Internet Battlegrounds: IP & Copyright

18th April 2012

Selling textbooks his mum bought lands student in US Supreme Court

A hard up Thai graduate student in the United States needed pocket money. He noticed high priced academic books could be sold on US auction sites for more than the books cost new back in Thailand, even after shipping and other costs.

He sent his mother a shopping list. She returned the books and he sold them. All the buyers received their books in pristine condition, at the agreed price and on time. They were happy, paying less than in US  bookstores, on or offline.

Eight of these were published by US giant John Wiley & Sons. It said their sale contravened US copyright laws. It took legal action against him, winning $600,000 in damages – presumably uncollectable from the student both because he is back in Thailand and does not have that money – but enough of a deterrent to bigger organisations considering importing books.

Now the sale of those eight tomes is due to receive the attention of the full majesty of the US Supreme Court, the most powerful legal body in the world. For it goes far beyond spare time earnings of a graduate student.

Case will impact intellectual property

The case of Kirtsaeng-v-John Wiley & Sons will be fought in the autumn. But its result will impact on American retailers, their customers, US internet purchasers, and on companies which protect US revenues by using the law to prevent the import of the same product purchased in a cheaper jurisdiction. If Wiley wins, its investors and those with stock in firms with intellectual  property will gain. But if Kirtsaeng's legal team convinces the court, then retailers and their stockholders, both on and offline will cheer.

The Wall Street Journal says this "copyright infringement case involving resold textbooks that could have significant implications for discount stores and other vendors that resell foreign-made goods."

The student's lawyers will argue that "he was protected by the "first-sale" rule in U.S. copyright law."  This says that a manufacturer is not allowed to restrict the resale of a product once it has sold the product a first time. But Wiley argues this does not apply as it never authorised these particular editions for US sale.

For and against the grey market

The publishers – and those supporting it including the software and entertainment industries – want to prevent the so-called parallel or grey market. Student Kirtsaeng and his supporters, including eBay, Amazon and WalMart, want the freedom to sell legitimate products in the United States. Retailers say this benefits US consumers. There is no suggestion that any items are fake.

The grey market exists because manufacturers (including publishers) sell the same product at different prices in different countries. They work out what each market will bear. UK visitors to the United States or Dubai often buy cameras or computers – they are often priced at $1 to £1 – instead of the real exchange rate of around $1.60 for the same item. There  are generally still savings even after any customs duties.

Thai graduate students cannot afford to buy books at US prices. So they are cheaper. The same applies to many other consumer items.

The publishers – and a number of other manufacturers – contend that under US copyright laws, they can determine who can sell their products. They won't sell to US retailers below a certain price point. And they don't want stores sourcing elsewhere, underming their profits. They also contend that unless they charge higher prices in countries where people can afford them, they would have less to re-invest in their businesses.

Rights to resell

US law gives retailers (and individuals) the right to resell items bought in the United States or exported from the United States and then re-imported. But the books were printed in a third country and had never been in the United States. US law does not apply to sellers outside the US – but the Thai student was resident at the University of Southern California at the time he sold the books. He may have sold others but their publishers did not complain,

The US Supreme Court has already looked at a similar case where retailer Costco faced the Omega watch company (part of Swatch) over its imports of watches from low cost countries. That case was tied 4-4 – one of the nine judges ruled herself out for technical reasons.

Europe is no longer grey

In the late 1990s, European retailers were grey market importers. Firms such as Tesco sourced Levi jeans outside of the European Union and were able to undercut the price at which Levi-Strauss wanted them to be sold by almost half. Manufacturers claimed consumers were paying more for the "sales experience" – clothing firms said shoppers had more choice and a better store ambiance than in cheaper countries or in supermarkets. In general, the manufacturers hold the upper hand but there are signs of softening.

A US supreme court victory for the Thai student will make it harder for the EU to resist change towards a more permissive retail regime.

 

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The Financialist

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