Count on Techdirt to thoroughly botch coverage of any legal issue it smears its pixels onto.
At issue in the case Techdirt is alluding to isn't the long-term prospect of the first-sale doctrine. Nor is it about whether you can "resell a book you bought abroad"; at least, well, here, let's just dive in:
What happened in this case is that a Cornell student noticed that textbooks are sold at a lower price in some countries abroad. This is because if you sold textbooks at the US price in those countries, you might as well not sell them at all. So the student first consulted "Google Answers" for legal advice, and then arranged to import cheap textbooks and resell them in the US. He made something like 1.2 million dollars.
The problem with this scheme is that it constitutes "parallel importation", and the US is very weird about parallel importation. To wit: retailers luv parallel importation (it allows Costco to import huge numbers of Omega watches to sell way below US MSRP), every other business interest pretty much hates parallel importation (for obvious reasons), many countries outright ban parallel importation, but the US does not.
Instead, a hodgepodge of different statutes are used to retard parallel importation (think: drugs from Canada). Among them is US Copyright law, which ostensibly (but not completely clearly) provides (a) the exclusive right to distribute and sell copyrighted works to Copyright owners, and (b) under US import law, forbids imports of copyrighted material without the permission of the owner.
The First Sale doctrine says that once you've purchased a good, you're free to resell it without restriction. But obviously, having purchased a copyrighted good, you don't then obtain all the rights of the original copyright holder. For instance, you cannot then yourself make copies of the good for resale. So, while there's a tension between First Sale and "Infringing Importation", it's not a hard one to resolve: black --- or very dark grey --- letter law says you can't import copyrighted material without the permission of the copyright holder.
What seems to have happened in this case was that a District Court came to the proper conclusion by way of the wrong reasoning. Specifically: the District Court held that a parallel import was unlawful... but it was unlawful because the First Sale doctrine doesn't apply overseas (? WAT?). It's not clear why they even needed to go there, but now SCOTUS needs to fix things.
How is it not about whether you can "resell a book you bought abroad"? Afaict, the rightsholders here aren't arguing that there is a dollar threshold or level of commercial organization he exceeded that turned it into parallel importation, or that it's the importation that's illegal. Rather, they argue that any sale of their book in a jurisdiction where they didn't authorize its sale is illegal. So, even someone who moved would need the copyright holder's authorization to sell their personal book collection, if it included any books that had not already been authorized for sale in the United States.
The European approach, despite being more restrictive in a way, makes more logical sense to me, since it separates legality of importation from legality of sale. Thus customs can hassle you if you're importing a bunch of stuff in violation of the state's trade policies, but if you've legally imported a book (e.g. as a personal effect), you can resell it.
First, I think we agree about what's happening and how things should shake out.
Secondly, I knew I wasn't going to navigate the semantic waters of "reselling" vs. "importation" and had hoped that describing a 1.2MM/yr business of importing textbooks would illustrate the distinction.
The trouble, as I see it, is that a lower court found recourse to halt a parallel import practice in the contours of the First Sale doctrine, rather than simply applying straightforward import law. Since that lower court's interpretation of First Sale has far-reaching and (probably) unwanted consequences, it's hitting SCOTUS.
The trouble I have with the Techdirt piece, I mean besides the fact that it explains none of these complexities, is that it once again paints a genuinely interesting legal dispute as yet another effort by "MAFIAA" (or whatever we're calling it these days) to sieze the pillowcases of the American consumer on the auspices of having copyrighted the color blue. That's not at all what's happening here.
Fair warning: I did a lot of reading on this, but the armature of my understanding of this case comes from two other HN commenters who batted this back and forth a few weeks ago.
The detail you add here is interesting, but not substantial to the point Techdirt is making.
Regardless of how much money this guy made by parallel importing, no one should have the ability to control the sale or distribution of physical property rightfully owned by someone else. He did not steal the property before re-selling it (did he?) -- so your point adds no critical dimension to the problem at hand.
Unless of course you believe that some times some people should be able to control others' physical property, you know, for the good of us all, of course.
Reading the Court of Appeals opinion for Kirtsaeng v. John Wiley shows that the district court interpreted the "lawfully made under this title" line as excluding works made outside of the US. The Court of Appeals said that the wording is ambiguous, and therefore referred to the SCOTUS opinion in Quality King which implied that there are some works that, although not in violation of copyright law, are not "lawfully made" under the title.
It seems to me that the first-sale doctrine is definitely in danger (if EULAs haven't already effectively doomed it.) It also seems a valid concern to worry that such a finding would encourage entities to move outside the US to produce works that could not be resold.
> It seems to me that the first-sale doctrine is definitely in danger (if EULAs haven't already effectively doomed it.)
Which is itself odd, given that the First Sale doctrine was a judicial attempt to kill an early attempt at putting something like a EULA into a book. Granted, the book was trying to set its own minimum price, but by doing so on copyright grounds, it would have allowed a lot more than that if the Supreme Court hadn't struck it down.
But I agree with you: the more control someone can take of your digital life, the more rent they can collect. In that respect, First Sale is a key roadblock.
"Made lawfully under this title" is the wording that mattered in Omega v Costco and lower court decisions in Kirtsaeng v John Wiley. In 17 USC §109 which limits copyright holder rights and is the codification of the first sale doctrine, all of the limitations listed apply only to works subject to that phrase.[1]
In a nutshell:
One interpretation is that "lawfully made under this title" simply means a work that does not infringe on other copyrights, as per Title 17. Another implies that the work must be made in the jurisdiction of US Law for the limitations to apply.
I cannot see how first sale in all its forms would not be threatened by the latter interpretation. If you go out of the US and buy a book that is not produced in the US, you would have no codified right to resell it in the US.
Besides the hyperbole of the title, this article is flawed in that products sold within the US must comply with US law. If a copyright holder hasn't given permission for usage of their copyright in a specific country or territory, than products bearing that copyright can't be sold within that country. Otherwise, copyright would offer no protection since I would simply have to set up a factory in Mexico and I could infringe all I wanted and then sell those products in the US with impunity.
These are the same laws that prevent counterfeiting. If I own a copyright or a trademark for something I created, then how is it fair to me that my work be stolen? For example, if I record a great song and spend thousands of dollars in the studio, how is it fair that others can profit from that work without me getting compensated?
Don't misunderstand, I'm not talking about fair use, I am talking about people receiving money (i.e. commercial gain) by stealing the labors of others. That's straight up theft.
What IP holders are arguing here is considerably stronger: that I need their permission to sell a product in a country even if it is a legitimate, non-ripoff product that I myself own. This is not about unlicensed, counterfeit products, as in your Mexico hypothetical, but about licensed products that were produced with authorization of the rightsholder and then legally purchased. The question is if, once that purchase has taken place, the new owner needs to go back and get permission a second time from the rightsholder if they want to do something with their property.
IP holders are arguing that if I buy a Nike shoe in Japan, and then want to sell it on eBay in the United States, I need Nike's permission, because they never licensed me to distribute their trademarked shoe in the USA. But I own the shoe! And it's a genuine Nike shoe, not a ripoff! They licensed its production, then authorized its sale to me, and at this point the shoe should be my property, and they should not be in the picture anymore.
This is essentially in non-book form what the first-sale doctrine put an end to in books: the rightsholder trying to control resale of the goods for their entire lifetime, past the initial sale. Which of course makes a mockery of the idea of "property". If I can't sell my shoes without getting permission of the shoemaker, I "own" my shoes in a sense considerably weaker than the traditional definition of property.
> This is essentially in non-book form what the first-sale doctrine put an end to in books:
The case SCOTUS will rule on, Kirtsaeng v. John Wiley actually is "in book form."
Also, be careful to not mix up trademark and copyright. Omega v. Costco occured because "the watches included a small copyrighted design on the back surface."[1] The cases were not based around an argument that involved trademark at all, only copyright.
I believe you have misunderstood the issue at hand.
There is no straight up theft in going to the UK, buying a book published under contract with the author in the airport store, reading it on the plane back the US and selling it on Amazon. That is the sort of case that we're talking about here, works whose creation do not violate the laws of the US but which are not produced under US jurisdiction.
Companies routinely lay off staff and hire in cheaper countries (China, India..).
Companies routinely source materials to cheaper countries as to undercut everyone else.
Companies are also willing to move the business to locales that provide cheaper (or free) taxation. If you're really lucky, you get a rebate of tax from that government for 'stimulating jobs'.
Yet we people cannot 'legally' buy movies and music from other countries unless the copyright owner blesses us to do so ?!
We cannot legally bought, import goods from out of country areas because that same company sells them more expensively here?!
As to the comment from the guy who was importing and selling legally bought textbooks for a cheaper price.... Well, isn't that being a good business(wo)man? You find where something is being sold cheap and sell where it is high. Is that not providing a much needed service?
So, companies extract much gain by playing regions against regions. Why can't we?
Because then the rational response for companies would be to stop selling the product cheaper in other countries, denying people in poorer countries access to products at prices they can afford.
Example: Company sells 100 million of a product in the US + 10 million at lower price in poorer country (assume same number of units for simplicity). Total revenue: 110 million.
Somebody starts to buy in the poor country and re-sell in the US. US consumers are happy because they can now get the product for a tenth of the price. Sales in the US collapse to 10 million. Total revenue: 20 million
Company looks at the situation and reasons - if I raise the price in the poor country to the US price I can get back my lost revenue in the US, at the risk of losing my sales in the poor country. I'm going to do that. Sales in the poor country go to 0, sales in US back to normal. Total revenue: 100 million.
Governments look at this situation - hey, we would like consumers in the poor country to get access to the product too. How about we pass a law making it illegal to import products destined for a different market? Company - ok, great - starts selling product at lower price in poor country.
Who benefits from these laws?
1. US consumer - mostly neutral (pay similar price anyway)
2. Poor country consumer - positive (pay much less)
3. Company - positive (earn incremental revenue)
Now this is a highly stylised example and the actual situation is very complicated, as this is governed by a patchwork of different laws and treaties and industry lobbying. I also certainly don't mean to suggest that the situation is uniformly optimal.
However, this is the basic intuition behind these types of laws that you need to understand, otherwise I fear none of this will make any sense to you.
>However, this is the basic intuition behind these types of laws that you need to understand, otherwise I fear none of this will make any sense to you.
This is also exactly why those types of laws are wrong. They're done by politicians and not by economists, and politicians are relegated to using the same faulty intuitive reasoning that you did.
In aggregate, prices tend towards a supply-demand equilibrium that maximizes profits globally. This is constructed through the price mechanism. If a company sells product X in country A for $300 and country B for $100, and someone goes to country B and buys some X and brings it back to country A, assuming zero transportation costs, the price in country B will increase and the price in country A will decrease. This will continue until the prices equalize in both countries.
Now, demand in country B will decrease and in country A it will increase. The key here is the proportional change. Assuming supply and demand curves that are perfectly linear, the company will now sell 3/2 as much volume at $200 in country A than it did at $300 if volumes sold are the same. It'll sell half as much in country B due to the price doubling. If both markets sold the same volume, the net effect is that we now have 1.5x200+.5x00=400 instead of 1x100+1x300=400.
That is, the total revenue doesn't change and the company makes the same profit. The volume also stays constant. This still isn't the total reality, but it's a much more apt description than your calculation.
Importantly, parallel importation promotes price efficiency this way and increases competition. If governments want the poor to have access to a good, they can subsidize poor people purchasing it for personal use. They shouldn't ban parallel importation.
A key analogy here is that by your logic, we should also make it illegal to do parallel importation between the many states of the USA. In reality, all you're doing is restricting price efficiency.
What I've described above are "the basic economic laws" that override your "basic intuition". There are more subtleties, of course, but in aggregate and with market efficiency, reality tends toward the case described.
You're not wrong in the confines of the model you're operating in (perfect competition), but be careful about assuming that that model is a complete description of the world. Especially in this case, reality is complicated. So complicated, in fact, that I'm not going to try to address your points at all, but if you are curious to follow up on it I can recommend the following article: http://jurisonline.in/2008/09/parallel-imports/. Scroll down to the section labelled (Economic causes of Parallel Imports) and read from there.
>What I've described above are "the basic economic laws" that override your "basic intuition". There are more subtleties, of course, but in aggregate and with market efficiency, reality tends toward the case described.
It's a little silly that you would say that when you were just doing back-of-the-hand calculations to justify banning parallel imports, don't you think? I've already covered your response in my previous comment.
I'm not "curious" about parallel imports either, they're a well-defined economic case that has been the subject of plenty of research. There's a great discourse on the subject, since some of the primary variables in analyses of parallel import policy are price elasticity and regulatory effects. The modeling of simple example goods with perfect elasticity, like I was doing there, is not really a question. You only get more interesting results when you take goods that are exotic for having huge fixed production costs or price inelasticities, or markets that are highly asymmetric in the parallel importation context. Pharmaceuticals make for a great case, one which has really taken off in recent years. The Maskus paper that your article mentioned like a citation but then failed to cite for some reason provides a good jumping-off point. Kanavos et al. [1] then provide some real-world considerations with data from the EU; and Grossman and Lai [2] provide a revised viewpoint that considers regulatory factors in better focus.
But I don't want to be getting too deep into a discussion about exotic cases here--those are just interesting instances of them. My primary point is that, like I originally said, the intuitive reasoning that politicians and people use to justify banning parallel imports is just speculation in the face of legitimate economic considerations. There's real economics behind issues of parallel importation that needs to be respected, and I'd like it if people would understand that before arguing in favor of anti-parallel-importation laws.
At issue in the case Techdirt is alluding to isn't the long-term prospect of the first-sale doctrine. Nor is it about whether you can "resell a book you bought abroad"; at least, well, here, let's just dive in:
What happened in this case is that a Cornell student noticed that textbooks are sold at a lower price in some countries abroad. This is because if you sold textbooks at the US price in those countries, you might as well not sell them at all. So the student first consulted "Google Answers" for legal advice, and then arranged to import cheap textbooks and resell them in the US. He made something like 1.2 million dollars.
The problem with this scheme is that it constitutes "parallel importation", and the US is very weird about parallel importation. To wit: retailers luv parallel importation (it allows Costco to import huge numbers of Omega watches to sell way below US MSRP), every other business interest pretty much hates parallel importation (for obvious reasons), many countries outright ban parallel importation, but the US does not.
Instead, a hodgepodge of different statutes are used to retard parallel importation (think: drugs from Canada). Among them is US Copyright law, which ostensibly (but not completely clearly) provides (a) the exclusive right to distribute and sell copyrighted works to Copyright owners, and (b) under US import law, forbids imports of copyrighted material without the permission of the owner.
The First Sale doctrine says that once you've purchased a good, you're free to resell it without restriction. But obviously, having purchased a copyrighted good, you don't then obtain all the rights of the original copyright holder. For instance, you cannot then yourself make copies of the good for resale. So, while there's a tension between First Sale and "Infringing Importation", it's not a hard one to resolve: black --- or very dark grey --- letter law says you can't import copyrighted material without the permission of the copyright holder.
What seems to have happened in this case was that a District Court came to the proper conclusion by way of the wrong reasoning. Specifically: the District Court held that a parallel import was unlawful... but it was unlawful because the First Sale doctrine doesn't apply overseas (? WAT?). It's not clear why they even needed to go there, but now SCOTUS needs to fix things.