JOHN WILEY & SONS, INC. v. KIRTSAENG Docket No. 09-4896-cv.
654 F.3d 210 (2011)
JOHN WILEY & SONS, INC., Plaintiff-Appellee, v. Supap KIRTSAENG, doing business as Bluechristine99, Defendant-Appellant.
United States Court of Appeals, Second Circuit.
Decided: August 15, 2011.
William Dunnegan ( Laura Scileppi , on the brief), Dunnegan LLC, New York, NY, for plaintiff-appellee.
Sam P. Israel , New York, NY, for defendant-appellant.
John T. Mitchell , Interaction Law, Washington, DC, for amici curiae Entertainment Merchants Association and National Association of Recording Merchandisers.
Norman H. Levine ( Aaron J. Moss , on the brief), Greenberg Glusker Fields Claman & Machtinger LLP, Los Angeles, CA, for amicus curiae Costco Wholesale Corporation.
Charles A. Weiss , Kenyon & Kenyon LLP, ( Mark A. Abate , Goodwin Proctor LLP, on the brief), New York, NY, for amicus curiae New York Intellectual Property Law Association, in support of plaintiff-appellee.
Judge MURTHA dissents in a separate opinion.
JOSÉ A. CABRANES, Circuit Judge:
The "first sale doctrine" in copyright law permits the owner of a lawfully purchased copy of a copyrighted work to resell it without limitations imposed by the copyright
The principal question presented in this appeal is whether the first sale doctrine, 17 U.S.C. § 109(a), applies to copies of copyrighted works produced outside of the United States but imported and resold in the United States. Under another basic copyright statute, it is ordinarily the case 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...."
Defendant contends, however, that individuals may import and resell books manufactured abroad pursuant to 17 U.S.C. § 109(a), which provides that "the owner of a particular copy ... lawfully made under [the Copyright Act], 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."
Defendant's claim is an issue of first impression in our Court.
A. The Parties
Plaintiff-appellee John Wiley & Sons, Inc. ("plaintiff" or "Wiley") is the publisher of academic, scientific, and educational journals and books, including textbooks, for sale in domestic and international markets. Wiley relies upon a wholly-owned
Joint App'x at 406 (emphasis in original).
Defendant Supap Kirtsaeng ("defendant" or "Kirtsaeng") moved to the United States from Thailand in 1997 to pursue an undergraduate degree in mathematics at Cornell University. According to Kirtsaeng, he later moved to California to pursue a doctoral degree.
B. The Instant Action
To help subsidize the cost of his education, Kirtsaeng allegedly participated in the following scheme: Between 2007 and September 8, 2008, Kirtsaeng's friends and family shipped him foreign edition textbooks printed abroad by Wiley Asia. In turn, Kirtsaeng sold these textbooks on commercial websites such as eBay.com. Using the revenues generated from the sales, Kirtsaeng would reimburse his family and friends for the costs that they incurred during the process of acquiring and shipping the books and then keep any remaining profits for himself. Kirtsaeng claims that, before selling the textbooks, he sought advice from friends in Thailand and consulted "Google Answers," a website which allows web users to seek research help from other web users, to ensure that he could legally resell the foreign editions in the United States.
On September 8, 2008, Wiley filed this action against Kirtsaeng in the United States District Court for the Southern District of New York (Donald C. Pogue, Judge of the United States Court of International Trade, sitting by designation), claiming, among other things, copyright infringement under 17 U.S.C. § 501,
C. Relevant Pre-Trial Proceedings
In anticipation of trial, Kirtsaeng submitted proposed jury instructions charging that the first sale doctrine was a defense to copyright infringement. By Order dated October 9, 2009, the District Court prohibited Kirtsaeng from raising this defense and rejected the applicability of the first sale doctrine to foreign editions of textbooks, holding that "[t]here is no indication that the imported books at issue here were manufactured pursuant to the U.S. Copyright Act ... [and,] [t]o the contrary, the textbooks introduced as evidence purport, on their face, to have been published outside of the United States."
On October 23, 2009 and November 3, 2009, Kirtsaeng filed motions in limine to preclude the introduction at trial of (1) his online "PayPal" sales records, and specifically, evidence of his gross revenues from the sales of the foreign editions of Wiley's books, and (2) the profits he earned on unrelated sales activities. From the bench during a pre-trial conference on November 3, 2009, the District Court granted the motions in part and denied them in part. The Court explained that Wiley could not introduce evidence of profits earned by Kirtsaeng from the sales of textbooks produced by other publishers, but "in ... anticipation that the net worth testimony [would indicate] that [Kirtsaeng did not have] significant net worth ... [Wiley's counsel had the] right to inquire about additional revenues and the profits there-from
D. Events at Trial
At trial, during direct examination, Wiley's counsel asked Kirtsaeng, "Now sir, if we were to go back and look at January 1st of 2008, what were your financial assets at that point in time?"
The District Court sustained an objection by Kirtsaeng's counsel and a sidebar discussion followed.
After the sidebar conference and a recess, the first question by Wiley's counsel to Kirtsaeng was: "Mr. Kirtsaeng, before the break we were talking about your net worth during the period of 1999, correct? Excuse me. 2009." Kirtsaeng answered "yes." Wiley's counsel proceeded to ask Kirtsaeng a series of questions about his "net worth" in an attempt to impeach his previous statements. Specifically, he attempted to enter into evidence a record of Kirtsaeng's PayPal revenues, showing $1.2 million in revenues, in contrast to Kirtsaeng's previous testimony that he had earned only $900,000 in revenues. Joint App'x at 295-97.
At a second sidebar conference, during which the jury was excused from the courtroom, the District Court excluded the record of the PayPal evidence as "confusing and unfairly prejudicial." Id. at 298.
When the jury reentered the courtroom, Wiley's counsel continued to ask Kirtsaeng about his revenues from eBay sales. Although Kirtsaeng's counsel immediately objected to the line of questioning on the basis that it had already been "asked and answered" — an objection the District Court initially sustained — the Court subsequently allowed the questioning, explaining that it was uncertain whether the same questions had in fact been asked of the witness earlier in the examination.
At the end of the trial, the District Court charged the jury to determine whether Kirtsaeng had infringed the copyrights of each of eight works and whether any such infringements had been willful. The District Court explained that, under the statutory damages scheme found at 17 U.S.C. § 504(c), see note 10, ante, if the jury found that Kirtsaeng had infringed Wiley's copyright, it could award no less than $750 and no more than $30,000 in damages for each infringed work.
The District Court identified two exceptions to this rule. First, the District Court instructed the jury that, if it found that Wiley had proved by a preponderance of the evidence that the infringement was willful, under the statutory scheme the jury had the option of awarding up to $150,000 in damages per infringed work. Second, if the jury found that Kirtsaeng had proved by a preponderance of the evidence "that he was not aware and had no reason to believe that his acts constituted an infringement of copyright," the jury could choose to impose an award of statutory damages as low as $200 per infringed work. The jury ultimately found Kirtsaeng liable for willful copyright infringement of all eight works and imposed damages of $75,000 for each of the eight works.
Kirtsaeng filed a timely notice of appeal. He claims that (1) the District Court erred in holding that the first sale doctrine was not an available defense in the circumstances presented; (2) the District Court should have advised the jury of the first sale doctrine as a defense to the claim of willful infringement; and (3) with respect to the jury's assessment of statutory damages,
A. The first sale doctrine does not apply to goods produced outside of the United States.
1. Standard of review
The threshold question is whether, pursuant to § 109(a) of the Copyright Act, see note 1, ante, the District Court correctly determined that the phrase "lawfully made under this title" does not include copyrighted goods manufactured abroad.
Where the decision of a district court "presents only a legal issue of statutory interpretation ... [w]e review de novo whether the district court correctly interpreted the statute."
2. Interpreting the First-Sale Doctrine
In the Copyright Act of 1976, Congress enacted what is now 17 U.S.C. § 602(a)(1).
Even if the conduct at issue in this case is otherwise covered by this statutory language, Kirtsaeng contends that he is shielded from any liability under the Copyright Act by § 109(a), see note 1, ante. Again, in relevant part, that section provides: "Notwithstanding the provisions of section 106(3) [of the Copyright Act], 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." Section 109(a) is a codification of the longstanding "first sale doctrine."
Quality King involved the sales practices of L'anza Research International, a California corporation engaged in the business of manufacturing and selling shampoos, conditioners, and other hair care products. L'anza sold its products domestically and internationally, but its prices to foreign distributors were 35% to 40% lower than the prices charged to its domestic distributors. L'anza brought suit against Quality King Distributors, Inc., which had purchased shipments of L'anza's products from one of L'anza's foreign distributors and then re-imported the products into the United States for re-sale. L'anza alleged that Quality King's actions violated its "exclusive rights under 17 U.S.C. §§ 106, 501 and 602 to reproduce and distribute the copyrighted material in the United States."
In a unanimous opinion, the Supreme Court held that § 109(a), operating in combination with § 106(3), does in fact limit the scope of § 602(a).
Although the majority opinion did not directly address the question of whether § 109(a) can apply to items manufactured
In these passages, the Court suggests that copyrighted material manufactured abroad cannot be subject to the first sale doctrine contained in § 109(a).
The Supreme Court recently seemed poised to transform this dicta into holding when it granted a writ of certiorari to review the Ninth Circuit's decision in Omega S.A. v. Costco Wholesale Corp.
Without further guidance from the Supreme Court, we now consider the extent to which the protections set forth in § 109(a) may apply to items manufactured abroad. In doing so, we rely on the text of § 109(a), the structure of the Copyright Act, and the Supreme Court's opinion in Quality King.
3. Textual Analysis
We start, of course, by turning to the statutory language enacted by Congress. "Statutory interpretation always begins with the plain language of the statute, assuming the statute is unambiguous."
In arriving at a satisfactory textual interpretation of the statutory language at issue, we focus primarily on the words "made" and "under," but this task is complicated by two factors: (1) the word "made" is not a term of art in the Copyright Act,
But the extraterritorial application of Title 17 is more complicated than Wiley allows, since certain provisions in Title 17 explicitly take account of activity occurring abroad. Most notably, § 104(b)(2) provides that "[t]he works specified by sections 102 and 103, when published, are subject to protection under this title if the work is first published in the United States or in a foreign nation that, on the date of first publication, is a treaty party[.]"
There are other reasons why a textual analysis alone is not sufficient to support Wiley's preferred reading of § 109(a). Most obviously, if Congress had intended the first sale doctrine — at least as codified by § 109(a) — to apply only to copies of works made in the United States, it could have easily written the statute to say precisely that.
But while a textual reading of § 109(a) does not compel the result favored by Wiley, it does not foreclose it either. 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 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."
4. Section 602(a)(1) and Quality King
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.
In adopting this view, we are comforted by the fact that our interpretation of § 109(a) is one that the Justices appear to have had in mind when deciding Quality King. There, the Court reasoned, admittedly in dicta, that § 602(a)(1) had a broader scope than § 109(a) because, at least in part, § 602(a)(1) "applies to a category of copies that are neither piratical nor `lawfully made under this title.' That category encompasses copies that were `lawfully made' not under the United States Copyright Act, but instead, under the law of some other country."
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 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.
B. The District Court did not err in its instructions to the jury.
"We review jury instructions de novo, and reverse only when the charge, viewed as a whole, constitutes prejudicial error."
It is undisputed that Kirtsaeng's counsel did not object to the final jury instructions during trial. "[F]ailure to object to a jury instruction ... prior to the jury retiring results in a waiver of that objection."
"To constitute plain error, a court's action must contravene an established rule of law."
C. The District Court did not err in allowing into evidence the amount of defendant's gross revenues.
Kirtsaeng argues that admission of evidence regarding his gross revenues prejudiced him by confusing the jury as to the amount of damages that should have been awarded to Wiley. He suggests that the majority of his revenues came from the sale of other publishers' used volumes, many of which were produced in the United States, and claims that because of the evidence of revenues that the judge permitted to be presented to the jury, he was inappropriately forced to pay high statutory damages.
To determine whether evidence of the amount of defendant's gross revenues was properly admitted, ordinarily we first determine the appropriate standard of review. As stated above, where a party does not contemporaneously object to an evidentiary ruling, that party must demonstrate that the District Court committed "plain error."
At trial, the jury awarded $75,000 in statutory damages per copyrighted work for Kirtsaeng's willful infringement of eight works. Under the relevant statutory provision, 17 U.S.C. § 504(c), see note 10, ante, the jury could have awarded damages of up to $150,000 per copyrighted work. Because abundant evidence was available to support the jury's finding of willfulness, the admission of information about Kirtsaeng's revenues was not prejudicial — that is, the jury could have imposed the same amount of damages without knowledge of Kirtsaeng's revenues. For example, the books in question clearly stated the following:
In these circumstances, it does not seem anomalous or extraordinary that the jury made the findings it did, and we see no reason to conclude that the District Court's decision was improper under Rule 403(b).
To summarize, we hold that (1) the first sale doctrine does not apply to copies manufactured outside of the United States; (2) the District Court did not err in declining to instruct the jury regarding the unsettled state of the first sale doctrine; and (3) the District Court did not err in admitting evidence of Kirtsaeng's gross revenues.
Accordingly, the judgment of the District Court is
J. GARVAN MURTHA, District Judge, dissenting:
As noted by the majority, the application of the first sale doctrine when a copy is manufactured outside the United States is an issue of first impression in this Circuit. The Supreme Court has recently considered the issue but unfortunately provided no specific guidance. See Costco Wholesale Corp. v. Omega, S.A., ___ U.S. ___,
The Copyright Act sections that are pertinent to this appeal — 17 U.S.C. §§ 106(3), 109(a), and 602(a)(1) — are set out in the opinion of the majority. The distribution right of § 106(3) primarily protects a copyright owner's ability to control the terms on which her work enters the market. The first sale doctrine of § 109(a) limits the scope of this distribution right. Finally, § 602(a)(1) addresses the extent to which the distribution right allows a copyright owner to also control importation of copies of her work.
The Supreme Court has held a copyright owner's § 602(a) right to control the importation of copies of her work is derivative of § 106(3)'s distribution right, which is subject to the first sale doctrine. Quality King Distrib., Inc. v. L'anza Research Int'l, Inc., 523 U.S. 135, 149, 118 S.Ct. 1125, 140 L.Ed.2d 254 (1998). The Court noted "the text of § 602(a) itself unambiguously states that the prohibited importation is an infringement of the exclusive distribution right `under section 106, actionable under section 501.'" Id. Because the rights granted in § 106(3) are "subject to sections 107 through 122," the copyright owner's power to limit importation is qualified by the first sale doctrine of § 109(a). Id. at 144, 118 S.Ct. 1125.
The issue is whether this holding can be extended to copies manufactured outside the United States. The Quality King Court held the first sale doctrine applies to imported copies that were made in the United States. Here, the district court held — and the majority affirms — the 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. See John Wiley & Sons, Inc. v. Kirtsaeng, No. 08 Civ 7834, 2009 WL 3364037, at *9 (S.D.N.Y. Oct. 19, 2009). The court's decision is based on the following dicta in Quality King:
523 U.S. at 148, 118 S.Ct. 1125 (footnote omitted).
I respectfully disagree with the court's analysis. To apply, § 109(a) requires (1) the person claiming protection be the owner of the copy, and (2) the copy was "lawfully made under this title." 17 U.S.C. § 109(a). Courts have split over the meaning of "lawfully made under this title," with some holding it means "legally manufactured ... within the United States," CBS v. Scorpio Music Distrib., 569 F.Supp. 47, 49 (E.D.Pa.1983), aff'd
The statutory text does not refer to a place of manufacture: It focuses on whether a particular copy was manufactured lawfully under title 17 of the United States Code. 17 U.S.C. § 109(a). The United States law of copyrights is contained in title 17. Accordingly, the lawfulness of the manufacture of a particular copy should be judged by U.S. copyright law. Pearson Educ. v. Liu, 656 F.Supp.2d 407, 412 (S.D.N.Y.2009) (John Wiley & Sons, Inc. was a plaintiff in this action as well). A U.S. copyright owner may make her own copies or authorize another to do so. 17 U.S.C. § 106(1). Thus, regardless of place of manufacture, a copy authorized by the U.S. rightsholder is lawful under U.S. copyright law. Here, Wiley, the U.S. copyright holder, authorized its subsidiary to manufacture the copies abroad, which were purchased and then imported into the United States.
This interpretation of "lawfully made" is supported by the language of the Copyright Act as a whole. For example, Congress used the phrase "under this title" in multiple sections of the Act to describe the scope of rights created by the Act. See, e.g., 17 U.S.C. § 104(a) (providing certain works, "while unpublished, are subject to protection under this title without regard to the nationality or domicile of the author"); id. § 105 (providing "copyright protection under this title is not available for any work" of the U.S. government); id. § 106 (providing "the owner of copyright under this title has the exclusive rights to...."). However, "[w]hen Congress considered the place of manufacture to be important, ... the statutory language clearly expresses that concern." Sebastian, 847 F.2d at 1098 n. 1. For example, § 601(a), the "manufacturing requirement," provides:
17 U.S.C. § 601(a)(1) (emphasis added). Also, as the majority points out, § 104(b)(2) provides "[t]he works specified by sections 102 and 103, when published, are subject to protection under this title if the work is first published in the United States or in a foreign nation...." 17 U.S.C. § 104(b)(2) (emphasis added). If Congress intended § 109(a) to apply only to copies manufactured in the United States, it could have stated "lawfully manufactured in the United States under this title." As Congress did not include "manufactured in the United States" in § 109(a), though it was clearly capable of doing so as demonstrated by § 601(a), the omission supports the conclusion that Congress did not intend the language "lawfully manufactured under this title" to limit application of § 109(a) to only copies manufactured
As noted in the majority opinion, supra note 14, the first sale doctrine originated in Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 28 S.Ct. 722, 52 L.Ed. 1086 (1908). There the Supreme Court held defendant-retailer's sales of a copyrighted book for less than the price noted on the copyright page was not a copyright violation. Id. at 341, 28 S.Ct. 722. "The purchaser of a book, once sold by authority of the owner of the copyright, may sell it again, although he could not publish a new edition of it." Bobbs-Merrill, 210 U.S. at 350, 28 S.Ct. 722. Once the copyright holder has controlled the terms on which the work enters the market, i.e., the purpose of the distribution right, "the policy favoring a copyright monopoly for authors gives way to the policy opposing restraints of trade and restraints on alienation." Pearson, 656 F.Supp.2d at 410 (citation and quotation marks omitted). Accordingly, the Bobbs-Merrill Court held the copyright owner did not have the right to control the terms of subsequent sales. 210 U.S. at 351, 28 S.Ct. 722.
The common law policy against restraints on trade and alienation is not limited by the place of manufacture. Pearson, 656 F.Supp.2d at 413. Under the 1909 (codifying the Bobbs-Merrill holding) and 1947 Copyright Acts, the first sale doctrine applied to "any copy of a copyrighted work the possession of which has been lawfully obtained." Pub.L. No. 60-349, 35 Stat. 1075, 1084 (1909); Pub.L. No. 80-281, 61 Stat. 652, 660 (1947) (emphasis added). The Supreme Court noted "[t]here is no reason to assume Congress intended either § 109(a) or the earlier codifications of the doctrine to limit its broad scope." Quality King, 523 U.S. at 152, 118 S.Ct. 1125. The changed wording in the current version of § 109(a) — "lawfully made under this title" — from the prior versions — "possession of which has been lawfully obtained" — should likewise not be presumed to do so.
Economic justifications also support applicability of the first sale doctrine to foreign made copies. Granting a copyright holder unlimited power to control all commercial activities involving copies of her work would create high transaction costs and lead to uncertainty in the secondary market. 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.
The Ninth Circuit has attempted to circumvent this perpetual right when a copy is made abroad by holding the first sale doctrine can apply to copies made outside the United States but only after there has been one authorized sale here. Denbicare U.S.A. Inc. v. Toys R Us, Inc., 84 F.3d 1143, 1150 (9th Cir.1996). This precedent carried over into the reasoning in Omega S.A., 541 F.3d at 986-90. The Supreme Court, however, provided no guidance as to its views on the Ninth Circuit's imperfect solution, which is judicially created. This interpretation finds no support in the statutory text and is in direct conflict with the portion of the Supreme Court's Quality King decision which noted that where a sale occurs is irrelevant for first sale purposes. See 523 U.S. at 145, 118 S.Ct. 1125.
Supporters of limiting the application of the first sale doctrine to domestically manufactured copies rely on the argument that applying the doctrine to foreign made copies would render § 602(a) "virtually meaningless." (Appellee's Br. at 15-17.) However, § 602(a) will always apply to copies of a work that have not been sold or are piratical copies. It also applies to copies of a work not lawfully manufactured under title 17 but lawfully manufactured under some other source of law, as in the Quality King dicta, and to copies not in the possession of the "owner," e.g., a bailee, licensee, consignee or one whose possession of the copy was unlawful. Quality King, 523 U.S. at 147-48, 118 S.Ct. 1125. Further, § 602(a) itself states unauthorized importation is an infringement of the exclusive distribution right of § 106, which as noted above is subject to the first sale doctrine of § 109(a).
Nothing in § 109(a) or the history, purposes, and policies of the first sale doctrine limits it to copies of a work manufactured in the United States. That leaves the question whether the Quality King dicta "sp[eaks] directly to whether the first sale doctrine applies to copies manufactured abroad." Pearson, 656 F.Supp.2d at 414. That dicta, however, makes no reference to the place of manufacture, Quality King, 523 U.S. at 148, 118 S.Ct. 1125, and therefore does not speak directly to the issue of applicability of the doctrine to foreign made copies.
In Quality King, Justice Ginsburg, in a concurrence joined by no other justice, noted: "I join the Court's opinion recognizing that we do not today resolve cases in which the allegedly infringing imports were manufactured abroad." Quality King, 523 U.S. at 154, 118 S.Ct. 1125 (Ginsburg, J., concurring). That issue, however, was squarely before the Supreme Court in Omega and four justices presumably did not agree the Quality King dicta directly addresses it or constitutes the Court's current view. In light of the above analysis, I agree with the majority
For the foregoing reasons, I respectfully dissent.
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