Omega S.A. v. Costco Wholesale Corp.

“Gray Market Goods and Copyright Control – The Costco Watch Dispute”

Short Description

This case deals with the issue of parallel imports (also known as gray market goods) and the extent to which copyright law can be used to control the resale of genuine goods. Omega, a luxury Swiss watch manufacturer, attempted to prevent Costco from selling its watches in the United States without authorization. The dispute raised important questions regarding the “first sale doctrine” and its application to copyrighted works embedded in imported products.

Facts of the Case

Omega S.A., a Swiss luxury watchmaker, engraved a small copyrighted design, known as the “Omega Globe Design,” on the back of its watches. Omega manufactured the watches abroad and sold them to authorized foreign distributors with the understanding that they would not be imported into the United States.

However, some of these watches were later imported into the United States through third-party distributors and sold by Costco at discounted prices. Costco was not an authorized Omega dealer in the U.S.

Omega filed a lawsuit against Costco, claiming that the unauthorized importation and resale of the watches infringed its U.S. copyright in the engraved design. Omega argued that since the watches were manufactured abroad, the first sale doctrine did not apply, and therefore Costco’s sale of the watches violated copyright law.

Costco contended that once Omega sold the watches, its distribution rights were exhausted under the first sale doctrine, and resale was lawful.

Findings of the Court

The legal issue centered on whether the first sale doctrine applies to copyrighted goods manufactured outside the United States. The Ninth Circuit initially ruled in favor of Omega, holding that the first sale doctrine did not apply to foreign-made goods.

However, the case reached the United States Supreme Court, which resulted in an evenly divided decision (4-4). Because of this tie, the Ninth Circuit’s ruling remained in effect, but it did not create a nationwide binding precedent.

Subsequently, in a related case, the Supreme Court clarified in Kirtsaeng v. John Wiley & Sons, Inc. (2013) that the first sale doctrine applies to copies lawfully made abroad. This later ruling significantly limited Omega’s position.

Judgment (Final Outcome Context)

Although Omega initially succeeded at the appellate level, later Supreme Court clarification weakened its argument. Ultimately, the broader legal principle established was that the first sale doctrine applies to goods lawfully manufactured abroad. Therefore, resale of genuine goods, even if imported without authorization, generally does not constitute copyright infringement.

Suggestions / Legal Importance

This case highlights the limitations of using copyright law to control gray market goods. Businesses cannot easily prevent resale of genuine products once they have been lawfully sold. Intellectual property owners must rely on contract law, distribution agreements, or trademark law rather than copyright to restrict parallel imports. The decision strengthened consumer rights and reseller protections under the first sale doctrine.