07:44 PM

Impact of First Sale on Illegal Importation And Digital Commerce Addressed At Today’s House Judiciary Subcommittee Hearing

Stephen Smith, President and CEO, Wiley, Presents Testimony

June 2, 2014; New York, NY — At today’s House Judiciary Subcommittee on Courts, Intellectual Property and the Internet field hearing on “The First Sale Doctrine Under Title 17,” Members of Congress heard that publishers’ “ability to operate effectively in the global marketplace depends heavily on the protection provided by copyright law in the US and foreign markets.”

Stephen Smith, President and CEO of Wiley, testified on behalf of his organization. Founded more than 200 years ago, the Hoboken, NJ-based corporation is one of the world’s leading publishers of educational, STM and scholarly content, with 5500 employees and sales in 211 countries worldwide. In 2008, Wiley filed suit against Supap Kirtsaeng for massive illegal domestic importation of textbooks produced in and for foreign markets. Wiley was successful in both the federal district court and court of appeals in New York but the Supreme Court issued a split ruling on the appeal in 2013.

“The copyright system plays a significant role in fostering investment in the development of new content, underpinning innovation and economic growth,” said Mr. Smith.

In his testimony, Mr. Smith urged Congress to return the US copyright system to its state prior to the Supreme Court’s interpretation of the importation prohibition by clarifying longstanding Congressional intent through an amendment to Section 602(a)(1) of the Copyright Act. He cited the concurring opinion of Supreme Court Justices Kagan and Alito as the basis for his recommendation and noted that such an amendment should impose liability only on unauthorized importers and not on institutions such as libraries and museums that acquire copies manufactured outside the US, which would be consistent with existing statutory exceptions ignored by the Court majority.

He also recommended that Congress reject any proposal to extend the first sale doctrine to the transmission of digital copies, in order to guard against adversely impacting thriving new digital markets and business models and inhibiting the development of new ways to disseminate digital content to users.

Among his key points:

  • Before Kirtsaeng, the Act’s first sale doctrine avoided interference with copyright owners’ importation rights and ensured that the content creation supply chain could operate efficiently in world markets. It did so because it stood for “national” exhaustion of the distribution right in transactions that transfer ownership of lawfully-made physical copies of works, rather than “international” exhaustion of that right as the provision has now been interpreted by the Supreme Court.
  • The Act’s prohibitions on unauthorized importation allow content owners to manage their rights by allocating them to different markets; economic interests are endangered if they cannot be exercised territorially.
  • Market segmentation benefits US and international consumers and the entire content creation value chain:
    • Consumers overseas can purchase copies of copyrighted works priced reasonably for their markets
    • The US seller gains effective access to markets which would otherwise not sustain an unsuitably higher price point
    • Prices for US consumers are kept down when US copyright holders can recoup their investments and extend production costs across a broader number of transactions
  • The Supreme Court Kirtsaeng ruling destroyed copyright owners’ importation rights, was inconsistent with Congressional intent and longstanding US trade policy and has created new barriers to participation in developing world markets for authors, publishers, sellers and customers. Negative impact has already been seen through an increase in piracy as well as higher costs and, consequently, pricing.
  • “Importation” is not synonymous with “distribution” but is, instead, a critical aspect of US international trade law. The first sale doctrine does not provide a defense to the unauthorized importation of works acquired outside the US.
  • Extending first sale to digitally-transmitted copies would ignore market trends, consumer preferences and critical differences between physical and digital formats. Digital first sale would also halt development of new businesses that use licensing to offer multiple ways and price points for accessing and using creative content.
  • Existing license-based business models such as CourseSmart, launched by publishers to reduce cost and increase portability and access to digital course materials, would be significantly undermined, if not impossible to sustain, under an ownership-based model subject to a digital first sale doctrine.
  • Claims that technology could ensure copyright protection in digital first sale ignore innumerable difficulties in developing and policing such services and raise privacy concerns.

Links to Mr. Smith's testimony and the Subcommittee's webpage on the hearing, including participants, all testimony and video stream, are below.

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The Association of American Publishers (AAP) represents about four hundred member organizations including major commercial, digital learning and education and professional publishers alongside independents, non-profits, university presses and scholarly societies. We represent the industry’s priorities on policy, legislative and regulatory issues regionally, nationally and worldwide. These include the protection of intellectual property rights and worldwide copyright enforcement, digital and new technology issues, funding for education and libraries, tax and trade, censorship and literacy. Find us online at www.publishers.org or on twitter at @AmericanPublish.