Copyright Importation Rights Expire After First Sale, Ninth Circuit Holds, citing Kirtsaeng

In light of the Supreme Court’s Kirtsaeng decision, the Ninth Circuit has determined that Costco’s importation of grey-market watches did not infringe a copyright owned by Swiss watchmaker Omega. See Omega S.A. v. Costco Wholesale Corp., Appeal Nos. 11-57137, 12-56342 (Jan. 20, 2015).

Since 2003, Omega has sold to authorized distributors its “Seamaster” watches, which bear an engraved copyrighted globe. The case arose after Omega and Costco failed to reach a direct, authorized retailer agreement, and Costco purchased─and later sold in the United States─ Seamaster watches that had been purchased from an authorized foreign distributor. Omega brought suit against Costco, claiming the retailer’s unauthorized importation of Omega’s copyrighted work (an image of a globe engraved on the watches) infringed Omega’s rights. In 2008, the Ninth Circuit found in favor of Omega based on precedent at the time holding that the first sale doctrine was inapplicable to copyrighted works produced abroad.

In 2010, the Supreme Court granted certiorari, but a 4-4 split decision left the Ninth Circuit’s decision in place. On remand, the district court granted summary judgment to Costco on its copyright misuse claim, holding that Omega misused its copyright by seeking to control downstream markets. While briefing in Omega’s appeal was pending before the Ninth Circuit however, the Supreme Court decided Kirtsaeng, which held that the first sale doctrine does apply to copies of copyrighted works lawfully made abroad. According to the Ninth Circuit, Kirtsaeng established that a purchaser of a genuine copyrighted work manufactured outside the U.S. can bring the work into the U.S. (to sell or give away), without obtaining permission from the copyright owner. Thus, when applying Kirtsaeng to the facts of this case, the Ninth Circuit held Omega does not have a cause of action against Costco. Any copyright distribution or importation rights Omega may have once had, regardless of where the item was manufactured or sold, expired after the authorized first sale of the copyrighted item.

The decision “conclusively reaffirms that copyright holders cannot use their rights to fix resale prices in the downstream market,” the court wrote in its opinion. The case will almost certainly have an effect on the contractual arrangements between manufacturers and retailers, including how goods are initially priced.