Omega S.A. v. Costco Wholesale Corp., 2015 U.S. App. LEXIS 830 (9th Cir. Cal. Jan. 20, 2015)

By Irene Calboli

The recent decision by the Ninth Circuit Court of Appeals in the case Omega v. Costco[1] continues, and perhaps concludes, litigation that went on for over a decade, including a hearing in front of the Supreme Court.

To briefly recount the facts, the plaintiff, Omega, is a global supplier of luxury watches, some of which were engraved with a design known as the “Omega Globe.” Omega obtained a copyright registration for the “Omega Globe” in March 2003, and subsequently began selling the watches with the engraved design through authorized distributors and dealers throughout the world. In 2003, Omega and Costco (defendant and discount warehouse respectively) discussed the possibility of Costco becoming a distributor of Omega watches. The parties, however, did not come to an agreement and Costco never became an authorized Omega retailer.[2] Regardless, Costco purchased 117 Omega watches bearing the “Omega Globe” design from ENE Ltd. (that had purchased the watches from an unidentified third party outside the United States), and sold 43 of them in California.

Omega brought suit against Costco for copyright infringement, claiming that Costco imported its copyrighted work without the copyright holder’s permission. Omega reasoned that although it authorized the initial sale of the watches, it did not approve the importation of the watches into the United States or Costco’s later sale of the watches.[3]

The district court granted summary judgment to Costco under the first sale doctrine defense.[4] The 9th Circuit reversed the district court and remanded, noting that precedent held the first sale doctrine did not apply to models of copyrighted works produced abroad.[5] The Supreme Court granted certiorari, and a deadlocked court summarily affirmed.[6] On remand, the district court granted summary judgment to Costco again, this time determining that Omega misused its copyright of the Omega Globe “to expand its limited monopoly impermissibly.”[7] The court found that the purpose of Omega’s lawsuit was to control the unauthorized sale of Omega watches into the U.S. by taking advantage of section 602 of the Copyright Act, which states that the importation of copyrighted goods without the copyright owner’s permission is a violation of the owner’s exclusive right to distribute.[8] Omega appealed the district court’s copyright misuse judgment.

The Ninth Circuit reviewed the district court’s grant of summary judgment de novo[9], in light of the Supreme Court’s decision in Kirtsaeng v. John Wiley & Sons, Inc.[10] In Kirtsaeng, the Court addressed the issue of whether the purchaser of a copyrighted work (lawfully manufactured abroad) could lawfully import the work into the United States under the first sale doctrine.[11] In a landmark decision, the Supreme Court held that the first sale doctrine indeed applies to copies of a copyrighted work regardless of where it was manufactured or first sold worldwide.[12] The Ninth Circuit noted that the Kirtseng’s holding would apply to the case at hand,[13] and concluded that Omega had no valid infringement claims against Costco[14] since Omega’s right to control the distribution of its copyrighted Omega Globe watches expired after the authorized first sale.[15]

Ultimately, the Ninth Circuit affirmed the district court’s judgment in full by also upholding Costco’s attorney fees to be paid by Omega.[16]

Besides the majority opinion, Judge Wardlaw wrote an important concurring opinion on the issue of copyright missies. In particular, Judge Wardlaw wrote that the district court properly concluded that, “because Omega placed the Globe Design on its watches at least in part to control the importation and sale of Omega watches in the United States, Omega had misused its copyright.”[17] The judge went on to explain that inherent in granting a copyright owner the exclusive right to reproduce his works is the risk that she will abuse her limited monopoly and extend the protection beyond what is intended by copyright law.[18] In the present case, Omega attempted to use the “Omega Globe” copyrighted design to control imports and restrict unauthorized retailers from selling its watches (not copyrightable per se as “useful articles”),[19] and this amounted to copyright misuse.[20] Judge Wardlaw thus concurred that the district court was correct in determining that (1) Omega copyrighted the Globe design on the advice of its legal department to control the importation of its watches into the United States, and (2) Omega told its authorized distributors that the purpose of its lawsuit against Costco was to control the unauthorized importation of its watches into the United States.[21] Omega’s objectives were a conspicuous attempt to leverage its copyright ownership to control the market outside of its limited monopoly on the design engraved on the watches.[22]

[1] Omega S.A. v. Costco Wholesale Corp., 2015 U.S. App. LEXIS 830 (9th Cir. Cal. Jan. 20, 2015) (Omega II).

[2] Id. at *3.

[3] Id.

[4] Id. at *4 “(Omega S.A. v. Costco Wholesale Corp., 541 F. 3d 984-85 (“Omega I”) (explaining that the first sale doctrine, means that once a copyright owner consents to the sale of particular copies of work, that same copyright owner cannot later claim infringement for distribution of those copies).)”

[5] Id.; Omega I, 541 F.3d at 990.

[6] Id.; Costco Wholesale Corp. v. Omega, S.A., 562 U.S. 40 (2010).

[7] Id.

[8] Id. at 14.

[9] Id. (the Ninth Circuit explained that they may affirm the district court on any claims raised in previous proceedings and determined that the first issue sale is properly before the court.).

[10] Id. at 5; Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (U.S. 2013).

[11] Kirstaeng, 133 S. Ct. 1355.

[12] Id. at 1355-56.

[13] Omega II, supra note 1, at 5 (citing Rivers v. Roadway Express, Inc., 511 U.S. 298, 312-13 (1994)).

[14] Id. at 7 (noting that “Omega conceded that it authorized a first sale of the watches in a foreign jurisdiction.”).

[15] Id.

[16] Id.

[17] Id. at 10.

[18] Id. at 17.

[19] Id. at 20; 17 U.S.C. §§ 101, 102(a)(5).

[20] Id. at 27.

[21] Id. at 21.

[22] Id.