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Copyright law seems to have become a convenient means to achieve objectives that have nothing to do with protecting the rights of authors and artists. For instance, the DMCA’s use to stifle competition and research are well chronicled. The latest example of this expansive application of copyright law comes in the form of the recent Ninth Circuit Court of Appeals decision in Omega S.A. v. Costco Wholesale Corp where the watchmaker Omega invoked copyright law to control the distribution of its watches, not because the watches themselves were protected by copyright, but because a design engraved on their underside was.
Omega’s watches were manufactured in Switzerland with a U.S. copyrighted “omega globe design” engraved on their underside. Omega authorized sale of these watches in Switzerland. After a series of subsequent sales they were purchased by a New York company, which sold them to Costco. When Costco offered the watches to its customers for sale, Omega claimed that the sale infringed its copyright in the design and the Ninth Circuit agreed.
The court’s decision involved an interpretation of what is called the first sale doctrine and how it applies when a copyrighted good is imported. The first sale doctrine provides that a copyright owner’s right in a particular copy of his work is exhausted once the owner sells that copy. In other words, the copyright owner has the ability to control only the first distribution of a particular copy. The first sale doctrine allows me to lend a copy of a book I bought to a friend. It allows libraries to lend books and stores to sell used books.
However, the Omega court decided that this doctrine didn't apply to goods, such as Omega’s watches with their engraved design that were manufactured and sold outside the U.S. The court explained that for the first sale doctrine to apply, the copyrighted good had to be subject to U.S. copyright law. Because U.S law applies only within U.S. territory, the first sale doctrine could not apply to goods manufactured or sold outside the U.S.
While the decision raises the concern that a copyright owner can easily escape the first sale doctrine by merely shifting manufacturing from the U.S. to a foreign country I want to focus on how the court’s decision is completely divorced from the fact that Omega was primarily concerned about controlling the distribution of the watches, not the copyrighted design. The court did not address this issue at all. The court’s ruling would allow a manufacturer to control importation of any good by simply slapping a copyrighted label or design on the good. The decision prevents importation of what are called a gray market goods defined by the same court in another case as:
genuine products that have a brand name or design protected by trademark or copyright. They are typically manufactured abroad and purchased and imported into the United States by third parties, thereby by passing authorized distribution channels. Retailers are able to sell these products at a discount because the gray market arbitrages international discrepancies in manufacturers’ pricing systems.
While manufacturers may seek to prevent gray market importation as it undercuts their authorized channels of distribution, gray market goods offer genuine products at lower prices to consumers. Any decision about gray market goods should at the least consider these arguments and copyright law is hardly suited to do this. Using it to do so is an unwarranted expansion of copyright law.