Meera Nair

Kirtsaeng – Part III

In Case Reviews on April 14, 2013 at 10:40 am

In Part I and Part II of my Kirtsaeng saga, I detailed an American Supreme Court decision that addressed control of copyrighted works, after works have been transacted in sale according to the law. Two clauses of the American Copyright Act were in opposition; a right of control, to ban importation of copyrighted works acquired outside the United States collided with the limitation of control imposed by the doctrine of first sale. The majority opinion, written by Justice Breyer, decreed that first sale applies if the copies were legitimately produced and sold, irrespective of geographical consideration. In this case, the textbooks entering the United States were made and purchased in accordance with the publisher’s subsidiary organization for production and sales in Asia.

The importation ban allows publishers to more easily segment their markets. Similar books may be sold in different regions at different prices, without fear that cheaper copies would be resold in the United States undermining the American market. Publishers price their works according to the constraints of their target markets; higher-priced American books simply will not sell in lower-income countries. Thus those books are produced with lesser quality (i.e. cheaper paper, no colour images, etc. ) and priced with an eye to cost recovery. Which means the revenue from foreign market productions does not serve to reduce the costs incurred at home.

According to the brief submitted by Wiley (and similar language is found in the brief submitted by the Association of American Publishers) the development costs of a textbook are significant and are paid for by domestic market sales. If domestic wholesalers (i.e. campus bookstores or Costco) could import cheaper books and resell them, publishers’ revenues will severely decline, leaving little to fund the production of new books. “The likely result of Kirtsaeng’s proposal would be reduced access to educational materials around the world, with little corresponding benefit for American students (Wiley, p.49).”

Which raises the question of why bother to sell to foreign markets at all? If the sales only cover printing and distribution there seems little incentive to supply to those markets. A possible answer is that publishers are concerned with providing access to “educational materials around the world.” But altruism gives way to pragmatism; if consumers cannot afford the high-priced American textbook, piracy is likely to occur. And Wiley notes that “‘governments have been more responsive in dealing with piracy cases when textbooks are priced at a level that local students can afford.’ (Wiley, p.47).”

In making their argument, Wiley makes constant reference to a study by the Governmental Accountability Office (College Textbooks — Enhanced Offerings Appear to Drive Recent Price Increases, 2005). Wiley does not endorse all the findings and points to concerns expressed by the Association of American Publishers but: “nonetheless believes that the report’s summary of the many factors that bear on pricing in different countries provides useful context for the Court (Wiley, p.7).” In fact, the Association disagreed with the study almost in its entirety, objecting to the data used, the methodology, and the tone of the report (GAO 2005, p.38-43). Their concerns were addressed by the authors of the report, who emphasized the objective of the study was not to assign blame to publishers but to better understand how publishing practices (and the factors influencing those practices) affect the cost of college textbooks (GAO 2005, p.26-28).

The data used within the report spanned 1986-2004 and thus does not serve to reflect pricing today. That said, the principle reason cited for the heightened expense of books is the need to provide more than just a textbook (this might still play a part in pricing today and invites further study):

While many factors affect textbook pricing, the increasing costs associated with developing products designed to accompany textbooks, such as CDROMs and other instructional supplements, best explain price increases in recent years. Publishers say they have increased investments in developing supplements in response to demand from instructors (GAO 2005, p.i).

Returning to the Kirtsaeng dilemma, the challenges for the publishers to produce quality textbooks at home and abroad, while acknowledged by Justice Breyer, did not shift the focus of the case. He writes:

Wiley and the dissent claim that a nongeographical interpretation will make it difficult, perhaps impossible, for publishers (and other copyright holders) to divide foreign and domestic markets. We concede that is so. A publisher may find it more difficult to charge different prices for the same book in different geographic markets. But we do not see how these facts help Wiley, for we can find no basic principle of copyright law that suggests that publishers are especially entitled to such rights (p.31).

Breyer even goes so far as to indicate that giving the publishing sector the legislative power to divide markets would bring in an undercurrent of antitrust behavior:

We have found no precedent suggesting a legal preference for interpretations of copyright statutes that would provide for market divisions. … To the contrary, Congress enacted a copyright law that (through the “first sale” doctrine) limits copyright holders’ability to divide domestic markets. And that limitation is consistent with antitrust laws that ordinarily forbid market divisions…. Whether copyright owners should, or should not, have more than ordinary commercial power to divide international markets is a matter for Congress to decide (p.32)

And that is where American copyright debate is heading. The last significant changes to the American regime of copyright took place in 1998; with the Digital Millennium Copyright Act and the Copyright Term Extension Act. The last revision of the entire Act was in 1976. Maria Pallante (U.S. Registrar of Copyright) is calling for a complete overhaul of the law; Mike Masnick, writing for TechDirt on 18 March 2013, gave a comprehensive review and analysis of her early proposals. No doubt lobbyists of all stripes are gearing up for debate; the publishing community is sure to seek modification of first sale.

In the meantime, questions of importation are part and parcel of looming international trade agreements. Canada is eager to join the TransPacific Partnership Agreement (TPP), despite having no recourse to negotiating any of its terms. In November 2011, members of the Program on Information Justice and Intellectual Property provided a sobering analysis of the agreement from the perspective of the public interest. On the matter of market segmentation, the TPP would remove the flexibility of nations to import copyrighted works from the supplier (and country) of their choice, a flexibility that benefits consumers and is consistent with existing World Trade Organization regulations.

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