Tuesday, January 27, 2015

Omega S.A. vs. Costco Wholesale Corp: First Sale Doctrine vis-à-vis Imported Goods

On January 20, 2015, a three judge panel from the United States Court of Appeals for the Ninth Circuit passed a decision which is a victory for Costco and other similar retailers alike. The Court affirmed the decision of the Central District of California which had granted summary judgment to the defendant, U.S retailer Costco. The defendant had been sued by the Swiss Luxury Watches manufacturer, Omega for copyright infringement.

Omega manufactures luxury watches in Switzerland, which it distributes around the world. One of Omega's high-end watches, the Seamaster, often bears an engraving of the Omega Globe Design (“Omega Globe”). Omega obtained a copyright for the Omega Globe in March 2003 and began selling watches with the engraving in September 2003. In 2004, Costco purchased 117 Seamaster watches bearing the Omega Globe on the so-called “gray market”. Omega sold the watches to authorized foreign distributors. Unidentified third parties then bought the watches and sold them to ENE Limited, a New York company. It was from ENE Limited that Costco then purchased the watches. Furthermore, Costco sold the watches to its members in California.

Omega sued Costco for copyright infringement claiming that it had authorized the initial sale but did not approve of the importation of the watches into the U.S.   Costco defended on the grounds of the first sale doctrine, which currently provides a defense for reselling goods manufactured in the United States that are resold by retailers or distributors. Costco claimed that the doctrine applies to foreign-manufactured goods as well. The Central District of California granted summary judgment to Costco, noting that Omega had engraved the Globe Design on its watches at least in part to control importation of the watches, and thus had misused its copyright. According to Costco, the first sale doctrine allows a copyright holder to control the initial distribution of his product, but prevents the copyright holder from controlling a copy’s distribution once it has entered the stream of commerce. Costco argued that copyright holders would be able to eliminate both secondary markets for copyrighted products and the market for used goods. According to Costco, copyright holders would also be able to restrict rental-, lease-, and other lending-based markets.
While the Costco suit was under way, the Supreme Court held in 2013, in Kirtsaeng v John Wiley & Sons that the first sale doctrine also applies to copies of protected works lawfully manufactured abroad. Since the Kirtsaeng judgment retroactively applied in Costco, the Ninth Circuit found that Omega had no copyright infringement cause of action against Costco.

“Omega’s right to control importation and distribution of its copyrighted Omega Globe expired after that authorized first sale, and Costco’s subsequent sale of the watches did not constitute copyright infringement”.

- Nayanika Singhal