Last week the Second Circuit Court of Appeals handed down a decision with potentially disastrous consequences for higher education.  I admit that I have been reluctant to write about it because I cannot think of a good remedy for the situation and I dislike the role of Chicken Little, always crying that the sky is falling.  But with this decision two judges on the 2d Circuit really did open some cracks in the firmament above higher ed., and there is no way to ignore them.

In the case of John Wiley & Sons, Inc. v. Supap Kirtsaeng, the court has held that the “First Sale” doctrine in copyright law – which allows libraries to lend books and consumers to resell the books they buy – applies only to works that were manufactured in the United States.  In an earlier case (Costco v. Omega, which was affirmed by an evenly divided Supreme Court) the Ninth Circuit had ruled that first sale did not apply if a work was manufactured and sold abroad, but the Second Circuit went much further.  In last week’s ruling they decided that first sale did not apply even when the work manufactured abroad was sold in the U.S. with the authorization of the copyright holder.  Thus they have created the anomalous situation where a rights holder enjoys the full protection of U.S. law, but consumers who buy the work do not have the advantage of a basic rule for their protection.

The Second Circuit panel seems to know this is a bad decision, and yet they make it anyway.  In a footnote they acknowledge that they are creating an incentive for content companies to move their operations, and the jobs that go with them, off-shore.  And the very well-reasoned dissent also makes it clear that the state of the law did not require this sweeping limitation on first sale.  After several readings I am still not sure why these two judges felt compelled to so dramatically change first sale after over a century of its successful application.

The irony of this decision is that in creating an incentive for publishers to publish their books overseas, the “manufacturing clause” in the Copyright Act (section 602) was used by the Second Circuit panel to accomplish the exact opposite of what it was originally intended to do, which was to defend U.S. businesses. (Note, as a sidebar, this article from Forbes on the “chain reaction of decline” in U.S. manufacturing and imagine it getting worse as both law and economic conditions create negative incentives for U.S. manufacturing).

One of the problems that the Wiley decision creates is uncertainty about library lending.  Libraries do not even know, I am afraid, how much of their collections are manufactured abroad.  In the Second Circuit, however, lending anything that was manufactured outside the U.S. is now in question, regardless of where it was purchased (even directly from the publisher).  The manufacturing clause that is at the root of this decision does contain an exception for the importation of books “for library lending purposes,” but it does not say is that libraries can actually lend these books.  There was no reason to say that, of course, since Congress clearly assumed that first sale would apply.  But Congress didn’t anticipate the short-sightedness of these two judges.  And the situation is even worse for video, since the exception for audio-visual works in the manufacturing clause only mentions “archival purposes,” not lending.  So potentially very large, and probably indeterminate, portions of a library’s collection in the Second Circuit (NY, VT and CT) may now be in a grey area – they can certainly be used in the library but may not be available for legal lending.

I hate to imagine it, but this decision raises some frightening possibilities and requires greater vigilance on the part of librarians.  At the very least, libraries must demand information from publishers about where every item has been manufactured. Obtaining such information is no longer an option, since our legal uses of the things we buy now depends on knowing this, and the place where the publisher is located or where the sale took place is simply not sufficient.  But what I really fear is that publishers will begin to manufacture more of their works overseas and then try to demand a higher price – one that includes “public lending rights” – from libraries.

If libraries are in a difficult position, students may be even worse off under the Second Circuit’s ruling.  Again, publishers now have an incentive to manufacture their textbooks abroad and sell them to U.S. students.  Such students would no longer have the right to re-sell their textbooks or to purchase used texts.  The defendant in the case, Supap Kirtsaeng, had made a lucrative business out of reselling textbooks purchased in Asia.  He was perhaps an unsympathetic party, but what he was doing was not different in kind from the resale of texts that is common on all college campuses.  This activity makes higher education a little more possible for many.  Now publishers have an easy way for to close down this secondary market for textbooks, about which they have complained for years.  In the process, the cost of education for college students would be pushed up even further.

So what can be done about this appalling decision?  There are very few real options, but here are some suggestions:

  • In the short term, libraries can demand manufacturing information and, for works manufactured outside the U.S., insist on a “right to lend” being including in purchase agreements.  If publishers try to charge extra for this, libraries must walk away from the purchase.
  • The Second Circuit could be petitioned to re-hear the case en banc.  The decision as it came out last Tuesday seems almost careless, and it certainly went beyond what was necessary to uphold the District Court ruling against Kirtsaeng.  The Ninth Circuit rule from Costco would have been sufficient grounds for an affirmation, so there was no cause in either the facts or the law for this strange holding.  Perhaps the whole Second Circuit could reexamine the situation and set it right.  But is the defendant willing to take this path?
  • Congress could amend the law to make clear that first sale applies in the U.S. whenever a work is sold with the authority of the rights holder.  Much in the Copyright Act indicates that this was the intent of the law in the first place, and either section 109 or 602 (or both) could be easily amended to reverse the harmful effects of the Wiley court’s misunderstanding.  But is Congress really interested in technical amendments to the Copyright Act right now, however badly they are needed?  The two Judges in Wiley themselves suggested that Congress could correct them if they were getting it wrong (they were!), but as the ARL Policy blog noted last week, this seems more like a taunt, in the current political climate, than a real option.
 

13 Responses to Getting first sale wrong

  1. Ann Miller says:

    Kevin,

    I’m interested in what your take would be on what constitutes legal “manufacturing” in the e-environment. Is the author be the manufacturer of the content of the article or book? Or, by potentially “adding value” in the presentation process do the publishers “manufacture” the resulting product?

    Ann

  2. [...] A decision by the Second Circuit Court of Appeals on the First Sale doctrine could affect the right of libraries to lend (and individuals to resell) some books.  See the analysis of Duke Scholarly Communications Officer Kevin Smith at http://blogs.library.duke.edu/scholcomm/2011/08/24/getting-first-sale-wrong/ and [...]

  3. The upshot of this “appalling decision” is surely that it continues to prepare the ground for an attack on our rights as individuals, and in particular (I would note) as the public, of freedom to access information: rights which have been built up and agreed as wholly relevant and important to a modern, democratic nation.

    The founding movement for the public library system, in particular in American public libraries, was propelled by principles of democracy, as evidenced by Boston Public Library’s famous inscription “The Commonwealth requires the education of the people as the safeguard of order and liberty.”

    The cornerstone concept of “education” was that it be freely available, and Public Libraries played a large and dynamic role in making this possible by providing publicly, free information access.

    This right is being eroded by virtue of requiring a new step in this process, namely, the requirement of a new payment, alongside the actual original purchase payment, in order to be granted an additional license to access this information in the form of a library, or in the form of an information container obtained second-hand.

    Like, dude, you basically want me to pay twice-over for the same level of information access that I now make a once-only payment for?

    “what can be done about this appalling decision?” is a good question to ask, and frankly it’s a bit scary to think that “There are very few real options”, and here I’d pose the question, “Why, exactly, is that?”

    Some of that answer lies in the greasy wheels of modern democracy, obviously. Here is not the place to attack or defend what we have as a system in place, but to get on with the job of using the system in place in order to prevent what seems to be a clear horizon of disaster.

    You say “…is Congress really interested in technical amendments to the Copyright Act right now, however badly they are needed?” and your framing of the question clearly angles the answer to “no”, which is why, arguably, if librarians are going to unite and ensure this terrible event does not occur, for a start we’ll need to re-phrase the question, and instead pose:

    “Is Congress really not interested in defending an enshrined right of an American individual?”

    or something akin.

    The result of this decision requires an alliance of all American libraries, and indeed all individual members of the American public, to produce a robust response.

    Perhaps another rejoinder is also to raise consensus around a USA Public Lending Right ( which might go some way to mitigating publisher demands (which should also be on behalf of the author, which PLR recognises by making the payment to them).

    In the meantime, we’ll make a personal start start with:

    “Dear Mr Obama, I can haz no liberry buks cuz lending hazbin 2nd Circuit-rickrolled? WTF!”

  4. What can be done?

    You cannot remedy that which was an instrument of injustice at the outset. You can only abolish it. See The 18th Century Overture – A Crescendo of Copyright – Natural Finale and Reprise.

    You know what can be done, but can you bring yourself to even countenance it, let alone to do it?

  5. I have two quibbles with your otherwise fine piece.

    First you refer to section 602 as the “manufacturing clause.” In fact, that clause is set forth in (now expired) section 601 of the Copyright Act.

    Further, you state that the 2d Circuit in this case has established a bright line rule making the first sale doctrine inapplicable to goods made abroad and then imported into the U.S. even with the permission of the copyright holder. Although that appears to be the clear import of the majority opinion in Kirtsaeng, the court ends its discussion of the interplay between sections 109 and 602 with a curious and unexplained footnote. The majority states that a copyright holder who imported goods made abroad would “arguably” control their distribution because, “in theory, the consumer could not rely on the first sale doctrine.” In “theory”? “Arguably”? Is the circuit court suggesting by these words that there may still be some room for the first sale doctrine to apply in this context? As I suggest in a recent blog post, at http://www.ipinbrief.com/the-wait-for-kirtsaeng-is-over, we will have to wait some more to see.

  6. [...] Smith on the Scholarly Communications @ Duke blog has a great, clearheaded explanation of the implications of this decision for libraries: One [...]

  7. N. Speisser says:

    I’m interpreting this to mean that for now, at least, it would violate the law if students sell their books back at book buy back events on campus?

  8. [...] if you are interested in hearing how her eReader program progresses using Nooks). There’s the terrifying implications of a Second Circuit decision regarding First Sale and country of origin for books. (“In last [...]

  9. [...] lawsuit filed by video producers against UCLA, the 2nd Circuit Court of Appeal’s discouraging verdict on the first sale doctrine, which might prohibit library lending, and, most recently, debate over copyright [...]

  10. [...] Second Circuit just nuked that exception. Techdirt points out what this means for individuals and Kevin Smith in his logical way spells out what it means for libraries and for students, who could soon be in a world where they [...]