Omega’s Suit Against Costco Headed to the Supreme Court

April 20th, 2010 · 7 Comments

If you bought your Omega watch at Costco, Omega wants you to know they’re not happy about it.  They’re not happy that you can buy Omega watches at Costco for a third less than you can at other retailers.  They are so not happy about it that they are suing Costco, in fact.  Apparently, this suit not only has the obvious implications for Costco, but also for other retailers like Target, Amazon, and even eBay and other companies that form an estimated $58 billion annual market for goods that are purchased abroad, then imported and resold without the permission of the manufacturer.  This is what is known as the secondary-goods or gray-goods market and is a big part of Costco’s business.

Omega’s suit revolves around copyright issues, since they are US copyright holders of the Omega Globe Design symbol that is engraved on the watches when they are manufactured.  The 9th Circuit Court of Appeals in San Francisco already ruled on the case (case is Costco Wholesale Corp. v. Omega, S.A., 08-1423) in favor of Omega.  Omega believes that the court ruling fairly upheld the copyright laws which are designed to “prevent the importation, without the authority of the U.S. copyright holder, of genuine copies made and sold overseas.”  However, as you can guess, Costco feels differently so they have appealed the decision to the Supreme Court.  Costco believes that since the high court has previously ruled that copyright protections do not apply to goods made in the United States, sold abroad and then imported back into the country for resale that they have a viable appeal.  Costco’s lawyer, Roy Englert,  said in court papers that there is no basis in law for “the distinction between goods made at home and those made abroad.”  We’ll have to wait until this fall to see if the Supreme Court agrees or not.

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7 Responses so far ↓

  1. 1 Costco v. Omega: 4-4 Decision Upholds Lower Court Ruling | Addicted To Costco! // 2010.12.17 at 5:48 am

    […] posted about the suit earlier this year after the U.S. Court of Appeals for the 9th Circuit Court (Costco Wholesale […]

  2. 2 Mike Hines // 2010.07.22 at 11:30 pm

    No, no. The watches were NOT made here. The 9th circuit decision specifically states that if they were made here that the Supreme Court’s ruling on the Quality King case would apply and Omega’s claim would be unmeritorious. The reason the 9th circuit held that Quality King did not apply because the goods were manufactured and first-sold abroad. Imagine if the watch were a DVD. It’s illegal to import a DVD from Japan and resell it here for the same reason. The stretch is that the watch is considered copyrighted material only because it contains a logo that may be considered copyrighted material.

  3. 3 bruce // 2010.04.24 at 2:02 am

    1. Costco doesn’t offer Lifetime returns on watches anymore.

    2. That was the only reason I bought 3 grand watch there.

    3. I was told a return is solely up to the store manager.

    4. You can’t just walk in with the watch and demand a refund–even-though their return policy states you can return for any reason–very unfair and misleading.

  4. 4 Kimberly // 2010.04.23 at 12:06 pm

    I kind of feel like if Omega (in this case but there have been others like Crocs) sold to their distributor and then the distributor chose to make a deal with Costco, then Omega is out of luck. It was sold legally, it’s not like Costco got them because the watches fell off the back of a truck or something. And honestly, we all know that these types of lawsuits are about protecting their snooty image and their overly inflated prices.

  5. 5 Ian // 2010.04.20 at 9:23 pm

    A few things to note about Omega:

    Omega is just one of the many brands owned by The Swatch Group watch conglomerate, the world’s largest watch manufacturer. (http://en.wikipedia.org/wiki/The_Swatch_Group)

    A few years ago, Swatch announced their intention to position Omega farther upmarket so that the brand would be considered on par with Rolex, and has steadily increased prices of Omega watches in the time since. Swatch’s marketing guys really earned their keep on this one, as consumers are now paying a lot more for the same products, buying the perception of greater luxury.

    Omega spent $14.6 million on advertising last year in the U.S. market alone. (http://www.watchtime.com/2009/07/rolex-leads-u-s-watch-advertiser-pack/)

    When the economy falls and sales don’t meet forcasts, many watchmakers sell of their excess inventory to discount wholesalers just as is the norm with clothing and home products. These watches may eventually be marketed by discount retailers unafiliated with the watch maker*. When such ‘gray market’ Omega watches are discounted by major retailers such as Overstock.com or Costco, it lessens Omega’s new upmarket image and undercuts the margins of Omega’s authorized dealers, with whom Swatch sets firm pricing guidelines.

    Swatch has been cited for price-fixing in other contries, most recently in Australia. (see http://www.jewellermagazine.com/Article.aspx?id=615)

    * Note: watches not sold through factory authorized dealers may not have their warranties honored by their manufacturers.

  6. 6 palakkadan // 2010.04.20 at 4:40 pm

    @#1 , the manufacturer got paid but it wants to protect its fat margins & future revenue streams.

    This is a classic case of a business suing to protect the fat margins it enjoys in the USA market.
    This is similar to the flat iron lawsuit that was discussed here.

    Here is the scneario

    COMPANY_A makes product X & it costs them $10 to make it.
    at $30 they are profitable if they sell 1000 units.
    now selling 1000 units takes some effort , so the decide why not we sell 100 units at $300.
    They are still getting the same profit,
    Since the price is high , people think they are getting a luxury product.

    Now in a different market where the purchasing power is not so high, they have to reduce the price.

    So now Costco comes in , buys from their distributor in that market & brings it to USA and sells for its cost + 10% (??? )

    COMPANY_A is worried that it wont be able to sustain the $300 price since customers are now aware that X doesnt cost as much
    When their business model is dependent on maintaining the $300 price point , they will sue.

  7. 7 XUP // 2010.04.20 at 8:58 am

    What? These watches are made here, sold in Europe and then shipped back here for resale by Costco? And this costs less than Costco getting them directly from the US manufacturer? I’m confused. If they’re authentic Omega Watches, somewhere along the like Omega must have been paid for them, so what do they want? Big business is so bizarre.

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