504', '§ 109', '§ 109', '§ 109', '§ 602', '§ 602', '§ 602', '§ 106']

Privacy and IP Law Blog: August 2011
First Sale Doctrine Not Available as Defense to Copyright Infringement, Where the Works were Foreign-Made
The Second Circuit Court of Appeals recently held that the "first sale doctrine" cannot be used as a defense to a claim of copyright infringement where the defendant distributed copies in the U.S. of the plaintiff's works that were manufactured in a foreign country. John Wiley & Sons, Inc. v. Kirtsaeng, No. 09-4896-CV, 2011 U.S. App. Lexis 16830 (2d Cir. Aug. 15, 2011).
First Sale Doctrine, Defined
Under U.S. law, a defendant can avoid liability in copyright infringement case if what he or she distributed was a copy of the work that was obtained legitimately. 17 U.S.C. § 109(a). In other words, once you purchase a paperback copy of a book, you may sell your copy of that book at any price you determine is fair without violating the copyright owner's exclusive rights to distribute its works. This is called the "first sale doctrine." This defense is generally described as follows: "the owner if a particular copy . . . lawfully made under this title . . . is entitled, without authority of the copyright owner, to sell or otherwise dispose of the possession of that copy . . . ." Id. There is a separate provision for sound recordings and computer programs, but it is not applicable here. See generally 17 U.S.C. § 109(b).
According to the Second Circuit, this defense is only available when the work at issue was made in the U.S. John Wiley & Sons, Inc., No. 09-4896-CV at 16 ("In sum, we hold that the phrase 'lawfully made under this Title" in § 109(a) refers specifically and exclusively to works that are made in territories in which the Copyright Act is law, and not to foreign-manufactured works.").
Facts of the John Wiley & Sons Case
In John Wiley & Sons, the defendant, Supap Kirtsaeng was a Thai student who first attended Cornell University, and then moved to California to pursue a doctoral degree. Between 2007 and September 2008, Kirtsaeng allegedly funded his educational expenses by receiving foreign edition textbooks from his family and friends in Thailand, and then selling them on commercial sites such as eBay. He reimbursed his family and friends for their acquisition and shipping costs and kept the profits for himself. Apparently, Kirtsaeng received about $1.2 million in revenue, a fact he tried to withhold from the jury as unduly prejudicial (see below). Id. at 7. In his defense of the lawsuit that followed, Kirtsaeng claimed that he had sought advice from friends in Thailand and on the Internet (using "Google Answers") to determine that his actions would be lawful. (Factual discussion appears in the opinion in pages 4-5).
Complaint & Trial
On September 8, 3008, the textbook publisher, John Wiley & Sons, filed suit in the federal district court in Manhattan (Southern District of New York) claiming copyright infringement (17 U.S.C. § 501) and trademark infringement (15 U.S.C. § 1114(a)) under federal law, and unfair competition under New York state law. John Wiley & Sons sought preliminary and permanent injunctive relief under 17 U.S.C. § 502(a) and statutory damages under 17 U.S.C. § 504(c). At trial, the jury found Kirtsaeng "liable for willful copyright infringement of all eight works and imposed damages of $75,000 for each of the eight works." Id. at 8. Kirtsaeng appealed to the U.S. Court of Appeals for the Second Circuit (the "Second Circuit"), alleging that the judge erred in (1) finding the "first sale defense" not to apply to this situation; (2) in not instructing the jury that the "first sale doctrine" constituted a complete defense to the claims and (3) allowing certain evidence to be introduced regarding his gross receipts, which he claimed to be improper and unduly prejudicial.
Available Precedent
On appeal, the Second Circuit considered both Quality King Distr., Inc. v. L'anza Res. Int'l, Inc. (523 U.S. 135 (1998)) and Omega S.A. v. Costco Wholesale Corp. (541 F.3d 982 (9th Cir. 2008)) as potential precedent, and found both to be inapposite. Quality King dealt with works that were made in the U.S. for export to other countries, being returned to the U.S. and sold without authorization by the copyright owner. In that case, in a concurring opinion, Justice Ginsberg explained, "This case involves a 'round trip' journey, travel of the copies in question from the United States to places abroad, then back again" and explicitly noted that "we do not today resolve cases in which the allegedly infringing imports were manufactured abroad." Id. at 11 (citing Quality King Distr., Inc. v. L'anza Res. Int'l, Inc., 523 U.S. 135, 154 (1998)). As a result, the Second Circuit concluded that Quality King did not address precisely the situation posted by the John Wiley case, although its analysis could be borrowed for guidance about what the Supreme Court might do were this issue squarely presented before it.
The Second Circuit also considered a recent decision from the Ninth Circuit, Omega S.A. v. Costco, for the proposition that the first sale doctrine (§ 109(a)) "does not apply to items manufactured outside of the United States unless they were previously imported and sold in the United States with the copyright holder's permission." Id. at 12 (citing Omega S.A., 541 F.3d at 990). This case had been appealed to the U.S. Supreme Court, which affirmed the judgment by an equally divided panel (with Justice Kagan recused). In other words, four of the nine justices voted to overturn the opinion, but without a majority of votes, the opinion was essentially affirmed.
In reaching its ruling, the Second Circuit conceded that the statutory text was simply "utterly ambiguous." Id. at 15. The phrase "lawfully made under this title" could mean any of the following: "(1) 'manufactured in the United States,' (2) 'any work made that is subject to protection under this title,' or (3) lawfully made under this title had this title been applicable.'" The last two meanings would have supported Kirtsaeng's position, but the court explained, "these definitions, like Wiley's, are at best merely consistent with a textual reading of § 109(a)" but are not mandated by the statute. Id.
Following its analysis, the Second Circuit concluded that it was most appropriate to "adopt an interpretation of § 109(a) that best comports with both § 602(a)(1) and the Supreme Court's opinion in Quality King." Id. (Section 602(a)(1) provides that unauthorized importation into the U.S. of works that were acquired outside the U.S. constitutes infringement.) The Second Circuit explained that the "mandate of § 602(a)(1) . . . would have no force in the vast majority of cases if the first sale doctrine was interpreted to apply to every work manufactured abroad that was either made" under definition number 2 ("subject to protection under Title 17") or 3 ("consistent with the requirements of Title 17 had Title 17 been applicable") above. Thus, the only definition that could apply – and still allow § 602(a)(1) to have any teeth – must be definition number (1) ("manufactured in the U.S.").
In reaching this conclusion, the Second Circuit also distinguished the Omega v. Costco decision by finding that it was based largely on Ninth Circuit precedent that has not been widely adopted by other appellate courts.
As to the remaining bases for appeal, the Second Circuit held that it "could not conclude that the District Court plainly erred in declining to give Kirtsaeng's proposed jury instruction" and "we see no reason to conclude that the District Court's decision [regarding admission of evidence of Kirtsaeng's gross revenues] was improper under Rule 403(b)." Id. at 18, 20.
Accordingly, all three of Kirtsaeng's arguments failed and he lost the appeal.
The Honorable J. Garvan Murtha, a Vermont district court judge sitting by designation, filed a dissenting opinion, basically concluding that "the first sale doctrine should apply to a copy of a work that enjoys United States copyright protection wherever manufactured." Id. at 1 (dissent). As in the majority opinion, the dissent focused on the "lawfully made under this title" phrase, and noted a circuit split over the interpretation of this phrase. One definition (as articulated by the majority) adopted the "legally manufactured . . . within the United States" construct. Id. at 2 (dissent). The other (to which Judge Murtha subscribed) "refers not to the place a copy is manufactured but the lawfulness of its manufacture as a function of U.S. copyright law." Id. at 3 (dissent).
Judge Murtha described his disagreement rather plainly:
A U.S. copyright owner may make her own copies or authorize another to do so. 17 U.S.C. § 106(1). Thus, regardless of place of manufacture, a copy authorized by the U.S. rightsholder is lawful under U.S. copyright law. Here, Wiley, the U.S. copyright holder, authorized its subsidiary to manufacture copies abroad, which were purchased and then imported in to the United States. Id. (dissent) at 3. Under this construct, therefore, the first sale doctrine should apply to exempt Kirtsaeng from liability for copyright infringement for distributing these valid copies of a U.S. copyrighted work that he acquired lawfully before further selling them.
Judge Murtha further supported his position by relying on the initial Supreme Court case that articulated the first sale defense, in which the Court held that the "defendant-retailer's sales of a copyrighted book for less than the price noted on the copyright page was not a copyright violation." Id. at 4 (dissent) (citing Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 341 (1908)). "The purchaser of a book, once sold by authority of the owner of the copyright, may sell it again, although he could not publish a new edition of it." Id. at 4-5 (dissent) (citing Bobbs-Merrill Co., 210 U.S. at 350). Thus, the copyright owner cannot control the terms of subsequent sales, if the initial sale was authorized.
In sum, Judge Murtha pointed to the Supreme Court's lack of guidance as to its views of the Ninth Circuit's "imperfect solution" in the Omega case because at least four justices "did not agreethe Quality King dicta [by Justice Ginsberg, cited above] directly addresses [this issue] or constitutes the Court's current view." Id. at 8 (dissent). In his view, they would have overturned the Omega decision, which was upheld only because it was not overturned by a majority of votes of the justices. Thus, while this is a "close call," it should have been decided the other way -- that the first sale doctrine applies to foreign manufactured copies. Id.
Given the circuit split articulated by the dissent, the statutory text's "utter ambiguity" as conceded by the majority and the Supreme Court's narrow upholding of the Ninth Circuit's opinion in the Omega case, it is possible that this issue may see further consideration by the Supreme Court. This, of course, assumes that either Kirtsaeng further appeals or another case with similar facts is presented for the Supreme Court's consideration – and that the Supreme Court grants certiorari.
Until then, future litigants should consider whether the John Wiley & Sons case operates as binding precedent to their case or whether under the facts and circumstances presented, the first sale doctrine (despite foreign manufacture of the works at issue) could act as a defense to claims of copyright infringement for the subsequent sale of a validly obtained copy.
The Office of the Intellectual Property Enforcement Coordinator seeks public comment about "how the U.S. Government can prevent counterfeits products from entering its supply chain." In a recent press release circulated on August 9, IPEC Victoria Espinel confirmed that her office is leading a "U.S. Government anti-counterfeiting working group" comprising fourteen government agencies which have been tasked to provide legislative, regulatory and policy recommendations to address this problem.
The original Federal Register notice can be found here. It explains that the purpose of this request for comments is to "solicit feedback and best practices from industry, academia, research laboratories, and other stakeholders on issues related to identifying areas of common interest and compare progress and best practices to ultimately eliminating counterfeits in Federal Government supply chains." 76 Fed. Reg. 153 at 48906.
The Notice identifies six objectives of the working group, along with six categories of questions to be addressed in submitted comments (covering the first five of the specific objectives and a sixth "general" area. The sixth objective is not specifically included in the enumerated questions). These six objectives are:
• Objective #1—Develop procedures for program managers to identify items at risk for counterfeiting or requiring authentication of legitimacy. These procedures will, to the greatest extent practicable, utilize current industry standards. • Objective #2—Examine whether additional administrative actions, including regulatory actions, are needed to require suppliers to take stronger anti-counterfeiting measures. • Objective #3—Examine when and how product and package traceability, reporting and marking processes can be used by prime contractors, their suppliers, Federal government personnel and potentially other customers to confirm production authority by the original manufacturer of at-risk items. • Objective #4—Examine government/industry evaluation capabilities and determine whether improvement is needed. • Objective #5—Develop an anticounterfeiting training and outreach strategy for the Federal workforce. • Objective #6—Examine whether additional measures are needed to protect the rights and interests of the United States, recoup costs and prosecute offenders. 76 Fed. Reg. 153 at 48905. The notice also explains that the working group is charged with "reviewing current industry standards, the ability of prime contractors and their suppliers to authenticate or trace at-risk items to the original manufacturer, government evaluation and detection capabilities and limitations, and contractual enforcement authority." Id.
As previously reported in this Blog, Senator Leahy introduced on May 12, 2011, the "Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act of 2011" (S. 968) (the "PROTECT IP Act of 2011"). Just last week, Senator Leahy published the Committee's Report on the Bill (S. Rep. 112-39, released July 22, 2011). In this Report, he explains why a legislative solution is necessary.
He identifies the "footwear, clothing, consumer electronics and pharmaceutical industries" as being frequent victims of such counterfeiting enterprises. S. Rep. at 3. He explains that "the music, motion picture, television, publishing and software industries" face continual threats from copyright infringement in the digital world. Id. Indeed, the President and CEO of Rosetta Stone testified during the February 16, 2011 Judiciary Committee Hearing on this topic that pirated copies of the newest versions of Rosetta Stone software are made available through sites that at least facially appear legitimate, causing confused customers to purchase (essentially) defective software bearing Rosetta Stone's name. Prepared Statement of Tom Adams, Feb. 16, 2011 at 2. Author Scott Turow (speaking on behalf of the Authors' Guild) testified that he published a new book in May of 2010, and within a week or two of its release, friends informed him that pirated copies of his book were available for sale online. Webcast of Scott Turow's Tesimony is available through the Committee's hearing notice. This type of counterfeiting poses not only additional costs on the authors/publishers, but can also cause physical harm to the customer if what is counterfeited is pharmaceutical, but yet is distributed bearing legitimate trademarks and other indicia of legitimacy.
First, online infringement harms the content and trademark owners themselves in the form of lost sales, lost brand value, increased costs to protect their intellectual property, and decreased incentives to invest in research and development. Second, online infringement harms consumers who receive lower quality products, inauthentic products, or, in a worst case scenario, products that cause physical harm or health risks. Third, online infringement harms Federal and State Governments in the form of lost tax revenues, higher law enforcement costs, and the harm caused by the effects of the Government's own purchase of counterfeit products. Fourth, online infringement harms U.S. trade by lessening its ability to partner with countries that have weaker intellectual property enforcement regimes.21 Fifth, online infringement reduces the incentives to create and disseminate ideas which, as the United States Supreme Court has recognized, harms the free expression principles of the First Amendment. Finally, as Victoria Espinel, U.S. Intellectual Property Enforcement Coordinator (IPEC), noted in a hearing before the Senate Committee on the Judiciary, online infringement supports international organized crime syndicates, which pose risks to our national security. S. Rep. at 5 (footnotes omitted). While a large portion of the Bill relates to government action that can be taken by the Attorney General, the private right of action included in this Bill provides separate benefits to rightsholders, allowing them to enforce their rights, independent of any action that the government may take against the wrongdoer. This private right of action is more limited than the enforcement tools provided to the AG. As the Committee Report explains, while the private right of action can extend to websites operating outside of the U.S., "the resulting remedies are more limited [than those reserved for the Justice Department]. A qualifying plaintiff may only seek the court's permission to serve a court order resulting from an action brought under this provision on a payment processor or online advertising network. Neither a DNS operator nor a search engine can be required to take action as the result of an order issued under this provision." Id. at 8. As a result, private rightsholders cannot use this process to require that web hosting companies or search engines disable access to the domain name when it is found to be a "rogue Internet site."
Moreover, when court orders are served on third parties (such as payment processors or search engines), no ongoing duty on the part of the third-party – for instance, to ensure that the infringing domain does not pop up again under a different name at a later time – will be established. Id. at 9. Instead, the third-party's obligations begin and end with the court order served upon it – even then, the third party is only required to comply to the extent such compliance is "technically feasible and reasonable." Id. This safe harbor allows third parties to avoid significant expenses that might result from having on-going, extensive obligations to police against the re-appearance of these rogue sites when they resuscitate themselves after a successful enforcement action.
This Bill also limits the remedies that a qualifying plaintiff can seek against a third-party who "knowingly and willfully" fails to comply. Id. Specifically, actions to enforce the order at issue will be limited to requiring compliance with it – "These provisions do not open the door to fishing expeditions in the form of frivolous litigation brought simply to initiate broad discovery." Id. Monetary damages are also not available in these situations.
Overall, the Bill would provide needed assistance to rightsholders to continue to fight the battle against infringement and counterfeiting. It is not a complete solution, however. Even Senators who support this Bill recognize that it's only the first step – but an important one nonetheless. See Prepared Statement of Sen. Leahy, May 26, 2011 ("The PROTECT IP Act targets the most egregious actors, and is an important first step to putting a stop to online piracy and the sale of counterfeit goods.").
In general, this Bill provides a remedy both to the Attorney General and to certain private rights holders ("Qualified Plaintiffs," as specifically defined) to combat copyright infringement and counterfeiting against websites whose primary purpose is infringement or counterfeiting. The statutory definitions make this a bill of somewhat limited application (not every infringement will qualify, nor will every infringer, involved third-party or level of conduct), but it undoubtedly would provide rightsholders with another tool in the toolbox to enforce their valuable copyright and trademark rights.
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