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The American Free Trade Association (AFTA) has provided a voice to the secondary marketplace for over 30 years.  AFTA works with industry, legislative leaders, regulatory officials and coalition members to ensure that genuine, branded consumer products are lawfully distributed across borders, providing American consumers with greater access to cost-effective, safe and authentic merchandise.

9th Circuit Confirms Award of Attorney’s Fees to Costco for Omega’s Misuse of Copyright to Stop Gray Market Sales of its Watches

 Today, the 9th Circuit confirmed that Omega Corporation was guilty of copyright misuse and confirmed the Lower Court’s award of over $360,000 in attorneys fees to Costco Corporation. The opinion strongly reaffirms that gray market competition is a check against the expansion of copyrights and proliferation of rights holders’ monopolies  attempting to control downstream product distribution.

Take a look at just some of the  highlights from both the Majority and Concurring Opinions.

  • Omega’s attempt to expand the scope of its statutory monopoly by misusing its copyright in the Globe Design….  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

  •  The district court…. concluded that “[b]y affixing a barely perceptible copyrighted design to the back of some of its watches, Omega did not provide—and did not seek to provide—creative works to the general public.” Instead, “Omega sought to exert control over its watches, control which it believed it could not otherwise exert.” 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.

  • “Copyright misuse is a judicially crafted affirmative defense to copyright infringement” designed to combat the impermissible extension of a copyright’s limited monopoly… Its purpose is to prevent “holders of copyrights from leveraging their limited monopoly to allow them control of areas outside the monopoly.” Id. (internal quotation marks omitted)….

  • Because unauthorized retailers, such as Costco, were selling gray market Omega watches in the United States below Omega’s suggested retail price, Omega attempted to maintain the price of its watches sold in the United States by inconspicuously engraving the copyrighted Globe Design on the underside of its Seamaster watches.

  • Even drawing all reasonable inferences in Omega’s favor, there is no genuine dispute as to whether Omega sued Costco for copyright infringement at least in part to control the unauthorized importation and sale of Omega watches….

  •  Omega concedes that it designed and secured copyright protection for the Globe Design for the purpose of using copyright law to restrict the unauthorized sale of Omega watches in the United States.

  • The Copyright Office granted Omega the exclusive right to control the importation and distribution of the Globe Design into the United States. It did not empower Omega to restrict competition from unauthorized retailers selling genuine, gray market Seamaster watches in the United States…

  • Omega’s expansion of its copyrightlike monopoly eliminated competition from unauthorized watch retailers like Costco, thereby allowing Omega to control—through its exclusive distributor, Swatch U.S.A.—the retail pricing of Seamaster watches sold in the United States.

  • If the copyright law allowed Omega to use its copyright to combat the importation and sale of all gray market watches that are stamped with the Globe Design, it would effectively grant Omega a copyright-like monopoly over the distribution and sale of Omega watches in the United States

  • [Omega] eliminated price competition in the retail market for Omega watches and deprived consumers of the opportunity to purchase discounted gray market Omega

 A copy of the full opinion can be found here:  Omega-v-Costco Omega-v-Costco.

Additional  information about this  case can be found in earlier blog posts  – just type “Costco” or “Omega” in the search box on the home page.

AFTA welcomes your thoughts, comments and feedback and looks forward to learning how you feel about this latest “finale” in the ongoing saga of Costco v. Omega. If you would like further details, documents or copies of earlier posts on this subject, please contact AFTA directly at afta@aftaus.com.

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