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Supreme Court to determine legality of reselling iPhones, cars, textbooks

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All eyes will be on Justice Elena Kagan on Monday, when the Supreme Court considers a copyright case that some fear could prevent people from reselling certain products they own such as the iPhone, as she may have the deciding vote.

In a case that tests the boundaries of copyright law, merchants and consumers say they have the right to resell what they own, but content creators argue they should be protected from shady deals that undercut retail prices.

The case, Kirtsaeng v. John Wiley & Sons, calls into question the first-sale doctrine, a rule in copyright law that allows the owner of any particular product to resell it. The principle behind it is that the manufacturer controls only the original sale of each copy. But the Supreme Court is considering an exception for products made overseas.

That means you could be stuck with everything from your outdated smartphone to the beat-up clunker you drive to the raggedy clothes you've out grown, if it's made in China, or India, or anywhere else.

Most of the Supreme Court justices have made up their minds on similar cases in the past, and are split on this issue, experts say, but it will be the first such case Justice Kagan, who was nominated by President Obama, gets to consider as a member of the court.

"Most likely her vote will be the one that is on the winning side," said Ronald Mann, professor of law at Columbia Law School. "We'll know more after the arguments. The justices will ask questions, and often the questions will give you insight into what they think about it."

Both sides will also be watching the other justices "to see if they are consistent with the past," he said.

The case revolves around Thailand native Supap Kirtsaeng, who moved to the U.S. for college and found that it was cheaper to buy textbooks back home than here. So he plotted to have his family buy the less expensive textbooks and ship them to the U.S., where he made about $900,000 on eBay, undercutting the publisher's prices.

The Supreme Court will now review the case, after a lower court ordered him to pay John Wiley & Sons $600,000 for the scheme.

The outcome could be devastating: Whether it be online retailers like eBay and Craigslist, thrift shops like Goodwill and Salvation Army, or regular people who want to hold a garage sale, item owners would be required to get the manufacturer's permission before reselling the products they own, and the manufacturer could potentially charge a portion of the resale.

Overstock.com, an online discount retailer, has joined the Owners' Rights Initiative in supporting the first-sale doctrine. President Jonathan Johnson said in an interview it's not fair to make stores figure out which products can be resold and which products need permission to be resold.

"They will make retailers be the policemen for manufacturers," Mr. Johnson said. "Of course, we'll have to police it, unless we're willing to spend our life mired in litigation. Manufacturers should be policing their own sales."

It could also lead to higher prices for consumers, because the manufacturers would face less competition from the secondary market.

"The real loser is the American consumer," Mr. Johnson said. He gave the scenario of a luxury watch that is sold at retail price in the U.S. for $300. "We can go buy that same watch in southeast Asia for $100, bring it back to the customers here and we won't sell it for $300, we'll sell it for a lot less."

Not to mention, creating an exception to the first-sale doctrine could encourage U.S. manufacturers to close up shop and build their products in other countries – at a time when President Obama continues to pound Republican challenger Mitt Romney for his time with Bain Capital, a company that sent jobs overseas.

But manufacturers complain that resellers are taking advantage of them and say there should be an exception to the first-sale doctrine. Particularly in the book publishing, electronics, and movie industries, the content creators say some scammers will buy their products from other countries at lower rates, then bring them back to the U.S. for resale to undercut their prices.

The Motion Picture Association of America and the Recording Industry Association of America filed a joint brief with the Supreme Court in favor of an exception to the first-sale doctrine.

"Copyright protection is essential to the health of the motion picture and music industries and the U.S. economy as a whole," they wrote. "Like the sale of 'pirated' copies, unauthorized importation of copies of protected works made overseas and intended only for sale in a foreign market can undercut or eliminate the economic benefit that Congress intended to provide under the Copyright Act."

The Supreme Court, which will hear arguments on Monday, has repeatedly but unsuccessfully dealt with this issue before, and is looking to put it to rest once and for all.

"It keeps coming back to the Supreme Court and they haven't resolved it," Mr. Mann said.

In 2010, the court considered a similar case, Omega v. Costco, after Costco was sued for reselling Omega's luxury watches in the U.S. without the Switzerland-based company's authorization.

Costco, which purchased the watches through a long line of distributors, argued that the first-sale doctrine allowed them to do so, because the watchmaker had already made the original sale.

The trial court sided with Costco, but the Ninth Circuit Court of Appeals reversed the ruling on the grounds that the first-sale doctrine only applies to products made in the U.S. That decision applies only to the west coast states that are located within the court's reach.

The Supreme Court then agreed to hear Omega v. Costco, but newly-appointed Justice Kagan had to recuse herself from the case, and it resulted in a 4-4 tie.

Shortly before being nominated for the Supreme Court, Justice Kagan participated in the same case as U.S. solicitor general, filing a brief for the Obama administration in favor of Omega and against Costco.

This time around, she faces no conflict of interest in Kirtsaeng v. John Wiley & Sons and figures to be the deciding vote.

Overstock's Mr. Johnson agreed.

"She is the swing vote in this case," Mr. Johnson said. "So that's why a lot of people think this case is a jump ball. It just depends on which way Justice Kagan goes."

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