Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-12-56342/USCOURTS-ca9-12-56342-0/pdf.json

Parties Involved:
Costco Wholesale Corporation
Appellee
Omega S.A.
Appellant

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

OMEGA S.A.,

Plaintiff-Appellant,

v.

COSTCO WHOLESALE CORPORATION,

Defendant-Appellee.

No. 11-57137

D.C. No.

2:04-CV-05443-

TJH-RC

OMEGA S.A.,

Plaintiff-Appellant,

v.

COSTCO WHOLESALE CORPORATION,

Defendant-Appellee.

No. 12-56342

D.C. No.

2:04-CV-05443-

TJH-RC

OPINION

Appeal from the United States District Court

for the Central District of California

Terry J. Hatter, Senior District Judge, Presiding

Argued and Submitted

December 3, 2013—Pasadena, California

Filed January 20, 2015

Before: Dorothy W. Nelson, Kim McLane Wardlaw,

and Johnnie B. Rawlinson, Circuit Judges.

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2 OMEGA S.A. V. COSTCO WHOLESALE CORP.

Opinion by Judge Nelson;

Concurrence by Judge Wardlaw

SUMMARY*

Copyright

The panel affirmed the district court’s decisions granting

summary judgment and attorneys’ fees to the defendant in a

copyright infringement action.

Omega S.A. sued Costco Wholesale Corp. for copyright

infringement based on Costco’s importation into the United

States of Omega Seamaster luxury watches without Omega’s

permission. The panel held that under Kirtsaeng v. John

Wiley & Sons, Inc., 133 S. Ct. 1351 (2013), the first sale

doctrine barred Omega’s claim because Omega’s copyright

distribution and importation rights expired after an authorized

first sale of the watches in a foreign jurisdiction. The panel

also held that the district court did not abuse its discretion in

awarding attorneys’ fees to Costco.

Concurring in the judgment, Judge Wardlaw wrote that

she would affirm based on the defense of copyright misuse,

which was the district court’s rationale for granting summary

judgment.

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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OMEGA S.A. V. COSTCO WHOLESALE CORP. 3

COUNSEL

Barry R. Levy (argued), Horvitz & Levy LLP, Encino,

California; Jess M. Collen and Thomas P. Gulick, Collen IP,

Ossining, New York, for Plaintiff-Appellant.

Bruce P. Keller (argued), Debevoise & Plimpton LLP,

Washington, D.C.; Norman H. Levine and Aaron J. Moss,

Greenberg Glusker Fields Claman & Machtinger LLP, Los

Angeles, California, for Defendant-Appellee.

OPINION

NELSON, Senior Circuit Judge:

This case involves two big commercial players: Costco

Wholesale Corporation (“Costco”), a discount warehouse,

and Omega S.A. (“Omega”), a global purveyor of luxury

watches. Omega appeals the district court’s decisions

granting summary judgment and attorney’s fees to Costco. 

We have jurisdiction pursuant to 28 U.S.C. § 1291, and we

affirm.

I. Background

Omega manufactures luxury watches in Switzerland,

which it distributes around the world. One of Omega’s highend watches, the Seamaster, sometimes bears an engraving of

the Omega Globe Design (“Omega Globe”). Omega obtained

a copyright for the Omega Globe in March 2003. Omega

began selling some Seamaster watches with engraved

reproductions of the Omega Globe in September 2003.

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4 OMEGA S.A. V. COSTCO WHOLESALE CORP.

Omega distributes its watches, including the Seamaster,

through authorized distributors and dealers throughout the

world, including the United States. In 2003, Costco and

Omega discussed the possibility of Costco carrying Omega

watches. The parties did not come to an agreement and

Costco never became an authorized Omega retailer.

In 2004, Costco purchased 117 Seamaster watches

bearing the Omega Globe on the so-called “gray market.” 

Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982, 984

(9th Cir. 2008) (“Omega I”), abrogated by Kirtsaeng v. John

Wiley & Sons, Inc., 133 S. Ct. 1351 (2013). First, Omega

sold the watches to authorized foreign distributors. Id. Next,

unidentified third parties purchased the watches and sold

them to ENE Limited, a New York company. Id. Costco

purchased the watches from ENE Limited. Id. Costco then

sold 43 of those watches to its members in California. 

Omega undoubtedly authorized the initial sale of the watches

but did not approve the importation of the watches into the

United States or Costco’s later sale of the watches. Omega I,

541 F.3d at 984.

Omega sued Costco for copyright infringement,

specifically the importation of copyrighted work without the

copyright holder’s permission, 17 U.S.C. § 602. The district

court granted summary judgment to Costco based on the first

sale doctrine. Omega, 541 F.3d at 984–85 (explaining that

the first sale doctrine, codified at 17 U.S.C. § 109(a), means

that once a copyright owner consents to the sale of particular

copies of work, that same copyright owner cannot later claim

infringement for distribution of those copies). We reversed

the district court and remanded because our precedent held

that the first sale doctrine did not apply to copies of

copyrighted works that had been produced abroad. Id. at 990

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OMEGA S.A. V. COSTCO WHOLESALE CORP. 5

(discussing BMG Music v. Perez, 952 F.2d 318 (9th Cir.

1991)). The Supreme Court granted certiorari, and an equally

divided Court summarily affirmed. Costco Wholesale Corp.

v. Omega, S.A., 562 U.S. 40 (2010) (per curiam).

On remand, the district court again granted summary

judgment to Costco, finding that Omega misused its

copyright of the Omega Globe to expand its limited

monopoly impermissibly. The district court also granted

Costco attorney’s fees in the amount of $396,844.17. Omega

appeals both the district court’s copyright misuse judgment

and the attorney’s fee award.

II. Standard of Review

We review the district court’s grant of summary judgment

de novo, and we may affirm on any basis raised below and

with support in the record. Columbia Pictures Indus. v. Fung,

710 F.3d 1020, 1030 (9th Cir. 2013). We review an award of

attorney’s fees for abuse of discretion. Fabbrini v. City of

Dunsmuir, 631 F.3d 1299, 1302 (9th Cir. 2011).

III. Discussion

A. First Sale Doctrine

While briefing in this matter was pending, the Supreme

Court revisited the first sale doctrine in Kirtsaeng, 133 S. Ct.

at 1355.1In that case, the Court considered “whether the

1 The concurrence argues both that copyright misuse is the only issue

presented to the court and that we should have ordered the parties to file

supplemental briefing on Kirtsaeng. The first sale issue is properly before

us. First, Costco raised the first sale doctrine based on the intervening

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6 OMEGA S.A. V. COSTCO WHOLESALE CORP.

‘first sale’ doctrine applies to protect a buyer or other lawful

owner of a copy (of a copyrighted work) lawfully

manufactured abroad.” Id. In other words, the Court asked

whether the purchaser of the copyrighted work can “bring

that copy into the United States (and sell it or give it away)

without obtaining permission to do so from the copyright

owner[.]” Id. The Court held that the answer was yes, and,

thus, the “‘first sale’ doctrine applies to copies of a

copyrighted work lawfully made abroad.” Id. at 1355–56.

Kirtsaeng explained that copyright distribution and

importation rights expire after the first sale, regardless of

where the item was manufactured or first sold. 133 S. Ct. at

1355–56. Kirtsaeng interpreted 17 U.S.C. § 109(a), the first

sale statutory provision, without overruling prior Supreme

Court precedent, see Trans World Airlines, Inc. v. Hardison,

432 U.S. 63, 73 n.8 (1977) (explaining judgment from an

equally divided Supreme Court is not precedent), and its

holding is therefore fully retroactive and applies here, Rivers

v. Roadway Express, Inc., 511 U.S. 298, 312–13 (1994).

decision in Kirtsaeng in a filing with the court prior to oral argument. 

Costco’s 28(j) Letter, Case No. 11-57137, Docket No. 42 & Case No. 12-

56342, Docket No. 23 (“Costco notifies the court ofKirtsaeng because the

Supreme Court’s ruling overrules this Court’s decision in the prior appeal

in this case, Omega S.A. v. Costco Wholesale Corp., 451 F.3d 982 (2008),

aff’d by equally divided court, 561 U.S. __ (2010).”); Omega’s Response

Letter, Case No. 11-57317, Docket No. 44 & Case No. 12-56342, Docket

No. 25 (arguing Kirtsaeng does not apply). Moreover, at oral argument,

Costco’s first argument, made extensively, was that we can and should

affirm on Kirtsaeng. Case No. 11-57137, Oral Argument at 19:00. 

Because the parties litigated the first sale issue extensively the first time

this case was before us, and because the holding in Kirtsaeng is so clear,

there was no need for supplemental briefing.

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OMEGA S.A. V. COSTCO WHOLESALE CORP. 7

It is clear, then, that Omega has no infringement cause of

action against Costco. Omega’s only allegation is that Costco

violated Omega’s copyright-based importation and

distribution rights by selling gray market watches without a

prior authorized first sale in the United States. Omega

concedes that it authorized a first sale of the watches in a

foreign jurisdiction. Omega’s right to control importation

and distribution of its copyrighted Omega Globe expired after

that authorized first sale, and Costco’s subsequent sale of the

watches did not constitute copyright infringement. Kirtsaeng,

133 S. Ct. at 1366; 17 U.S.C. § 109(a). Thus, application of

the first sale doctrine disposes of Omega’s claim, resolves

this case in Costco’s favor, and conclusively reaffirms that

copyright holders cannot use their rights to fix resale prices

in the downstream market. Bobbs-Merrill Co. v. Straus,

210 U.S. 339, 350–51 (1908); see also Kirtsaeng, 133 S. Ct.

at 1366 (noting the “absurd result” that would exist if a

copyright owner could exercise downstream control after

authorizing a first sale).

B. Attorney’s Fees

“[A]n award of attorney’s fees to a prevailing defendant

that furthers the underlying purposes of the Copyright Act is

reposed in the sound discretion of district courts. Moreover,

[s]uch discretion is not cabined by a requirement of

culpability on the part of the losing party.” Entm’t Research

Grp., Inc. v. Genesis Creative Grp., Inc., 122 F.3d 1211,

1228–29 (9th Cir. 1997) (internal quotation marks and

citations omitted).

District courts have great latitude to exercise “equitable

discretion” in the attorney’s fees context. Id. “Some of the

factors that can affect a district court’s decision are (1) the

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8 OMEGA S.A. V. COSTCO WHOLESALE CORP.

degree of success obtained; (2) frivolousness; (3) motivation;

(4) the objective unreasonableness of the losing party’s

factual and legal arguments; and (5) the need, in particular

circumstances, to advance considerations of compensation

and deterrence.” Id.

Here, the district court did not abuse its discretion in

awarding attorney’s fees to Costco. The district court

identified these factors and found each weighed in Costco’s

favor. The court further concluded that “[b]y affixing a

barely perceptible copyrighted design to the back of some of

its watches, Omega did not provide—and did not seek to

provide—creative works to the general public.” Instead,

“Omega sought to exert control over its watches, control

which it believed it could not otherwise exert.” Thus, the

court concluded, it should have been clear to Omega that

copyright law neither condoned nor protected its actions, and

the imposition of fees would thus further the purpose of the

Copyright Act. This conclusion was not error.

AFFIRMED.

WARDLAW, Circuit Judge, concurring in the judgment:

The district court granted summary judgment and

awarded attorney’s fees to Costco based on the defense of

copyright misuse. The majority affirms the district court

relying upon the Kirtsaeng-resurrected first sale doctrine; a

doctrine we held inapplicable the first time around, and which

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OMEGA S.A. V. COSTCO WHOLESALE CORP. 9

the parties did not brief or argue in this appeal.1Indeed, as

Costco’s counsel confirmed at oral argument, “the first sale

issue per se is not at issue in this appeal.” I concur in the

judgment affirming the district court, but do so based on the

district court’s rationale for granting summary

judgment—copyright misuse—and the arguments actually

presented to us.

I.

The majority opinion fails to do justice to the facts

presented by this unique lawsuit. Costco is one of America’s

largest retailers. It is well known that Costco’s discount

warehouses sell everything from pallets of toilet paper to

slices of pizza. But only card-carrying members know that

Costco also sells a wide range of luxury goods, including

Dom Pérignon Champagne, Waterford crystal, Dolce &

Gabbana handbags, and, until this lawsuit was filed, Omega

watches.

Omega sued Costco for copyright infringement because

Costco sold, without Omega’s permission, forty-three

genuine Omega watches in the United States. Each watch

Costco sold was engraved with a copyrighted Omega design

(the “Globe Design”), which Costco did not have permission

to use. The district court concluded, however, that because

Omega placed the Globe Design on its watches at least in part

to control the importation and sale of Omega watches in the

United States, Omega had misused its copyright. In District

Court Judge Terry Hatter’s words, Omega impermissibly

1 The majority should have asked for supplemental briefing when

Kirtsaeng was decided in March 2013 so that the parties could address its

applicability and the implications of the law of the case doctrine.

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10 OMEGA S.A. V. COSTCO WHOLESALE CORP.

“used the defensive shield of copyright as an offensive

sword.”

A.

Omega is a Swiss luxury watchmaker which distributes

and sells its watches around the world through authorized

distributors and retailers. It is also a wholly-owned

subsidiary of the Swiss corporation the Swatch Group, Ltd. 

The Swatch Group (U.S.), Inc. (“Swatch U.S.A.”) is Omega’s

authorized and exclusive distributor in the United States. 

Costco, a U.S. corporation, operates membership warehouse

clubswhich sell merchandise, including brand-name watches,

to their members at lower prices than are available through

many other retailers.

Sometime before March 2003, SwatchU.S.A. learned that

Costco was selling genuine Omega watches in the United

States without Omega’s authorization. Costco had

circumvented Omega’s distribution model and procured the

Omega watches through the “gray market.” Gray market

goods, or parallel imports, are genuine brand-name products

typically manufactured abroad, purchased, and imported into

the United States by third parties. Retailers are able to sell

these products at a discount through arbitrage, e.g., if

Omega’s watches retail for less in Morocco than in the United

States, and Costco procures the watches at the Moroccan

price and then imports them into the United States, Costco

can undercut the authorized U.S. retailers.2 Costco was only

2 Here, Omega first sold its watches to authorized distributors overseas,

who then sold them to unidentified third parties. Omega S.A. v. Costco

Wholesale Corp., 541 F.3d 982, 984 (9th Cir. 2008), abrogated by

Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013). These

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OMEGA S.A. V. COSTCO WHOLESALE CORP. 11

the latest in a series of unauthorized retailers selling Omega

watches in the United States. Because Costco and the other

“unauthorized” retailers were selling Omega watches at far

lower prices than Omega’s suggested retail price, Swatch

U.S.A. began to receive complaints from authorized Omega

retailers.3 Swatch U.S.A.’s then-president was faced with a

mounting distribution problem. To increase Swatch U.S.A.’s

control over Omega watches in the United States, Swatch

U.S.A.’s president took action “to stem the tide of the gray

market.”

Swatch U.S.A.’s legal department devised a strategy to

use copyright protection to strengthen Omega’s control over

the importation of Omega watches into the United States. On

March 12, 2003, Omega registered its “Globe Design” for

U.S. copyright protection, and then began engraving a

miniscule Globe Design on the underside of the best-selling

Seamaster watch. See Appendix A. Although the Omega

Seamaster was the first product line engraved with the Globe

Design, Omega’s plan was to eventually place copyrighted

engravings on many of Swatch U.S.A.’s product lines and use

unidentified third parties sold the watches to ENE Limited, a New York

company, which in turn sold them to Costco. Costco then sold the

watches to consumers in the United States. Id.

3 When this lawsuit was filed in 2004, Omega’s suggested retail price

for the Omega “Seamaster,” one of the brand’s best-selling watches and

the watch that is at the center of this copyright dispute, was $1,995. 

Costco sold the watch for the price of $1,299. 

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12 OMEGA S.A. V. COSTCO WHOLESALE CORP.

the design’s copyright protection to prevent unauthorized

retailers from selling Omega’s watches.4

In 2004, Costco purchased 117 Omega Seamaster

watches, each engraved with the Globe Design, from ENE

Limited for the purpose of resale. Before this lawsuit was

filed, Costco had sold forty-three of those watches to its

members. Omega sued Costco in July 2004, alleging that

Costco’s sale of the forty-three Seamaster watches engraved

with the Globe Design infringed Omega’s copyright in the

design in violation of 17 U.S.C. §§ 106 and 602. In 2007, the

district court concluded that the first sale doctrine was a

complete defense to Omega’s claims, and granted Costco’s

motion for summary judgment. We reversed that judgment

in 2008, holding that the first sale doctrine did not apply to

foreign-made goods first sold abroad and then imported into

the United States without the copyright owner’s permission. 

See Omega S.A. v. Costco Wholesale Corp. (“Omega I”),

541 F.3d 982, 983 (9th Cir. 2008). An equally divided

Supreme Court affirmed that decision. Costco Wholesale

Corp. v. Omega, S.A., 131 S. Ct. 565 (2010) (per curiam).

On remand, the parties again cross-moved for summary

judgment. This time, the district court granted Costco’s

motion for summary judgment, based on the equitable

defense of copyright misuse. The district court found that the

4 Although Omega had been engraving artistic designs, such as its

“Seahorse,” on the underside of its watches for decades as “a mark of

prestige and luxury and identification,” the Globe Design was markedly

different. By contrast to the “Seahorse,” which was prominently

displayed on the watch’s underside, the Globe Design measured only oneeighth of an inch in diameter—roughly the size of the hole in a Cheerio. 

See Appendix A. Also, unlike it had with the “Seahorse,” Omega neither

advertised nor promoted the Globe Design. 

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OMEGA S.A. V. COSTCO WHOLESALE CORP. 13

purpose of Omega’s lawsuit was to “stem the tide of the grey

market” and the “unauthorized importation of Omega

watches into the U.S.” Omega had conceded that it had

affixed the copyrighted Globe Design to the underside of its

watches to take advantage of section 602 of the Copyright

Act, which makes the importation of copyrighted goods into

the United States without the copyright owner’s authorization

a violation of the owner’s exclusive right to distribute. The

district court concluded that Omega misused its copyright in

the Globe Design by leveraging its limited monopoly over the

design to control the importation and sale of Seamaster

watches.

II.

A.

The constitutional policy underlying copyright protection

is to “promote the Progress of Science and useful Arts.” U.S.

Const. art. I, § 8, cl. 8. “The immediate effect of our

copyright law is to secure a fair return for an ‘author’s’

creative labor. But the ultimate aim is, by this incentive, to

stimulate artistic creativity for the general public good.” 

Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156

(1975). “‘The sole interest of the United States and the

primary object in conferring the monopoly,’ [the Supreme]

Court has said, ‘lie in the general benefits derived by the

public from the labors of authors.’” Id. (quoting Fox Film

Corp. v. Doyal, 286 U.S. 123, 127 (1932)). To motivate the

creative activity of authors and inventors for the sake of the

public’s benefit, copyrights are limited in time and scope. 

Sony Corp. of Am. v. University City Studios, Inc., 464 U.S.

417, 429 (1984). “Implicit in this rationale is the assumption

that in the absence of such public benefit, the grant of a

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14 OMEGA S.A. V. COSTCO WHOLESALE CORP.

copyright monopoly to individuals would be unjustified.” 

1 Melville B. Nimmer & David Nimmer, Nimmer on

Copyright § 1.03[A] (2014) (footnote omitted). “The

copyright law, like the patent statutes, makes reward to the

owner a secondary consideration.” United States v.

Paramount Pictures, 334 U.S. 131, 158 (1948).

Copyright protection exists “in original works of

authorship fixed in any tangible medium of expression.” 

17 U.S.C. § 102(a). Copyright laws protect an author’s

expression of an idea, but not the idea itself. Id. at § 102(b). 

“‘[U]seful articles’ that have an ‘intrinsic utilitarian function’

apart from their expression or appearance” are not

copyrightable. Mattel, Inc. v. MGA Entm’t, Inc., 616 F.3d

904, 916 n.12 (9th Cir. 2010) (citing 17 U.S.C. §§ 101,

102(a)(5)). “[I]f an article has any intrinsic utilitarian

function, it can be denied copyright protection except to the

extent that its artistic features can be identified separately and

are capable of existing independently as a work of art.” 

Fabrica Inc. v. El Dorado Corp., 697 F.2d 890, 893 (9th Cir.

1983) (emphasis in original).

Because Omega’s watches are useful articles, they are not

copyrightable, with some possible exceptions not before us. 

See Vacheron & Constantin-Le Coultre Watches, Inc. v.

Benrus Watch Co., 155 F. Supp. 932, 934–35 (S.D.N.Y.

1957), aff’d on other grounds, 260 F.2d 637 (2d Cir. 1958)

(holding that a bejeweled wrist watch is not a work of art

subject to copyright protection); but see Severin Montres Ltd.

v. Yidah Watch Co., 997 F. Supp. 1252, 1265 (C.D. Cal.

1997) (holding that a Gucci watch with a unique bracelet and

clasp arrangement, and a frame around the watch’s face that

forms the letter “G,” was designed with an artistic purpose

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OMEGA S.A. V. COSTCO WHOLESALE CORP. 15

and is copyrightable).5 Because the watches are not the

proper subject of copyright protection, Omega does not argue

that Costco infringed copyrights protecting its watches, the

argument upon which the majority rests its opinion. Instead,

it argues that Costco infringed its limited monopoly over the

copyrighted Globe Design, which was engraved on the

watches that Costco sold.

Inherent in granting a copyright owner the exclusive right

to reproduce his works is the risk that he will abuse the

limited monopoly his copyright provides by restricting

competition in a market that is beyond the scope of his

copyright. An owner’s attempt to impermissibly expand his

lawful protection from competition contravenes not only the

policy of the copyright laws, but also the central purpose of

the antitrust laws. See Glen Holly Entm’t, Inc. v. Tektronix,

Inc., 343 F.3d 1000, 1010 (9th Cir. 2003) (“The central

5 The majority concludes, erroneously, that the watches are properly the

subject of copyright protection. The first sale doctrine, as discussed in

Justice Breyer’s opinion for the Court inKirtsaeng, applies only where the

distributed copy is of an item that is a proper subject of copyright

protection. As Justice Breyer describes the question before the Court in

Kirtsaeng,

we ask whether the “first sale” doctrine applies to

protect a buyer or other lawful owner of a copy (of a

copyrighted work) lawfully manufactured abroad. Can

that buyer bring that copy into the United States (and

sell it or give it away) without obtaining permission to

do so from the copyright owner? Kirtsaeng, 133 S. Ct.

at 1355.

The Court answers the question by “hold[ing] that the ‘first sale’

doctrine applies to copies of a copyrighted work lawfully made abroad.” 

Id. at 1355–56 (emphasis added).

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16 OMEGA S.A. V. COSTCO WHOLESALE CORP.

purpose of the antitrust laws, state and federal, is to preserve

competition.”) (internal quotation marks and alterations

omitted). “Copyright misuse is a judicially crafted

affirmative defense to copyright infringement” designed to

combat the impermissible extension of a copyright’s limited

monopoly. Apple Inc. v. Psystar Corp., 658 F.3d 1150, 1157

(9th Cir. 2011). Its purpose is to prevent “holders of

copyrights from leveraging their limited monopoly to allow

them control of areas outside the monopoly.” Id. (internal

quotation marks omitted).

The defense of copyright misuse, however, is not limited

to discouraging anti-competitive behavior. Indeed, “[t]he

question is not whether the copyright is being used in a

manner violative of antitrust law, . . . but whether the

copyright is being used in a manner violative of the public

policy embodied in the grant of a copyright.” Lasercomb

Am., Inc. v. Reynolds, 911 F.2d 970, 978 (4th Cir. 1990). We

expressly adopted copyright misuse as an equitable defense

to a claim of infringement in Practice Management

Information Corp. v. American Medical Ass’n, 121 F.3d 516

(9th Cir. 1997), noting that “copyright misuse does not

invalidate a copyright, but precludes its enforcement during

the period of misuse,” id. at 520 n.9, as amended by 133 F.3d

1140 (9th Cir. 1998); see also Altera Corp. v. Clear Logic,

Inc., 424 F.3d 1079, 1090 (9th Cir. 2005) (recognizing the

Fifth Circuit’s discussion of copyright misuse “as an unclean

hands defense which forbids the use of the copyright to

secure an exclusive right or limited monopoly not granted by

the Copyright Office and which is contrary to public policy

to grant”) (internal quotation marks and alterations omitted).

The copyright misuse doctrine “forbids the use of the

copyright to secure an exclusive right or limited monopoly

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OMEGA S.A. V. COSTCO WHOLESALE CORP. 17

not granted by the Copyright Office.” Lasercomb, 911 F.2d

at 977 (alterations omitted). The defense is often applied

when a defendant can prove either: (1) a violation of the

antitrust laws; (2) that the copyright owner otherwise illegally

extended its monopoly; or (3) that the copyright owner

violated the public policies underlying the copyright laws. 

Soc’y of Holy Transfiguration Monastery, Inc. v. Gregory,

689 F.3d 29, 65 (1st Cir. 2012), cert. denied, 133 S. Ct. 1315

(2013). We have discussed copyright misuse in only a

handful of published opinions. But while we have “applied

the doctrine sparingly,” Apple Inc., 658 F.3d at 1157,

copyright misuse is a valid defense, “the contours of which

are still being defined,” MDY Indus., LLC v. Blizzard Entm’t,

Inc., 629 F.3d 928, 941 (9th Cir. 2010).

While we have often discussed copyright misuse in the

context of anti-competitive behavior that restrains the

development of competing products, “a defendant in a

copyright infringement suit need not prove an antitrust

violation to prevail on a copyright misuse defense.” Practice

Mgmt. Info. Corp., 121 F.3d at 521; see also, e.g., Apple Inc.,

658 F.3d at 1157–58; Triad Sys. Corp. v. Se. Express Co.,

64 F.3d 1330, 1337 (9th Cir. 1995), superseded in part by

statute on other grounds, 17 U.S.C. § 117(c), as recognized

in Apple Inc., 658 F.3d at 1158. As the Seventh Circuit

interprets the defense:

The argument for applying copyright misuse

beyond the bounds of antitrust, besides the

fact that confined to antitrust the doctrine

would be redundant, is that for a copyright

owner to use an infringement suit to obtain

property protection, here in data, that

copyright law clearly does not confer, hoping

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18 OMEGA S.A. V. COSTCO WHOLESALE CORP.

to force a settlement or even achieve an

outright victory over an opponent that may

lack the resources or the legal sophistication

to resist effectively, is an abuse of process.

Assessment Techs. of WI, LLC v. WIREdata, Inc., 350 F.3d

640, 647 (7th Cir. 2003). Thus, to “cloak [itself] in copyright

misuse’s protective armament” here, Costco is not required

to demonstrate that Omega’s use of its copyrighted Globe

Design violates antitrust law. Soc’y of Holy Transfiguration

Monastery, 689 F.3d at 65. This appeal presents the novel

issue whether Omega’s attempted use of its Globe Design

copyright to control imports and restrict competition from

unauthorized retailers of its watches, which are “neither

copyrightable nor copyrighted,” Assessment Techs., 350 F.3d

at 641, constitutes copyright misuse.

B.

The district court correctly held that Omega misused its

copyright “by leveraging its limited monopoly in being able

to control the importation of [the Globe Design] to control the

importation of its Seamaster watches.” The district court did

not clearly err in finding that: (1) Omega copyrighted the

Globe Design, at the advice of its legal department, to control

the importation and distribution of Omega watches into the

United States; and (2) Omega told its authorized distributors

that the purpose of suing Costco was to “stem the tide of the

grey market” and the “unauthorized importation of Omega

watches into the U.S.” In other words, Omega attempted to

use the copyrighted Globe Design to decrease competition in

the U.S. importation and distribution of its watches by it and

its authorized dealers—an obvious leveraging of a copyright

to control an area outside its limited monopoly on the design.

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OMEGA S.A. V. COSTCO WHOLESALE CORP. 19

Omega argues that its anti-competitive motives are

irrelevant to the issue of copyright misuse. According to

Omega, our inquiry should instead focus on the copyright

holder’s objective conduct or use. But Omega’s semantic

hairsplitting is unpersuasive. By definition, “use” includes an

inquiry into purpose. See Black’s Law Dictionary 1681 (9th

ed. 2009) (defining “use” as “The application or employment

of something; esp., a long-continued possession and

employment of a thing for a purpose for which it is adapted”)

(emphasis added); see also Use, Oxford English Dictionary,

http://www.oed.com/view/Entry/220635?rskey=0ebBGE&r

esult=1#eid (last visited June 29, 2014) (“The act of putting

something to work, or employing or applying a thing, for any

(esp. a beneficial or productive) purpose.” (emphasis added)). 

However, we need not decide whether Omega’s motives are

sufficient to establish copyright misuse. The undisputed

record shows that before this lawsuit consumers were able to

a buy a genuine Omega Seamaster watch from Costco for

35% less than Omega’s suggested retail price. This is no

longer the case. Thus, at least one consequence of Omega’s

lawsuit has been a reduction of intrabrand price competition

for uncopyrightable Omega watches in the United States.

Lastly, because copyright misuse is an equitable defense

to an infringement action, the core of our inquiry is whether

“[e]quity may rightly withhold its assistance from such a use

of the [copyright] by declining to entertain a suit for

infringement . . . until . . . the improper practice has been

abandoned and [the] consequences of the misuse of the

[copyright] have been dissipated.” Morton Salt Co. v.

Suppiger Co., 314 U.S. 488, 493 (1942), abrogated on other

grounds by Ill. Tool Works, Inc. v. Indep. Ink, Inc., 547 U.S.

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20 OMEGA S.A. V. COSTCO WHOLESALE CORP.

28 (2006).6If Omega was using its copyright in a manner

contrary to public policy, we, as a court of equity, may refuse

to aid such misuse. See Lasercomb, 911 F.2d at 975–76.

Equity supports the district court’s refusal to enforce

Omega’s copyright in its Globe Design against Costco during

the period of Omega’s misuse. Omega wielded its

copyrighted Globe Design to restrict unauthorized retailers

from selling genuine Omega watches procured from the gray

market. Indeed, in his deposition, Swatch U.S.A.’s president

agreed that the “whole purpose” of creating the Globe Design

in the first place was to prevent unauthorized retailers from

selling Omega watches. Because unauthorized retailers, such

as Costco, were selling gray market Omega watches in the

United States below Omega’s suggested retail price, Omega

attempted to maintain the price of its watches sold in the

United States by inconspicuously engraving the copyrighted

Globe Design on the underside of its Seamaster watches. 

Even drawing all reasonable inferences in Omega’s favor,

there is no genuine dispute as to whether Omega sued Costco

for copyright infringement at least in part to control the

unauthorized importation and sale of Omega watches. See

Celotex Corp. v. Catrett, 477 U.S. 317 (1986). Thus, the

district court did not err in granting Costco’s motion for

summary judgment on the copyright misuse defense.

Relying on Mazer v. Stein, 347 U.S. 201 (1954), Omega

maintains that as the holder of the copyright to its Globe

Design it has the right to sue Costco for infringing its

6 Although Morton Salt is the origin of the patent misuse defense, we

have acknowledged that the defense of copyright misuse relies on an

extension of the rationale supporting patent misuse. See Apple Inc.,

658 F.3d at 1157.

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OMEGA S.A. V. COSTCO WHOLESALE CORP. 21

exclusive right to distribute copies of its Globe Design. See

17 U.S.C. §§ 106(3); 602(a)(1). In Mazer, a lamp

manufacturer registered for copyright protection a statuette of

dancing figures that was intended primarily to be used as

lamp bases. 347 U.S. at 202–03. A competing lamp

manufacturer copied the statuette design and began to

manufacture and sell lamps that used the statuettes as a base,

all without the copyright owner’s permission. Id. The

copyright owner sued the competitor for copyright

infringement. The Supreme Court granted certiorari to

answer a single question: “Can statuettes be protected in the

United States by copyright when the copyright applicant

intended primarily to use the statuettes in the form of lamp

bases to be made and sold in quantity and carried the

intentions into effect?” Id. at 204–05. Or, as the Court put it

in plain terms, “Can a lamp manufacturer copyright his lamp

bases?” Id. at 205. The Supreme Court upheld the validity

of the copyright protecting the statuettes and concluded that

“the intended use or use in industry of an article eligible for

copyright” does not invalidate the copyright. Id. at 218. 

Omega contends that just as the copyright owner in Mazer

was permitted to restrict the distribution of lamps (useful

articles) that incorporated his copyrighted work (the

statuettes), so too should Omega be able to restrict the

distribution of watches that incorporated its copyrighted work

(the Globe Design).

Contrary to Omega’s assertion, Mazer does not empower

Omega to transform its Globe Design copyright into a watch

copyright, thereby contravening the general rule against

granting copyright protection over useful articles. See

Nimmer § 2.08[B][3], at 2-95. First, Mazer did not concern

copyright misuse. The copyright infringers in Mazer were

challenging the underlying validity of the owner’s copyright;

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22 OMEGA S.A. V. COSTCO WHOLESALE CORP.

they were not challenging how the owner was using the

copyright. Id. at 202 (“This case involves the validity of

copyrights.”). As Omega itself repeatedly emphasizes, the

validity of Omega’s copyright in the design is not in dispute. 

Second, the Mazer Court did not consider the infringer’s

challenge to the copyright to be related to questions of unfair

competition—of which the copyright misuse defense is

deeply concerned. 347 U.S. at 206 (“No unfair competition

question is presented.”). Instead, the Court focused on

whether copyrighted works could be incorporated into

utilitarian products and remain copyrightable. Id. at 208. 

Third, a copyrighted statuette that serves as the base for a

lamp bears a markedly different relationship to the useful

product than a nearly invisible copyrighted design that is

discreetly placed on the underside of a watch. Both a lamp

and a watch serve utilitarian purposes—to produce light and

tell time—but the copyrighted works incorporated into each

article affect the character and consumers’ perceptions of

each article differently. The statuettes in Mazer served as

lamp bases, and may have been one of the central

distinguishing characteristics to a consumer between the

copyright owner’s lamps and its competitor’s lamps. In

contrast, the Globe Design is not a distinguishing

characteristic that prospective watch buyers consider when

deciding whether to purchase an Omega watch. In fact, when

this suit was filed, Omega had not publicized the Globe

Design and was not using it to influence consumers’

purchasing decisions. Unlike other designs that Omega had

engraved on its watches, the Globe Design was not “a mark

of prestige and luxury and identification.” Put more plainly,

the Mazer Court’s discussion of copyright concepts such as

originality and separability are not implicated here.

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OMEGA S.A. V. COSTCO WHOLESALE CORP. 23

Omega’s emphasis on other cases involving similar

facts—such as Parfums Givenchy, Inc. v. Drug Emporium,

Inc., 38 F.3d 477, 485 (9th Cir. 1994) (holding that a perfume

distributor could sue a retailer for copyright infringement

when the retailer sold the perfume in original copyrighted

packaging), and Quality King Distributors, Inc. v. L’Anza

Research International, Inc., 523 U.S. 135, 153–54 (1998)

(holding that the first sale doctrine is applicable to imported

copies where a distributor sold imported bottled hair products

affixed with a copyrighted label design)—is misdirected

because those cases involved different public policy concerns

than those animating the copyright misuse defense. In neither

Parfums Givenchy nor Quality King was the defense of

copyright misuse at issue. Furthermore, Parfums Givenchy

was decided before we adopted the copyright misuse defense

in Practice Management Information Corp., 121 F.3d at 520.

The context of Omega’s actions is crucial to this

conclusion. Omega concedes that it designed and secured

copyright protection for the Globe Design for the purpose of

using copyright law to restrict the unauthorized sale of

Omega watches in the United States. Costco was one such

unauthorized retailer that threatened Omega’s distributor

relationships because it sold genuine Omega watches at prices

lower than authorized Omega dealers were willing or able to

offer. Costco was able to sell Omega watches at a discount

because it had procured the watches from the gray market,

which took advantage of international differences in Omega’s

pricing structures.

Omega’s right to control distribution of its copyrighted

work is not limitless. “The Supreme Court has made clear

that the property right granted by copyright law cannot be

used with impunity to extend power in the marketplace

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24 OMEGA S.A. V. COSTCO WHOLESALE CORP.

beyond what Congress intended.” In re Indep. Serv. Orgs.

Antitrust Litig., 203 F.3d 1322, 1328 (Fed. Cir. 2000) (citing

United States v. Loew’s, Inc., 371 U.S. 38, 47–48 (1962)). 

Copyright misuse “bars a culpable plaintiff from prevailing

on an action for the infringement of the misused copyright.” 

Lasercomb, 911 F.2d at 972. The Copyright Office granted

Omega the exclusive right to control the importation and

distribution of the Globe Design into the United States. It did

not empower Omega to restrict competition from

unauthorized retailers selling genuine, graymarket Seamaster

watches in the United States. Although the Globe Design

engraved on the underside of the Seamaster watches was

copyrighted, Omega misused its copyright when it used its

intellectual property protection to obtain a copyright-like

monopoly over uncopyrightable Seamaster watches. Cf. DSC

Commc’ns Corp. v. DGI Techs., Inc., 81 F.3d 597, 601 (5th

Cir. 1996) (holding, at the preliminary injunction stage, that

a defendant might prevail on the defense of copyright misuse

because the copyright owner sought to enjoin a competitor

from downloading the owner’s copyrighted operating system

for the purpose of developing a competing microprocessor

card, thereby restricting the development of competing

microprocessor cards). Omega’s expansion of its copyrightlike monopoly eliminated competition from unauthorized

watch retailers like Costco, thereby allowing Omega to

control—through its exclusive distributor, Swatch U.S.A.—

the retail pricing of Seamaster watches sold in the United

States. If the copyright law allowed Omega to use its

copyright to combat the importation and sale of all gray

market watches that are stamped with the Globe Design, it

would effectively grant Omega a copyright-like monopoly

over the distribution and sale of Omega watches in the United

States. Because such an outcome directly controverts the

aims of copyright law, it is impermissible.

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OMEGA S.A. V. COSTCO WHOLESALE CORP. 25

Citing to Triad Systems Corp. v. Southeastern Express

Co., 64 F.3d 1330 (9th Cir. 1995), and Apple Inc. v. Psystar

Corp., 658 F.3d 1150 (9th Cir. 2011), among other cases,

Omega contends that it did not impermissibly leverage its

limited monopoly in the Globe Design to control an area

outside of that monopoly. The parties in Triad and Apple

Inc., however, were involved in a different type of

competition than Omega and Costco are involved in here. In

Triad, the copyright owner (Triad) manufactured computers

for use by automotive parts stores and designed, sold, and

licensed its own copyrighted software to run its computers. 

64 F.3d at 1333. Triad sued an independent service

organization (“ISO”) that serviced Triad computers for

copyright infringement, alleging that the ISO made

unauthorized copies of Triad’s software when it serviced

Triad computers. Id. Triad and the ISO were “compet[ing]

for the business of servicing and maintaining Triad

computers.” Id. at 1333. We affirmed the district court’s

grant of Triad’s motion for a preliminary injunction, id. at

1340, and rejected the ISO’s copyright misuse defense

because “Triad did not attempt to prohibit Southeastern or

any other ISO from developing its own service software to

compete with Triad,” id. at 1337.

Similarly, in Apple Inc. we held that Apple’s software

license agreement (“SLA”) did not misuse Apple’s copyrights

because the SLA did “not restrict competitors’ ability to

develop their own software, nor [did] it preclude customers

from using non-Apple components with Apple computers.” 

658 F.3d at 1160. The disputed provision of the SLA

required the exclusive use of Apple’s software on Apple

computers. Id. at 1153. Psystar was a competing computer

manufacturer that sold its “Open Computers” with a copy of

Apple’s copyrighted software pre-installed. Id. We affirmed

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26 OMEGA S.A. V. COSTCO WHOLESALE CORP.

the district court’s entry of a permanent injunction against

Psystar’s infringement of Apple’s copyrighted software. Id.

at 1162. In rejecting Psystar’s copyright misuse defense, we

distinguished the facts in Apple Inc. from the facts underlying

the Fifth Circuit’s finding of copyright misuse in Alcatel

USA, Inc. v. DGI Technologies, Inc., 166 F.3d 772 (5th Cir.

1999).7

In Alcatel, a copyright owner used its copyrighted

operating system’s licensing agreements to stifle the

development of competing microprocessor cards. 166 F.3d

at 793–94. We held in Apple Inc., however, that Apple’s

SLA did not hinder competition; it “merely restrict[ed] the

use of Apple’s own software to its own hardware.” 658 F.3d

at 1160.

Omega and Costco are not engaged in the same type of

product competition that existed in Triad and Apple Inc. 

Omega is primarily a watch manufacturer that sells directly

to distributors. The distributors, such as Swatch U.S.A., then

sell the watches to the authorized retailers in their designated

territories. Omega’s distribution model is designed to carve

up geographical territories and grant each regional distributor

the exclusive right to sell Omega watches to an authorized

network of retailers in its own territory. Costco circumvented

Omega’s designated distribution channel in the United States

by accessing watches from the gray market. By doing so,

Costco began competing with Omega’s authorized retailers. 

The retail competition between Omega’s authorized retailers

7 Alcatel USA, Inc. was formerly named DSC Communications

Corporation. In DSC Communications Corp. v. DGI Technologies, Inc.,

81 F.3d 597 (5th Cir. 1996), this dispute between two competitors in the

telecommunications equipment manufacturing industry was at the

preliminary injunction stage. Alcatel was decided a few years later, after

a trial addressing the multitude of federal and state law claims, including

copyright infringement.

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OMEGA S.A. V. COSTCO WHOLESALE CORP. 27

and Costco is what Omega sought to suppress. Unlike in

Apple Inc. and Psystar, but as in Alcatel, Omega’s assertion

that its actions do not preclude Costco from selling other lines

of watches or developing its own line of watches “is simply

irrelevant.” Alcatel, 166 F.3d at 794.

Superficially, Omega’s conduct may appear similar to

Apple’s conduct in Apple Inc. v. Psystar. As Omega argues,

Omega is merely restricting the sale, or use, of its watches to

dealers that it approves, just as Apple was allowed to restrict

the use of its copyrighted software to its own hardware. The

analogy breaks down, however, because, unlike Apple’s

ownership of a copyright in its software, Omega does not

own a copyright in its watches. Omega merely owns the

copyright in its Globe Design, which it engraved onto its noncopyrightable watches to limit retail competition. It would be

as if Apple surreptitiously placed a few lines of programming

code from its copyrighted software onto a piece of computer

hardware that was not entitled to intellectual property

protection, with the express purpose of using its copyright to

restrict competing retailers from selling that hardware at

discounted prices. Even when drawing all reasonable

inferences in Omega’s favor, there is no genuine dispute

concerning whether restricting retail competition was one of

the reasons Omega sued Costco for copyright infringement.

Omega had other available remedies. It could have

terminated its distribution agreements with the distributors

that sold Omega watches outside of their designated

territories. Or, if Omega believed that Costco, or

intermediaries like ENE Limited, were inducing distributors

to breach their contracts, Omega may have been able to sue

them for tortious interference. Instead, Omega improvidently

decided to sue Costco for copyright infringement. By doing

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28 OMEGA S.A. V. COSTCO WHOLESALE CORP.

so, Omega misused the Congressionally limited power of

copyright protection to address a problem better left for other

avenues of relief.

III.

“The limited scope of the copyright holder’s statutory

monopoly, like the limited copyright duration required by the

Constitution, reflects a balance of competing claims upon the

public interest: Creative work is to be encouraged and

rewarded, but private motivation must ultimately serve the

cause of promoting broad public availability of literature,

music, and the other arts.” Twentieth Century Music Corp.,

422 U.S. at 156 (footnote omitted). Omega’s attempt to

expand the scope of its statutory monopoly by misusing its

copyright in the Globe Design upset this balance. The

watchmaker’s anticompetitive acts promoted neither the

broad public availability of the arts nor the public welfare.

Instead, they eliminated price competition in the retail market

for Omega watches and deprived consumers of the

opportunity to purchase discounted gray market Omega

watches from Costco. Omega misused its copyright by

engraving the Globe Design on the underside of its watches,

and attempting to use copyright law to eliminate intrabrand

competition from Costco in the retail watch market. Because

the district court correctly held that Omega misused its

copyright in the Globe Design by attempting to leverage its

limited monopoly over the design to control the importation

and sale of Seamaster watches, I would affirm the district

court on the issue of copyright misuse.

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OMEGA S.A. V. COSTCO WHOLESALE CORP. 29

APPENDIX A

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