Cases of Interest: Omega S.A. v. Costco Wholesale Corp.

Case(s): Case Nos. 11-57137, 12-56342 (9th Cir. Jan. 20, 2015).

Facts: Omega S.A. (“Omega”) is a Swiss manufacturer of luxury watches, which it sells through authorized distributors and retailers throughout the world. One of its most high-end watches, the Seamaster, includes an engraving of a small Omega Globe design, which is protected by a federal copyright registration.

Costco Wholesale Corporation (“Costco”) is an American membership-only warehouse club that sells an array of goods, but is not an authorized retailer of Omega watches. In 2004, Costco acquired roughly 120 Seamaster watches bearing the Globe Design on the “gray market,” from third parties that acquired the watches through Omega’s authorized foreign distributors. Costco later resold those watches in the U.S. for below Omega's suggested retail price. As a result, Omega filed suit against Costco, alleging that Costco's sale infringes its copyright of the Omega logo on the back face of the watch, and further claiming that Costco imported its copyrighted work without its permission. “Omega reasoned that although it authorized the initial sale of the watches, it did not approve the importation of the watches into the U.S. or Costco’s later sale of the watches.” (TTLF).

In response, Costco argued that Omega is precluded from bringing a copyright action after a sale due to the Doctrine of Exhaustion, or "first sale" doctrine, under which certain rights are "exhausted" after a sale of the copyrighted good.

District Court

The U.S. District Court for the Central District of California initially granted summary judgment to Costco based on the “first sale” doctrine, “holding that once Omega first sold the copyrighted works abroad, it could not claim infringement based on the importation and distribution of those works in the U.S.” (Lexology).

On remand, the district court once again granted summary judgment to Costco—this time finding that Omega had misused its copyright in the Globe Design to control the importation of Omega watches sold overseas. “Although Omega owned a copyright in the Globe Design, Omega’s watches are “useful articles” and are not otherwise entitled to copyright protection. Omega’s use of the Globe Design to control distribution of its watches constituted misuse of copyright to expand Omega’s limited monopoly over the Globe Design to its uncopyrightable watches.” (Lexology).

Court of Appeals

The Ninth Circuit initially reversed the district court’s decision, finding that the first sale doctrine does not apply to copyrighted works manufactured abroad. The court found its interpretation to be consistent with the Supreme Court case Quality King v. L'anza, which held that the first-sale doctrine was a defense to an infringement claim based on unauthorized importation of copyrighted materials made within the U.S. The 9th Circuit distinguished Quality King, and “held that since the Omega watches were not manufactured in the United States, they were not ‘Lawfully Made’ under U.S. law.  Therefore, the doctrine of First Sale did not apply.  Consequently the court held that Omega enjoyed the exclusive ability to import the watches even after they had already been sold.” (Thomson Reuters).

Omega again appealed the district court’s decision. “After the district court’s ruling, but before the Ninth Circuit ruled on the case, the Supreme Court decided Kirtsaeng v. John Wiley & Sons, Inc., in which the Court held that the first sale doctrine applied to copyrighted works manufactured abroad. The Ninth Circuit applied Kirtsaeng in holding that Omega was barred under the first sale doctrine from pursuing its copyright infringement claim against Costco, and on that basis, it affirmed the district court’s grant of summary judgment to Costco.” (Lexology).

U.S. Supreme Court

An equally divided Supreme Court affirmed the Ninth Circuit’s ruling, thereby essentially holding that U.S. companies that make and sell products abroad cannot prevent those items from being resold in the U.S.

Issue: Under the first-sale doctrine of copyright law, someone who purchases a copyrighted work can later sell the work to someone else without the permission of the copyright holder. Does the "first-sale doctrine" apply to imported works manufactured abroad? (Oyez).

Decision: On December 13, 2010, the Supreme Court issued its decision in its de novo review of the Copyright Act’s impact on foreign-made goods and the first sale doctrine. With Elena Kagan recusing herself, the Court’s 4-4 decision preserved the Ninth Circuit’s decision in favor of Omega.