Metropolitan News-Enterprise


Tuesday, December 14, 2010


Page 1


Supreme Court Lets Stand Copyright Ruling Against Costco


From Staff and Wire Service Reports


The Supreme Court yesterday left in place a Ninth U.S. Circuit Court of Appeals ruling reviving a copyright infringement action against Costco based on the wholesale retailer’s sale of authentic, imported Omega watches without the Swiss watch maker’s permission.

Justice Elena Kagan did not take part in the case, and the remaining members of the court split 4-4 on the availability of the “first sale doctrine” as a defense to claims not involving domestically made copies of U.S.-copyrighted works.

The doctrine is codified by 17 U.S.C. § 109(a), which provides that “the owner of a particular copy…lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy.”

At trial Costco contended that Omega’s claims for infringing distribution and importation were precluded since the watches at issue were originally sold by Omega to authorized distributors overseas and then passed through various intermediaries before reaching Costco’s customers in California

Summary Judgment

U.S. District Court Judge Terry J. Hatter of the Central District of California apparently agreed, granting summary judgment in favor of Costco without explanation and awarding $373,003 in attorney fees.

However Judge Milan D. Smith Jr., joined by Judges Barry G. Silverman and Johnnie B. Rawlinson, said Hatter’s ruling was at odds with circuit precedent.

Citing BMG Music v. Perez, (1991) 952 F.2d 318, Smith explained that the phrase “lawfully made under this title” in Sec. 109(a) grants first sale protection only to copies legally made and sold in the United States since “a contrary interpretation would impermissibly extend the Copyright Act extraterritorially” and jeopardize its protection against the unauthorized importation of nonpiratical copies “because importation is almost always preceded by at least one lawful foreign sale.”

In 1994, the Ninth Circuit recognized an exception to the rule of BMG Music in Parfums Givenchy, Inc. v. Drug Emporium, Inc., 38 F.3d 477, ruling that Sec. 109(a) applied to copies not made in the United States if an authorized first sale occurred domestically.

Exception Applied

This exception was applied two years later in Denbicare U.S.A. Inc. v. Toys “R” Us, Inc., 84 F.3d 1143, which involved copies made in Hong Kong that were purchased and resold by defendant in the United States. The claims against the defendant in Denbicare was not liable for infringing importation, the Ninth Circuit said, because the copyrighted materials at issue had been imported by third parties prior to the defendant’s purchase and resale.

Smith posited that “[u]nder these cases, Costco would not be entitled to summary judgment on the basis of § 109(a),” reasoning “the statute would not apply because Omega made copies of the Omega Globe Design in Switzerland and Costco sold the copies without Omega’s authority in the United States.”

On appeal, Costco contended these cases had been invalidated by the Supreme Court’s 1998 decision in Quality King Distributors, Inc. v. L’anza Research International, Inc., 523 U.S. 135. That case involved a product with a U.S.-copyrighted label that was manufactured domestically, then exported to an authorized foreign distributor, sold to unidentified third parties overseas, shipped back into the United States without the copyright owner’s permission, and then sold in California by unauthorized retailers.

Smith opined that Quality King did not overrule circuit precedent since the high court did not addresses the effect of Sec. 190(a) on claims involving unauthorized importation of copies made abroad as the facts of the case only involved domestically manufactured copies.

As Quality King’s holding was not “clearly irreconcilable” with the general limitation of Sec. 190(a) created by BMG Music, Drug Emporium, and Denbicare to copies that are lawfully made in the United States, Smith emphasized, those cases remained binding precedent.

“Because there is no genuine dispute that Omega made the copies of the Omega Globe Design in Switzerland, and that Costco sold them in the United States without Omega’s authority, the first sale doctrine is unavailable as a defense to Omega’s claims,” Smith concluded.

He directed the case be remanded, and that the award of attorney fees be vacated since neither party could be considered to have prevailed.

The case is Costco Wholesale Corporation v. Omega, S.A., 08–1423.


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