Commercial Use of Infringing Works is Forbidden even if the Works were Purchased under Market Overt

A longstanding dispute involving the famous “Ibn-Shushan Dictionary” led to a key ruling of the Supreme Court regarding the indirect breach of copyright by a party that purchased the goods in good faith under market overt. The Court ruled that although the

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third party may be considered as the legal owner of the goods, he cannot exploit the goods commercially in ways which are reserved to the copyright owner. Any commercial use of the goods constitutes an indirect breach of copyright, and the defense of the market overt does not apply to this scenario.

The Appellants in this case were the heirs of the late linguist Abraham Ibn-Shushan, author of “The New [Hebrew] Dictionary”. Kiryat Sefer Ltd. was the publisher of the dictionary. In previous proceedings between the Appellants and the publisher the court stipulated, in partial judgment, that the publisher violated the agreements with the Appellants, and therefore the Appellants rightfully revoked their then existing agreements. It was also determined that once the agreements were revoked, the publisher had no right to make any use of the copyrighted works.

Previously to the above legal proceedings, the Respondents engaged in marketing books, and used to buy copies of the dictionary from the publisher. The Respondents purchased dictionaries during the above legal proceedings as well as after the partial judgment was given, in December 1998. The Respondents were not parties to the above legal proceedings. In May 1999 the Appellants notified the Respondents about the partial judgment and warned the Respondents not to pursue any further marketing of the dictionaries. The Respondents refused, claiming that they had all rights to market the dictionaries that they purchased under market overt from the publisher.

In 2000, the Appellants filed a lawsuit against the Respondents, which sought a permanent injunction prohibiting the Respondents from continuing to market the dictionaries, to order the return of all the remaining copies to the Appellants, the repayment for all the infringing sales and compensation. The suit was rejected. The District Court found that at the time of the sale of the dictionaries to the Respondents the publisher was not infringing the rights of the Appellants, and therefore these dictionaries cannot be considered as “infringing works”. Hence the appeal.

The Supreme Court accepted the appeal in part stating that as opposed to a direct violation of copyright, under Section 2(2) of the Copyright Act of 1911 (which applies to this case, the equivalent section in the Copyright Act of 2007 being Section 48) the indirect infringement of copyright requires that the infringer knew, at the time of the indirect infringing activity, that the work was an infringing work, usually infringed by a third party which is unrelated to the indirect infringement. The element of knowledge spreads to include “turning a blind eye”.

The first question in this case was whether the copies that were sold by the Respondents were infringing copies under section 2(2), or the Respondents are protected by their ignorance. There was no dispute that after the Appellants notified the Respondents they knew about the partial judgment and that the agreements were cancelled. The Respondents argued that until they were notified by the Appellants they enjoy a defense of ignorance. The court accepted this argument determining that the Appellants were not entitled to any remedy regarding the dictionaries that the Respondents sold before they were informed of the partial judgment.

A separate – and more important – question related to the dictionaries that the Respondents sold after receiving they were informed. In this matter, the Supreme Court reversed the ruling of the District Court, according to which the works that the Respondents purchased before the partial judgment and were sold after they became aware of it were not infringing works.

The Supreme Court determined that once the Respondents received the cancellation notice, rightfully issued, the copyrights returned to the original copyright owners, and in this case the rights in the dictionaries returned to Appellants, all dictionaries produced by the publishers after the cancellation of the agreements, including the dictionaries sold to the Respondents after receiving the cancellation notice, constitute “an infringed work”. The defense of ignorance does not apply to the Respondents.

The District Court distinguished between the obligatory rights of the Appellants and the Respondents and the property right – the copyright – of the publisher in the works. The Supreme Court denied this distinction, determining that in the case of copyright, as an intangible right, there is an identity between the obligatory right of the Appellants to retrieve the copyright once the agreements were cancelled and their “property rights” in the copyright.

The Supreme Court further examined the rights of a trader, who acquired infringing works in accordance with market overt (not knowing of the infringement, and hence the required good faith regarding the market overt), but after having learned of the infringement wanted to continue to carry out commercial activity in the property. The Supreme Court stipulated that in this narrow aspect, there is no room to grant that trader who wishes to continue to carry out commercial activity in the infringing property the defense of “market overt”. Even if the actual acquisition of the infringing work is protected by the market overt, and the trader is protected from being obliged to return the property, destroy it, or repay compensation, the commercial activity in the property is prohibited. A similar approach was adopted the Copyright Act of 2007, in Section 60(c).

This approach ensures that the “End User” who purchased a property under market overt would not find himself suddenly exposed to different requirements of the copyright owner in the property. However, commercial exploitation of the work in any of the ways reserved to the copyright owner in the work, will be limited to this end user. Any commercial use of the property, including marketing, knowing that the property is an infringing work, would be considered an infringement of copyright under Section 2(2) of the Copyright Act of 1911, and the infringer would be liable to compensate the copyright owner.