September 24, 2020

Court sides with Costco in ‘Gray Market’ fight with Omega


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Omega-SeamasterBy Amanda Bronstad, From The National Law Journal
In a closely watched case about the copyright rights of foreign companies, a federal appeals court has struck down Swiss watchmaker Omega S.A.’s attempt to use U.S. copyright law to block Costco Wholesale Corp.’s sale of its luxury watches.
The case, which began when Omega sued Costco for selling 43 of its Seamaster watches with a copyrighted globe design at below market prices, resulted in a split decision by the U.S. Supreme Court in 2010. Costco had obtained the watches through the “gray market”—that is, from an unauthorized distributor that purchased them through third parties.
On Tuesday, the U.S. Court of Appeals for the Ninth Circuit—which originally sided with Omega in 2008—ruled for Costco this time. The opinion cited the Supreme Court’s 2013 decision in Kirtsaeng v. John Wiley & Sons, in which the high court found that the “first sale” doctrine of U.S. copyright law applied to products made abroad that were brought into the United States.
“Kirtsaeng explained that copyright distribution and importation rights expire after the first sale, regardless of where the item was manufactured or first sold,” Senior Circuit Judge Dorothy Nelson wrote. “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.”
In a separate opinion, Circuit Judge Kim McLane Wardlaw agreed with the outcome but based her thinking on the lower court’s reasoning that Omega had misused copyright law.
“The majority opinion fails to do justice to the facts presented by this unique lawsuit,” she wrote. “Omega wielded its copyrighted globe design to restrict unauthorized retailers from selling genuine Omega watches procured from the gray market.”
Costco was represented by Bruce Keller, who leads the intellectual property litigation practice at New York’s Debevoise & Plimpton. Keller, who also represented the commercial broadcast networks in their Supreme Court copyright fight against streaming startup Aereo Inc. last year, did not respond to a request for comment.
Omega attorney Barry Levy, a managing partner at Horvitz & Levy in Los Angeles, did not respond to a request for comment.
Omega, a subsidiary of The Swatch Group Ltd., sued Costco in 2004. The company obtained a copyright on the globe design in 2003 and suggested a retail price of $1,995 for each watch. Costco bought 117 of the watches through the “gray market” and priced them at $1,299 each, according to court records.
In 2007, U.S. District Judge Terry Hatter granted summary judgment to Costco under the “first sale” doctrine.
The Ninth Circuit reversed, finding that Costco couldn’t assert the doctrine over copyrighted works made in foreign countries. The Supreme Court’s review of the case garnered much attention from online retailers and the tech industry. But its 4-4 decision—with Justice Elena Kagan abstaining—effectively affirmed the Ninth Circuit’s ruling.
In 2011, Hatter, on remand, granted summary judgment to Costco after finding that Omega—whose globe design was the size of a hole on a Cheerio and located on the underside of the watch—had misused U.S. copyright law in seeking to expand its monopoly. He awarded nearly $397,000 in legal fees in 2012 after concluding that “Omega’s infringement action was arguably unreasonable and frivolous.”
The Ninth Circuit affirmed that award on Tuesday.
IMAGE: Omega Seamaster. Photo: Rama via Wikimedia Commons
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