U.S. Supreme Court, Decision of 13 December 2010, Costco Wholesale Corporation v. Omega, S.A.

On December 13, 2010, the U.S. Supreme Court issued a per curiam opinion stating that it was equally divided on the issue presented in Costco Wholesale Corp. v. Omega S.A.[1]

The split court, therefore, affirmed the decision of the Ninth Circuit Court of Appeals that the first sale doctrine is not available as a defense to a claim for copyright infringement for imported goods featuring copyrighted material if the goods were manufactured abroad.

Background

In 2004, Costco began to sell gray market Omega "Seamaster" watches for just $1299, nearly $700 less than the suggested retail price of the authorized watches in the United States. Omega's watches are manufactured in Switzerland and sold worldwide through a network of authorized distributors and retailers. Costco did not obtain these watches from Omega's authorized distributor in the United States, but instead obtained them from an American supplier in New York, after they had been imported. Through discovery, it was revealed that some of those watches purchased by Costco had originally been sold by Omega to its authorized distributor in Paraguay who subsequently sold them into the regular stream of commerce. At some point thereafter, the goods were imported into the United States and then sold to Costco.

As part of an admitted strategy to restrict the resale of its goods, Omega registered the "Omega Globe Design" with the U.S. Copyright Office and began engraving the symbol on the back of certain models of its Swiss-manufactured watches (as depicted in the below image included in Costco's brief):

Upon discovering that Costco was selling gray market Seamaster watches in the United States, Omega filed a suit for copyright infringement in the Federal District Court in California. Omega and Costco filed cross-motions for summary judgment in the District Court. Omega argued that Costco had infringed its exclusive right to distribute its copyrighted work in the United States by selling Omega watches bearing the design without authorization. Costco argued that under the first sale doctrine, Omega had lost the exclusive right to distribute the work upon its authorized first sale of the watches in Switzerland. The District Court ruled without explanation in favor of Costco.

The Ninth Circuit reversed the District Court's decision in favor of Omega, holding that foreign-made, non-piratical copies of a U.S. copyrighted work are only subject to a first sale doctrine defense if they have been sold in the United States with the copyright owner's authority. Costco subsequently appealed the decision to the Supreme Court.

Supreme Court Review

Question Presented

The question presented to the Supreme Court was whether the first sale doctrine applied to imported goods manufactured abroad. The first sale doctrine, codified in 17 U.S.C. § 109(a), states that 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. Central to the dispute between the parties was the interpretation of the phrase "lawfully made under this title." Omega argued that Congress' inclusion of the phrase "lawfully made under this title" was intended to limit the applicability of the doctrine to copyrighted material made only in the United States. Omega also argued that applying the first sale doctrine to foreign-made copies would result in the extraterritorial application of U.S. law. Thus, because the watches at issue were manufactured in Switzerland, where Title 17 has no effect, the first sale doctrine should not apply.

Costco, on the other hand, argued that the phrase only required that the copies would have been lawfully made with the authorization of the copyright owner as required by Title 17 or otherwise authorized by specific provisions of Title 17. Further, Costco attempted to rely heavily on the Court's prior decision in Quality King v. L'Anza (1998), a case involving hair care products that had been previously manufactured in the United States, sold outside of the United States, and then re-imported into the United States. In response, Omega distinguished that case as involving goods made in the United States, not abroad. Costco also argued that providing greater protection to foreign-made copies of U.S. copyrighted works than for domestic copies would encourage U.S. copyright owners to outsource their manufacturing process overseas, a result which Congress would not have intended.

The Supreme Court's Decision

After reviewing the briefs of the parties and 18 amicus briefs from entities such as Amazon.com, eBay, Google, the Motion Picture Association of America, and the Recording Industry Association of America, the Supreme Court affirmed the Ninth Circuit's judgment by an equally divided court. Although the Supreme Court affirmed the Ninth Circuit decision, the court's ruling is not binding on all courts nationwide although various other federal courts outside of the Ninth Circuit have similarly held that the first sale doctrine is not applicable to imported goods manufactured abroad.