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IP/Entertainment Case Law Updates

Omega S.A. v. Costco Wholesale Corporation

Relying on Supreme Court’s decision in Kirtsaeng v. John Wiley & Sons, Inc., Ninth Circuit affirms summary judgment in favor of Costco, holding that “first sale” doctrine protects Costco from infringement claims arising from Costco reselling in the U.S. watches that were initially sold abroad bearing a copyrighted design.

Plaintiff Omega S.A. is a manufacturer of luxury watches, which it sells through authorized distributors and retailers in various markets around the world. One of its high-end watches is the Seamaster, on which the company engraves a small, copyrighted Omega Globe Design. Defendant Costco Wholesale Corporation is not an authorized retailer of Omega watches, but in 2004 Costco acquired 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 United States.

Omega sued Costco for copyright infringement, alleging that Costco violated Section 602 of the Copyright Act by importing Omega’s copyrighted work (the Globe Design), without Omega’s permission. In an earlier decision, the district court 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. The Ninth Circuit reversed the district court’s decision, finding that the first sale doctrine does not apply to copyrighted works manufactured abroad. An equally divided Supreme Court affirmed the Ninth Circuit’s ruling.

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. 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.

In a lengthy concurring decision, Judge Wardlaw noted that the first sale doctrine had not been argued or decided below. Rather than affirming on that basis, Judge Wardlaw would have affirmed the district court’s decision based on Omega’s misuse of the Globe Design to obtain a copyright-like monopoly over its uncopyrightable watches.

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