Costco Wholesale Corporation  v  Omega, S. A.


In a per curiam order, the judgment of the ninth circuit was affirmed by an equally divided Supreme Court. Justice Kagan took no part in the consideration or decision of the case.The United States Court of Appeals for the Ninth Circuit in the year 2008 had decided the case in favour of Omega.


Omega manufactured watches in Switzerland and sold them globally through a network of authorized distributors and retailers. Engraved on the underside of the watches was a U.S.-copyrighted “Omega Globe Design.” Costco obtained watches bearing the copyrighted design from the “gray market” Costco then sold the watches to consumers in California. Although Omega authorized the initial foreign sale of the watches, it did not authorize their importation into the United States or the sales made by Costco.

Omega filed a lawsuit alleging that Costco’s acquisition and sale of the watches constituted copyright infringement under 17 U.S.C. §§ 106(3) and 602(a), and subsequently moved for summary judgment. Costco filed a cross-motion on the basis of 17 U.S.C. § 109(a), and  argued that, under the first sale doctrine, Omega’s initial foreign sale of the watches precluded claims of infringing distribution and importation in connection with the subsequent, unauthorized sales. The district court ruled without explanation in favor of Costco on both motions. The court also awarded attorney’s fees to Costco under 17 U.S.C. § 505.

The issue before the court was whether the Supreme Court’s decision in Quality King Distributors, Inc. v. L’anza Research International, Inc., 523 U.S. 135 (1998), required it to overrule its precedents that allowed a defendant in a copyright infringement action to claim the “first sale doctrine” of 17 U.S.C. § 109(a) as a defense only where the  disputed copies of a copyrighted work were either made or previously sold in the United States with the authority of the copyright owner.

Referring to earlier case law of the ninth circuit, it held that the circuit had construed 17 U.S.C. § 109(a) to provide no defense to an infringement action under §§ 106(3) and 602(a) that involve (1) foreign-made, non piratical copies of a U.S.-copyrighted work, (2) unless those same copies have already been sold in the United States with the copyright owner’s authority. It held that the first portion of the construction was not “clearly irreconcilable” with Quality King, and that it remain the law of the circuit. As there was no 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 was unavailable as a defense to Omega’s claims. Section 109(a) codify the first sale doctrine, which hold that once copyright owner consents to the sale of particular copies of his work, he may not thereafter exercise the distribution right with respect to those copies. The Court reiterated that conduct covered by § 109(a) did not violate § 106(3), and because absent a violation of § 106(3) there cannot be infringement under § 602(a), conduct covered by § 109(a) did not violate § 602(a). In short, infringement did not occur under § 106(3) or § 602(a) where the owner of a particular copy lawfully made under this title import and sell that copy without the authority of the copyright owner.


The court agreed with Omega’s argument that § 109(a) provide no defense to the infringement claims in this case because, although the Omega Globe Design was copyrighted in the United States, the watches bearing the design were manufactured and first sold overseas and thus the copies of the design were not lawfully made under Title 17 in these circumstances. The court rejected Costco’s submission that although Omega’s position was correct under BMG Music v. Perez, 952 F.2d 318 (9th Cir. 1991), Parfums Givenchy, Inc. v. Drug Emporium, Inc., 38 F.3d 477 (9th Cir. 1994), and Denbicare U.S.A. Inc. v. Toys “R” Us, Inc., 84 F.3d 1143 (9th Cir. 1996), the Supreme Court effectively overruled the cases in Quality King. The court held  that Quality King did not directly overrule BMG Music, Drug Emporium. Quality King involved “round trip” importation: a product with a U.S. copyrighted label was manufactured inside the United States, 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. The Supreme Court held that § 109(a) can provide a defense to an action under § 602(a) in that context. The ninth circuit explained that  because the facts in Quality King involved only domestically manufactured copies, the Supreme Court did not address the effect of § 109(a) on claims involving unauthorized importation of copies made abroad. It further held that the Supreme Court’s brief discussion on extraterritoriality in Quality King was not “clearly irreconcilable” with  general limitation of § 109(a) to copies that are lawfully made in the United States. It held that to characterize the making of copies overseas as lawful under Title 17 would be to ascribe legality under the Copyright Act to conduct that occur entirely outside the United States, notwithstanding the absence of a clear expression of congressional intent in favor of extraterritoriality. The court also held the district court’s award of $373,003.80 in attorney’s fees to Costco an abuse of discretion and the matter was reversed and remanded.