Today, the Supreme Court will take a closer at this “grey marketing” issue — and decide how to balance consumers’ right to use their property against owners’ rights to set prices.

The outcome will affect your right to buy and sell books, music and more. Here’s a plain-English guide to what the case is about and what it means for you:

What do you mean I can’t resell this book? I bought it fair and square

In the past, a publisher’s right to control distribution ended after they sold a book — copyright’s “first sale” rule. But last year, an appeals court said this rule only applied if the book (or other item) was made in the US . This means that if you resell a book or a toy made in China or the UK, you’re infringing copyright.

What led to the ruling?

A Thai-born man studying at a US school realized he could buy his textbooks much cheaper in his home country. He began importing large quantities of books and reselling them on eBay. Other people began doing the same, leading publisher John Wiley to bring a copyright suit to stop this. Last year, an appeals court sided with John Wiley.

Does this apply to just books or to any imports?

It can apply to anything protected by copyright. The case is so important because manufacturers are relying on the rule, too — by putting artistic designs on their products so they qualify for copyright protection. That’s what watch maker Omega did a few years ago; Omega put a tiny picture on its watches  and then sued the retailer Costco for copyright infringement (Omega was upset that Costco was buying the watches overseas and then selling below the suggested price in the US).

Here’s a look at the tiny design that Omega used to make its watches eligible for copyright protection (other companies will likely try the same trick) :

In the bigger picture, the textbook and Omega watch cases show how real time information makes it easier for sellers to engage in arbitrage — buying goods in other markets to resell back here. Publishers and manufacturers believe the resellers are engaged in an unfair business practice and are using copyright to stop this.

But what if I have a yard sale or sell my stuff on Craigslist?

That’s the problem. In the John Wiley textbook case, the appeals court didn’t set out any limits to the “no resale” rule. This means, in theory, that anyone who resells an overseas good could be violating copyright.

In reality, it’s a pretty safe bet that publishers and manufacturers are not going to run around shutting down garage sales. But the ruling could spell trouble for used book stores, consignment stores or other merchants who sell used goods.

If you’re into the legal nitty-gritty, the Copyright Act has two sections that seem to contradict one another: One section says unauthorized imports violate a copyright owner’s exclusive right to distribution (which favors the publisher). The other section limits the rights of the copyright owner by saying the owner of a copy ”lawfully made under this title” can sell it (which favors the consumer).

What’s the Supreme Court going to do?

The court can overturn the appeals court case, leaving us to carry on as before. If it decides to uphold the ruling, the vourt may try to limit its effect, perhaps by declaring the rule only applies in special cases. Or it may simply uphold the case and leave it to Congress to clean up the ensuing resale mess.

How does the case affect digital book or music sales?

 
It won’t have a big affect because, for better or worse, we don’t really own our digital books and music — we license them from Apple or Amazon. The Supreme Court case — which turns on physical objects we do own — is about non-digital property.

Any predictions on the outcome?

The Supreme Court heard the same issue in 2010 when Omega and Costco argued about the watches. That case resulted in a 4-4 tie which means the lower court ruling against Costco (and consumers) was upheld. The tie came because Justice Elena Kagan recused herself. She will cast a vote this time — likely the deciding one. It’s hard to predict which side she will take.

I can’t get enough of this first sale copyright stuff. Where can I learn more?

Legal reporter Joe Mullin of Ars Technica has a great profile of the facts and legal background: How a Supreme Court ruling may stop you from selling just about anything. And SCOTUSblog has the filings and more for Kirtsaeng v. John Wiley & Sons.

(Image by Monkey Business Images via Shutterstock)

Although the Berlin-based company, headed up by local entrepreneur and super-angel Christophe Maire, did previously try to make its own physical e-reader, it now focuses on providing its own e-reading apps for use by third parties. That includes a number of significant customers, including white-label stores for the likes of Samsung, Toshiba, T-Mobile, the UK book chain Foyles and the Dutch e-tailer bol.com.

It already had content deals with Random House and a few others, but it’s now adding to its roster with deals to add titles from Hachette, Houghton Mifflin Harcourt, Wily and Penguin — as well as the Ingram Content Group’s Core Source Plus program.

“The strength of txtr is this: its international operations in terms of store management, e-commerce, and publisher relationship management,” chief commercial officer Thomas Leliveld said. The deal, he added, meant that “the txtr catalogue soon will rival that of long-established U.S.-based e-book companies.”

Not only has the company (which is quarter-owned by U.S. omnicorp 3M) inked these new publisher partnerships, but it’s also opening a New York office under the leadership of Dan Vidra, a 12-year veteran of Simon & Schuster. According to Vidra, the U.S. push is a “natural extension” for the firm, given that many of its device-manufacturer partners are also present in that market.

“The USA is the world’s largest and most advanced e-book market. This makes it necessary for a global e-book player to have a presence,” Vidra said.

Txtr already runs more than 25 local-language e-book stores. Sure, it’s hard to imagine it going head-to-head with the Kindle or the Microsoft-backed Nook, but that’s not really the game txtr is playing.

Fact is, as long as device manufacturers and telcos want to resist ceding content control to Amazon and the rest, they will want to bundle other e-reader apps alongside their products and services. Here txtr comes up against rivals such as Bluefire — but the Vidra hire and publisher deals announced this week could give it an edge over its competition.

According to TorrentFreak, Verizon has argued that the request for subscriber information is flawed for several reasons, including that an IP address may lead to a name, but that name may not be the alleged pirate, and that the request seemed like it was designed to harass subscribers rather than achieve any legitimate legal goal. With this argument, Verizon joins others, including judges, that are beginning to view the content industry’s efforts to flush our pirates as a type of extortion designed to get a settlement.

As my colleague Jeff Roberts wrote in November when one of these suits was filed:

The decision to sue “John Does” reflects the fact that John Wiley cannot immediately identify the actual names of the file-sharers. The publisher is therefore using a procedural tactic that permits it to amend the complaint later on in order to add the defendants’ real names which it can obtain from internet service providers.

John Wiley’s goal with the litigation is likely to force the defendants to agree to a settlement rather than go to a full-blown trial. The publisher has considerable leverage because the Copyright Act provides draconian penalties of up to $150,000 per infringement, meaning many defendants could be willing to pay a few thousand dollars to end the matter.

Verizon’s decision to stand up for its users probably has less to do with some chest-thumping love of online freedom, and more to do with its historical reluctance to become an arm of the law when it comes to policing users for illegal downloads. While many of the historical suits of this nature have focused on music and pornography, the publishing industry and others are seeing their chance to take a little back from online pirates.

If they are successful Verizon and other ISPs face a future of flushing out the John Does on their network and handing their names over to the content industry. That costs money and doesn’t exactly make your customers love you. For a sense of Verizon’s dilemma, check out this 2003 article for a reminder of the era when the RIAA was employing similar tactics to drag potential pirates into the bright lights of the courtroom:

[Sarah Deutsch, who was counsel for Verizon] had received dozens of subpoenas from RIAA and other entertainment trade groups, all of them fairly routine requests. But this one was different. Subscriber X wasn’t hosting illegal content on Verizon’s network; he was a Kazaa client that used Verizon for Internet access, and the disputed content was stored on his hard drive. Verizon had no way of verifying RIAA’s allegations. Deutsch refused to give up Subscriber X’s name.

“We’re not going to become the Internet police for RIAA,” Deutsch said. “There’s a delicate balance between copyright holders’ rights and our customers’ rights that needs to be preserved. RIAA crossed over the line.”

Looks like Verizon feels like Wiley is stepping over that line nine years later.

Recall that publisher John Wiley sued patent firms in March, claiming the law firms should pay extra copyright royalties when they submit a journal article to the US Patent Office.

It was unclear at the time if the firms would settle (as some have reportedly done) or instead tell Wiley to jump in the lake. It appears they’ve chosen the latter.

In new filings, Chicago’s McDonnell Boehnen Hulbert & Berghoff has denied copyright infringement while Minnesota’s Schwegman Lundberg & Woessner is asking the court to throw out Wiley’s complaint.

The law firms say they are required by law to submit the journal articles as part of patent applications, and point out that the Patent Office itself has said the practice is fair use. The Chicago firm is also arguing that its use of the articles is a non-public display, and that John Wiley is committing copyright misuse and has unclean hands.

The controversy stems from John Wiley’s efforts to squeeze extra revenue out of the journals by asking law firms to acquire a second license in addition to paying to read the articles in the first place. This second license would cover the right to make internal copies of the articles for their clients or for the patent office.

Patent law firms pay for access to journal articles because the articles are often part of the “prior art” that inventors must submit to the patent office to prove an invention is new.

Critics say John Wiley’s lawsuits will raise overall patent costs. The controversy hash also gained the attention of leading blog Patently-O.

So far, the publisher is showing no signs of backing off and is instead doubling down. On Friday, it filed a new suit against Kansas law firm Hovey Williams.

Here is what the Chicago firm thinks of Wiley’s complaint:

McDonnell Boehnen Hulbert & Berghoff Answer to Wiley Complaint Copy

On Monday morning, the court broke a logjam when it agreed to hear the appeal of entrepreneur, Supap Kirtsaeng, a California man whose family in Thailand had sent him textbooks to resell. He reportedly sold $37,000 worth of John Wiley textbooks in the US.

The publisher sued Kirtsaeng for copyright infringement in eight textbooks and won to the tune of $75,000 in damages for each book.

Kirtsaeng argues that he is protected by the first sale doctrine — a rule that lets copyright owners exercise their right only the first time an individual book or record is sold. The first sale rule is what allows used book and record stores to do business.

While the first sale doctrine has long been an accepted in the case of goods made in the US, it gets more complicated when it comes to overseas goods — should the rule apply when the first sale in question took place in another country?

The Supreme Court had a chance to resolve the question in 2010 but failed to do so after it deadlocked in a rare 4-4- tie. The tie came after Justice Kagan had recused herself, leaving only eight judges to decide.

The 2010 case involved Costco reselling Omega watches in the US that it had legally purchased overseas.

The new John Wiley case, in which Justice Kagan will take part, will shape brand owners’ ability to maintain pricing power in the face of so-called “grey market” goods from overseas.

Public interest groups had urged the Supreme Court to take the appeal. Public Knowledge, for instance, has warned:

“[The appeal's court] ruling could cripple markets for used books, movies, CDs, toys, and any other goods that contain copyrighted works.”

The Supreme Court will likely hear the case in the fall.

The publisher appears to have been emboldened after a federal court gave it the green light in February to obtain the names of the defendants from their internet service provider.

As a result, an amended court filing now shows that John Jefferson Jr of the Bronx allegedly downloaded “Cooking for Dummies” and Lissette Lopez of Staten Island allegedly downloaded “Vegetable Gardening for Dummies” through bit torrent sites like Demonoid.me

John Wiley is using a controversial legal technique in which, in one case, it sued “John Does 1-46″ and then replaced “John Doe” with real names upon learning their identity.

The court records also show that 40 of the 46 John Does were dropped from the case — indicating that most defendants settled on unknown terms.

The case involving Jefferson Jr, Lopez and the 40 John Does is just one of a dozen similar cases that John Wiley has filed since last October. A key moment in the process occurred in February when U.S. District Judge William Pauley III denied a bid by “Mr. John Doe #7″ to remain anonymous and to have each defendant tried separately.

John Doe copyright suits have proved controversial in the past year. In one case, a rogue lawyer threatened to reveal the identity of thousands of John Doe pornography viewers unless they paid a settlement fee (a judge threw out the case as an abuse of process).

John Wiley’s aggressive legal tactics coincide with a rise in websites that let users share e-books in the same way as music or movie files.

It’s unclear, however, if the settlements are enough to pay for John Wiley’s legal costs and, while the lawsuits will have a deterrent effect, they could also prove unpopular.

Critics say that suing file-sharers reflects a failure to adopt digital distribution models; content owners say they are simply trying to enforce their copyright.

The copyright controversy is about to enter a new phase this summer. Interent service providers, which have long been reluctant to be “copyright cops,” will begin cooperating with content owners on a “six-strike” enforcement model.

John Wiley’s lawyer, William Dunnegan, did not respond to a request for comment.

Amended John Wiley Suit Names Dummies

In lawsuits filed this week, publisher John Wiley & Sons and the American Institute of Physicists claimed that lawyers and their firms in Chicago and Minnesota wrongfully copied journal articles.

The suits make good on journal owners’ threat last month that they would sue patent lawyers who didn’t buy additional license to make internal copies of the journal articles.

The case is important to both lawyers and inventors because scientific articles are an integral part of the patent process. The articles are often included with the bundle of “prior art” that an inventor must submit to the patent office to show that the invention is new. In order to prepare the application, lawyers will often make copies for their associates, the inventor and the patent office.

The journals’ demand is proving controversial, in part because it will increase the overall cost of the patenting process. The US Patent Office itself last month issued a memo saying it was fair use to copy articles for submission with an application, noting that applicants are required by law to do so.

John Wiley and the publishing industry have been increasingly willing to use aggressive legal strategies to enforce copyright, and this latest move could prove both lucrative and risky. On one hand, law firms have the deep pockets to provide a new licensing revenue stream.

On the other hand, the move could trigger a backlash. While John Wiley has enjoyed quiet support in its campaign to sue people who share its “For Dummies” books without permission, these new lawsuits target people who have already paid to use the journals in the first place. Groups like the Copyright Clearance Center say the extra license demand is no different from asking a group to pay more to make internal photocopies of a news article.

It’s unlikely the patent community will see it that way. And John Wiley may receive less general sympathy considering that the authors of the journal articles are typically academics who were never paid for the articles in the first place. (See their complaints in this good Economist piece about the ‘Academic Spring‘).

The publishers’ strategy appears to involve making a test-run in court against the two firms, Schwegman, Lundberg & Woessner in Minnesota and McDonnell Boehnen Hulbert & Berghoff in Chicago. If the firms fold their cards and settle, John Wiley and the physicists may be emboldened to go after larger firms.

Patently-O, a blog that is the bible for US patent lawyers, was not impressed with the copyright demands when they were first raised in January.

Update: Professor Dennis Crouch of Patently-O believes the patent firms have a strong legal case: “It will also be easy for the law firms to obtain an opinion that internal copying also qualifies as a fair use under Section 107 of the Copyright Act.” His full post is here.

A copy of the Minnesota lawsuit is below:

John Wiley, Physics v Patent Lawyers

Faced with a proliferation of unauthorized book-sharing sites, the publishing industry is embracing some of the same legal tactics as their counterparts in the music and movie industry.

On Wednesday morning, an international coalition of publishers said they squelched two websites, library.nu and file.it. The industry described the sites as “one of the largest pirate web-based businesses in the world” and that the former site alone offered more than 400,000 copyrighted titles.

According to the release, the shut-down is the culmination of a long investigation in which the publishers struggled to identify who ran the sites. The site operators, who allegedly earned millions in advertising revenue, were finally located in Ireland. The publishers say they have commenced legal proceedings in both Ireland and Germany.

It’s not immediately possible to verify the claims, but the sites were down on Wednesday afternoon.

In the bigger picture, the announcement reinforces the publishing industry’s full-scale entry into a new phase of the copyright wars in which content owners are banding together to target foreign websites. The most dramatic recent example came last month when law enforcement seized the servers of file-sharing site Megaupload and arrested its owners in a dramatic raid.

Content owners’ recent success in taking down foreign websites also adds grist to the debate of whether new legal powers, like those in the failed SOPA bill, are actually necessary to target piracy.

The publishers’ aggressiveness overseas mirrors similar domestic efforts in the US. This week, publisher John Wiley launched a new series of “John Doe” suits to identify individuals who had downloaded its “For Dummies” books.

Note: An earlier version of this story stated that library.nu redirected to Google (NSDQ: GOOG) Books. The site is no longer doing so and it is unclear why it was doing so before. A Google representative said the company was unaware of the issue.

The litigation campaign reflects the fact that, in recent years, unauthorized file-sharing has become a problem for book publishers in the same way it has for the music and movie industry. In terms of file size, books are tiny compared to songs or videos and this makes it quick and easy for people to swap online copies. John Wiley claims that, since 2010, people have downloaded its “DOS for Dummies” title more than 74,000 times on the website demonoid.me

In a new lawsuit filed this week in New York federal court, John Wiley named more “John Doe” defendants and listed the titles they downloaded along with their location and IP address. Unlike a similar suit filed two weeks ago, the list of alleged offenders does not include many technology aficionados. Instead, the new list of miscreants is made up primarily of people from upstate New York towns like Rochester and Woodstock who shared “Cooking Basics For Dummies” and “Vegetable Gardening For Dummies.”

William Dunnegan, an attorney for John Wiley, said he could not comment on the litigation and would only confirm that it had been expanded to include 46 new “John Does.”

The decision to sue “John Does” reflects the fact that John Wiley cannot immediately identify the actual names of the file-sharers. The publisher is therefore using a procedural tactic that permits it to amend the complaint later on in order to add the defendants’ real names which it can obtain from internet service providers.

John Wiley’s goal with the litigation is likely to force the defendants to agree to a settlement rather than go to a full-blown trial. The publisher has considerable leverage because the Copyright Act provides draconian penalties of up to $150,000 per infringement, meaning many defendants could be willing to pay a few thousand dollars to end the matter.

This tactic of suing ‘John Does’ en masse has proved controversial with courts, however. As Ars Technica reported, a West Virginia lawyer this year partnered with a pornography studio in an attempt to extract payments from thousands of anonymous defendants — many of whom presumably pay to avoid embarrassment. Judges have halted the suits, saying the defendants should be sued one at a time, but this has led the lawyer to simply try again in different jurisdictions.

The John Wiley lawsuits suggest the book business is turning to the type of aggressive litigation long used by the music and movie industries. Many critics decry these tactics, claiming that copyright penalties are grossly disproportionate to the offense and that content industries should focus instead on developing new digital business models rather than suing people. Copyright owners believe that lawsuits are an effective deterrent and claim that piracy is making it impossible for them to invest in new content.

John Wiley launched the ‘For Dummies’ franchise in 1991 and has since sold more than 200 million copies in numerous languages.

John Wiley Lawsuit against Does

The lawsuit filed last week in Manhattan federal court included a list of anonymous users and the titles they downloaded. The most popular title was Photoshop for Dummies, but other defendants opted for how-to books on calculus, home repair and day-trading. The downloads threaten the Dummies franchise which has sold more than 200 million copies since it was launched in 1991.

The case suggests that unauthorized file-sharing, which has long plagued the music and movie industries, is now taking a bite out of traditional book publishers as well. John Wiley claims that its Photoshop book, which retails for around $20, has been downloaded more than 74,000 times since summer of last year and that lost revenue from filed-sharing may harm its ability to publish and pay authors. The publishing industry has not been as litigious as other content sectors but that may now be changing.

“The problem affects book publishers as it affects all content owners, and with the growing popularity of e-books, various strategies to address illegal file-sharing, including litigation, will necessarily grow as well,” said Susan Kohlmann, a copyright expert at Jenner & Block in New York.

In this case, John Wiley sued 27 “John Doe” defendants residing in New York on the basis of their IP address — a number that identifies a given computer or router. The publisher is likely to replace the John Does on the lawsuit with the names of real people after it learns their identities from the downloaders’ Internet provider. Or it may simply go directly to the accused downloaders and ask for a settlement.

Content owners regard these type of lawsuits as a deterrent, but the tactic is a controversial one. Some argue the lawsuits are disproportionate to the alleged offense, while others note that an IP address does not establish who did the downloading.

On the other hand, John Wiley may feel it has no choice. The company’s reference book niche is already under threat from a growing number of web-based “e-how” resources, and the file-sharing trend could mushroom. Book files are easier to swap because they are much smaller than music or movie files, and new technologies have made it easier to scan and upload a book.

The John Does in the case traded the books on a Montenegro Ukraine-based site, called demonoid.me. The site shows a variety of copyrighted material still available for download, including ‘dummies’ titles such as “Business Ethics for Dummies” and “Sex for Dummies.”

The series began in 1991 with the publication of “DOS for Dummies.” John Wiley has since published more than 1,800 other titles in 30 languages.