Will New Second Class Status for
Copyright’s First Sale Doctrine
Drive Production Offshore?
This article first appeared in the Intellectual Property & Technology Law Journal, Vol. 24, No. 1, January 2012.
by Evan Finkel
Evan Finkel
Intellectual Property
+1.213.488.7307
evan.finkel@pillsburylaw.com
Evan Finkel is a partner at Pillsbury Winthrop
Shaw Pittman LLP, where he leads the
Los Angeles Intellectual Property group.
Recently, the Second Circuit issued
a decision regarding the copyright
first sale doctrine that may have farreaching influence on the activities of
US copyright owners, possibly causing the largest and most prestigious of
them to move offshore their manufacturing and publishing operations.1
17 U.S.C. § 109(a): The
Statutory Foundation for the
First Sale Doctrine
Section 106(3) of the Copyright Act
of 1976 (the Copyright Act) grants
certain exclusive rights to the owner
of a copyright in a copyrighted work,
including the exclusive right to
distribute (and authorize others to
distribute) copies of the work.2
Under § 602(a) of the Copyright Act,
unauthorized importation into the
United States of a copyrighted work
acquired outside the United States is
an act of copyright infringement
because it violates the copyright
owner’s exclusive right of
distribution.3
The exclusive rights of the copyright
owner, including the exclusive right
of distribution, are, however,
expressly limited by §§ 107 through
120 of the Copyright Act.4 One such
express limitation is the so-called
first sale doctrine codified in
§ 109(a), which entitles the “owner
of a particular copy” of a copyrighted
work that is “lawfully made under
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this title” to sell or otherwise dispose
of that copy without the authorization of the copyright owner.5
When a copyrighted work is made in
the United States and sold in the
United States by or under the
authority of the copyright owner, the
first sale doctrine clearly kicks in,
and under § 109(a) the purchaser
may, without the authority of the
copyright owner, sell or otherwise
dispose of that copy of the work. But
that was easy. Consider the situation
in which the copyrighted work is
made abroad by or under the authority of the copyright owner, and sold
to a purchaser outside the United
States. Does the first sale doctrine
apply when the work is re-sold in
the US by the purchaser? Or consider the situation in which the
copyrighted work is made in the
United States by or under the
authority of the copyright owner and
then sold to a purchaser outside the
United States. Does the first sale
doctrine apply when the work is
re-sold in the United States by the
purchaser? Would your answer to
these questions depend on whether
the purchaser was authorized by the
copyright owner to re-sell the work
in the United States?
In each of those circumstances, the
breadth of the first sale doctrine is
far from crystal clear. If the work is
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deemed to have been “lawfully made
under this title” within the meaning
of that phrase in § 109(a), even
though it was made outside the
United States or was made in the
United States but purchased outside
the United States, then the first sale
doctrine allows the purchaser to
import the work into the United
States and sell the work in the
United States. But if not, such
importation and sale without the
authority of the copyright owner is
an act of copyright infringement.
This article discusses the most
recent legal authorities on the issue
of the proper interpretation of the
lawfully-made-under-this-title
clause of § 109(a).
Quality King: The US Supreme
Court Application of the First
Sale Doctrine
In Quality King Distributors Inc. v.
L’anza Research Intl., Inc.,6 the
Supreme Court considered whether
the first sale doctrine applied to
copies of a work manufactured in
the United States, sold outside the
United States with the authority of
the copyright owner, and then
imported into the United States
without authority of the copyright
owner. More specifically, hair care
products bearing a copyrighted label
were manufactured in the United
States by the copyright owner,
exported to an authorized foreign
distributor, sold to unidentified third
parties overseas, shipped back into
the United States without the
copyright owner’s permission,
and then sold in California by
unauthorized retailers.
The copyright owner (L’anza) sued
the unauthorized importers for
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copyright infringement, alleging that
the importation and subsequent sale
of hair care products bearing the
copyrighted labels violated its
exclusive rights under §§ 106(3)
(distribution) and 602(a) (importation
as an act of distribution). The district
court rejected the importers’ defense
based on the first sale doctrine of
§ 109(a) and entered summary
judgment in favor of the copyright
owner. The Ninth Circuit affirmed.7
The Supreme Court reversed and
held that the copies imported into
the United States were subject to the
first sale doctrine and thus immune
from a charge of infringement
because the copies were made in the
United States and thus were “lawfully made under this title” within
the meaning of § 109(a). In reaching
that conclusion, the Supreme Court
rejected the argument that importation into the United States was not a
sale or other disposition of the
copyrighted work protected under
the first sale doctrine of § 109(a),
which allows the owner of the copy
of the work “to sell or otherwise
dispose of the possession of that
copy.”8 The Court concluded that
“[a]n ordinary interpretation of the
statement that a person is entitled
‘to sell or otherwise dispose of the
possession’ of an item surely
includes the right to ship it to
another person in another country.”9
Thus, we have one of our answers.
The first sale doctrine applies to any
copyrighted work made in the
United States by or with the authority of the copyright owner. That
work is “lawfully made under this
title” within the meaning of § 109(a).
The purchaser and downstream
purchasers are thus free to sell or
otherwise dispose of that copy of the
work without the authorization of
the copyright owner. If the work is
then sold or transferred to a location
outside the United States, it can then
be imported back into the United
States without being subject to a
copyright infringement claim. The
work was still “lawfully made under
this title” and it does not lose that
preferred status regardless of how
many times it changes hands or
where it travels.
Omega: The Ninth Circuit’s PostQuality King Application of the First
Sale Doctrine
In Omega S.A. v. Costco Wholesale
Corporation,10 the issue was whether
Omega could prevent Costco from
reselling watches that incorporated
Omega’s copyrighted design. Omega
manufactured the watches outside
the United States and then sold the
watches to authorized distributors
outside the United States. Those
foreign distributors sold the watches
to unidentified third-party purchasers outside the United States who
sold them to a New York company
that in turn sold them to Costco in
the United States for sale in the
United States. Thus, the salient facts
are that the watches (copyrighted
work) were made by Omega (the
copyright owner) outside the United
States and all sales by Omega and its
authorized distributors were made
outside the United States. The first
importation into and sale in the
United States was by an unrelated
purchaser and was not an authorized transaction.11 Omega sued
Costco for copyright infringement,
infringement under §§ 106(3)
(distribution) and 602(a) (importation as an act of distribution).
Will New Second Class Status for Copyright’s First Sale Doctrine Drive Production Offshore?
The district court granted summary
judgment in favor of Costco on the
basis of the first sale doctrine.
Omega appealed. The Ninth Circuit
reversed, ruling the first sale doctrine inapplicable to the facts at
hand. The Ninth Circuit applied
its “general rule,” developed preQuality King 12 but consistent with
Quality King that the statutory
phrase “lawfully made under this
title” applies only to copies manufactured in the United States.13
“Under this rule, the first sale
doctrine is unavailable as a defense
to the claims under §§ 106(3) and
602(a) because there is no genuine
dispute that Omega manufactured
the watches bearing the Omega
Globe Design in Switzerland.” 14
however, for copyrighted works
made abroad and brought into the
United States by the copyright
owner or with its authority.16 That is,
Ҥ 109(a) can apply to copies not
made in the United States so long as
an authorized first sale occurs
here.” 17 In Denbicare,18 the Ninth
Circuit held that, “in light of § 109(a)
and Drug Emporium, the copyright
owner’s voluntary sale of the copies
within the United States exhausted
the exclusive right of distribution.”19
That much of the decision is plain,
and we have another one of our
answers. The first sale doctrine does
not apply to any copyrighted work
made outside the United States by or
with the authority of the copyright
owner but imported into the United
States without the authority of the
copyright owner. The work was not
“lawfully made under this title,” and
it does not acquire that preferred
status when it is imported into the
United States without the authority
of the copyright owner.
The Ninth Circuit’s rationale for this
exception is that works made outside
the United States and brought into
the United States by (or with the
authority of ) the copyright owner
should not be afforded greater
copyright protection than works
made in the United States by (or with
the authority of ) the copyright
owner.20 That reasoning is suspect at
best as it is not founded in the
statutory language, legislative history,
or anything other than the Ninth
Circuit’s opinion as to what should be
the law. Nevertheless, in Omega the
Ninth Circuit concluded that, because
the exception was not relevant to the
case under consideration, it would
not decide whether the exception
survives after the Supreme Court’s
decision in Quality King:
The Ninth Circuit did, however,
leave one interesting issue unresolved. Its pre-Quality King precedent also provided an exception
wherein § 109(a) would apply to
copyrighted works manufactured
abroad. Where, as in Omega, the
work was made outside the United
States and imported into the United
States without authority of the
copyright owner, § 109(a) would not
apply.15 An exception was made,
We need not decide whether Drug
Emporium’s and Denbicare’s exception to the
rule in BMG Music also survives Quality
King. There is no genuine dispute that the
copies of the Omega Globe Design were
sold in the United States without Omega’s
authority. The exception, therefore, does not
apply in this case. See Denbicare, 84 F.3d at
1145-46 (“[Section] 109 applies to copies
made abroad only if the copies have been
sold in the United States by the copyright
owner or with its authority.”). Because the
exception does not apply, the question of its
continuing viability cannot affect our
conclusion that § 109(a) provides no defense
to Omega’s claims.21
We thus do not have a definitive
answer to one of our inquiries. The
first sale doctrine may or may not
apply to a copyrighted work made
outside the United States by or with
the authority of the copyright owner
and then imported into the United
States with the authority of the
copyright owner.
Omega: The Supreme Court’s
Failed Attempt to Review the
Ninth Circuit’s Decision
The Supreme Court granted certiorari in Costco Wholesale Corp. v.
Omega, S.A. to decide whether the
first sale doctrine applies to
imported goods that are manufactured outside the United States.
Unfortunately, in Costco Wholesale
Corp. v. Omega, S.A.,22 the Supreme
Court split 4-4, with Justice Kagan
taking no part in the consideration
or decision of the case. This tie vote
creates no Supreme Court precedent, leaving the lower court
decision undisturbed (i.e., the lower
court judgment is affirmed), as
though the justices had never
considered the matter and voted.
Thus, the Ninth Circuit decision was
affirmed, per curiam.
John Wiley: The Second Circuit
Follows the Ninth Circuit (Sort of)
& Invites Congress (or the Supreme
Court) to Step In
On August 15, 2011, the Second
Circuit followed the lead of the
Ninth Circuit in John Wiley & Sons,
Inc. v. Kirtsaeng.23 John Wiley &
Sons, Inc. (Wiley) is a textbook
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publisher. Wiley’s wholly owned
subsidiary in Asia (Wiley Asia)
manufactures textbooks in Asia for
sale in foreign countries. The foreign
editions are less expensive (and
supposedly of a lesser quality) than
their US-made counterparts and
marked with a legend to designate
that they are to be sold only in a
particular country or geographic
region. Supap Kirtsaeng (Kirtsaeng)
moved to the United States from
Thailand to attend institutes of
higher learning. To help subsidize
the cost of his education, Kirtsaeng’s
friends and family shipped him
foreign edition textbooks printed
abroad by Wiley Asia, which
Kirtsaeng then sold on commercial
Web sites such as eBay.com. Wiley
sued Kirtsaeng for copyright
infringement. The judge ruled that
the first sale doctrine of § 109(a) was
unavailable because the textbooks
were made outside the United
States. The jury found for Wiley.
On appeal, Kirtsaeng challenged the
district court’s ruling on the inapplicability of the first sale doctrine.
The Second Circuit, in a 2-1 decision,
affirmed. The Second Circuit ruled,
as had the Ninth Circuit, that the
first sale doctrine does not extend to
copyrighted works manufactured
outside the United States because
those works are not “lawfully made
under this title.” In reaching that
conclusion, the Second Circuit first
examined the language itself, but
found it to be ambiguous and subject
to a number of different meanings,
all of which were plausible:
The relevant text is simply unclear.
“[L] awfully made under this title” could
plausibly be interpreted to mean any number
of things, including: (1) “manufactured in the
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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.” 24
works “lawfully made” outside the
United States, § 602(a)(1) “would
have no force in the vast majority
of cases.”27
Not surprisingly, the Second Circuit
felt the need to look further:
“Confronted with an utterly ambiguous text, we think it best to adopt an
interpretation of § 109(a) that best
comports with both § 602(a)(1) and
the Supreme Court’s opinion in
Quality King.”25
Regarding whether § 109(a) also
applies to works made abroad and
sold in the United States by the
copyright owner or with its authority, an exception that the Ninth
Circuit endorsed in its pre-Quality
King decisions and left unresolved
in Omega, the Second Circuit
authorized no such exception:
Looking further, the Second Circuit
noted that § 602(a)(1) provides that
“[i]mportation into the United States,
without the authority of the owner of
copyright under [the Copyright Act],
of copies . . . of a work that have been
acquired outside the United States is
an infringement of the [owner’s]
exclusive right to distribute copies.”26
The Second Circuit concluded that
this language favored a conclusion
that the first sale doctrine of § 109(a)
applies only to copyrighted works
manufactured in the United States.
That way, § 109(a) has its appropriate breadth as to copyrighted works
made in the United States: under the
first sale doctrine the copyright
holder cannot prevent the further
transfer of the works because they
are “lawfully made under this title”
within the meaning of § 109(a).
Section 602(a)(1) has its equally
appropriate reach as to copyrighted
works made outside the United
States: the first sale doctrine is
inapplicable because the works are
not “lawfully made under this tide”
within the meaning of § 109(a), and
the copyright holder can prevent
their “[i]mportation into the United
States” under § 602(a)(1). On the
other hand, if § 109(a) was construed as applying to copyrighted
This reading of the Copyright Act militates in
favor of finding that § 109(a) only applies to
domestically manufactured works. While the
Ninth Circuit in Omega held that § 109(a)
also applies to foreign-produced works sold
in the United States with the permission of
the copyright holder,28 that holding relied on
Ninth Circuit precedents not adopted by
other courts of appeals. Accordingly, while
perhaps a close call, we think that, in light
of its necessary interplay with § 602(a)(1),
§ 109(a) is best interpreted as applying only
to works manufactured domestically.29
In sum, we hold that the phrase “lawfully
made under this Tide” in § 109(a) refers
specifically and exclusively to works that
are made in territories in which the
Copyright Act is law, and not to foreignmanufactured works.30
To summarize, we hold that (1) the first sale
doctrine does not apply to works manufactured outside of the United States; ....31
The majority; however, admitted its
statutory interpretation could be
incorrect and invited Congress (and
presumably the Supreme Court as
well) to weigh in:
We freely acknowledge that this is a
particularly difficult question of statutory
construction in light of the ambiguous
language of § 109(a), but our holding is
Will New Second Class Status for Copyright’s First Sale Doctrine Drive Production Offshore?
supported by the structure of Title 17 as well
as the Supreme Court’s opinion in Quality
King. 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.32
The lone dissenter (Judge Murtha)
would have followed the Ninth
Circuit pre-Quality King cases and
held that “the first sale defense
should apply to a copy of a work that
enjoys United States copyright
protection wherever manufactured.” 33 Judge Murtha disagreed
with the majority’s conclusion that
“the [first sale] doctrine does not
apply to imported copies that were
made abroad because § 109(a)
applies only to copies that are
‘lawfully made under this title,’ and
that means physically manufactured
in the United States.”34
John Wiley Potential Adverse and
Unintended Consequences
Under the Second Circuit’s holding
in John Wiley, copyright owners can
completely defeat the protections of
the first sale doctrine provided in
§ 109(a) by merely having their
works made abroad and then
importing them into the United
States themselves or by third parties
under their authority. Purchasers of
those works abroad could not import
them into the United States; fair
enough. But persons purchasing
those works in the United States
from the copyright owner or its
authorized distributors, such as used
book stores, arguably could not
resell them either without being
vulnerable to a copyright
infringement claim, because the first
sale doctrine would be inapplicable
as the works were not made in the
United States. This might have the
unintended consequence of enticing
copyright owners, including large
publishers, to move their production
to locations outside the United
States to enable them to control not
only importation into the United
States but also further distribution
of the copyrighted work to the
public “by sale or other transfer of
ownership, or by rental, lease, or
lending.”35
In his dissent, Judge Murtha noted
these concerns as well as other
practical difficulties that the majority’s decision imposes on the owner
of a copy of a work:
An owner first would have to determine the
origin of the copy—either domestic or
foreign—before she could sell it. If it were
foreign made and the first sale doctrine does
not apply to such copies, she would need to
receive permission from the copyright
holder.36 See 17 U.S.C. § 106(3). Such a
result would provide greater copyright
protection to copies manufactured abroad
than those manufactured domestically: Once
a domestic copy has been sold, no matter
where the sale occurred, the copyright
holder’s right to control its distribution is
exhausted. I do not believe Congress
intended to provide an incentive for U.S.
copyright holders to manufacture copies of
their work abroad.37
It would seem that this would be a
good time for the Supreme Court to
tackle this thorny issue one more
time, this time with a full panel of
justices and a precedential, binding
decision. Of course, Congress could
intercede, but its track record lately
for moving with speed and purpose
is not the best. So the Supreme Court
looks like the better bet for bringing
certainty to this important issue.
1
See John Wiley & Sons, Inc. v. Kirtsaeng, (2d Cir.
Aug. 15, 2011).
2
17 U.S.C. § 106 (“Subject to sections 107 through
122, the owner of copyright under this title has the
exclusive rights to do and to authorize any of the
following:... (3) to distribute copies ... of the copyrighted work to the public by sale or other transfer
of ownership, or by rental, lease, or lending; ...”).
3
17 U.S.C. § 602(a) (“Importation into the United
States, without the authority of the owner of
copyright under this title, of copies ... of a work
that have been acquired outside the United States
is an infringement of the exclusive right to distribute copies ... under section 106, actionable [for
infringement] under section 501.”).
4
17 U.S.C. § 106 (“Subject to sections 107 through
122, the owner of copyright under this title has the
exclusive rights to do and to authorize any of the
following....”).
5
17 U.S.C. § 109(a) (“the owner of a particular copy
... 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
...”). Because a licensee is not the “owner of a
particular copy,” the first sale doctrine of § 109(a)
has no applicability to license transactions in which
ownership is of the copy is not transferred. See
Vernor v. Autodesk, Inc., 621 F.3d 1102 (9th Cir.
2010) (§ 109(a) not applicable to copies of software
that are licensed and not sold).
6
Quality King Distributors Inc. v. L’anza Research
Intl., Inc., 523 U.S. 135, 118 S. Ct. 1125, 140 L. Ed.
2d 254 (1998).
7
98 F.3d 1109, 1114 (9th Cir. 1996). “Because its
decision created a conflict with the Third Circuit,
see Sebastian Intl, Inc. v. Consumer Contacts (PTY)
Ltd., 847 F.2d 1093 (3rd Cir. 1988), we granted the
petition for certiorari. 520 U. S. 1250 (1997).”
Quality King, 523 U.S. at 139 140, 140 L. Ed. 2d
at 261.
8
Quality King, 523 U.S. at 151 152, 140 L. Ed. 2d at
268 269.
9
Quality King, 523 U.S. at 152, 140 L. Ed. 2d at 269.
10
Omega S.A. v. Costco Wholesale Corporation, 541
F.3d 982 (9th Cir. 2008).
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Will New Second Class Status for Copyright’s First Sale Doctrine Drive Production Offshore?
11
Omega, 541 F.3d at 984.
32
John Wiley, slip. op. at 17.
12
E.g., BMG Music v. Perez, 952 F.2d 318 (9th Cir.
1991).
33
John Wiley, slip. op. dissent at 1.
34
Id., at 2.
13
Omega, 541 F.3d at 990 (“In summary, our general
rule that § 109(a) refers ‘only to copies legally
made ... in the United States’ ... is not clearly
irreconcilable with Quality King, and, therefore,
remains binding precedent.”).
35
17 U.S.C. § 106(3).
36
Note 2 omitted.
37
John Wiley, slip. op. dissent at 5 6.
14
Omega, 541 E3d at 990.
15
See BMG Music v. Perez, 952 E2d 318 (9th Cir.
1991).
16
See Parfums Givenchy, Inc. v. Drug Emporium,
Inc., 38 F.3d 477 (9th Cir. 1994), and Denbicare
U.S.A. Inc. v. Toys “R” Us, Inc., 84 F.3d 1143 (9th
Cir. 1996).
17
Omega, 541 F.3d at 986 (citing Drug Emporium, 38
F.3d at 481).
18
Denbicare, 84 F.3d at 1149-1150.
19
Denbicare, 84 F.3d at 1149-1150.
20
Denbicare, 84 F.3d at 1149-1150.
21
Omega, 541 F.3d at 990.
22
Costco Wholesale Corp. v. Omega, S.A., 131 S. Ct.
565, 178 L. Ed. 2d 470 (2010) (per curiam).
23
John Wiley & Sons, Inc. v: Kirtsaeng, – F.3d – (2d
Cir. Aug. 15, 2011).
24
John Wiley, slip. op. at 14 15.
25
John Wiley, slip. op. at 15.
26
17 U.S.C. § 602(a)(1).
27
John Wiley, slip. op. at 15 16.
28
That is not an accurate statement. The Ninth
Circuit merely left that issue open to be decided
another day.
29
John Wiley, slip. op. at 16.
30
John Wiley, slip. op. at 17.
31
John Wiley, slip. op. at 20.
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