Some Analysis on the First Sale Doctrine Case Headed to the Supreme Court

June 18, 2012 -

Last week we presented the news that a "First Sale Doctrine" case (Kirtsaeng v. John Wiley & Sons) was headed to the Supreme Court. Some journalists were sounding alarm bells that an outcome in favor of the publisher in the case could have a serious impact on how people sell used products such as books, DVD's and even video games. Alarmists went so far as to say that it would make it so that consumers would have to get permission from rights holders prior to selling their used goods. We thought this sounded a bit far-fetched...

We do not pretend to know the intricacies of the First Sale Doctrine and how a ruling against the defendant in the case would impact consumers, so we asked the Entertainment Consumer Association’s (ECA) Policy Coordinator Patrick Hightower for some expert analysis on the case. Basically Patrick says that the overall impact on used games will be little to none should the court rule in favor of the publisher, though he does think it could hurt the sale of imported games from regions such as Japan. From Patrick:

While the conclusion of the 2nd Circuit states that “the first sale doctrine does not apply to copies manufactured outside of the United States”, this language is actually not the full decision in this case. What the court actually rules is that the first sale doctrine does not apply to goods manufactured outside of the United States which are imported without the rights-holder’s permission.

In the Kirtsaeng case, the products in question were marked with notices limiting where the books in question could be sold. Further, textbook manufacturers often do make material changes in the products themselves; most often in the materials used in manufacturing. The 2nd Circuit Court of Appeals ruling, which has been appealed to the United States Supreme Court, states that the private importation of these foreign manufactured goods are not covered by the first sale doctrine.

The video game industry is different, and there is a critical distinction to be noted when it comes to used sales. Even if video games are manufactured overseas, most are imported into the country under authority of the rights-holder. This step, despite the 2nd Circuit’s decision, should protect the used games market in America from the problems in this case. This means that once you purchase a game from GameStop, Wal-Mart, or any other major retailer, the first sale doctrine would still apply. One could argue that the 2nd Circuit’s decision makes this point unclear, but any other reading would strike all meaning from the statutory language. The Supreme Court is likely to clarify this point regardless of anything else its decision may contain.

This does not mean the video game industry will be completely immune from this decision. Even with this more limited reading of the lower court’s decision, private game imports could be a violation. If you are a gamer that buys import games from Japan, that practice could be threatened. However, that practice has already been greatly curtailed by region locking hardware.

Full disclosure: GamePolitics is an ECA publication.

Supreme Court building in Washington image © 2012 Millerium Arkay, via Shutterstock.


Comments

Re: Some Analysis on the First Sale Doctrine Case Headed to ...

I think the multiple varied opinions on this case are a product of just how freakishly confusing all these ruling have been. I read through the actual court opinions and the dissenting opinion. Based on my reading of both, I came out under the assumption that all foreign manufactured goods are not covered by US First Sale. That is what the dissenting opinion viewed it as too. Hopefully, the Supreme Court will rule in a manner that actually clarifies First Sale in a positive way.

Re: Some Analysis on the First Sale Doctrine Case Headed to ...

Mr. Hightower appears to be making his comments on the basis of the Ninth Circuit's ruling in Omega v. Costco, where the court did, in fact, create an exception to the rule that would otherwise have (in its words) an "untenable" result. It basically said that copies made abroad are not "lawfully made" for purposes of the first sale doctrine because they were made where U.S. law does not apply. But it resurrects it, even for those "not lawfully made" copies, where the copyright holder itself imports them and sells them in the U.S.

The Second Circuit rejected that. It held, flatly, that if the U.S. copyright owner makes the copy outside of the United States, it can never be sold by anyone in the U.S. without the copyright owner's permission. In footnote 44, the Second Circuit even addressed this directly, and said, "tough luck," to paraphrase. The exact words:

"In this sense, the copyright holder would arguably enjoy the proverbial "best of both worlds" because, in theory, the consumer could not rely on the first sale doctrine to re-sell the imported work. In other words, the copyright holder would have an incentive to "outsource" publication to foreign locations to circumvent the availability of the first sale doctrine as a defense for consumers wishing to re-sell their works in the domestic market. The result might be that American manufacturing would contract along with the protections of the first sale doctrine. Kirtsaeng argues that this could not possibly have been Congress's intent. We acknowledge the force of this concern, but it does not affect or alter our interpretation of the Copyright Act." 

So, absolutely, the alarm bells should be sounding. I doubt the copyright holder would prohibit all used sales outright. Rather, it is more likely we would see a "license to sell" or "license to rent" offered, for a lucrative fee, to anyone wanting to sell or rent a game. (Under the ruling, even a brand new copy needs a license. A retailer can't just buy from the wholesaler and sell, but needs the copyright owner's permission. Still want to trade in your used game? "Let's see, we pay you $X for the game, minus your $Y trade-in fee to the copyright holder. Oh, you want to buy a used game? Then you pay $X, plus the $Y re-sale fee to the copyright holder." Or, if you liked your video retailer's rental price, but the copyright owner thought it was too low, wait until the copyright holder says to your video store, "Sure, you can rent the movie for $X if you want to, but you need our permission, which will cost you twice that amount."

The full text is here

I agree with GP that it sounds far-fetched, but it is true. The best that the consumer could hope for, it the Supreme Court affirms, is to take a chance on a "fair use" argument if you get caught lending a copy to a friend or throwing it in the trash (a distribution to the trash collector). A bit riskier, maybe, to donate it to charity. A birthday gift? Maybe they will come pre-licensed for that, so long as it is a new copy. You see, under the distribution right at issue here, even gifts and lending are "distributions" that, if the first sale doctrine does not apply, are infringing unless authorized by the copyright holder or unless they meet the complex and vague "fair use" test. 

CopyOwner

Re: Some Analysis on the First Sale Doctrine Case Headed to ...

Ah, so I was not mis-remembering and that was the original ruling ^_^ This is much closer to my original understanding.

Either that or various lawyers are divided on exactly what this ruling would mean, which would not surprise me.

 
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