A High Court 'Gray Market' Win for Costco, EBay

Textbooks sit on shelves at the Chegg warehouse in Shepherdsville, Ky. Photograph by John Sommers II/Bloomberg

In a victory for companies like Costco and EBay—not to mention cash-strapped college students—the Supreme Court ruled that textbooks and other goods made abroad can be resold in the U.S. without violating American copyright law. In other words: You bought it, you own it.

The 6-3 decision offers legal protection and legitimacy to what has been estimated as a $63 billion “gray market,” in which third parties import brand-name goods protected by copyright or trademark in the U.S. Some of those gray market goods are resold online or at brick-and-mortar discount retailers. The retailers, like EBay and Costco, want to continue to sell goods manufactured and sold abroad at lower prices, even if those goods arguably violate a U.S. copyright. The Tuesday decision clears the way for them to do so.

The justices ruled in a case involving a Thai student who attended Cornell University and the University of Southern California. Supap Kirtsaeng helped pay his tuition by selling textbooks that friends and relatives had bought in Thailand at low prices and sent to him. One publisher, John Wiley & Sons, sued Kirtsaeng for copyright infringement. Wiley won $600,000 in the lower courts. The Supreme Court applied the so-called first-sale doctrine in throwing out the damage award. Under that doctrine, buyers of books and other copyrighted goods may lend or sell them as they wish. (Bloomberg Press, owned by Bloomberg Businessweek’s parent company, is a Wiley imprint.)

Writing for the majority, Justice Stephen Breyer said that Congress did not intend to limit the first-sale concept with a “geographical interpretation,” one, he said, that “would threaten ordinary scholarly, artistic, commercial and consumer activities.”

A variety of companies in publishing, software, and related industries had warned the Supreme Court that a defeat for Wiley would limit their latitude to sell products at lower prices in developing markets. Such a constraint could also result in higher overall prices, these business interests predicted.

Justice Breyer saw the case differently. He said that a victory for Wiley “could prevent a buyer from domestically selling or even giving away copies of a video game made in Japan, a film made in Germany or a dress (with a design copyright) made in China.”

Justice Ruth Bader Ginsburg wrote the dissent, calling the majority’s position a “bold departure from Congress’ design.” Justice Ginsburg emphasized that consumers in poorer countries could suffer if publishers and other makers of copyrighted goods cease to offer copies of their works at lower prices.

    Before it's here, it's on the Bloomberg Terminal.