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UPDATE 3-U.S. high court rules against publisher on copyright protections

Source : REUTERS
Last Updated: Tue, Mar 19, 2013 22:40 hrs

* Publishers' shares fall on 6-3 court decision

* Reverses decision of lower court

By Lawrence Hurley and Jonathan Stempel

WASHINGTON, March 19 (Reuters) - The U.S. Supreme Court on Tuesday said U.S. copyright holders cannot block products they make elsewhere from being resold in the United States, a blow to publishing companies and other creators of copyrighted content that market their products globally.

By a 6-3 vote, the country's highest court said the "first sale doctrine" applies to copies of a copyrighted work lawfully made abroad.

The decision will provide support for the $63 billion gray market, in which third parties import brand-name goods protected by trademark or copyright into the United States. These products often sell at higher prices in the U.S. market than overseas.

The ruling is a loss for U.S.-based copyright holders well beyond the publisher involved in the case, John Wiley & Sons .

Stephen Smith, the president and CEO of Wiley, said in a statement that the ruling is a "a loss for the U.S. economy, and students and authors in the U.S. and around the world."

Shares of publishers fell after the decision, with McGraw-Hill Cos dropping as much as 1.7 percent in New York and Pearson Plc closing down 1.1 percent in London.

In a research note, analysts at Liberum Capital called the ruling "very negative" for Pearson, given that U.S. higher-education textbooks account for at least one-third of its profit.

A representative for Pearson did not immediately respond to a request seeking comment.

Tom Allen, president and CEO of the Association of American Publishers, said in a statement that the ruling "ignores broader issues critical to America's ability to compete in the global marketplace."

The ruling will have "significant ramifications for Americans who produce the books, music, movies and other content consumed avidly around the world," he added.

The decision was a big win for e-commerce companies and the online merchants who sell through marketplaces such as eBay Inc .

If the decision had gone the other way, sellers might have been reluctant to list items for sale online because they would have been unsure whether the item was made outside the United States, exposing them to potential lawsuits from the copyright holders, according to Andrew Shore, executive director of the Owners' Rights Initiative, a lobbying group partly backed by e-commerce companies.

"You could have had copyright holders sending cease and desist letters to online sellers, creating a chilling effect on other sellers," he said.

eBay shares climbed 2 percent to $51.50 on Tuesday.

The case arose after Supap Kirtsaeng, a Thai national who studied math at Cornell University and the University of Southern California, helped pay for his education by reselling textbooks through eBay that family and friends had bought in Thailand and shipped to him.

Eight textbooks came from an Asian unit of John Wiley & Sons Inc, which sued Kirtsaeng for copyright infringement and won a $600,000 damages award from a federal jury.

REVERSES LOWER COURT

The 2nd U.S. Circuit Court of Appeals in New York upheld the award in August 2011, saying foreign copies can never be resold in the United States without permission of copyright owners. The Supreme Court ruling overturns the 2nd Circuit.

Kirtsaeng said the "first-sale" doctrine of copyright law protected him and other owners of "lawfully made" copies who sell them without the copyright owners' permission.

Writing for the majority, Justice Stephen Breyer said that "considerations of simplicity and coherence tip the purely linguistic balance in Kirtsaeng's nongeographical favor."

He noted that certain businesses and other entities, including booksellers, libraries, museums and certain retailers "have long relied on its protection," referring to the first-sale doctrine.

The court was not split along ideological lines, with Justice Ruth Bader Ginsburg, a liberal, writing a dissenting opinion in which she was joined by Justice Anthony Kennedy and, in part, Justice Antonin Scalia, both conservatives.

Ginsburg described the majority's ruling as a "bold departure from Congress' design."

The decision "shrinks to insignificance copyright protection against the unauthorized importation of foreign-made copies," she added.

Joshua Rosenkranz of Orrick, who argued the case for Kirtsaeng, said in an email that Tuesday's ruling resolved an imbalance that had favored copyright holders.

"If manufacturers want to gouge U.S. customers with higher prices, they have to accept the reality that the marketplace will respond," he added.

Wiley's lawyer was Theodore Olson of Gibson, Dunn & Crutcher.

The case is Kirtsaeng v. John Wiley & Sons Inc, U.S. Supreme Court, No. 11-697.

Another case, involving Pearson, is pending before the court and will likely be resolved in light of Tuesday's decision. That case is Ganghua v. Pearson Education Inc, 11-708.



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