September 6, 2012

Textbooks Too Expensive? How the Supreme Court Might Make it Worse

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Chances are that this semester you paid hundreds of dollars for textbooks and related materials. Depending on an upcoming ruling from the Supreme Court, the prices you pay for these materials might get even worse.Supap Kirtsaeng, who received a mathematics degree from Cornell, was studying for his Ph.D in California when he thought of an ingenious way to make money: selling Thai textbooks to American college students. In countries like Thailand, American publishers sell cheaper copies of American textbooks, essentially lowering their profit margins on each textbook in order to sell them to students in poorer countries. These foreign textbooks are exactly the same as American textbooks in terms of content, except that they are sometimes made with cheaper materials. Because the price difference between American and Thai textbooks can be large, there’s significant money to be made in selling these cheaper textbooks to American students.  Accordingly, Kirtsaeng had friends in Thailand mail him cheap Thai-edition textbooks, which he sold to students on eBay for insanely cheap prices.

Predictably, Kirtsaeng’s profits made textbook publishers like Wiley angry — after all, Kirtsaeng was cutting into their geographically segregated business model. Thus, Wiley sued Kirtsaeng in 2008.

So far, Wiley has won. The New York District Court and the Court of Appeals both held that Kirtsaeng violated copyright by selling Thai edition textbooks in America.  In doing so, both courts held that Kirtsaeng could not avail himself to the “first sale doctrine” — a doctrine which allows consumers to re-sell copyrighted or trademarked products that they have legally purchased from a copyright / trademark holder without being in violation of copyright.  According to those courts, the first sale doctrine only applies to goods sold within the U.S. — meaning that no-one can import and sell a copyrighted / trademarked good intended only for foreign audiences without the permission of the copyright / trademark owner.

The Supreme Court will hear oral arguments on Kirtsaeng’s case next month.

The idea that the first sale doctrine only covers products “intended” to be sold in America should worry you a great deal. After all, global price discrimination allows companies to make their products arbitrarily more expensive in America, and importers like Kirtsaeng made those products much cheaper than they would have been otherwise.

Take, for example, Costco. Costco, like Kirtsaeng, buys products from the “gray market” — that is, they buy genuine goods sold cheaply in foreign countries intended only for foreign consumers. Costco then sells those gray market goods in America for cheaper than the companies sell them. Costco used to do this with a variety of luxury goods, including Omega watches — at least, until Omega sued them in 2007, using substantially the same legal arguments as Wiley.

There’s a reason why big names like Costco are involved in the gray market: countless companies’ price discriminate. Companies like Levi’s make a lot of their profit selling jeans that cost $30 in America for $150 in Japan. A lot of other American clothiers — including the Gap, Ralph Lauren, and Nike — do the exact same thing, principally because their clothing has taken on a uniquely fashionable status on the streets of Tokyo. Naturally, many Japanese companies have similar business models: Japanese companies often sell Japanese-made clothing to American fashionistas for up to two times the price it goes for in Haraujuku or Shibuya.

There are legitimate reasons why companies may want to regionally segregate prices. Because demand for products varies wildly depending on location, if companies are allowed to control the importation of their products, companies can adjust regional prices to meet local demand and to accommodate for shipping expenses. Moreover, if companies like Costco continue to import cheaper versions of manufacturers’ goods from foreign countries, manufacturers may globally inflate prices in order to guarantee a certain level of profitability from their goods, and this could hurt poorer consumers.

There are also some industries that have unique problems that are solved by global import limitations, regardless of the prices affixed to the products. For example, in Russia, movie studios often sell stripped-down “R5” DVD editions of movies currently in American theaters because Russian consumers almost always pirate (and thus do not pay for) movies unless they are available for purchase immediately at release. In other words, through import control, movie studios can tailor their sales strategy to meet the unique market issues — and that’s not necessarily a bad thing.

What will happen if the Supreme Court holds that Kirtsaeng cannot avail himself to the first sale doctrine? Companies will be given free reign to price segregate all they want, for both good and for bad. Textbook manufacturers could potentially sell a book in Thailand for $1 and in America for $1,000, and there is little you could do about it.

Let’s just hope that the Supreme Court remembers that even they were students once.

Kirk Sigmon is a third-year law student at Cornell Law School. He may be reached at kas468@cornell.edu. Barely Legal appears alternate Fridays this semester.

Original Author: Kirk Sigmon