This article first appeared in IAM magazine. For further information please visit www.iam-magazine.com

Watchmaker Omega SA portrays itself as manufacturing its products with exacting control over even the smallest detail. A recent decision of the Court of Appeals for the Ninth Circuit extends Omega’s control over its watches even further to include how they are imported into the United States by third parties.

In Omega v Costco the court ruled that the first-sale doctrine is no defence to a copyright owner’s right to control the importation of foreign-manufactured goods into the United States. Omega manufactures its watches in Switzerland and sells them around the world. The back of each watch is engraved with a design that is registered with the Copyright Office. The watches at issue were sold by Omega to an authorised non-US distributor. Through unnamed third parties, the watches were eventually imported into the United States and then sold to Costco, which sold them to consumers. However, Omega did not authorise their importation into the United States, so sued Costco for infringement under Section 602(a) of the Copyright Act, claiming that its copyrighted goods could not be imported into the United States without its permission. Section 602(a) states:

Importation into the United States, without the authority of the owner of copyright under this title, of copies… of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies… under Section 106, actionable under Section 501.

Costco relied on the first-sale defence pursuant to Section 109(a), arguing that the authorised sale of the watches overseas eliminated any control Omega had over the watches as the copyright owner. It relied on L’anza v Quality King, in which the Supreme Court overruled a previous Ninth Circuit opinion to hold that Section 109(a) limited a copyright owner’s rights over importation, even when the sale occurred overseas. However, the goods in Quality King were manufactured in the United States, sold overseas and then imported back into the United States.

The Ninth Circuit read the Supreme Court’s Quality King opinion narrowly, construing it to apply solely to domestically manufactured goods. The court stated that due to the lack of discussion in Quality King regarding foreign-manufactured goods, there was no clear ruling on the issue; therefore, earlier Ninth Circuit precedent that the first-sale doctrine did not apply to foreign-manufactured goods was good law.

The circuit court’s narrow reading of Quality King was more than just splitting hairs. In any first-sale doctrine case the manufacturing location is crucial because Section 109(a) states that the doctrine applies only to goods “lawfully made under this title”.

The Supreme Court has never conclusively ruled on the goods included in that clause, but in Quality King the majority hinted that the case’s holding did not apply to foreign-manufactured goods. Indeed, Justice Ginsberg’s concurrence explicitly said the holding did not apply to “cases in which the allegedly infringing imports were manufactured abroad”. Copyright scholars, such as Professor Nimmer, supported that viewpoint, and therefore the opinion of the Ninth Circuit in Omega, by stating that the reasoning of Quality King effectively validates the “requirement that manufacture of the subject goods take place within the United States in order to take advantage of the first-sale defence”.(1)

Endnotes 

(1) Nimmer Section 8.12(B)(6)(c).