Costco & Omega – at it again!
You may remember last year’s highly anticipated U.S. Supreme Court copyright law case, Costco v. Omega. The case, which dealt with the first sale doctrine and importing copyrighted works led to a famously short Supreme Court opinion, which affirmed the Ninth Circuit decision in favor of Omega.
The facts of the case are simple. Costco lawfully purchased Omega watches overseas and, when the retailer started selling the watches in its U.S. stores, Omega sought to cease Costco sales. Even though Costco’s purchases abroad were lawful, Omega never authorized the retailer to sell its watches in the U.S., especially for a discounted price of $1299.00. After Omega became privy to the fact that Costco was selling its watches, it decided to add a copyrightable design to the back of the watches, in order to control importation into the U.S.
Omega created the Omega Globe Design – an engraving only 3 millimeters in size – and began building watches with the Design in 2003. Then, Omega filed suit for copyright infringement against Costco, arguing that Costco violated Section 602 of the Copyright Act, which prohibits the importation of copyrighted works without the copyright holder’s permission.
After making its way to the Supreme Court, the case was remanded to the Eastern District of California, and Costco was given another chance. This time, Costco took a new approach. In its motion for summary judgment, the retailer argued, “Omega misused its copyright of the Omega Global Design by leveraging its limited monopoly in being able to control the importation of the design of its [] watches.”
Because Omega admitted that its watches – as functional, fashion items – would not fall within the scope of the Copyright Act without the Omega Global Design, the court, this November, found in favor of Costco – and held that Omega’s use of the design was evidence of “copyright misuse.”
While the contours are still being defined, copyright misuse has been labeled as an equitable defense to copyright infringement. This is due in part to the fact that copyright misuse is rarely used outside of the antitrust context. In this case, the court extended the defense and stated that although its use has been “limited to the antitrust context that is not to say that it could not exist in other situations.” In doing so, the court granted Costco’s motion for summary judgment. Interestingly enough, this same district court held in favor of Costco on its first sale defense when the parties first met over this issue, years ago.
This case demonstrates that copyright misuse can be extended beyond the limited scope to which it had been applied in the past. Though Omega may argue this is a case that simply misused the misuse defense.