You bought it, you can re-sell it: Costco can keep selling gray market Omega watches at a discount without copyright liability
From The Volokh Conspiracy blog at The Washington Post:
On the day that the Electronic Frontier Foundation designated “You Bought it, You Own It” day, the 9th Circuit has finally brought down the curtain on the decade-long dispute between Omega, the watch manufacturer, and Costco, the discount retailer and decided that Costco can continue to sell Omega watches at a discount because, in effect, they bought them, and they own them, and can dispose of them however they wish.
The background to the suit is pretty simple. Costco bought a bunch of Omega Seamaster watches overseas on the so-called “gray market” – i.e. from an authorized Omega distributor. The watches, intended for sale in Europe, were priced low enough so that a third party, ENE Limited, could purchase them abroad and sell them to Costco, which could offer them to US customers at a price significantly below the price at which Omega-authorized distributors in the US offered them for sale. Omega, admittedly trying to block this very thing, had inscribed a tiny globe on the back of the watch (where no one would ever really see it); they then brought suit against Costco, asserting that the retailer was “distributing copies” of a copyrighted work – the tiny globe — to the public without its (Omega’s) permission.
. . . .
Omega, in the first round of litigation, initially prevailed – both in the 9th Circuit and in the Supreme Court (which affirmed the 9th Circuit judgment in Omega’s favor by a 4-4 vote, with Justice Kagan recused). Although ordinarily the “You Bought It, You Own It and Can Do What You Wish With It” argument prevails as a defense to copyright infringement – the so-called “first sale” doctrine, which lets you, say, but 50 copies of a copyright-protected book and then re-sell them (or give them away) without liability – the 9th Circuit originally sided with Omega because it interpreted the first sale doctrine as being inapplicable to copies manufactured abroad.
. . . .
Kirtsaeng’s view of the law, the 9th Circuit has now held, disposes of the case (in Costco’s favor); they bought and owned the copies of the copyrighted works – the tiny globe designs, which just happened to be attached to watches – and can resell those copyrighted works at whatever price they chose.
. . . .
Judge Wardlaw, concurring here in the judgment against Omega . . . would ground the judgment against Omega here on the ground that Omega’s actions constituted “copyright misuse.”
It’s a pretty powerful argument – after all, Omega’s case really had absolutely nothing to do with “protecting its copyrights” and everything to do with stamping out competition. The watches themselves are not copyright-protected works (because of another copyright doctrine, the “useful article” doctrine, which largely does away with copyright protection for “utilitarian” objects).
Because the watches are not the proper subject of copyright protection, Omega does not argue that Costco infringed copyrights protecting its watches, the argument upon which the majority rests its opinion. Instead, it argues that Costco infringed its limited monopoly over the copyrighted Globe Design, which was engraved on the watches that Costco sold.
Inherent in granting a copyright owner the exclusive right to reproduce his works is the risk that he will abuse the limited monopoly his copyright provides by restricting competition in a market that is beyond the scope of his copyright. An owner’s attempt to impermissibly expand his lawful protection from competition contravenes not only the policy of the copyright laws, but also the central purpose of the antitrust laws
Omega misused its copyright “by leveraging its limited monopoly in being able to control the importation of [the Globe Design] to control the importation of its Seamaster watches.”
. . . .
“The limited scope of the copyright holder’s statutory monopoly, like the limited copyright duration required by the Constitution, reflects a balance of competing claims upon the public interest: Creative work is to be encouraged and rewarded, but private motivation must ultimately serve the cause of promoting broad public availability of literature, music, and the other arts.” Omega’s attempt to expand the scope of its statutory monopoly by misusing its copyright in the Globe Design upset this balance. The watchmaker’s anti-competitive acts promoted neither the broad public availability of the arts nor the public welfare. Instead, they eliminated price competition in the retail market for Omega watches and deprived consumers of the opportunity to purchase discounted gray market Omega watches from Costco. Omega misused its copyright by engraving the Globe Design on the underside of its watches, and attempting to use copyright law to eliminate intrabrand competition from Costco in the retail watch market.
Link to the rest at The Washington Post
Here’s a link to the court’s opinion
PG predicts the first sale doctrine is going to be litigated with respect to resale of ebooks at some point.
Ebooks are, of course, routinely licensed, not sold and the Digital Millennium Copyright Act comes into play because, at their root, ebooks are (pretty simple) computer code.
Moreover, if the publisher of a printed book purported to license, not sell the book to someone who acquired the book, that would be easy for the court to strike down.
If you want to read more about copyright misuse, here’s a link to a good introduction.