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
