Published by LawTechie - December 16, 2010 - LawTechie

The Supreme Court has upheld the Ninth Circuit decision in Costco v. Omega, holding that Section 109 of the Copyright Act (a.k.a. “The First Sale Doctrine”) does not apply to foreign-made goods. The Supreme Court decision, failing to reach a majority and tying at 4-4, does not provide a nationwide precedent but merely defaults to the Ninth Circuit’s ruling.

As we discussed in previous posts, this matter was brought by Swatch Group AG’s Omega unit against Costco Wholesale Corp. with the aim of curbing Costco’s “parallel sales” of Omega watches obtained on the gray market for cheaper prices. Parallel sales is a wholesaler’s method of utilizing the copyright First-Sale Doctrine to provide premium goods at cheaper prices.

The First Sale Doctrine provides that the buyer of a copyrighted work may freely resell that work to a subsequent buyer without fear of copyright infringement claims by the original seller or producer of the work. Accordingly, wholesalers like Costco engage in parallel sales by buying premium goods at cheaper prices from company’s overseas distributors (overseas prices usually being cheaper than in the US), and then reselling the goods in the US at cheaper than premium rates.

In this case, where Section 109 provides the First Sale Doctrine to “the owner of a particular copy or phonorecord lawfully made under this title,” the Ninth Circuit held that the words “under this title” did not apply to foreign-made works. The Supreme Court defaulted to this standard for the Ninth Circuit only; thus, this is a minor win for producers, a minor loss for consumers, and this issue, as it applies to other Circuits, remains unresolved.

It should be noted that Justice Elena Kagan did not participate in this decision as she had to recuse herself due to the fact that she had previously written an amicus for the government in this case prior to joining the SCOTUS. Arguably, the next such case should bring a final 5-4 decision in favor of consumers.

LawTechie is a blog focusing on trends in tech and digital media. Areas covered include intellectual property, cyberlaw, venture capital, transactions and litigation as they relate to the emerging sectors. The blog is edited by the firm's partner Tim Bukher with contributions from the firm's experts in their respective areas of law.

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