Guest contributor Brian Keith Felderstein, Esq. explains what you need to know about the First Sale doctrine and how an upcoming Supreme Court decision could change the way you buy and sell goods.
A couple weeks ago I finally got my hands on the new iPhone 5 and have now relegated my iPhone 4 to paperweight status laying in despair on my desk as I contemplate whether to sell this phone on eBay or to my neighbor Bob.
Now, imagine if you will, that before I could even put an ad out on the internet or even sell the phone to Bob, I would have to get permission from Apple (in the form of a written copyright release) that would allow me to actually sell this now antique phone without breaking the law. Seems crazy doesn’t it? Well, on October 29th the Supreme Court will be considering a case that could wholly destroy commerce as we know it in America today. While this statement may seem hyperbolic, it is critically important to understand the issue that the high court is considering and the overall impact it could have on you and me as consumers.
What’s the First Sale Doctrine?
The legal doctrine the Supreme Court will be wrestling with is based on the First Sale doctrine under copyright law which allows you to buy and sell anything and everything from electronics to auto parts without getting permission from the copyright holder of these products. Almost any product you can think of has or should have a copyright surrounding the product itself.
Under the First Sale doctrine, you can purchase any product and resell it in the marketplace without worrying about violating any copyright laws because the court only recognizes a copyright holder’s control of an item until the “First Sale” of that item is made. In other words, even though Apple has a copyright on its iPhones, you can still resell your old iPhone to your neighbor Bob without infringing on Apple’s copyright. At the moment, this doctrine has some limitations because you apparently cannot sell digital downloads like an iTunes song to your neighbor (because the songs are licensed to you by Apple, not sold outright) but more on this in a later post.
Supreme Court to Rule on Kirtsaeng v. John Wiley & Sons
The case affecting this First Sale doctrine is known as Kirtsaeng v. John Wiley & Sons and it involves a college student from Thailand (Kirtsaeng) who went to school at Cornell University and was actively buying super cheap textbooks from Thailand. Kirtsaeng had these text books shipped to the US, where he promptly sold them on eBay making well over $1 million (why didn’t I think of this?). John Wiley & Sons, the publisher of these books, sued Kirsaeng for copyright infringement in New York federal court, where Kirsaeng used the First Sale doctrine as his defense. The judge rejected the claim, saying that since the goods were manufactured in a foreign country, that the doctrine didn’t apply. Kirtsaeng was found liable, and the Second Circuit Court upheld it.
Several other Circuit Court cases have ruled on whether, and how, the First Sale doctrine applies to foreign goods, but the results have been far from unanimous. Based on these facts, the Supreme Court is going to have to decide, and here is where things get dicey.
How This Decision Could Affect You or Your Small Business
If the court decides the First Sale doctrine only applies to domestic goods, then companies that manufacture goods outside of the US and place a copyright on these goods will legally have the right to prevent anyone from reselling their goods by claiming copyright infringement.
Individuals who make their living reselling items on Craigslist, eBay, pawn shops, even garage sales will be forced to get some sort of copyright release from the manufacturer of those goods before they would have the right to sell them or face huge penalties.
Call me crazy, but I can’t imagine someone who owns a Toyota and wants to resell it in the marketplace being forced to take an inventory of every single piece of their car that was made overseas and then have to contact each and every manufacturer in order to persuade them to provide a copyright release just so they can sell their vehicle. There are potentially thousands of parts and pieces made by a hundred different manufacturers in a Toyota alone.
In addition, think of all the American companies that would be at a disadvantage to foreign companies because the First Sale doctrine would still apply to them. If I was an American company, I would immediately pack up and move outside of US so I could have total control on who can purchase and sell my product.
Of course, if the court does uphold the First Sale doctrine against foreign manufacturers then companies like John Wiley & Sons who may need to lower their pricing overseas in order to compete in foreign markets will be strongly disadvantaged in the U.S. because of people like Kirtsaeng.
As you can see, this decision has deep and complex implications no matter which way the Supreme Court goes. If you’re a small business owner who resells products, you would be wise to keep your eye on this bouncing ball.
A long time ago before all this massive government regulation, we lawyers used to say caveat emptor (buyer beware). Soon however, attorneys will have to start getting familiar with the new term of caveat venditor and I’m sure you can guess what this means.
Sorry Bob, you’ll have to wait a bit longer before I can decide what to do with my iPhone.
About the Author
Brian Keith Felderstein, Esq. is a California business lawyer and a proud member of the Rocket Lawyer On Call® network. Whether you have a question about forming a new business, issues on a contract, concerns about a partnership, legal compliance on the Internet, or any other general business matter, contact Brian to learn how he can help.
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