As part of its on-going copyright review, the House IP Subcommittee held a hearing on Monday on the First Sale Doctrine. This was a “field hearing” held at the federal courthouse in Manhattan. I had the opportunity to testify on behalf of the Owners’ Rights Initiative, a coalition of associations and companies dedicated to protecting the first sale doctrine.
In his opening statement, Chairman Bob Goodlatte recognized the importance of the first sale doctrine to the U.S. economy. He stated that
Although some legal doctrines may be invisible to Americans, the first sale doctrine is not one of them. First sale has been such an integral part of our economy that entire businesses have been built upon it such as Blockbuster video stores and Netflix by mail. Consumer expectations have also been built upon this doctrine.
Ranking Member Jerry Nadler in his opening statement noted the importance of the first sale doctrine to libraries and consumers.
The testimony and the questions focused on three questions: the Supreme Court’s Kirtsaeng v. Wiley decision; digital first sale; and the right to resale products containing software essential to their operation.
1. Kirtsaeng. Stephen Smith, the President and CEO of John Wiley & Sons, the plaintiff in the Kirtsaeng case, testified that the decision is making it difficult for Wiley to sell text books in developing foreign markets for fear of arbitrage, i.e., that the books would be resold in the United States at lower prices. Smith acknowledged, however, that in some markets Wiley is selling through trusted distributors that do not resell in the U.S., and that it has started differentiating products (e.g., creating international editions) to discourage importation.
In my testimony for ORI, I underscored these concessions Smith had made. I stressed that post-Kirtsaeng, publishers still could engage in price discrimination against U.S. consumers, they just couldn’t rely on the copyright laws to do so. I added that the Supreme Court made clear that nothing in the Constitution suggests that copyright’s exclusive rights should include the right to price discriminate. I also emphasized that overturning Kirtsaeng would not help U.S. workers. Because most copyrighted products are made overseas, increased foreign sales would not lead to more manufacturing jobs in the United States. I reminded the subcommittee that this issue was not limited to books; the previous Supreme Court cases in this area dealt with a logo on a watch (Costco v. Omega) and a label on a shampoo bottle (Quality King v. L’anza).
Greg Cram, the Associate Director for Copyright and Information Policy at N.Y. Public Library, explained the importance of the Kirtsaeng decision for libraries. Many of the books and other materials in the collections of libraries were printed overseas, and Kirtsaeng ensures that libraries will be able to circulate these materials without obtaining an additional license.
The subcommittee members showed relatively little interest in discussing Kirtsaeng. Ranking Member Nadler asked Smith whether Wiley was seeking legislation overturning Kirtsaeng. Smith responded in the affirmative. Nadler then asked Cram whether overturning Kirtsaeng would require an exception for libraries, and Cram responded in the affirmative.
I regret not having more of an opportunity to respond to Smith’s criticism of arbitrage. It was as if he thought arbitrage was a dirty word. This was ironic given that the federal courthouse stands a few hundred yards from Wall Street, where thousands of traders engage in arbitrage every day. Arbitrage is a cornerstone of free trade and the free enterprise system (buy low, sell high).