U.S. Supreme Court Affirms Ninth Circuit Ruling Regarding “First Sale Doctrine” and Foreign Manufactured Products

by: Kelly A. Williams, a partner at Picadio Sneath Miller & Norton, P.C.

In Costco Wholesale Corp. v. Omega, S.A., the U.S. Supreme Court was asked to decide the following question presented:

Under the Copyright Act’s first-sale doctrine, 17 U.S.C. § l09(a), the owner of any particular copy “lawfully made under this title” may resell that good without the authority of the copyright holder. In Quality King Distribs., Inc. v. L’Anza Research Int’l, Inc., 523 U.S. 135, 138 (1998), this Court posed the question presented as “whether the ‘first sale’ doctrine endorsed in § 109(a) is applicable to imported copies.” In the decision below, the Ninth Circuit held that Quality King (which answered that question affirmatively) is limited to its facts, which involved goods manufactured in the United States, sold abroad, and then re-imported. The question presented here is: Whether the Ninth Circuit correctly held that the first-sale doctrine does not apply to imported goods manufactured abroad.

On December 13, 2010, the U.S. Supreme Court affirmed the judgment of the Ninth Circuit by an equally divided Court.  Costco Wholesale Corp. v. Omega, S.A., No. 08-1423, 562 U.S. _____ (Dec. 13, 2010).

Briefly, the evidence below showed that Omega manufactured watches in Switzerland, bearing a design registered in the U.S. Copyright office.  Omega first sold the watches to authorized distributors overseas.  Unidentified third parties eventually purchased the watches and sold them to a New York company, ENE Limited, which in turn sold them to Costco.  Costco then sold the watches to consumers in California.  Omega did not authorize the importation of the watches into the U.S. or the sales made by Costco.

Omega filed a lawsuit alleging that Costco’s acquisition and sale constituted copyright infringement under 17 U.S.C. §§ 106(3) and 602(a).  Costco defended the suit based upon the “first sale doctrine” which provides that once a copyright owner consents to the sale of particular copies of his work, he may not thereafter exercise the distribution right with respect to those copies.  Omega countered that the first sale doctrine did not apply because the watches bearing the copyrighted design were manufactured and first sold oversees.  Costco conceded that Omega’s position was consistent with Ninth Circuit precedent but argued that this precedence had been overruled by the U.S. Supreme Court in Quality King Distribs., Inc. v. L’anza Res. Int’l, Inc., 523 U.S. 135, 118 S. Ct. 1125 (1998).  The Ninth Circuit disagreed with Costco on the grounds that Quality King was factually distinguishable.  Moreover, the Ninth Circuit concluded that to permit the application of the first sale doctrine to foreign manufactured items would result in the extraterritorial application of U.S. laws, which is prohibited unless the contrary is clearly indicated by statute, which it was not here.  Further, the extraterritorial application of U.S. laws in the area of intellectual property is especially limited.  Consequently, the Ninth Circuit reversed the trial court that had found in favor of Costco on summary judgment and remanded for further proceedings.  The Ninth Circuit’s entire opinion can be found at Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982 (9^th Cir. Sept. 3, 2008).