Omega S.A. (“Omega”), a Swiss manufacturer of watches, has appealed a decision by the U.S. District Court for the Central District of California, Omega S.A. v. Costco Wholesale Corporation, No. 04-05442 (C. D. Cal. Nov. 9, 2011), holding that Omega’s use of its copyrighted Omega Globe Design to assert an infringement claim against Costco to prohibit the importation and sale of Omega watches engraved with this design constitutes copyright misuse.
Omega manufactures luxury watches in Switzerland, including its “Seamaster” watches, and sells these watches in the United States and worldwide through authorized distributors and retailers. Omega obtained a copyright registration for its Omega Globe Design, which it engraves on the back of each of its Seamaster watches. Costco, a wholesale-retail club, is not an authorized distributor of Omega watches. However, Costco acquired Omega’s Seamaster watches with the engraved Omega Globe Design through a third party outside of the United States, and made these watches available for sale at Costco stores in the United States. Omega sued Costco for infringement based on Costco’s unauthorized importation of a copyrighted work into the United States in violation of Sections 106 and 602 of the Copyright Act of 1976, as amended, 17 U.S.C. § 101, et seq. In support of its claim, Omega asserts that “[t]he limited monopoly provided by its copyright permits Omega to control and limit the distribution (including the importation and sale in the United States) of the Omega Globe Design and the Seamaster watches on which the design is engraved.
On remand from the Ninth Circuit’s decision—which was affirmed by an equally divided Supreme Court (Justice Kagan recused herself)—that Omega’s copyright claim was not barred by the first sale doctrine, Omega and Costco cross-moved for summary judgment on Costco’s copyright misuse defense. The district court ruled that “Omega misused its copyright of the Omega Globe Design by leveraging its limited monopoly in being able to control the importation of that design to control the importation of its Seamaster watches.” In reaching this decision, the district court noted that: (1) Omega did not publicize, to the public or its authorized distributors or retailers, that it started to engrave the Omega Globe Design on the back of its Seamaster watches; and (2) after filing the lawsuit against Costco, Omega advised its authorized distributors that “the purpose of this lawsuit was to ‘stem the tide of the grey market’ and ‘unauthorized importation of Omega watches in the U.S.,’” thereby conceding that the purpose of the Omega Globe Design was to control the importation and sale of watches that were not protected by copyright. The court found, “[i]n other words, Omega used the defensive shield of copyright law as an offensive sword.” The district court applied the copyright misuse defense to these particular circumstances, noting that prior circuit court decisions “all deliberately chose a broad rule for copyright misuse so that the rule could be applied to new situations as they arose” and “‘[c]opyright misuse is an equitable defense to copyright infringement, the contours of which are still being defined.
In its appeal, Omega claims that the district court misapplied the copyright misuse defense because it “ignor[ed] the law governing a copyright holder’s exclusive rights in copies of [a] copyright work incorporated into useful articles.” In its opening brief, Omega contends that this judicially created defense, which the Ninth Circuit noted should be applied “sparingly,” only applies where a copyright owner seeks to leverage the limited monopoly afforded by its copyright to control areas outside of that limited monopoly. In this instance, Omega argues that “[w]here . . . the copyright is for an artistic element that has been engraved on a useful product, the right to control distribution that is conferred by the copyright also includes the right to prevent others from distributing the copyrighted work that is engraved on that useful product.” Otherwise, Omega contends that Section 113(a) of the Copyright Act, which provides that “the exclusive right to reproduce a copyrighted pictorial, graphic, or sculptural work in copies under section 106 includes the right to reproduce the work in or on any kind of article, whether useful or otherwise,” would be meaningless. As Omega only sought to use its copyright in the Omega Globe Design “to control areas with the limited monopoly statutorily conferred by that copyright, i.e., over the distribution, including the importation, and sale within the United States of the Omega Globe Design as engraved on Omega Seamaster watches,” Omega contends that it could not have engaged in copyright misuse as a matter of law. Costco has not yet filed its responsive brief in this appeal.
The outcome of this appeal could potentially have a sweeping impact on the arsenal of available protection afforded under copyright law, and provide another avenue for manufacturers to prevent unauthorized sales of their products.