After more than a decade, it looks like this case might finally be at an end. But since it has been dragging on this long, I’m not sure I’d bet on that. So, this case started way back in 2004 when Costco started selling Omega’s Seamaster watch, but not as an authorized dealer because they had purchased the watches on the gray market. The gray market is a secondary or parallel market where items are sold legally but not authorized by the original manufacturer. On the back of the Seamaster you can find a small engraved globe that is copyrighted by Omega, and that was what they used to sue Costco. Their suit was brought on the grounds that Costco was illegally importing and selling their copyrighted goods without their permission. But the real beef was that Costco was selling the watches for $1,299, or $700 below the manufacturer’s suggested retail price of $1,999 and this copyright thing was the only legal footing that Omega felt they had to make that stop.
So, this case has gone like this (I’m pretty sure my summary is correct but this was a bit hard to follow): Omega sued Costco, Costco won at the district level, so Omega appealed, then Omega won at the 9th Circuit Court, so Costco appealed to the Supreme Court, Omega still won but then the court reversed itself based on a legal issue and affirmed the ruling of the district court. At that point the district court in Los Angeles found that Omega used its copyright to illegally expand its monopoly and awarded Costco almost $397,000 in legal fees too. And naturally Omega appealed, and a few weeks ago a three judge panel of the 9th Circuit Court affirmed the ruling of the district court. So, Omega has lost the case and will end up having to pay Costco $397,000 in legal fees to boot. And all of this is over 43 watches!
Yeah, just 43 of the Omega Seamaster watches were sold in California. Costco had purchased 117 of the watches from a New York company which had bought the watches from unidentified customers of some Omega-authorized foreign distributors. Apparently the watches were purchased from a company in Paraguay. In any case, Costco started selling them in California in 2004 but then Omega sued them and this has been a continuing court situation since then. But since Omega had already gotten paid because they sold the watches to their authorized dealer, this fight was just over stopping Costco selling them and all it ended up doing was costing Omega way more money than those 43 watches were worth, even at full retail. They’re going to end up paying Costco $310,000 more than the watches would have sold for. And that doesn’t even take their own legal fees into account. This turned out to be a very expensive case to pursue for Omega.
Here are some good quotes from the ruling of the 9th Circuit judges.
Omega’s use of “a barely perceptible copyrighted design to the back of some of its watches … did not provide – and did not seek to provide – creative works to the general public,'” Senior Judge Dorothy Nelson wrote, quoting the underlying opinion.
“Instead, ‘Omega sought to exert control over its watches, control which it believed it could not otherwise exert,'” she added. “Thus, the court concluded, it should have been clear to Omega that copyright law neither condoned nor protected its actions, and the imposition of fees would thus further the purpose of the Copyright Act. This conclusion was not error.”
Concurring, Judge Kim McLane Wardlaw noted the “novel issue” of whether Omega’s attempts to control imports and restrict competition constitutes copyright misuse.
“The watchmaker’s anticompetitive acts promoted neither the broad public availability of the arts nor the public welfare,” Wardlaw wrote. “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. Because the district court correctly held that Omega misused its copyright in the Globe Design by attempting to leverage its limited monopoly over the design to control the importation and sale of Seamaster watches, I would affirm the district court on the issue of copyright misuse.”
Basically, the judges told Omega that they weren’t going to stand for any copyright shenanigans as a way to control the market. This is good news of course for Costco, but also for a lot of other retailers, including sellers on eBay who could have very well been held to account for reselling goods without the permission of the original manufacturer. It just sounds ridiculous when you put it that plainly, I think.
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