[Infowarrior] - SCOTUS Dives Into Resale Trade

[Richard Forno]

http://online.wsj.com/article/SB10001424052970204789304578084730729110360.html

	• LAW JOURNAL
	• Updated October 28, 2012, 6:39 p.m. ET

High Court Dives Into Resale Trade

By BRENT KENDALL And WILAWAN WATCHARASAKWET


Cut-rate foreign goods are a staple on eBay and at big-box stores, but a case coming up at the Supreme Court could make it trickier to sell some of them.

The case started with a Thai man who resold foreign-edition textbooks to U.S. students for less than the U.S. versions cost. Publisher John Wiley & Sons Inc. accused former University of Southern California Ph.D. student Supap Kirtsaeng of copyright infringement and won a $600,000 judgment.

Mr. Kirtsaeng's appeal to the Supreme Court has drawn broad interest from companies such as Costco Wholesale Corp. that anticipate a major ruling on international commerce.

U.S. law has long held that in principle, once a company sells a copyrighted product, the purchaser has the right to resell it later. Lower courts said that rule doesn't apply if the goods are produced abroad.

The Supreme Court has scheduled arguments Monday on the dispute, and if it upholds the lower courts, the decision could shake up the market for used books, music and other products sold secondhand. It could also constrain big-box retailers and online shopping sites that obtain foreign-made goods through unofficial distribution channels.

If Mr. Kirtsaeng wins, by contrast, the case could cause serious headaches for the movie, music, publishing and software industries, which don't want to undermine their U.S. sales with unauthorized imports of similar products they offered on different terms overseas.

"This case could open a very big loophole in the way products are sold in the U.S.," says Marshall Leaffer, an Indiana University law professor.

The Supreme Court will have to resolve a clash between two provisions of U.S. copyright law. One codifies the idea that a product maker only has control over the first sale of the product—the "first-sale doctrine." The other bars the import of copyrighted works without the copyright owner's permission.

Publishers say that by adopting the second provision in 1976, Congress intended to carve out an exception to the first-sale doctrine. Mr. Kirtsaeng's side says if Congress wanted an exception it would have said so. In the absence of clear language, it says, the first-sale doctrine should also apply to foreign goods.

The outcome, expected by June 2013, is likely to be a close call. The justices split 4-4 on the same legal question two years ago in a case between watchmaker Omega SA and Costco. The tie was possible because Justice Elena Kagan sat out, having worked on the matter while serving as U.S. solicitor general. This time, she's participating.

Mr. Kirtsaeng's supporters, including leading retailers, bookstores, eBay Inc. and Google Inc., say Congress couldn't have meant to provide greater copyright protection to foreign goods than U.S. products. They say a win for Wiley could lead to higher prices and uncertain legal liability for anyone who sells imported goods because most products include materials protected by copyright, even if it is just a logo or instructions.

For Mr. Kirtsaeng, textbooks offered an obvious opportunity for arbitrage. Publishers sell English-language textbooks at lower rates in developing counties. The former student, now 33 years old, asked friends and family in Thailand to ship him copies printed in Asia. He then sold them to American college students looking to pay less than the U.S. sticker price.

Mr. Kirtsaeng resold textbooks by multiple academic publishers. Wiley was the only one that sued him, charging him with infringing its copyrights on several works, including textbooks on physics, organic chemistry and engineering. The Asian versions of those books were marked with warnings that they were intended for sale only in certain foreign regions.

A New York jury found Mr. Kirtsaeng liable for willful copyright infringement and awarded Wiley $600,000 in damages. The trial judge ruled he wasn't allowed to argue that his actions were protected by the first-sale defense.

When Mr. Kirtsaeng said he didn't have the money to pay, the judge, at Wiley's request, ordered him to hand over his golf clubs and his computer equipment, after he had completed his doctorate. (One of his  lawyers says the clubs were later stolen, while the computer died.)

Now a math professor at Silpakorn University in Bangkok, Mr. Kirtsaeng says he still doesn't understand why he was sued. "I want to fight back to prove that I didn't do anything wrong," he says.

His Supreme Court lawyer, Joshua Rosenkranz, says the case demonstrates how companies can make mischief if they're allowed to maintain rights over their products even after enjoying profits from a  first sale. "They are prepared to milk every penny out of people they believe are infringing," he says.

During court proceedings, Wiley rejected the notion that Mr. Kirtsaeng was a struggling college student. The company said his textbook sales generated more than $900,000 in revenue, and it accused him of moving money out of his U.S. accounts to avoid having to pay for his infringement. Mr. Kirtsaeng says his actual profits were only a "small part" of what Wiley claimed, and he says he returned to Thailand without any money because of his legal fees. The company declined to comment beyond its written briefs.

Wiley's supporters, including trade groups representing entertainment, publishing and software industries, say U.S. content producers will suffer if they can't block unauthorized imports.

"If this kind of practice can go on, it could have a profound effect on American-centered industries," says Tom Allen, president of the Association of American Publishers. The Obama administration also is  supporting Wiley in the case.

Write to Brent Kendall at brent.kendall at dowjones.com and Wilawan Watcharasakwet at wilawan.watcharasakwet at wsj.com

A version of this article appeared October 28, 2012, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: High Court Dives Into Resale Trade.

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