This is great news. Costco v. Omega was a horrible ruling out of the 9th curcuit that limits the first sale doctrine to goods produced and sold in the US. This is an attempt by Omega to kill legal grey market sales that trademark does not prevent by abusing copyright law. Here is more from IP Watch: Frozen Wallpapers
Because trademark law often cannot stop the import of grey market goods, a growing number of brand owners are trying a new tactic. They are using copyright law to protect their markets in the US. (This tactic doesn’t work well in Europe because the EU lacks a single, harmonised approach to copyright law, according to Klett.)
Consider the method used by Omega SA. The watchmaker inscribed a tiny, 0.5 cm globe design on the underside of its watches. This design is invisible when the watches are worn, so individuals are unlikely to purchase Omega’s high end watches in order to obtain copies of this inconspicuous design. Because this design is copyrighted, however, it may enable Omega to stop the import of grey market watches into the US.
Section 106(3) of the US Copyright Act grants copyright owners the right to control the distribution of copies of their works. This includes the right to control imports of copies of their works, according to Section 602(a) of the statute. So if someone imports a copy without authorisation, they are guilty of copyright infringement. And that is precisely what Omega has alleged against Costco Wholesale Corp., a major discount retailer with stores throughout the US.
Omega makes its watches in Switzerland and sells them in Europe at prices well below its authorised US prices. Some watches that were initially sold in Europe and intended for that market were resold to Costco, which imported them into the US. Omega objected and sued Costco in 2004 for infringement.
Costco asserted that importing the watches does not infringe because of Section 109(a) of the Copyright Act. This statute codifies the copyright first sale doctrine, which is similar to the one in trademark law: upon the first sale of a copy of a copyrighted work, the copyright owner loses its right to control any further distribution of that particular copy. The copyright owner’s right of distribution has been extinguished, so the purchaser can resell, lend or give away the copy without committing copyright infringement.
There is, however, one significant difference between the first sale doctrines in US copyright and trademark law. Copyright law has an added qualification. Its first sale doctrine, Section 109(a), applies only to copies “lawfully made under this title.”
Omega argued that because the copies of its watch design were made outside the US, they were not made under US copyright law and were thus not covered by the first sale doctrine. Costco argued that because the copies were made by the US copyright owner, they should be considered “lawfully made” under US copyright law.
The 9th Circuit US Court of Appeals agreed with Omega’s interpretation of the statute. The court ruled [pdf] in 2008 that applying the first sale doctrine to goods made overseas “would impermissibly apply the Copyright Act extraterritorially.”
Costco has asked the US Supreme Court to review this decision. That court in October asked the US Department of Justice to file a brief on the case. Many observers see this as a sign that the court may take the case.
If the 9th Circuit ruling is left in place, it would be a huge win for companies that wish to stop grey market goods from being imported into the US. It would, similarly, be a big blow to consumers and to many businesses that import or sell grey market goods in the US. Moreover, according to some experts, it would be a misuse of copyright law.