NEW YORK, Aug 15 (Reuters) - In a ruling of first impression, a U.S. appeals court on Monday held that it is illegal to import and sell copyrighted works manufactured outside the United States without the copyright owner's permission.
The 2nd U.S. Circuit Court of Appeals held in a 2-1 ruling that Supap Kirtsaeng violated John Wiley & Sons' copyrights when he sold cheap foreign editions of the publishers' textbooks in the United States.
The case turned on the scope of the so-called "first sale" doctrine, which says that the owner of a copy "lawfully made under" the Copyright Act can sell, loan or give away that copy freely without the copyright owner's authorization.
The appeals court ruled that the right of first sale under Section 109(a) of the Act only applies to products physically manufactured in the United States.
To hold otherwise, the court said, would undercut Section 602(a)(1), which prohibits people from buying copyrighted works abroad and importing them into the United States without the copyright owner's permission.
That law "is obviously intended to allow copyright holders some flexibility to divide or treat differently the international and domestic markets for the particular copyright item," Judge Jose Cabranes wrote for the majority.
Kirtsaeng's lawyer Sam Israel criticized the court's ruling for "writing the first sale doctrine out of the statute." He said the decision allows a company to exert complete control over the resale of its products by outsourcing production to foreign locations -- a concern that swayed the dissenting Judge J. Garvan Murtha.
William Dunnegan, a lawyer for the publisher, said the company was "very pleased" with the 2nd Circuit's decision. He said that both the 9th Circuit and five other district judges in New York had previously ruled in favor of copyright holders in similar cases.
CONFLICT COMES DOWN TO STATUTORY INTERPRETATION
But the circuit courts do not agree on whether the first sale doctrine applies to works produced abroad, according to Jonathan Moskin, an intellectual property lawyer at Foley & Lardner who was not involved in the case. Both the 2nd and 9th Circuits have said it doesn't, while the 3rd Circuit has said it does, he said.
Moskin said the conflict comes down to statutory interpretation of whether copies "lawfully made under" the Copyright Act include copies made abroad. "There's very little guidance on that," he said.
Kirtsaeng moved to the United States from Thailand in 1997 to pursue a mathematics degree at Cornell University and later a doctoral degree in California. To subsidize his education, Kirtsaeng's family shipped him foreign editions of textbooks printed abroad by Wiley Asia, which he sold on eBay.com at a discount. The textbooks, mostly scientific, had soft covers, thinner paper and lower-quality printing than the more expensive U.S. editions. They also were marked with a legend forbidding their sale beyond a particular county or geographic region.
After the publisher sued for copyright infringement, Kirtsaeng argued that the first sale doctrine gave him the right to resell the textbooks.
But the U.S. District Court for the Southern District of New York sided with John Wiley and awarded the publisher $600,000 in statutory damages.
The 2nd Circuit agreed that the first sale doctrine does not apply to goods manufactured outside the United States.
"If we have misunderstood Congressional purpose in enacting the first sale doctrine, or if our decision leads to policy consequences that were not foreseen by Congress or which Congress now finds unpalatable, Congress is of course able to correct our judgment," the majority wrote.
The case is John Wiley & Sons Inc v. Supap Kirtsaeng d/b/a Bluechristine99, U.S. Court of Appeals for the 2nd Circuit, No. 09-4896.
For John Wiley & Sons: William Dunnegan of Dunnegan LLC.
For Kirtsaeng: Sam Israel.
(Reporting by Terry Baynes)