In the past, we’ve warned readers against shopping on the gray market unless they really, really know what they’re doing. Costco has been doing some gray-market buying of its own. Now a federal court has ruled that it’s cool and good for consumers for Costco to sell gray-market watches.
The warehouse club and luxury watch brand Omega have been fighting for much of the last decade over some Omega-branded watches sold in Costco clubs in 2003. The issue is the first-sale doctrine: the idea in copyright law that once someone buys a copyrighted item, they’re able to do anything with it that they see fit. If this case sounds familiar, it should: the two companies took their dispute over the 43 watches to the Supreme Court, where the justices were evenly divided, in 2010. (Justice Elena Kagan sat out the case.) That means the decision of the lower court in favor of Omega stood instead. The lower court, the Ninth Circuit, had found in favor of Omega that the first sale doctrine applies only to items sold for the first time in the United States.
In this case, the watches did have Omega-approved globe logos on them, but were made for the market in Paraguay. Costco acquired them on the gray market, not buying them directly from Omega. If Omega had authorized an American company to sell watches with their logo and that company sold the watches to Costco, the first sale doctrine would protect Costco.
Then came the 2013 Wiley v. Kirtsaeng decision from the Supreme Court, where the justices ruled that the first-sale doctrine applies to items purchased outside of the United States as well. In the Wiley case, the merchandise in question was textbooks published for sale outside of the United States. That also applies to this case, since Omega did approve the use of its globe logo for these watches the first time that they were sold. In Paraguay.
The gray market isn’t illegal, and the Ninth Circuit ultimately ruled that a company should not be permitted to use copyright law to control where licensed merchandise goes after it has been sold.
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. Because such an outcome directly controverts the aims of copyright law, it is impermissible.
If Omega has a problem with Costco selling gray market watches, the court says, they need to use a different tactic. Suing over the copyright on a teeny-tiny globe on the underside of the watch isn’t enough to keep those cheap watches out of Costco.