The U.S. Supreme Court Copyright Decision of Omega, S.A. v.
Costco Wholesale Corporation
The Supreme Court of the United States recently decided a
copyright case involving Swiss watchmaker Omega and retail giant
In a 4-4 split, with no reasons, the Supreme Court affirmed the
Omega, S.A. v. Costco Wholesale Corporation decision of
the Ninth Circuit Court (541 F. 3d 982 (9th Cir. 2008)).
The facts of this copyright case were not in dispute. Omega
manufactured watches in Switzerland and sold them globally through
a network of authorized distributors and retailers. Costco was not
one of them. However, the Omega watches managed to end up in Costco
stores in California, selling for less than the suggested retail
price for authorized resellers in the United States.
How did this happen? Omega first sold the watches to authorized
distributors abroad. Unidentified third parties eventually
purchased the watches and in turn sold them to a New York company
(ENE Limited), which in turn sold them to Costco. Omega authorized
the initial foreign sale of the watches. However, Omega did not
authorize their importation into the United States or the
subsequent sales made by Costco.
What was the copyrighted work in this case? The work subject to
U.S. copyright protection in this case appeared on the underside of
the Omega watches: an "Omega Globe Design". Based on
these facts, Omega filed a lawsuit against Costco, alleging that
Costco's acquisition and sale of the watches constituted
copyright infringement. In particular, Omega alleged that
Costco's activities infringed its exclusive right to distribute
copies of the copyrighted work to the public by sale or other
transfer of ownership (17 U.S.C. §106(3)). Omega also relied
on another provision which provides that importation into the
United States, without the authority of the owner of copyright, of
copies of a work that has been acquired outside the United States
is an infringement of the exclusive right to distribute copies (17
After filing the lawsuit, Omega moved for summary judgment.
Costco filed a cross-motion on the basis of the so-called first
sale doctrine, codified in 17 U.S.C. §109(a) as follows:
Notwithstanding the provisions of section 106(3), the owner of a
particular copy lawfully made under this title, or any person
authorized by such owner, is entitled, without the authority of the
copyright owner, to sell or otherwise dispose of the possession of
that copy. Under this doctrine, once a copyright owner consents to
the sale of particular copies of his/her work (the first sale),
he/she may not thereafter exercise the distribution right with
respect to those copies. This allows libraries to lend books, video
stores to rent DVDs and other grey market activity.
This defence, according to Costco, precluded Omega, who made the
initial foreign sale of the watches, from claiming infringing
distribution and importation in connection with the subsequent,
unauthorized sales of authentic Omega watches. In other words,
Costco argued that Omega's first sale abroad triggered the
first sale doctrine.
The district court ruled in favour of Costco on both motions.
Omega successfully appealed to the Ninth Circuit Court
The Narrow Interpretation of the First Sale Doctrine
The Ninth Circuit Court construed the first sale doctrine
narrowly. It held that the first sale doctrine provides no defence
to an infringement action (under §§106(3) and 602(a))
that involves foreign-made, authentic copies of a U.S. copyrighted
work, unless those same copies have already been sold in the United
States with the copyright owner's authority. In other words,
the first sale doctrine did not apply to the sale of U.S.
copyrighted works manufactured abroad and not authorized for resale
in the United States.
Since there was no genuine dispute that Omega made the copies of
the disputed design abroad (in Switzerland) and that Costco sold
them in the United States without Omega's authority, the first
sale doctrine was not available to Costco as a defence to
What Does this Mean?
The 4-4 split in the US Supreme Court means that the Ninth
Circuit's ruling in favour of Omega will be upheld. That
ruling, however, will only be binding in jurisdictions covered by
the Ninth Circuit, which covers western United States.
What does this mean for foreign manufacturers and brand owners?
In obtaining U.S. copyright protection, a foreign manufacturer may,
indirectly, prevent or control the unauthorized importation of
authentic products (grey goods) manufactured abroad into the United
States, or at least the states covered by the Ninth Circuit.
1. Jeilah Y. Chan is an IP litigation associate in Bennett
Jones' Toronto office. Ms. Chan's article was published in
Carswell's Legal Alert.
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