IP Update, Vol. 16, No. 3, March 2013

Edited by Paul Devinsky and Rita Weeks

SUPREME COURT / COPYRIGHTS / FIRST SALE

Supreme Court Finds That "First Sale" Doctrine Applies to Works

by Sarah Bro and Paul Devinsky

In a 6-3 ruling, resolving an issue left open since the Supreme Court of the United States' 4-4 deadlock in Costco Wholesale v. Omega S.A., (See IP Update, Vol. 11, No. 10, and IP Update, Vol. 13, No. 12), the Supreme Court has now held that the "first sale" doctrine, as codified under § 109(a) of the Copyright Act, applies to copies of a copyrighted work lawfully made abroad and then imported into the United States for sale or other disposal of the work. Kirtsaeng v. John Wiley & Sons Inc., Case No. 11-697 (Mar. 19, 2013). Justice Breyer's majority opinion was joined by Chief Justice Roberts and Justices Thomas, Alito, Sotomayor and Kagan. Justice Kagan also issued a concurring opinion in which Alito joined. The Court's analysis centered around interpretation of the language of the Copyright Act § 109(a) pertaining to copies or phonorecords "lawfully made under this title."

U.S. textbook publisher Wiley & Sons brought a copyright infringement suit against Supap Kirtsaeng, a University of California graduate student from Thailand. While Kirtsaeng was studying in the United States, his family and friends in Thailand shipped him foreign editions of English-language textbooks lawfully printed abroad by John Wiley & Sons (Asia) Pte Ltd., a wholly owned foreign subsidiary of John Wiley & Sons. Because of the low cost of the books in Thailand, Kirtsaeng re-sold the imported books in the United States for a substantial profit.

In the district court, Wiley & Sons claimed that Kirtsaeng's importation and resale of the books was an infringement of the company's exclusive right to distribute its copyrighted works under § 106(3) of the Copyright Act, as well as a violation of the Copyright Act's import provision (§ 602). Kirtsaeng defended his actions on the basis of the first sale doctrine, but the district court prohibited him from raising the defense and rejected its applicability to goods manufactured abroad (even when made abroad with the copyright owner's permission). Accordingly, a jury found Kirtsaeng liable for willful copyright infringement and awarded Wiley & Sons damages of more than half a million dollars. Kirtsaeng appealed to the U.S. Court of Appeals for the Second Circuit, which affirmed the trial court. In April 2012, the Supreme Court agreed to hear the case. (See IP Update, Vol. 15, No. 5).

The Supreme Court noted that § 602(a)(1) of the Copyright Act makes it clear that importing a copy of a work without permission violates the copyright owner's exclusive distribution right under § 106(3) of the Act. Nevertheless, the Court also explained that § 602(a)(1) explicitly refers to the § 106(3) distribution right, which is always subject to the various exceptions and limitations to a copyright owner's exclusive rights as set forth in §§ 107 through 122 of the act, including the § 109(a) "first sale" limitation. The Court then examined its 1998 decision in Quality King Distributors v. L'anza Research International, in which the Supreme Court unanimously held that the first sale doctrine limited the scope of § 602(a), and thus a foreign distributor that re-imported copyrighted works could assert the first sale doctrine as a defense. The Quality King Court, however, did not rule on whether the first sale doctrine would apply to works manufactured outside of the United States. The Kirtsaeng Court noted that the location of the manufacture of the copyrighted work is critical when interpreting § 109(a), since the codification applies the first sale doctrine to a particular copy or phonorecord "lawfully made under this title." The Court then analyzed the meaning of that five-word phrase in light of differing views among the circuits, and to determine whether the relevant language imposed a geographical limitation on the first sale doctrine.

After reviewing the language of § 109(a), its context in the Copyright Act and the common-law history of the first sale doctrine, the Supreme Court concluded that the statute should be read to favor a non-geographical interpretation, and that "lawfully made under this title" means "in accordance with" or "incompliance with" the Copyright Act, and thereby rejected the respondent's arguments that the language applies to works made "in territories in which the Copyright Act is law." The Court also considered the evolution of the Copyright Act and the inconsistency that could result from imposing a geographical limitation on the first sale doctrine, noting that such an interpretation would grant a U.S. copyright holder permanent control over the U.S. distribution chain with respect to copies of works printed abroad, but not those printed in the United States. The Court also noted the potential impact that a geographical interpretation could have on libraries, used-book dealers, technology companies, consumer-goods retailers and museums, all of which have long relied upon the protection of the first sale doctrine. The Court reversed the Second Circuit decision and remanded the case.

Justice Ginsburg filed a dissenting opinion joined by Justice Kennedy, and joined in part by Justice Scalia. The dissent stated that the Court's decision is at odds with the intent of Congress to protect copyright owners against unauthorized importation of low-priced, foreign-made copies of copyrighted works, and insisted that the Court has placed the United States "at the vanguard of the movement for 'international exhaustion' of copyrights." The dissent also stated that the "practical problems" identified by the majority with respect to libraries, businesses, museums, etc., comprise a largely imaginary "parade of horribles" with absurd hypothesized consequences.

Practice Note: This Supreme Court opinion does not mention the first sale doctrine or exhaustion as it applies in the patent context (see Federal Circuit decision in Fujifilm v. Benun (see IP Update, Vol. 13, No. 7) and Jazz Photo (see IP Update, Vol. 8, No. 1) or application of the first sale doctrine as it may apply to streaming copyrighted content from one jurisdiction to another. The Supreme Court may have occasion to address some of the patent-related issues in the seed case of Bowman v. Monsanto, argued on February 19, 2013, and awaiting decision. In addition, the Supreme Court has been asked to consider the issue of first sale exhaustion in the patent context more directly in Ninestar's pending petition for cert in the case of Ninestar v. ITC (see IP Update, Vol. 15, No. 2), a case the Supreme Court may remand for reconsideration in view of the presently reported decision in John Wiley & Sons.

PATENTS / INDIRECT INFRINGEMENT

Joint Actors as It Relates to Method Claim Infringement

by Christina A. Ondrick

Addressing infringement of a method claim by one or two actors, the U.S. Court of Appeals for the Federal Circuit vacated a district court's grant of summary judgment of no infringement, but in doing so found no direct infringement and remanded on indirect infringement for consideration under its recent en banc decision in Akamai. Move, Inc. v. Real Estate Alliance Ltd., Case No. 12-1342 (Fed. Cir., Mar. 4, 2013) (Lourie, J.)

Real Estate Alliance Ltd. (REAL) holds a patent relating to methods for locating available real estate property using a zoom-enabled map. The claim required creating a database of available real estate properties; displaying a map of a geographic area; selecting a first area having boundaries within the geographic area; zooming into the first area to display a more detailed view of the selected first area; displaying the zoomed area; and then allowing further selecting, zooming and displaying of additional areas within the first selected area. In a prior Federal Circuit appeal, the court construed the "selecting" steps to mean "the user or a computer chooses an area having boundaries" and excluded from the term the scenario where "the computer updates certain display variables to reflect the selected area." On remand from the first appeal, the district court granted summary judgment of no infringement because defendant's "Search by Map" or "Search by Zip Code" website functions did not perform the selecting steps of the claims. Users performed the selecting step by entering a zip code or clicking on a city or neighborhood name. Move's systems merely displayed the results of the selection for the user to view. The district court also concluded that Move's systems were not liable for joint infringement because Move did not exert direction or control over the users performing the selecting step. REAL appealed again to the Federal Circuit.

The Federal Circuit affirmed the finding of no direct infringement, concluding that Move did not perform each step of the method claim and so Move alone did not directly infringe. Users of Move's system may have performed the selecting steps, but Move did not exercise direction or control over them. Thus, a user's use of Move's website did not result in direct infringement under a joint actor theory of liability.

The Federal Circuit, however, did find that the district court legally erred by not analyzing inducement under § 271(b) in light of the Federal Circuit's recent guidance provided in en banc Akamai decision. Akamai clarified that all the steps of a method claim must be performed in order to find inducement, but that it is not necessary to prove that all steps were performed by a single actor. The Federal Circuit remanded the case for the district court to consider whether all of the claimed steps were in fact performed and whether Move knew of the asserted patent and performed or knowingly induced performance of the steps of the claim methods.

PATENTS / ENABLEMENT

Federal Circuit Ruling Clears Way for Approval of Generic Version of Fentora

by Christopher L. May

Addressing allegations of...