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Costco v. Omega Update – Gray Market Purchases May Land You in the Red in the Ninth Circuit

Executive Summary - You may be liable for copyright infringement if you sell goods manufactured outside the US and if:

  1. the goods are subject to a US copyright; and
  2. you are subject to the jurisdiction of the Ninth Circuit (see below for a list of states and territories) or any other jurisdiction that follows the lead of the Ninth Circuit

The Supreme Court recently decided the Costco v. Omega case. Costco dealt with the issue of whether gray market goods manufactured outside of the US and subject to a US copyright could be resold in the US without the permission of the copyright holder.  A gray market good is a good which is sold legally though channels which are not authorized by the manufacturer.  Costco was selling gray market watches which were manufactured by Omega overseas.  The watches bore, on their back, a logo that was copyrighted in the US.

Previously, the Ninth Circuit, which covers the states and territories of Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada, Northern Mariana Islands, Oregon and Washington, had held that there are no first sale rights in goods acquired overseas. This means that if you purchase, on the gray market, a product that was manufactured outside the US and covered by a US copyright, you may not re-sell it within the US unless you have the authorization of the copyright owner.  According to the earlier Ninth Circuit holding, if you sell the product domestically, you would be infringing the rights of the copyright owner.

The Supreme Court decision was limited to the statement “The judgment is affirmed by an equally divided Court. Justice Kagan took no part in the consideration or decision of this case.” This means that the decision of the Ninth Circuit stands and remains the law in the Ninth Circuit.  Because the Supreme Court was evenly split on the issue, the case will not be seen as precedent-setting.

In conclusion, you may be liable for copyright infringement if you sell goods manufactured outside the US and if:

  1. the goods are subject to a US copyright; and
  2. you are subject to the jurisdiction of the Ninth Circuit or any other jurisdiction that follows the lead of the Ninth Circuit

If you have any questions as to whether you have any copyright infringement liability for the imported goods you are selling, please do not hesitate to contact Vidas, Arrett and Steinkraus. 

This update was prepared by Jonathan Grad. Jonathan is an intellectual property lawyer and partner at Vidas, Arrett & Steinkraus. For help with your copyright matters, please contact Jonathan at 952-563-3010 or via email.

Disclaimer
This update should not be considered legal advice. Your receipt of this update does not establish an Attorney-Client Relationship. We do, however, invite you to contact us if you would like us to represent you.

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