Anyone who recently has purchased college textbooks knows how expensive they are. A student from Thailand who moved to the United States to study mathematics recognized the huge price disparity between textbooks in the U.S. and his native Thailand. So, he asked friends and family to buy foreign edition English-language textbooks in Thai book shops, where they sold at low prices, and to mail them to him in the United States. Being an enterprising businessman, Kirtsaeng then sold the books, reimbursed his family and friends, and kept the profit. So what’s the problem? The book publisher, Wiley & Sons, did not want him importing and selling books in the U.S. that it had only authorized for sale outside of the U.S. because they set different price points for the same books, depending on the territory.
Wiley & Sons decided to sue Mr. Kirtsaeng under a provision of the U.S. Copyright Act that enables copyright owners to block imports of copies made overseas. Seems straightforward, right? Wrong. The Copyright Act also has a provision, commonly referred to as the “First Sale Doctrine,” that gives the owner of a copy “lawfully made under this title” (i.e., the Copyright Act) the right to resell or rent that particular copy. Wiley & Sons argued that even though the copies purchased by Mr. Kirtsaeng were lawfully made (they had licensed a foreign subsidiary to make and sell the books in Thailand), they could still prevent the import of them.
The case was heard on appeal by the United States Supreme Court and their decision was announced couple of weeks ago. The Supremes announced that copies lawfully made under the authority of the copyright owner may be imported and resold, regardless of where they were manufactured. The Court’s decision could have significant consequences for U.S. copyright holders and their attempts to control distribution channels for their works.
The Wiley decision is important because it removes copyright law as a weapon for U.S. companies to prevent the importation and sale of so-called “grey market goods.” Grey market goods are goods lawfully produced under the authority of a copyright or trademark owner. However, there are territorial restrictions place by the owner on where such goods may be sold. If you have ever tried to purchase a camera or consumer electronics item from an internet retailer, you will often find that there is a large price disparity between the exact goods if one carries a U.S. warranty and one that does not. That is because the latter likely is a grey market good not intended for resale in the U.S.
Now that the Supreme Court has stated that “grey market copyrighted” products (such as books, movies, software, artwork, etc.) are legal to import, what can the owner of such products do to prevent such sales in the U.S. that are not intended? In certain cases in the copyright world, the owner still can use technological means, if available, such as using country codes on DVDs. (A country code is a piece of embedded software on a DVD that only allows the DVD to be played on machines with the same country code.) Removing or disabling such copy protection devices is a violation of the Copyright Act.
Trademark law may be the best alternative to prevent the importation of such grey market goods. Under U.S. trademark law, importation may be prevented only if the grey market product is “materially different” from the corresponding U.S. product. The threshold for a “material difference” under U.S. trademark laws is fairly low and can include differences in the composition or ingredients of the product; differences in the language of the labels, stickers, or owner’s manuals; differences in the availability of warranty coverage; and any other differences that would be material to a U.S. customer. Even with that relatively low threshold, in the Wiley case, it appears that the quality of the books sold in Thailand was not materially different from those sold in the U.S. and, as a result, importation could not be prevented under trademark law either.
Another option available for intellectual property owners would be to remove some of the incentive to import the goods from a foreign territory into the U.S. Pricing the goods in other countries at a point closer to the U.S. price point would reduce that incentive. That could mean either raising prices in foreign markets or lowering them in the U.S.
As a result of this case, I expect to see intellectual property owners adding more “material differences” to their products designed for the U.S. market.
