Omega S.A. v. Costco Wholesale Corp., No. 11-57137 (9th Cir. Jan. 20, 2015) [click for opinion]

Omega, a luxury watch manufacturer, distributes its watches around the world. In 2003, Omega obtained a copyright for the Omega Globe design, which is engraved on the back of the Seamaster, one of its high-end watches. In 2004, Costco purchased Seamaster watches bearing the Omega Globe design on the "gray market"—watches that had been first sold to authorized foreign distributors then resold to third parties. The suit arose after Costco sold some of those watches to its California members at below-market retail price.

Omega sued Costco alleging it violated Omega's copyright-based importation and distribution rights when Costco sold gray market watches without a prior authorized first sale in the United States. The district court granted summary judgment in Costco's favor, holding that the first sale doctrine, which creates an exception to the copyright holder's distribution rights, applied. Under the first sale doctrine, a copyright owner's interest in the object containing the copyright is exhausted after a lawful sale takes place. The Ninth Circuit reversed, holding that the first sale doctrine did not apply to copies of copyrighted works that had been produced abroad, and the U.S. Supreme Court affirmed.

On remand, the district court again ruled in Costco's favor, finding that Omega misused its copyright of the Omega Globe to expand its limited monopoly impermissibly and granted Costco attorney's fees totaling approximately $400,000. On appeal, the Ninth Circuit affirmed the district court's rulings, applying Kirtsaeng v. John Wiley & Sons, Inc. 133 S. Ct. 1351 (2013), which was decided while the appeal was pending. InKirtsaeng, the Supreme Court held that copyright distribution and importation rights expire after the first sale, regardless of where the item was manufactured or first sold, meaning the first sale doctrine applies to copies of a copyrighted work lawfully made abroad.

The Ninth Circuit also affirmed the award of attorney's fees, holding that the district court did not abuse its discretion in awarding the fees when it found that Omega sought to improperly exert control over the watches and should have known that copyright law would not condone or protect its actions.

Erin Hughes of the Chicago office contributed to this summary.