By Erin Geiger Smith

(Reuters) - The U.S. Supreme Court has settled the question for many legal observers of the meaning of a disputed phrase in U.S. copyright law. The clarification, however, is likely to leave copyright holders looking for ways around the ruling.

In Kirtsaeng v. John Wiley and Sons, the high court ruled on Tuesday that the "first-sale doctrine" in copyright law applies to goods lawfully made outside the United States. The court found in favor of a student who resold textbooks on eBay that had been purchased abroad, ruling that copyright holders cannot block the resale in the U.S. of products they make elsewhere.

The case turned on the meaning of a section of the U.S. Copyright Act, which says that the first-sale doctrine applies to "the owner of a (copy)... lawfully made under this title."

"Until this opinion, nobody knew" what the language "lawfully made under this title" meant, said Andrew Berger, an intellectual property attorney with Tannenbaum Helpern Syracuse & Hirschtritt, who is not involved in the Kirtsaeng case.

The court's decision provides "a comforting clarification" on what the language means in practice, he said.

In the 6-3 ruling, written by Justice Stephen Breyer, the court noted its decision is likely to have a negative impact on U.S. copyright holders that do business internationally.

Several of the textbooks in the case came from an Asian unit of John Wiley & Sons, which had sued the student for copyright infringement. John Wiley President Stephen Smith on Tuesday expressed disappointment in the Supreme Court's decision and called it a "loss for the U.S. economy" and for students and authors around the world.

Despite the court's findings, the opinion could still provide ways for copyright holders to protect their positions in the marketplace, said Pillsbury Winthrop Shaw Pittman partner Evan Finkel.

DOOMSDAY SCENARIOS

The court noted in the decision that certain imports, such as when a copyright holder's licensee tries to sell copies in the United States without the permission of the copyright owner, are still forbidden under copyright law.

Because copyright owners could still control imports under certain scenarios, they may try to develop a model in which consumers are given a license to use their copyrighted material, rather than owning it, said Finkel, who also is not involved in the case.

Such transactions would likely fall outside the restrictions of the court's opinion, he said, because there would only be a license for certain use and not a new owner of the material.

Tuesday's decision reversed an August 2011 opinion by the 2nd U.S. Circuit Court of Appeals that found the first-sale doctrine did not apply to goods manufactured abroad. That decision meant that Wiley could maintain a copyright on the books that would prevent the purchaser from reselling them in the United States.

In briefs to the Supreme Court, both sides argued that, should they lose, they would face a doomsday scenario of sorts.

Wiley argued that U.S. companies would have trouble competing in the global marketplace if goods they sell more cheaply abroad could be resold by a third party domestically.

Kirtsaeng, along with various amicus briefs filed by museums and library associations, had argued that copyright holders could get a perpetual copyright in the U.S. if the Supreme Court did not side with him.

It would, they argued, prevent libraries from lending books manufactured abroad without tracking down the copyright holder for permission and would endanger museums who have no way of following the chain of ownership when they purchase works of art created abroad.

Though Wiley's lawyers at Gibson, Dunn & Crutcher argued such a "parade of horribles" was not likely to actually occur, Breyer found them not to be so farfetched.

The first-sale doctrine "is deeply embedded in the practices of ... book sellers, libraries, museums, and retailers who have long relied upon its protection," Breyer wrote.

COSTCO v. OMEGA

The first-sale doctrine is important to companies such as Costco Wholesale Corp that operate in the roughly $63 billion "gray market."

Gray market goods include brand-name products protected by trademark or copyright that are imported into the United States by third parties and resold.

In litigation pending in the 9th U.S. Circuit Court of Appeals, Omega S.A. has claimed that Costco infringed its intellectual property by importing and reselling Omega watches that carry a copyrighted sticker.

The Supreme Court addressed Omega's dispute with Costco in a December 2010 ruling, issuing a 4-4 per curiam decision affirming the 9th Circuit's holding that the first-sale doctrine did not apply to goods manufactured abroad.

Because the Supreme Court's decision was 4-4, with Justice Elena Kagan not participating, that holding did not carry precedent, setting the stage for the Kirtsaeng opinion to decide the issue.

In the Omega case, the U.S. District Court for the Central District of California eventually found that the watch maker misused its copyright to improperly control the importation and distribution of its products.

That decision is now on appeal to the 9th Circuit. Though the parties submitted their briefs months ago, the 9th Circuit - perhaps waiting for the Kirtsaeng decision - has not yet set an argument date.

Greenberg Glusker's Aaron Moss, who represents Costco, lauded the Kirtsaeng opinion, saying it "injected common sense" into the reading of the copyright law.

Barry Levy of Horvitz & Levy, who represents Omega, was not immediately available for comment.

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