Digital Directions: Rethinking the Monolith
Andrew Brenneman, founder of Finitiv.
Supap Kirtsaeng came from Thailand to the United States to study at Cornell. Much to his chagrin, he found that Wiley textbooks cost a good deal more in the U.S. than back home. Seeing not only a less expensive way to get the textbooks he needed, but also a business opportunity, Kirtsaeng had relatives in Thailand send Wiley textbooks to him in the U.S., which he sold on eBay.
Kirtsaeng realized that he had an opportunity to arbitrage the international pricing discrepancy of the same textbook. He was able to profit from this arbitrage opportunity, to the tune of $1.2 million. Not surprisingly, Wiley took him to court in 2008.
Kirtsaeng V. Wiley was put to rest on March 19, 2013, with a decision from the U.S. Supreme Court, which found in favor of Kirtsaeng. The decision of the Court was based upon the first sale doctrine of the U.S. copyright law. The first sale doctrine addresses the rights of distributors of physical copies of copyrighted works, stating that, once a physical copy is sold, the copyright owner no longer has a claim in the specific material object in which the copyrighted work is embodied, and that the buyer of the copy can then dispose of it as he or she sees fit, including reselling it. If that content is protected under copyright, the buyer cannot create additional copies of the book, but the buyer can sell their copy. On that basis, Kirtsaeng had the right to resell the copies he purchased, even if he purchased them in Thailand.
Publishers did not meet this decision with enthusiasm. For some time, U.S. educational publishers have sought opportunities for revenue growth by selling textbooks abroad that are nearly identical to the books sold in the U.S. However, acknowledging realities of local economics, publishers typically sold those books at prices far less than in the U.S. They could afford to do so because the international sales represented purely incremental revenue. The Kirtsaeng decision essentially removes publishers' ability to differentially price for international markets: If they price the foreign sales lower they are exposed to Kirtsaeng-style arbitrage entrepreneurs who will undermine their U.S. pricing. On the other hand, if they price international sales at the same rate as U.S. prices, they will likely lose the international sales. Both paths are unpleasant for them to contemplate.