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There were three separate theories of section 109's interpretation in the Court today: Kirtsaeng's, made by Josh Rosenkranz; Wiley's, made by Ted Olson, and the U.S. Government's made by Deputy Solicitor General Malcolm Stewart. Kirtsaeng's position is that "lawfully made under this title" means "made lawfully," and that to judge what "lawfully" means, we look to the standards of title 17. Wiley argues that "lawfully made under this title" means "made within the jurisdiction of US copyright law." The government tries to take a middle road, saying that something can be "made" under title 17 when it comes into legal consideration—in other words, that perhaps a compromise can be reached if "made under this title" can also mean "imported," since importing something to the US brings it under US jurisdiction.
At the root of each of these differing interpretations is an argument about what the state of the world should be—what sorts of things we want to allow and to disallow. Tied up in that dispute is the question of how broadly we want to look at the consequences of this particular case. Do we care only whether or not Supap Kirtsaeng is liable, or do we need to address what it means to every other person in the US if the Court finds him liable through a particular interpretation. And as a basic matter, the Court has to ground its interpretation of what the statute's language actually says.
Kirtsaeng's argument featured a few different facets. One was saying that its interpretation of section 109 doesn't make section 602(a) redundant, and that section 602 does two and a half of the three things that copyright holders wanted it to when it was written. They wanted to prevent imports of counterfeits, and it does that. They wanted to keep stolen copies from being imported (the movie industry at the time was seriously concerned about imports of films that had been leased to theaters and never returned), and the law did that, too. They also wanted the law to prevent "rogue distributors," both unauthorized importers and downstream distribution of those imports. And they got the former, but not the latter. That, Rosenkranz argues, is far from being useless.
Rosenkranz also noted that in creating the 1976 Copyright Act, Congress did notice that there was a tension between sections 109 and 602, and the record shows that they agreed to work on the langauge and resolve it. The ultimate resolution, Rosenkranz says, is what we see today—602 being made explicitly subordinate to 109.
The other major point Rosenkranz made was that, under Wiley's interpretation, manufacturers have every incentive to move manufacturing overseas, meaning that they would be able to exercise complete downstream control of anything they sold that had copyrighted material in it. Clearly, he said, this is not something Congress intended. If anything, Congress sought to protect American manufacturing.
Wiley, on the other hand, was particularly interested in making sure that Congress's intent in passing section 602 (the importation provision) was preserved. Olson emphasized that we have the legislative history of that section, where it does seem clear that Congress wanted to give copyright holders the ability to segment the market between domestic and foreign sales. Allowing an interpretation like Kirtsaeng's, he says, frustrates that intent. He acknowledged that this interpretation isn't perfect—since it could allow for the complete manufacturer control that Kirtsaeng says is the consequence of his interpretation—but that this hasn't happened yet, and in any case, is an issue for Congress, not the Court, to decide.
In questioning the three advocates, the justices spent a great deal of time trying to parse and interpret the language of the statute. First and primarily, the language of 109 itself, and then how it might operate in light of section 602. A constant refrain was the questioning of what the Court meant in its 1998 Quality King decision, in which it said that section 602 is supposed to prevent, among other sorts of things, an English book printer of an American book from shipping books to sell in America, in competition with the American publisher:
Even in the absence of a market allocation agreement between, for example, a publisher of the U.S. edition and a publisher of the British edition of the same work, each such publisher could make lawful copies. If the author of the work gave the exclusive U. S. distribution rights enforceable under the Act to the publisher of the U. S. edition and the exclusive British distribution rights to the publisher of the British edition, however, presumably only those made by the publisher of the U. S. edition would be "lawfully made under this title" within the meaning of § 109(a). The first sale doctrine would not provide the publisher of the British edition who decided to sell in the American market with a defense to an action under § 602(a) (or, for that matter, to an action under § 106(3), if there was a distribution of the copies).
How much weight the Court will give to this earlier statement depends a lot on whether it was necessary to the ruling in that case, or if it was more of an aside, or obiter dicta.
Many eyes were on Justice Kagan, because she has been marked out as a deciding vote ever since the Court's 4-4 tie in deciding the earlier first sale case of Costco v. Omega, a decision in which Kagan recused herself, since she was Solicitor General at the time that the United States filed a brief in that case. So it seems appropriate that she was particularly concerned with parsing the language in section 109(a) that is at the heart of this case. She said that she could see both sides (presumably, Kirtsaeng's and Wiley's) of the argument, but in questioning Olson, asked him if he didn't think it odd that in his interpretation (in which "under this title" is mean to modify "made") the word "lawfully" just sort of sits off to the side, not performing any function.
Justice Breyer was particularly vocal and concerned about what Wiley's interpretation would mean. He kept pressing Olson with hypotheticals about whether or not, for instance, Toyotas (containing copyrighted GPS software and sound systems) couldn't be sold by US owners without getting the permission of every copyright holder of every copyright contained in the car, or whether a museum would be liable for publicly displaying an imported Picasso, painted in France. When Olson replied that these hypotheticals weren't before the court—in this case, the facts were about someone clearly trying to undercut market segmentation—Breyer insisted that Olson answer the question directly. Olson conceded that, under his interpretation, "if you're going to [distribute] a product made by someone else," you might well have to get the copyright holder's permission, or make use of a different copyright defense, such as fair use.
This line of reasoning did not sit well with Justice Breyer, who seemed incredulous that individuals, who, for instance, brought back five copies of a book home from overseas would have to rely on fair use to give one away. Chief Justice Roberts also seemed uncomfortable with this idea—that courts would regularly find fair use in selling Toyotas, or displaying Picassos. Olson also said that other defenses might be present, like implied licenses. Aside from these arguments, Olson consistently emphasized not wanting to frustrate Congress's desire to allow market segmentation and also that the hypothetical horribles of complete control weren't before the Court in this case.
Justice Kagan questioned the record of Congress's intent, though, saying that while the idea of preserving market segmentation is in the history of section 602, it's not there at all for section 109—the statute at issue in the case. Olson's reply was that 602 and 109 were agreed to by Congress in the same act, at the same time.
Justice Kennedy was also skeptical of ignoring the hypothetical problems of complete downstream control. "We have to look at those hypotheticals in order to decide this case...we should, as a matter of common sense, ask about the consequences of that rule. "
Justice Ginsburg, given her particular interest in copyright cases, and having authored a concurrence in Quality King that indicated strongly that she would be inclined to rule against Kirtsaeng, had a few pointed questions for Rosenkranz. One line of questioning was about the fact that he was advocating for a regime of "international exhaustion," that is, that a first sale in any country in the world would exhaust the copyright holder's restriction on distribution. She noted that this was rare, if not unheard of, in other jurisdictions. Rosenkranz replied that Congress itself had made that choice, explicitly using international exhaustion in passing a law about microchips just a few years after the 1976 Act. He also pointed out that in various international treaties, the various countries essentially "agreed to disagree" on the fact that they each could treat exhaustion differently.
Justice Ginsburg also pressed Rosenkranz about whether or not he thought that his interpretation was forcing copyright holders to give up their rights to exclusive U.S. distribution any time they granted someone else a distribution right in another country. Shouldn't a copyright holder be able to grant a license to a Chinese company to distribute only in China? Justice Kagan was also particularly interested in following up this point. Rosenkranz said, yes, the law allows the American company to can do this, and have remedies if the Chinese company itself tries to sell directly in the U.S., but after a first sale in China or elsewhere, they wouldn't be able to control the copy.
Quality King was also a common theme. Was the British publisher hypothetical there dicta or a holding? And in any case, was the Court right or wrong about it then? Olson argued steadfastly that it was a holding, despite Justice Alito's pressing on the point. "It may be important dictum, but do you really want to say that it's a holding?" "I do," said Olson. Justices Kagan and Breyer also seemed skeptical of this idea, since the case would have been decided the same way regardless of whether or not the Court had decided differently on that particular hypothetical.
Rosenkranz, on the other hand, constantly emphasized the Quality King language as dicta, and didn't receive hard pushback on that characterization from the justices. Justice Kagan asked if it was simply "ill considered dicta that we should ignore." Rosenkranz said yes, but also offered an explanation that attempted to reconcile the Quality King dicta with his argument. He distinguishes the hypothetical British seller in the hypothetical from his client, Kirtsaeng, by supposing that the Court, in creating its hypothetical, was thinking of a British printer who was deliberately printing more books than it needed to for the British market, intending from the beginning to sell the extras in the U.S. That would mean that, when they were made, the extra books were being made in violation of the license, and thus "unlawfully" under the standards of title 17.
The question of Quality King was also put to Stewart, representing the United States. He was put in an awkward position by virtue of the fact that, in Quality King, the US took essentially what is today Kirtsaeng's position. In this case, though, it has altered its argument. Stewart admitted to the fact that this was due in large part to the dicta in Quality King—and yes, he did consider it dicta. When pressed on it further—Justice Kagan asked Stewart if, "in [his] heart of hearts, that we got it wrong in Quality King," he essentially said yes, with the added caveat that he wasn't saying so too strongly, since it had been a 9-0 decision.
The government's attempts to strike a middle ground by arguing that the common law from the old Bobbs-Merrill case (largely cited as the source of the first sale doctrine in the US) didn't seem particularly popular. While it was designed to prevent the horribles cited by Kirtsaeng—of all imported copies being forever subject to copyright holders' distribution controls, it was also an attempt to ensure that Kirtsaeng could be found liable for unauthorized importations. The Bobbs-Merrill theory is an interesting one, essentially saying that some of the holdings from that case persist alongside the statute, granting certain first sale rights that aren't explicitly set out in the statute. Justice Alito had some problems with that idea, since the first sale doctrine of the 1909 Act was stated to be codifying Bobbs-Merrill, and the first sale doctrine of the 1976 Act was a restatement of the 1909 Act's provision. Why, with that chain of events, would any part of Bobbs-Merrill survive outside of the realm of the statute? Stewart's response was that, for instance, someone who buys a piratical copy of a book, but doesn't try to redistribute it, is neither taking advantage of the first sale doctrine (which doesn't cover piratical copies), but also isn't an infringer, since he isn't distributing the copy in violation of section 106.
(This doesn't seem to be a particularly convincing, example of the theory, since, after all, that's not the operation of a common-law exception so much as the operation of section 106's limited grant of rights to copyright holders.)
Chief Justice Roberts was also skeptical, but on the grounds that this would require layers upon layers of interpretation to reach a result. To judge an importation case, you'd have to look first at the text of section 109, then assess that in light of Quality King, and the even after that, see if Bobbs-Merrill's common law doctrine shone any additional light on the matter. Stewart countered that this wasn't any more complicated than any other interpretation, but Justice Roberts suggested that, actually Kirtsaeng's interpretation was considerably simpler: if it was sold, it's legal.
Stewart wanted to stress that Kirtsaeng's position (distinguishing Kirtsaeng from an importing foreign publisher like in Quality King) wasn't grounded in the statute. But Justice Breyer insisted that, statute or not, Kirtsaeng's position was grounded in the law. He cited back to Coke on Littleton, a 1628 treatise that says you can't sell your chattels t another and retain a conditional interest in the chattel. And that principle of commercial law has persisted through American cases as well, for "almost forever."
Stewart's argument portion ended on a note suggesting the Court's continuing skepticism of finding a middle ground. Justice Alito asked Stewart if, should there be no middle ground to be found, which situation would be worse: the parade of horribles cited by Kirtsaeng, or the loss of market segmentation cited by Wiley? Stewart said that Kirtsaeng's horribles were worse.
In the end, that difference between two potentially bad outcomes might make the difference in this case. While the Court would make its decision based upon the law, and not necessarily a policy decision, the law does need to be interpreted in such a way as to avoid a manifest absurdity. The continued focus by Justice Breyer and the Chief Justice on exactly how absurd results can be under Wiley's theory of the law provides a significant indicator of how they, and the Court, might be viewing this case.