Court weighs 'gray market' sales
Monday, November 08, 2021 3:22 PM

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The "first sale doctrine," initially articulated by the Supreme Court in 1908's Bobbs-Merrill Co. vs. Straus, holds that a copyright owner's exclusive distribution right is exhausted after the owner's first sale of a particular copy of the copyrighted work.

The case before the court involves Costco (NASDAQ:COST) and its "gray market" acquisition and sale of Swiss-made Omega watches.

Omega makes the watches in Switzerland and sells them all over the world through authorized distributors and retailers. Engraved on the underside of the watches is a U.S.-copyrighted "Omega Globe Design."

But the Costco Wholesale Corp. obtained the watches with the copyrighted design from the "gray market," a federal appeals court in San Francisco said.

Omega sold its watches to authorized distributors overseas; unidentified third parties bought the watches and resold them to a New York company, ENE Lmt., which in turn sold them to Costco. The wholesaler then sold them to California consumers.

Omega filed suit, but Costco argued that under the "first sale doctrine," Omega's initial foreign sale of the watches precludes claims of infringing distribution and importation in connection with the subsequent, unauthorized sales.

Eventually, the appeals court ruled: "Because there is no genuine dispute that Omega made the copies of the Omega Globe Design in Switzerland, and that Costco sold them in the United States without Omega's authority, the first sale doctrine is unavailable as a defense to Omega's claims."

The Supreme Court gave no clear indication Monday as to how it would rule, though Justice Stephen Breyer indicated he may be open to applying the doctrine to overseas goods.

Citing an amicus brief that said copyright law did not pre-empt state contract law in Bobbs-Merrill, then "state law of contract had the exception in it which applied the first sale doctrine," Breyer said. "Now if that's the reasoning, that reasoning would seem to me to apply. We could look up what the state law is, but my guess is that the first sale doctrine applies just as much to goods that come from abroad as to goods that are here at home."

The court should hand down a decision within a couple of months.

(Source: UPI )
(Source: Quotemedia)


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