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Circumventing the first purchase doctrine with international manufacturing

By J. DeVoy

The Second Circuit dealt a body blow to the first purchase doctrine (aka first sale doctrine) in Wiley v. Kirtsaeng, a case about resold textbooks manufactured and obtained overseas – though subject to U.S. copyright registrations – and resold stateside.  The Second Circuit held that such transactions are not covered by the first purchase doctrine – codified in 17 U.S.C. § 109(a), and allowing the resale of copyrighted works by their first purchaser without royalty payments to the owner
– in part because because it would render 17 U.S.C. § 602(a)(1) (barring importation of copyrighted works obtained outside the U.S. without owner’s permission) a dead letter. (Op. at 15-16.)

The majority’s opinion can be summarized with this money quote from page 17:

In sum, we hold that the phrase “lawfully made under this Title” in § 109(a) refers specifically and exclusively to works that are made in territories in which the Copyright Act is law, and not to foreign-manufactured works.

The EFF contends that this harms free expression and consumer rights.  I don’t necessarily disagree, and align with the EFF far more often than not.  Pragmatically, though, the law is the law, and while one can observe the desirability in changing legislation to accord greater protections for free speech and open communication, it is not inconsistent to observe what one is allowed to do under existing statutory schemes.  Thus, I play the devil’s advocate; first, because that is why I went to law school, and second, because Satan is awesome (source: the entire genre of black metal).

The clear and mechanical way to circumvent the first purchase doctrine under the Second Circuit’s new precedent is simply to manufacture copyrighted works outside of the United States, and in countries known for their cheap labor, rather than robust IP laws.  It would also be best to ensure that there are no IP treaties potentially giving a defendant a toe-hold for claiming the manufactured works are “made under” the Copyright Act.

This result would kill the resale market.  On one hand, this comes about two decades too late, as VHS and DVD releases are increasingly uncommon.  At the same time, though, this allows content producers who do release such physical media to keep a leash on every copy they sell and ensure they receive a royalty on every subsequent sale of the material.

One must then query what constitutes “manufacture” of a file that is merely downloaded from a server onto a consumer’s hard drive, rather than physical media.  In Wiley, the term “manufacture” was constructed in a fairly literal sense that encompassed the book’s printing and binding outside of the US.  The closest analogue would be a whirr of storage media queueing up and transferring a large media file to an individual downloader.  If the servers are located in the USA, then the first purchase doctrine applies.  But, if the downloaded files originate from servers located in scofflaw nations like Malaysia, then it’s a different story.  If the “manufacture” analysis is pushed farther up the pipeline, a serious factual inquiry exists as to where the final work is “manufactured,” and exactly how much effort is needed from extraterritorial sources to remove a video from the Copyright Act.

The advantage of taking this route digitally is the ease with which producers can find their content being resold by others.  Admittedly, these resales are a minute piece of the free content pie plaguing mainstream and adult media, but they exist, and will become a larger share of infringements as legal action against one-click hosting sites, torrenters, torrent sites and even tube sites brings their respective unauthorized distribution of copyrighted content to heel.  By manufacturing products overseas – and going through the effort to determine at exactly what point a downloaded file is deemed “manufactured” so that point may be reached outside the Copyright Act’s clutches – opens a new stream of infringement monetization.

A caveat to this: The Ninth Circuit (i.e., California/Nevada/Washington/Arizona) has came to a different conclusion than the Second Circuit in Omega S.A. v. Costco Wholesale Corp, 541 F.3d 982 (9th Cir. 2008).  In that case, the Ninth Circuit held that the first purchase doctrine, 17 U.S.C. § 109(a), applied to foreign-manufactured items that were sold in the U.S. with the copyright owner’s permission.  Thus, the Ninth Circuit’s view does create some extraterritorial application of the first purchase doctrine.  In contrast, the Second Circuit’s view considers all private resales of foreign-manufactured goods to be in derogation of the legitimate copyright owner’s exclusive right of distribution.

This division may play out in several ways.  First, the Supreme Court could reconcile the circuit split on the issue.  Given the 9th Circuit’s record on Supreme Court appeals, I find it unlikely – though possible – that its view would prevail.  In the alternative, the applicability of 17 U.S.C. § 109(a) to foreign-manufactured goods may be a question with slight jurisdictional wrinkles, similar to the award of attorneys’ fees under the Copyright Act.  Similarly, the point at which “manufacture” occurs, especially digitally, may be subject to disagreement between the Circuits.

What is clear, though, is that the Second Circuit has torn open wide a new vein for content monetization.  How it will be taken advantage of, and when – as the content resale market has always existed, but is superseded by piracy now – remains to be seen.  Unless the Supreme Court or Congress (lol) does something, though, copyright law now is more royalty-friendly within the 2d Circuit.

Prior discussion of the first purchase doctrine’s use in porn is available here.

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