When we last left the saga of the luxury watchmaker versus the wholesale giant, the District Court had granted summary to Costco on the grounds of copyright misuse by Omega, but we noted, “It is almost certain that Omega will appeal.”
Omega did indeed appeal, but got nowhere. While the Ninth Circuit panel of Judges Nelson, Wardlaw, and Rawlinson differed on the reasoning, they unanimously affirmed the win for Costco and the District Court’s award of nearly $400,000 in attorney’s fees; however, the judges differed on what theory should be the basis to affirm Costco’s win.Omega S.A. v. Costco Wholesale Corp., 776 F.3d 692 (9th Cir. 2015).
Writing for herself and Judge Rawlinson, Judge Nelson avoided the copyright misuse issue and found that the first sale doctrine precluded Omega’s claim. Due to the quirky history of this case, she held that the Supreme Court’s intervening decision in Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013), which held that the first sale doctrine applies to copies of works made abroad, abrogated the Ninth Circuit’s opposite finding in Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982 (2008), and that the Supreme Court’s evenly split decision (with Justice Kagan recusing) inCostcoWholesale Corp. v. Omega, S.A.,562 U.S. 40 (2010) (per curiam) was nonprecedential. Applying Kirtsaeng retroactively fully invalidated Omega’s claim.
Judge Wardlaw, on the other hand, wrote separately to state that she believed the Ninth Circuit should affirm on the basis of copyright misuse as the issue the parties had briefed on appeal. She detailed Omega’s efforts to leverage copyright law to control the import of luxury watches that it had, for many years, sold without the “nearly invisible” “Global Design” that it finally added at the behest of its attorneys. Though Judge Wardlaw noted that a defendant need not show a violation of antitrust law to prove copyright misuse, she nevertheless called Omega’s motives “anti-competitive,” and named as a consequence a reduction in competition. Key to Judge Wardlaw’s analysis was that Omega owned a copyright only in the tiny “Global Design” engraved on the back of the watches, not the watches themselves, yet Omega sought to restrict sale of the watches. She analogized this misuse to a technology company “surreptitiously plac[ing] a few lines of programming code from its copyrighted software onto a piece of computer hardware that was not entitled to intellectual property protection, with the express purpose of using its copyright to restrict competing retailers from selling that hardware at discounted prices.” Only time will tell whether Judge Wardlaw’s dicta will prove prophetic, but in the meantime, companies may wish to carefully examine copyright claims that serve non-copyright purposes.