Tuesday, December 14, 2010

Costco Loses Omega Watch Case

Costco purchased a number of Omega watches overseas on the cheap and sold them in their US stores at almost 50% less than the price they were available in the US. Omega sued Costco for copyright infringement and the 9th circuit court agreed with them finding that Costco had purchased the watches manufactured overseas and sold by foreign distributors and had done so without Omega's permission.

In the Supreme Court ruling the court split 4-4 (with Justice Kagan recusing), the court effectively let stand the lower court ruling in favor of Omega. This ruling said the first sale doctrine did not apply to goods produced overseas.

The decision denies the right of an internet retailer to purchase goods overseas covered by US copyright and sell him in the US without the manufacturers permission. So Costco broke the law in this case and going forward manufacturers may be more aggressive in preventing retail price arbitrage. This may well be the case for publishers and content producers who supported Omega in this case. These companies will be able to crack down on retailers that import DVDs, CDs and Books from overseas where retail prices can often be much lower than the US.

On the other hand libraries supported the Costco position because the case, if won by Omega, would limit the first sale doctrine. The first sale doctrine holds that a distributor/manufacturer can not control the distribution of a product after the first sale and this enables libraries and second hand booksellers(etc) to loaning and resell content.

More from paidcontent

paidContent: Why Publishers Are Tracking The Costco v. Omega Supreme Court Case

There's an important case regarding copyright that has reached the Supreme Court. From the WSJ: Watch Out For the Omega Copyright Windup:
Stewart's hard-scrabble scribbler would be pleased to learn that a Supreme Court case scheduled to be argued in the coming term could put the kibosh on library lending, at least of those books published or printed outside the U.S. In a friend-of-the-court brief, the American Library Association and other library groups argue that a recent Ninth U.S. Circuit Court of Appeals decision "threatens the ability of libraries to continue to lend materials in their collections."

The librarians fear they are going to suffer collateral damage from a curious copyright case that has nothing to do with books. It's Costco Wholesale Corporation v. Omega, S.A.—a battle over whether the storied Swiss watch brand can control where and at what price its chronometers are sold in the U.S.

Omega, you see, sells its watches for far less money in some countries than in others, a common enough practice known to economists as "geographical price discrimination." The U.S. market will generally bear more than the market in a Latin American republic, and so Omega offers its goods to distributors in places such as Paraguay for less than it does to American distributors.
American Research Libraries blog notes the amicus filing in the Costco vs Omega watch case (ARL):
And that is why this case is important for libraries. In its amicus brief, LCA notes that “[b]y restricting the application of Section 109(a) to copies manufactured in the United States, the Ninth Circuit’s decision threatens the ability of libraries to continue to lend materials in their collections.” There are millions of volumes in library collections that were manufactured abroad. A more precise estimate than “millions” can probably never be known, though, because there is no reliable way of knowing where books in library collections were actually manufactured. So, if the Supreme Court agreed with the Ninth Circuit, and libraries determined that they could not find an alternative to the traditional first sale doctrine rationale for circulating foreign-manufactured works, they would face an impossible task in determining which of their books could not circulate under the new rule.
Also related a brief filed in the case of Pearson vs Textbook Discounters (JDSupra)

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