EcommerceBytes-NewsFlash, Number 2786 - April 19, 2012     3 of 4

Supreme Court to Hear 'Gray Market' Reseller Case

By Kenneth Corbin

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The U.S. Supreme Court has agreed to hear a case that figures to set a precedent for sellers concerning so-called gray markets, where copyrighted works that have been legally purchased at a discount overseas are then resold without the rights holder's permission.

At issue is a disputed section of copyright law that various lower courts have interpreted differently. The case turns on what is known as the "first-sale doctrine," which permits buyers who purchase copyrighted works in a legitimate transaction to resell them without obtaining permission, but the precise boundaries of that precept are left undefined in federal statute.

The high court has agreed to hear the case of Wiley v. Kirtsaeng, which will determine whether the first-sale doctrine extends past U.S. borders, with broad implications for the fast-growing ecommerce industry.

The case will test the claim of the defendant, Thailand-born Supap Kirtsaeng, a U.S. student who began reselling college textbooks purchased overseas at a discount to help pay for school. John Wiley & Sons, the publisher of those books, had been selling in Thailand through a subsidiary, and sued Kirtsaeng for copyright violation.

A court in New York rejected Kirtsaeng's first-doctrine defense, with the judge ruling that the doctrine does not apply to goods produced overseas and imported to the United States, a decision upheld by the Second Circuit Court.

The Kirtsaeng case revisits an issue the Supreme Court last considered in 2010, when it was deadlocked four votes to four in Costco Wholesale Corp. v. Omega, with Justice Elena Kagan, who had been involved with the case as an Obama administration attorney, having been recused.

In announcing that it would hear the case, the Supreme Court acknowledged that it will seek to reconcile the friction between one portion of the Copyright Act that rights-protected works cannot be imported "without the authority of the owner" of the copyright, and the first-sale doctrine that provides for resale of lawfully obtained works without the copyright owner's permission. In so doing, the court figures to sort out three conflicting precedents established in various circuit courts.

"The question presented is how these provisions apply to a copy that was made and legally acquired abroad and then imported into the United States," the court said in a statement of the issues at stake.

"Can such a foreign-made product never be resold within the United States without the copyright owner's permission, as the Second Circuit held in this case? Can such a foreign-made product sometimes be resold within the United States without permission, but only after the owner approves an earlier sale in this country, as the Ninth Circuit held in Costco? Or can such a product always be resold without permission within the United States, so long as the copyright owner authorized the first sale abroad, as the Third Circuit has indicated?"

The stakes are high for both brick-and-mortar retailers that benefit from these gray-market sales and online outfits, particularly eBay, which joined with several tech associations asking the Supreme Court to take the case.

"eBay's online platform permits secondary marketplace trade in a wide range of goods. Accordingly, eBay has an interest in ensuring the alienability of authentic goods in the secondary market," the firm wrote in an amicus brief.

Johnna Hoff, a spokeswoman for eBay, hailed the court's decision to hear the case.

"In reviewing the case of Wiley v. Kirtsaeng, the Supreme Court now has an opportunity to protect the right of small businesses and individuals to sell legitimate goods across borders, which will benefit consumers, businesses and the overall Internet-enabled economy," Hoff said.

The Supreme Court is expected to hear arguments in the case later this year.


About the author:

Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects since 2007, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn here.


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