Supap Kirtsaeng, a student at Cornell who was originally from Thailand, realized that the exact same textbooks that were going for over a hundred dollars in the U.S. were available for peanuts back home. So, he asked his friends and family in Thailand to go to bookstores and buy the textbooks, ship them to him in the U.S., and he sold them on eBay for a profit. These were not pirate or knock-off goods; they were the real deal published by the Asian subsidiary of John Wiley & Sons and stamped “not for resale.”
Wiley sells books more cheaply in Thailand because it engages in market segmentation, a simple kind of price discrimination. In order to maximize profits, Wiley charges different prices to different consumers according to their willingness to pay. And what country or market you’re in serves as a proxy for what you’re willing to pay. This only works, though, if you can make sure that there is no arbitrage, and that’s why Wiley sued Kirtsaeng.
The publisher claimed that because the books were printed overseas, they were not subject to U.S. copyright law, which includes the “first sale” doctrine. The “first sale” doctrine says that once you purchase a book or other copyrighted work, you can dispose of it as you please. You still can’t make copies or make a derivative work—those would still be copyright infringements—but you are free to sell it, lend it, rent it, burn it or give it away. It’s your book.
Kirtsaeng lost at both the trial and appellate level, with each of those courts finding that the first sale doctrine did not apply to works printed overseas. The Supreme Court overturned them.
On the one hand, this is the right policy outcome. What’s yours is yours, and why should you be restricted from selling or otherwise disposing of something you own. Kirtsaeng had acquired the books legitimately from bookstores in Thailand and he’d never made any promises to Wiley. Why shouldn’t he be allowed to do whatever he wants with his property?
Moreover, imagine the Supreme Court had not ruled this way. The incentive would be for all publishing to move overseas, or at least to outsource their printing. By doing so, publishers could essentially get rid of the first sale doctrine and with it secondary markets for copyrighted works. And it wouldn’t be just books and music, but probably also electronics that include copyrighted software or other components. Goodbye to eBay, used bookstores, and Amazon’s “used & new” option.
On the other hand, the likely outcome of this decision is that Wiley and all other publishers will now raise prices in countries that now get cheaper prices. These tend to be developing countries, so essentially poorer students abroad will be suffering the consequences. Some will no longer be able to afford the books at all, even though the marginal cost of one more book to a publisher who has already made the investment for the American market is essentially zero. As a result, it would not be surprising if we see students in these countries substituting with piracy.
Essentially, the Kirtsaeng decision makes it practically impossible to price discriminate, a practice that tends to make all parties better off. It’s nevertheless the right decision because while there’s no right to price-discriminate, there is a right to do with your property as you like. What’s especially bedeviling is that the reason publishers can’t price-discriminate is because it’s practically impossible to contract.
Imagine that a bookstore doesn’t sell you a book simply for cash, but sold it to you for cash and a promise not to resell it. In that case, the first sale doctrine would rightly not apply, and you would no longer have a right to do with the book as you please. (Or you could, but then you’d have to pay the seller damages.)
The problem is that it is virtually impossible to enforce, or possibly even make, such contracts. (If you think otherwise, please explain why in the comments.) It’s greatly unsatisfying that an inability to contract is impeding what might be the preferred state of the world.
If enforceable contracts that could govern the use of books and other works after purchase were possible, what would we see? First, we would likely see poorer students in developing countries have access to lower-priced books. And second, we’d see some big changes to secondary markets. One possibility is that they would go away altogether, but at the same time prices for new books would also decrease. Another possibility is that we would still have a secondary market, but only for much more expensive versions of books sold without a no-resale promise.
It’s probably no surprise, then, that this is exactly what we are seeing develop in the ebook market. While the issue remains somewhat unsettled, the fact is that you don’t buy ebooks from Amazon or music singles from iTunes—you license them. And when it comes to licensed software at least, a recent Ninth Circuit Court of Appeals case found that the first sale doctrine does not apply (the Supreme Court declined to take up the case.)
The question now is: Is the kind of licensing you engage in when you “buy” a book or a song from Amazon or Apple a legitimate contract? I’ll get back to you on that.