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Media Alerts - Omega S.A. v. Costco Wholesale Corporation - Ninth Circuit
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March 4, 2015
  Omega S.A. v. Costco Wholesale Corporation - Ninth Circuit
Headline: Ninth Circuit affirms district court's grant of Defendant's motion summary judgment and attorneys' fees in a copyright infringement action.

Area of Law: Copyright

Issue Presented: Whether the first sale doctrine protects a buyer of a copyrighted work lawfully manufactured abroad when the buyer purchased gray market goods from an intermediary that acquired the watches from a buyer that purchased the goods in an authorized first sale in a foreign jurisdiction.

Brief Summary: The Ninth circuit affirmed the district court's grant of summary judgment to Costco because the first sale doctrine protects a buyer or other lawful owner of a copyrighted work lawfully manufactured abroad. The buyer/owner may lawfully import the copyrighted work without obtaining permission from the copyright order.

The court further held that Omega has no infringement cause of action because its right to control importation and distribution of the Omega Globe expired after the authorized first sale.

The Ninth Circuit court also affirmed the district court's grant of attorney's fees as being within its discretion because Omega sought to exert control over its watches instead of providing creative works to the general public, copyright law did not condone nor protect Omega's actions.

Concurring Opinion: Preliminarily, Judge Wardlaw disagreed with the majority's reliance on the first sale doctrine because the 9th Circuit court held it inapplicable on the first appeal and the parties did not brief or argue on appeal. Instead, the concurrence relied on the district court's copyright misuse rationale.

The concurrence explained that copyright misuse forbids the use of the copyright in a manner that violates the public policy embodied in the grant of copyright.

Identifying the defense of copyright misuse has been applied sparingly, it is available where a defendant can prove either 1) a violation of antitrust laws; 2) the copyright owner illegally extend its monopoly; or 3) the copyright owner violated the public policies underlying the copyright laws.

Based on Omega's attempt to control importation and distribution of watches with copyright law and Omega's communications with distributors stating it sought to stem the tide of unauthorized importation, the concurrence would affirm the judgment based on copyright misuse.

Extended Summary: Omega is a Swiss manufacturer of luxury watches, including the Seamaster, which sometimes bears an engraving of the Omega Globe Design. Omega copyrighted the design in 2003. Omega uses authorized distributors to sell its watches throughout the world.

Costco is an American discount warehouse corporation.

Although Omega and Costco discussed a possibly distributorship arrangement, the parties did not come to an agreement.

In 2004 Costco purchased 117 Seamaster watches bearing the Omega Globe from ENE Limited, who purchased the watches from an unidentified third party, who, in turn purchased the watches from an authorized foreign distributor. Omega approved the initial sale of the watches but not the importation nor Costco's sale of them.

The district court granted Costco's motion for summary judgment based on the first sale doctrine. The Ninth Circuit Court reversed and remanded based on precedent holding that the first sale doctrine did not apply to copyrighted works produced abroad. The Supreme Court summarily affirmed the Ninth Circuit decision. On remand the district court granted summary judgment based on Omega's misuse of copyright. The district court also granted attorney's fees in the amount of $396,844.17.

Reviewing the district court's grant of summary judgment de novo, the Ninth Circuit court held that the first sale doctrine protects a buyer or other lawful owner of a copyrighted work lawfully manufactured abroad. The buyer/owner may lawfully import the copyrighted work without obtaining permission from the copyright order.

The court further held that Omega has no infringement cause of action because its right to control importation and distribution of the Omega Globe expired after the authorized first sale.

The Ninth Circuit court affirmed the attorney's fees award because the District court weighed factors including 1) the degree of success obtained; 2) frivolousness; 3) motivation; 4) objective unreasonableness of losing party's factual and legal arguments; and 5) the need to advance considerations of compensation and deterrence, it was within its discretion to award attorney's fees. Additionally, the district court held that because Omega sought to exert control over its watches instead of providing creative works to the general public, copyright law did not condone nor protect Omega's actions.

Concurring Opinion: Preliminarily, Judge Wardlaw disagreed with the majority's reliance on the first sale doctrine because the 9th Circuit court held it inapplicable on the first appeal and the parties did not brief or argue on appeal. Instead, the concurrence relied on the district court's copyright misuse rationale.

Omega sued Costco for copyright infringement for selling forty-three Omega watches bearing the Globe Design, which Costco did not have permission to use. However, according to the district court, because Omega used the Globe Design to control the importation and sale of Omega watches, Omega misused its copyright.

To stem the tide of unauthorized dealers circumventing Omega's exclusive distributorship model through arbitrage, Swatch U.S.A. (Omega's parent corporation) devised a strategy to register its Globe Design for U.S. copyright protection to strengthen Omega's control over importation of Omega watches into the United States.

Omega sued Costco for copyright infringement related to the sale of forty-three Seamaster watches. The Ninth circuit reversed the district court's grant of summary judgment holding that the first sale doctrine was inapplicable to foreign-made goods first sold abroad.

On remand the district court granted Costco's motion for summary judgment based on the equitable defense of copyright misuse. Omega conceded it affixed the copyrighted Globe Design to use section 602 of the Copyright act, which makes importation of copyrighted goods without the copyright owner's authorization a violation of the copyright owner's exclusive right to distribute.

The concurrence examined the policy of copyright protection to incentivize artistic creativity for the public good. Absent the public benefit, copyright protection is unjustified.

Additionally, the concurrence examined the scope of copyright protection, stating that items with intrinsic utility apart from their expression or appearance are not copyrightable. The concurrence posited that Omega's watches were not copyrightable but only the Globe Design engraved on the watches sold by Costco.

The concurrence further explained that copyright misuse forbids the use of the copyright in a manner that violates the public policy embodied in the grant of copyright.

Identifying the defense of copyright misuse has been applied sparingly, it is available where a defendant can prove either 1) a violation of antitrust laws; 2) the copyright owner illegally extend its monopoly; or 3) the copyright owner violated the public policies underlying the copyright laws.

Based on Omega's attempt to control importation and distribution of watches with copyright law and Omega's communications with distributors stating it sought to stem the tide of unauthorized importation, the concurrence would affirm the judgment based on copyright misuse.

Additionally, equitable principles support the district court's refusal to enforce Omega's copyright as contrary to public policy.

The concurrence then distinguished a number of cases relied upon by Omega and ultimately made its decision based on the copyright misuse theory relied upon by the district court.

For the full opinion: http://cdn.ca9.uscourts.gov/da...15/01/20/11-57137.pdf

Panel: Dorothy W. Nelson, Kim McLane Wardlaw, and Johnnie B. Rawlinson, Circuit Judges.

Date of Issued Opinion: January 20, 2015

Docket Number: 12-56342

Decided: Affirmed

Case Alert Author: Brandon Powell

Counsel: Barry R. Levy (argued), Horvitz & Levy LLP, Encino, California; Jess M. Collen and Thomas P. Gulick, Collen IP, Ossining, New York, for Plaintiff-Appellant. Bruce P. Keller (argued), Debevoise & Plimpton LLP, Washington, D.C.; Norman H. Levine and Aaron J. Moss, Greenberg Glusker Fields Claman & Machtinger LLP, Los Angeles, California, for Defendant-Appellee.

Author of Opinion: Nelson, Circuit Judge.

Case Alert Circuit Supervisor: Professor Ryan T. Williams

    Posted By: Ryan Williams @ 03/04/2015 01:33 PM     9th Circuit  

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