The Ninth Circuit Court of Appeals ruled that the Omega watch company may not block Costco’s sales of Omega watches intended for overseas sales on copyright grounds.

Omega makes watches in Switzerland and distributes them to authorized retailers around the world. One of its high-end watches, the “Seamaster,” sometimes has an engraving of the “Omega Globe Design.” Omega obtained copyright for this design in 2003.

In 2003, Costco and Omega discuss the possibility of Costco becoming an authorized Omega retailer, but the parties failed to come to an agreement.

Gray Market

In 2004, Costco bought 117 Seamaster watches on the so-called “gray market.” These watches were originally sold by Omega to authorized foreign distributors. Unidentified third parties bought the watches and sold them to a New York company that then sold them to Costco. Costco then re-sold 43 of the watches in California.

Omega sued Costco for copyright infringement, based on the unauthorized importation of the copyrighted works.

A federal district court granted summary judgment for Costco based on the first sale doctrine.

Under copyright law, the first sale doctrine means that once a copyright owner agrees to the sale of a particular copy of a work the owner cannot later claim copyright infringement if that work is further distributed.

The Ninth Circuit originally reversed the District Court because Ninth Circuit precedent held that the first sale doctrine did not apply to copies of works that were manufactured outside of the US.

Costco appealed, and the US Supreme Court affirmed the Ninth Circuit’s decision.

The case went back to the District Court, and the court again granted summary judgment to Costco, finding that Omega had misused its copyright. Omega appealed.

Kirtsaeng case

While the case was pending, the US Supreme Court revisited the issue of the first sale doctrine in the Kirtsaeng case. This time, the high court decided that:

copyright distribution and importation rights expire after the first sale, regardless of where the item was manufactured or first sold.

The Ninth Circuit noted that this holding was retroactive and applied to the dispute between Omega and Costco.