FIRST SALE DOCTRINE & FOREIGN MADE GOODS – Costco Wholesale Corp. v. Omega S.A

The first sale doctrine in copyright law means that once a consumer pays for a particular item in a lawful sale the purchaser should have the right to freely distribute that good regardless of where it was manufactured.

The US Supreme Court is about to hear an appeal in the case of Costco Wholesalers Corp. v. Omega S.A which will address whether the first-sale doctrine applies to copyright goods manufactured and distributed by the copyright owner and then subsequently imported into the United States. Omega is the copyright owner of Omega Globe Design, a visual depiction of three Greek Omega symbols inside a circle. Omega, the luxury watchmaker has the design laser engraved onto their watches in Switzerland. Costco acquired Omega’s watches from third party resellers who had imported genuine Omega watches into the US.

After Costco sold these watches to customers, Omega sued Costco for infringement of Omega’s right to distribute their copyrighted logo in violation of s106(3) of the Copyright Act, granting to the copyright owner the exclusive right to distribute their copyrighted works in the United States. Additionally 602(a)(1) states that the importation into the US of a copyrighted work acquired outside the US without the copyright owner’s authority violates the owner’s exclusive right of distribution of the copyright work.

Costco in defence raise the first sale doctrine in s109 which states that the provides that the owner of a particular copy of copyrighted work “lawfully made under this title,” is entitled, without the authority of the copyright owner, to sell or otherwise
dispose of the possession of that particular copy of a copyrighted work.

In Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982 (2008) the court ruled in Omega’s favour limiting the application of the first sale doctrine to items manufactured and distributed in the United States, not items originally manufactured and distributed outside the US.

The Court was concerned that expanding the first sale doctrine to items manufactured outside the US and re-imported into the US would affect the copyright owner’s
ability to segregate different markets for its copyrighted goods. The Court reviewed the case of Quality King Distributors v. L’anza Research International, 523 U.S. 135 (1998) and differentiated it in that it was restricted to “round trip” copyright works, namely, copyrighted works made and distributed in the United States, exported to another country, and then subsequently re-imported into the United States. By contrast, the Omega watches Costco sold were initially manufactured in Switzerland and distributed abroad, therefore these watches were not “lawfully made” within the United States and didn’t fall within the terms of the first sale defence in s109 Copyright Act.

The US Supreme Court’s interpretation of the scope of the “first-sale” doctrine, and whether it applies to imported copies of copyrighted works, distributed through authorized distribution channels, will have significant implications in that it will mean that manufacturers won’t be able to use copyright law as a means of preventing the gray market distribution. It will also have implications in terms of the availability of the first sale defense to retailers and other parties who have lawfully import a product that
legally acquired from an authorized party in another country.

Costco are arguing that “lawfully made under this title” under s109 means the phrase means any authorized copies made by the copyright holder and that the Quality King case wasn’t intended to be restricted to to “round-trip” imports. Costco are arguing that Omega is trying to extend copyright to achieve additional trademark-like protection over its luxury goods.

Given the lucrative market in the secondhand market in goods it isn’t surprising that ebay, Google and other internet commerce interests have filed an amicus curiae brief in the matter which can be found here.

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