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Horvitz & Levy LLP presented the oral argument on behalf of Omega in this case, in which the Ninth Circuit held that the U.S. Copyright Act’s “first sale doctrine,” 17 U.S.C. section 109(a), does not provide a defense to an infringement action when the copies at issue are foreign-made, nonpiratical copies of a U.S.-copyrighted work.

Omega manufactures watches in Switzerland and sells them globally overseas through a network of authorized distributors and retailers. The watches are engraved with a design that Omega copyrighted under the U.S. Copyright Act. Costco purchased genuine Omega watches that were imported into the United States without Omega’s authority (so-called “gray market” goods), and then sold the watches without Omega’s authorization to consumers in California.

Omega sued Costco for infringement under the U.S. Copyright Act and Costco moved for summary judgment based on the first sale doctrine. The first sale doctrine provides that, once a copyright owner consents to the sale of a particular copy of a work “lawfully made” under the U.S. Copyright Act, the owner of that copy is entitled to sell or otherwise dispose of the copy without the copyright owner’s authority. Prior Ninth Circuit decisions had held that the first sale doctrine did not apply where the copies at issue were foreign-made unless those copies had already been sold in the United States with the copyright owner’s authority. Costco argued that those decision had been implicitly overruled by a more recent United States Supreme Court decision, Quality King Distributors, Inc. v. L’anza Research International, Inc. (1998) 523 U.S. 135, which held that the first sale doctrine could provide a defense in a case involving “round trip” importation, i.e., where the copy is manufactured in the United States, sold to third parties overseas, and then shipped back into the United States and sold to retailers without the U.S. copyright owner’s permission. The district court presumably agreed and granted summary judgment in Costco’s favor.

The Ninth Circuit reversed, concluding that Quality King did not overrule the circuit’s prior decisions regarding foreign-made copies. The court explained that the first sale doctrine applies only to copies “lawfully made” under the U.S. Copyright Act, and that construing this language to apply to foreign-made copies would result in an impermissible extraterritorial application of the Act. Because there was no genuine dispute that Omega made the copies overseas and that Costco sold the copies in the United States without Omega’s authority, the first sale doctrine did not apply. (See a write-up of the Omega case in the “Patent, Trademark & Copyright Journal” published by the Bureau of National Affairs, Inc.)