In a country where the first sale doctrine has been at play for more than 100 years, you would think an enlightened Supreme Court would uphold such longstanding precedent. Yet, I have learned to always expect the unexpected.
A 4-4 ruling in Omega S.A. v. Costco Wholsesale Corp., 541 F.3d 982 (9th Cir. 2008) this week leaves a very gray area over grey market goods. The case involved the Omega watch company’s ability to basically control the pricing of its goods in the after-market by riding the coattails of the Copyright Act and they prevailed in the nation’s high court, much to my surprise.
The watches are made overseas and sold overseas at a much cheaper price than they retail in the US. An unidentified vendor bought them overseas and sold them to a New York company, which in turn sold them to Costco for distribution in California. Although Omega authorized the foreign sale, it claimed it did not authorize the importation of those same watches into the U.S. and claimed copyright infringement of its logo under 17 U.S.C. §§106(3) and §602(a). Costco, on the other hand, cross-moved under 17 U.S.C. §109(a) arguing they were protected under the “first sale doctrine,” which allows a purchaser to transfer a lawfully made copy of a copyrighted work without permission from the copyright holder.
The “first sale doctrine” was established more than 100 year ago in Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908) and it was later codified in the U.S. Copyright Act, 17 U.S.C. §109. In Bobbs-Merrill, a publisher sold a novel with a statement on the first page indicating that no dealer could sell the book lower than $1.00. R.H. Macy & Co. ignored that and sold the book at a discount after buying it wholesale from an authorized distributor. The high court sided with Macy’s stating that the Copyright statute protected the rights holder’s “right to vend” and multiply the work but it did not afford it greater protection than set forth in the statute by allowing the holder to limit future resales. This case of first impression set forth what was subsequently codified in 17 U.S.C. §109 as the “first sale doctrine” and has been subsequently upheld by SCOTUS numerous times.
The 4-4 split (Justice Kagan sitting this one out because of her stint as US Solicitor General) was issued without an opinion so we don’t know why any of the justices voted the way they did, nor does the decision clarify control of so-called “gray market goods.” What is clear, however, is that manufacturers now have a wider port to dance through when trying to control the pricing of goods made cheaper overseas and sold at inflated prices in the US. Why would anyone pay $2,000 for a watch anyway?