The US Supreme Court has been given the opportunity to resolve an increasingly important problem in copyright law; the question now is whether the nation’s highest court will take up the matter.  The issue is the first-sale doctrine, which grants copyright owners the right to control the distribution and sale of copyrighted goods only until the first sale of those goods. This doctrine limits the power of copyright holders and allows individuals and businesses to rent and re-sell copyrighted goods. The question that has recently been presented to the Supreme Court is whether the first-sale doctrine applies to goods that are manufactured abroad and subject to a US copyright.

Omega SA, a Swiss corporation, manufactures watches in Switzerland for sale around the world. Omega watches feature a small globe design engraved on the back of each watch.  This insignia is subject to a United States copyright.  In 2004, Omega sold some of its watches to authorized distributors for sale in Latin America and the Middle East.  These distributors then sold the watches to Costco Wholesale Corporation, an American company, for sale in the United States.  Costco offered these watches for sale in the United States at a much lower price than Omega-authorized American distributors. 

Omega filed a lawsuit against Costco in the US District Court for the Central District of California, claiming that the retailer’s acquisition and sale of the watches constituted copyright infringement because all the watches sold featured Omega’s copyrighted globe design.  Costco countered that it was protected by the first-sale doctrine, arguing that Omega could not control the re-sale of the watches in the United States after those watches were initially sold to foreign distributors.  The district court granted summary judgment to Costco without issuing an opinion in the matter.  Omega S.A. v. Costco Wholesale Corp., No. 04-5443 (C.D. Cal., Feb. 6, 2007) (order granting summary judgment in favor of Costco Wholesale Corp.). 

On appeal, the US Court of Appeals for the Ninth Circuit sided with Omega, holding that the first-sale doctrine only applies to US-copyrighted goods that are manufactured in the United States.  Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982, 990 (9th Cir. 2008). Because the Omega watches were made in Switzerland, the Ninth Circuit found that Omega could control whether or not the watches could be imported and re-sold in the United States. 

Costco Wholesale Corporation has asked the Supreme Court to hear its appeal from the Ninth Circuit’s decision.  Specifically, Costco wants the Court to find that foreign manufacturers who make US-copyrighted products have their rights limited by the first-sale doctrine just like US-based manufacturers. Amazon.com, Inc., eBay, Inc. and a number of other interested parties have filed amicus briefs in support of Costco's petition. Costco and its amici argue that the Ninth Circuit's decision will drive manufacturing out of the United States, harm industries that rely on resale and rental of copyrighted works, and undermine the purposes of the United States Copyright Act.

Whether the Supreme Court will hear this case remains to be seen.  Notably, however, the Court has invited the US Solicitor General to weigh in on whether the Court should grant review.  The Supreme Court issues invitations like this only about a dozen times a year, in cases where there may be a serious federal question at stake.  The Solicitor General’s brief is expected in the next few months. 

The outcome of this case may be very significant for companies that produce or distribute US-copyrighted goods.  Companies are advised to seek counsel when planning to manufacture, acquire, and/or sell foreign-made goods that are subject to US copyrights. To learn more about the first-sale doctrine, or this litigation, please contact:

Anthony V. Lupo
lupo.anthony@arentfox.com
202.857.6353

David S. Modzeleski
modzeleski.david@arentfox.com
202.857.6073

Grace L. Applefeld
applefeld.grace@arentfox.com
202.857.6498