Costco v. Omega

In a troubling development, an evenly divided Supreme Court allowed a lower court decision against Costco to stand in a lawsuit between Costco and Omega, a maker of overpriced watches. At stake is the first-sale doctrine, which says that copyrighted material can be resold or given away without the permission of the copyright owner. Libraries and used booksellers depend on the doctrine.

Omega wanted to sell its watches at different prices in different regions. Costco was foiling them by buying the watches overseas where they were cheaper and selling them in the United States. Omega sued, claiming that its logo on each watch was copyrighted material and Costco was reselling that material illegally.

The case hinged not on the copyright claim (which seems ridiculous to me, but I’m not a lawyer), but on the first-sale doctrine. Costco argued that, having bought the watches, it could resell them at whatever price it wanted.

The Ninth Circuit appeals court ruled that the first-sale doctrine does not apply to goods manufactured abroad. The Supreme Court, divided 4-4, failed to produce an opinion. (Kagan was recused, and the court did not reveal how the remaining justices divided.)

This non-decision is troubling on a number of levels. It’s clearly bad for consumers. By weakening the first-sale doctrine it’s bad for the free exchange of ideas. And it creates a perverse incentive for companies to manufacture their goods overseas. Congress ought to fix this.

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