Published by LawTechie - November 8, 2010 - LawTechie

CostcoToday the Supreme Court hears arguments in a matter 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. As explained in our previous posts, 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.

The issue:

The Supreme Court case turns on the scope of the first-sale doctrine, which says a copyright holder can profit only from the original sale of a product. In 1998, the Supreme Court unanimously ruled against copyright holders by saying the doctrine applies to U.S.-made products sold overseas. The court said copyright holders can’t block those goods from being brought back into the U.S. through unauthorized channels.

The question now is whether that same reasoning applies to goods manufactured abroad. A San Francisco-based federal appeals court said it doesn’t, ruling that Omega could block importation of its foreign-made watches.

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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