By  on April 12, 2010

WASHINGTON — The Supreme Court is expected to meet on Friday to decide whether to hear a case brought by Costco Wholesale Corp. against Omega SA challenging whether Omega can use copyright law to control the distribution and resale of watches made lawfully abroad and imported into the U.S.

The case has significant implications for off-price retailers and discounters that often purchase imported goods from middlemen and distributors at cheaper prices, rather than purchasing directly from a manufacturer or its authorized U.S. distributor, and then sell them in the U.S. below the brand’s official price. Online auction sites such as eBay also could be impacted by the case.

Costco filed a petition for a writ of certiorari in May, on appeal, asking the court to weigh whether Omega can use a copyrighted image to control secondary distribution and resale of its watches made in Switzerland once it has sold them to a foreign distributor.

At the center of the case is whether a provision under U.S. copyright laws known as the “first-sale doctrine” applies to imported goods. Under the doctrine, a manufacturer’s rights to distribution of a product end upon the first authorized sale it makes. The Solicitor General, Elena Kagan, filed a brief recommending the court not hear the case.

In 2004, Costco purchased 117 Seamaster style Omega watches from a U.S. distributor. It was later revealed in discovery that Omega had sold some of the watches to authorized foreign distributors in Egypt and Paraguay, who subsequently resold them to a U.S. distributor, according to Costco’s court documents.

Omega filed suit against Costco in 2004 after the warehouse club sold 43 of the Seamaster Omega watches in its stores, alleging Costco’s acquisition and sale of the watches constituted copyright infringement. Costco charged Omega created a laser-engraved emblem for the back of its watches and applied for a copyright in the U.S. for the sole purpose of invoking the Copyright Act to “restrict the resale of its products.”

Costco also argued that, “under the first-sale doctrine [a provision under U.S. copyright law], Omega’s initial foreign sale of the watches precluded claims of infringing distribution and importation in connection with Costco’s subsequent sales.”

The U.S. District Court for the Central District of California ruled in favor of Costco, but the Ninth Circuit Court of Appeals reversed the lower court’s decision, saying copies made abroad by the holder of a U.S. copyright for sale abroad are not subject to the first-sale defense.

The implications could be far reaching if the Supreme Court declines to hear the case, letting the circuit court’s ruling stand, or ultimately confirms its decision.

“Manufacturers who sell globally will prefer to manufacture their goods abroad because of the increased control they will gain over subsequent use of their products,” Costco said. “Conversely, retailers will be hesitant to sell such products for fear of unintended liability or infringement.”

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