Supreme Court to Decide Case of International Copyright Exhaustion

PatentLawPic972Costco Wholesale Corp. v. Omega, S.A., Docket No. 08-1423 (Supreme Court 2010)

The Supreme Court announced today that it would decide the international copyright exhaustion case of Costco v. Omega. Costco purchased Omega watches from a third-party importer and sold the watch for $1,300 instead of the $2,000 suggested retail price. Omega (a division of Swatch) then sued Costco for copyright infringement – alleging that the sale violated the Swiss Company’s US Copyright covering the “Omega globe design” on the back of the watch. In a 2008 decision, the Ninth Circuit agreed with Omega, holding that the US Copyright was not exhausted because Omega had originally sold the watches to distributors in Egypt and Paraguay. This arbitrage was available because Omega sells its watches for a higher price in the US than it does elsewhere.

The question on appeal is whether Omega’s authorized foreign sale exhausted its US copyright.

Under the Copyright Act’s first-sale doctrine, 17 U.S.C. § 109(a), the owner of any particular copy “lawfully made under this title” may resell that good without the authority of the copyright holder. The closest Supreme Court precedent is Quality King Distribs., Inc. v. L’Anza Research Int’l, Inc., 523 U.S. 135, 138 (1998). In that case, the unanimous court held that the copyright was exhausted and therefore that the copyright holder could not block imports of shampoo bottles with copyrighted labels. The Ninth Circuit distinguished Quality King based on the fact that the labels were originally made in the US then shipped abroad before being re-imported. According to the Ninth Circuit, the Omega watches are not subject to the first sale doctrine because they were not “lawfully made under” the US Copyright Act.

The US Patent Laws are also subject to an exhaustion doctrine – although patent exhaustion is entirely judge-made and not subject to statutory interpretation. In Fuji Photo Film Co. v. ITC, 474 F.3d 1281 (Fed. Cir. 2007), the Federal Circuit held that US patent rights are only exhausted through a first sale “in the United States.” In that case, the Federal Circuit recognized that “a different rule applies in copyright cases.” Of course, the Supreme Court’s copyright decisions often interplay its discussion of the two intellectual property forms.

Patent holders that rely upon the current law to block parallel imports will likely want to file an amicus brief to justify a difference between the two regimes.

Thriving Resale Market: EBay argues that the Omega ruling “could have a detrimental effect on the ability of buyers and sellers of secondary-market goods to engage in commerce in the United States.”

Copyright?: Of course, Omega would be hard-pressed to claim copyright in the watch itself. Rather, the copyright claim is in the arrangement of the 8 mm OMEGA symbol and name.  Although not strictly at issue here, the Supreme Court is not likely to overlook the fact that the copyright claim is an artificial construct that Omega is asserting to control downstream uses of its non-copyrighted watch that it otherwise could not control.

Notes:

25 thoughts on “Supreme Court to Decide Case of International Copyright Exhaustion

  1. This will effect the future of international goods being re-sold in america at a lower cost.

    i posted this article on http://www.fameappeal.com

    The fact that ebay could be affected is great news for Omega )and other luxury brands) because i am sure boutique stores around the USA have had falling sales because of the international re-selling of goods.

    another hidden issue is whether the warranty of the watch will be upheld

  2. I bet someone who bought the watch overseas would be REALLY surprised to find out that they didn’t actually own the watch.

  3. “Could this Sup. Ct. appeal be mooted by someone getting the subject U.S copyright registration held invalid?”

    Invalidated on what grounds? Certainly not on the grounds that the artwork should be a trademark. Nothing prevents a work from being protected by copyright and serving as a trademark.

    Besides that, foreign works don’t have to be registered as a precondition for suing. Invalidating the registration would probably not affect the law suit.

  4. “Look if one more decision comes from the Supreme Court that grants companies the right to screw us because we are Americans I am just gonna have a hissy fit.”

    It’s a capitalist democracy. You can’t start whining about it now, just because someone else is winning.

    “Then again, the Chief Justice might have chosen to take the case just to tick off the President.”

    Obama buys his watches at Costco?

  5. I think the bigger issue is how this case will affect the rights of U.S. copyright owners whose works fall into that grey area of imported product. Where one owner holds foreign rights and another party owns domestic rights. If that is the case, it will be interesting to see who owns the copyright income flow from the import of those grey area products. Note the recent case in France where the EU allowed the copyrights to the works of Salvador Dali to pass to the blood heir over the will of the artist that the rights would belong to Spain.

    Then again, the Chief Justice might have chosen to take the case just to tick off the President.

    And by the way TJ, Patents are entirely different than Copyrights.

  6. Look if one more decision comes from the Supreme Court that grants companies the right to screw us because we are Americans I am just gonna have a hissy fit.

  7. The copyrighted image is not the traditional Omega logo. It is a stylized globe with a prominent Greek omega character. But most watch buyers even most attorneys would assume it is a logo, trademark, or source identifier of some sort.

    A photo of the globe is available at: < .”>http://scottbrenner.com/law/parallel-trade-in-copyrighted-materials-quality-king-v-lanza/>. Scroll down about half way.

    The post is right, the Supreme Court is not likely to overlook Omega’s intent to use copyright, not to protect creative expression, but instead to control downstream uses of its non-copyrighted, useful watches.

  8. Wouldn’t the symbol or logo arguably be in the public domain under copyright law, or in the alternative be barred from later registration because of prior publication? I did a quick scan of the history section of Omega’s website and found a logo on a stopwatch they date at 1901.

    link to omegawatches.com

  9. RWA,

    Your anger at not having thought of and posted the third grade humor first is obvious.

    Geesh, if there is anything worse than a third grader is a third grader jealous of another third grader.

    Paul,
    a part…“? Now I know all of my posts are relevant (even the third grade stuff).
    How about Berne comparably enforced?
    How about non-US standing?

    And ohh, the symbolism of the Greek Omega (the end of times) Sure, it has immedaite third grade appeal, but cleverly hidden (in sock-puppet code) are the keys to the international banking community (world rights and the staged economic collapse of Greece). Sure, many consider Greece to be a third world country, but look at the company it will keep: China and the US).

  10. A part of the above discussion that is relevant raises an interesting question. Could this Sup. Ct. appeal be mooted by someone getting the subject U.S copyright registration held invalid?

  11. Omega has apparently registered its logo as a design, a work of art. (The word omega with the Greek letter) A design can be copyright, registered as a trademark and patented.

  12. Isn’t what’s copyrighted here too de minimis to be protected by copyright? I agree with the Big L, who stated it should be considered a trademark.

  13. Paul,

    That’s another thing – I’m darn sure that Egypt and Paraguay are members of the Berne Convention and there are “comparably enforceable IP rights.”

  14. For the first sale exhaustion theory to work in either theory or practice, does not the first sale have to be in a country where the IP owner has comparably enforceable IP rights to be exhaused by a legal sale?

  15. Dennis, it might also be helpful to note that the Federal Circuit traces the patent rule to Boesch v. Graff, 133 U.S. 697 (1890). I think the Federal Circuit has somewhat misread that decision, since Boesch involved a foreign sale that was lawful not because it was licensed but only by virtue of a German prior user right statute. Even Costco is not arguing that a foreign sale that is “lawful” because the relevant country has no copyright laws, for example, would exhaust. At first blush, I am not seeing a persuasive reason to treat patents and copyrights differently.

  16. Can a copyright specialist explain why the heck this the symbol is entitled to copyright protection? Shouldn’t that be trademark protection, and under TM law isn’t parallel importation ok if the goods themselves are from the actual source and not counterfeits?

  17. How did this foreign made thing obtain a US copyright under the ““lawfully made under” the US Copyright Act.,/i>” paradigm?

    Perhasp we should have US copyright apply only to those things made here in the US…

  18. My guess: the SCOTUS took this case to overturn it.

    From a policy perspective, I can’t figure out who is served by NOT exhausting the copyright in this case, except perhaps Omega who wants the ability the price discriminate. Unlike copyrights generally, there is NO threat that the underlying copyright will be exploited absent the product itself. The actual threat to the copyright would not find any safety in the first sale doctrine, because it likely would requiring copying of the copyrighted work and affixing it to a different product.

    Case closed.

    Reselling a lawfully purchased tangible product should not be inhibited simply by the inclusion of a copyrighted work.

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