Thai student's case imperils grey market

WASHINGTON : A Thai graduate student's money-making idea that began a decade ago has led to a commercial showdown beginning Monday in the US Supreme Court.

The court will hear arguments in the case of Supap Kirtsaeng, who was ordered to pay John Wiley & Sons Inc US$600,000 (18 million baht) for importing the publisher's copyrighted textbooks from his native Thailand and selling them in the US for a profit.

At stake is the future of the so-called grey market and the annual tens of billions of dollars trade in goods outside official distribution channels.

The case pits business against business. Retailers that offer grey-market products, led by EBay Inc and Costco Wholesale Corp, are joining libraries and second-hand stores in backing Mr Supap.

The motion picture, music, software and publishing industries are supporting Wiley, arguing that the practice illegally undercuts their US sales.

Grey market products are genuine goods that retailers acquire through unauthorised channels to exploit the lower prices manufacturers sometimes charge overseas. Imports of those products to the US cost makers as much as $63 billion in sales a year, according to a 2009 Deloitte LLP analysis conducted for Bloomberg News.

The case poses a copyright question that deadlocked the Supreme Court 4-4 in a 2010 clash between Costco and Swatch Group AG's Omega unit over discounted watches.

Justice Elena Kagan did not take part in that case and now stands to cast the deciding vote.

That's potentially bad news for the grey market because Justice Kagan, a former top Supreme Court lawyer in the Obama administration, had filed a brief supporting Omega in the Costco case.

The dispute turns on a legal doctrine that says a copyright holder can profit only from the original sale of a product.

In 1998, the Supreme Court unanimously said that the so-called first-sale doctrine applies to US-made products that are sold overseas.

The ruling meant that purchasers could bring those goods back into the US to sell or distribute even if the copyright holder objected.

The question now is whether that same reasoning applies when companies manufacture goods abroad. The New York-based 2nd US Circuit Court of Appeals ruled that it doesn't, siding with Wiley and upholding the jury award.

The appeals court pointed to a provision in federal copyright law that limits the first-sale doctrine to goods lawfully made under this title.

The panel said foreign-made goods don't fit that description.

Mr Supap, who studied mathematics at the University of Southern California, generated about $900,000 in revenue by selling textbooks published by Wiley and other companies.

His family members bought the books from stores in Thailand and shipped them to the US, where Mr Supap sold them on EBay.

The Wiley books were virtually identical to the US editions, though each was marked to say it was not to be exported to another part of the world.

A Manhattan federal jury found Mr Supap liable for copyright infringement and awarded the company $600,000.

A judge later ordered Mr Supap to turn over personal property, including his computer and golf clubs - something Wiley says occurred only because he had transferred at least $170,000 out of the country.

Mr Supap's supporters say the jury award and the 2nd Circuit's reasoning would undermine one of the basic underpinnings of US property law.

"If you buy a legitimate, authentic good, then you own it, plain and simple," said Hillary Brill, EBay's global policy counsel. "You have a right to resell it, lend it, give it away or donate it."

Taken to its logical extreme, eliminating the first-sale doctrine for foreign-made goods would prevent libraries from lending books, bar consumers from re-selling items and stop museums from displaying artwork violating the copyright owner's rights, critics say.

"Such a ruling would have absurd ramifications for our commerce and culture," said Marvin Ammori, a legal fellow with the New America Foundation, a non-profit policy group in Washington.

Mr Supap also contends that a ruling favouring Wiley would give manufacturers an incentive to move production facilities overseas. BLOOMBERG

About the author

Writer: Bloomberg