Resale of International Textbooks to US Students Not Protected by First Sale Doctrine–Pearson v. Liu

By Eric Goldman

Pearson Education, Inc. v. Liu, 2009 WL 3064779 (S.D.N.Y. Sept. 25, 2009)

As a complement to Venkat’s excellent post on Vernor v. Autodesk from this morning, it turns out that we are celebrating First Sale Doctrine day here at the Technology & Marketing Law Blog. Although, this case isn’t so much of a celebration of the doctrine as a rejection of it.

Defendants are book resellers participating on various websites under the alias “JMBooks.” They purchase legitimate copies of cheaper international editions of textbooks, ship them to the US, and then resell them online to US students in competition with the US editions of the same textbooks. The court describes the differences between the international and US editions:

The textbooks plaintiffs publish are customized for the geographical markets in which they are sold. Editions authorized for sale in the United States are of the highest quality, and are printed with strong, hard-cover bindings with glossy protective coatings. (Id. P 14.) Sometimes, plaintiffs include academic supplements, such as CD-ROMs or passwords to restricted websites, with these books. (Id.) Editions authorized for sale outside of the United States, by contrast, have thinner paper, different bindings, different cover and jacket designs, fewer ink colors, and lower-quality photographs and graphics. (Id. P 15.) These foreign editions are not bundled with academic supplements such as CD-ROMs. (Id.) The cover of a foreign edition may include a legend indicating that the book is a “Low Price Edition” or only authorized for sale in a particular country or geographic region. (Id.) The foreign editions are uniformly manufactured outside the United States. (Id.)

Students usually purchase a textbook only because the instructor required it, and even then they expect to “enjoy” the textbook for only 1 quarter or semester. So many students may not care about the lower quality printing or absence of various supplements, in which case the international editions could serve as a viable and cost-effective substitute for the US editions. Accordingly, Internet resale of the international editions creates a major channel conflict for the publishers and destroys their efforts to price discriminate by geography.

To block this substitution (in technical speak, to stop the parallel importation of the grey market goods), the publishers invoke the importation right in copyright law (17 USC 602). The defendants respond that the importation right, like the distribution right in 106(3), is subject to the First Sale limitations in Sec. 109(a). If so, the defendants hoped to take advantage of the fact that they bought legitimate copies of the international editions to allow them to freely resell those copies to US buyers.

This debate leads to the flagship 1998 US Supreme Court parallel importation case of Quality King v. L’anza, a case I still find goofy after all these years. In Quality King, a shampoo manufacturer made shampoo in the US, sold it in international markets at a discount compared to US prices, and then was horrified to find that these exact same bottles were being legitimately bought internationally and imported back to the US, where they competed with the higher-priced bottles intended for US sale. To stop this channel conflict and preserve its price discrimination scheme, the manufacturer claimed that it had a copyright in the bottle labels, which gave it the right to block importation of its copyrighted works (the labels) under 602. Ideally, the Supreme Court should have categorically rejected the manufacturer’s bogus effort to prop up their poorly constructed channel management scheme, perhaps by rejecting the label’s copyrightability or saying a copyrighted product label cannot restrict the movement of otherwise-legitimate chattels in our economy. No such luck. Instead, the Supreme Court rested the defense victory on the First Sale doctrine because the bottles had “roundtripped”–that is, they were initially manufactured in the US and then had been imported back into the US.

While the Quality King decision reached the right result (a defense win), it left open the obvious question of what would happen when the imported goods were manufactured overseas (as opposed to making the roundtrip from the US). Although this court clearly expresses disagreement with the result, the judge felt constrained by dicta in the Supreme Court opinion that the one-way trip violates the importation right and is not protected by the First Sale defense. Accordingly, the defendants reselling internationally-manufactured copyrighted works cannot claim the First Sale defense to the importation right.

Although this case hasn’t reached its final conclusion, the logical implication of this ruling is that this channel-wrecking reseller is probably going to get kicked out of the industry. This, of course, is good for textbook manufacturers who want to overcharge US students for overproduced textbooks that the students don’t want and probably don’t need. However, many students would be just as happy with the cheaper textbooks; after all, most students just want the information in the textbook. Given the enormous price tags that textbooks now carry, it’s hard to see how propping up the textbook publishers’ silly channel management schemes is a particularly good outcome for anyone other than the publishers.

UPDATE: Ethan noted that the Omega v. Costco case, which raises the same basic issues, currently has a cert request pending with the Supreme Court.