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- 12/28/2010

On December 13, 2010, the United States Supreme Court issued a non-decision in the matter of Costco Wholesale Corporation v. Omega, S.A., which may leave the First Sale Doctrine all but gutted.  The Court split four to four on the appeal filed by Costco, thus effectively upholding the Ninth Circuit that copyrighted goods purchased legally abroad cannot be imported and sold in the United States without permission of the copyright holder.  

The Court’s decision simply read: “The judgment is affirmed by an equally divided Court. Justice Kagan took no part in the consideration or decision of this case.”  Justice Kagan recused herself based on her previous involvement in the case as Solicitor General, before being appointed to the Court. 

In the case, Omega sought to prevent Costco from reselling Omega watches that were originally sold by Omega to authorized foreign distributors.  Costco legally purchased the watches abroad for resale, even though Omega did not authorize the importation and resale of the watches by Costco. 

Traditionally, the First Sale Doctrine allows a purchaser to transfer (sell or give away) a particular lawfully made copy of a copyrighted work without permission once it has been obtained, such as by purchase.  The issue in the case was whether the First Sale Doctrine extinguished the rights of a copyright holder for goods that are made abroad and sold abroad. 

The Ninth Circuit agreed with Omega’s position that the First Sale Doctrine does not affect rights of the copyright holder in such cases.  Instead, the Ninth Circuit concluded that the Copyright Act grants U.S. copyright holders complete control over the resale, redistribution and importation into the United States of any copyrighted works that they manufacture abroad, even where the copyright holder sells those works to others.   

The Ninth Circuit’s decision and affirmation by the Supreme Court is viewed by some as a major blow to the First Sale Doctrine.  This is due to an apparent loophole that allows copyright holders to maintain control of copyrightable works even after the works are sold.  Further, the decision appears to favor making and selling copyrighted goods overseas, since it affords the copyright holder control over such goods in the U.S., which the copyright holder would not have if the goods were sold in the U.S. to begin with.  Some believe, therefore, that the decision will have a negative impact on U.S. business, and benefit businesses overseas instead.