Battling Gray Markets through Copyright Law: Omega, S.A. V. Costco Wholesale Corporation

I. INTRODUCTION Brand owners around the world had reason to celebrate on September 3, 2008. On that day, the U.S. Court of Appeals for the Ninth Circuit decided Omega, S.A. v. Costco Wholesale Corp., concluding that at least some of these owners could use copyright law to prevent unauthorized importation of their products into the United States.1 While businesses have sought to use copyright law to control such "gray market"2 activity at least since the '80s,3 a decade ago the U.S. Supreme Court sharply limited the efficacy of the Copyright Act in preventing parallel importation. In Quality King Distributors, Inc. v. L'anza Research International, Inc., the Supreme Court held that § 602(a) of the Copyright Act, which provides that unauthorized importation of copies "that have been acquired outside the United States is an infringement of the exclusive right to distribute copies or phonorecords under section 106," does not prevent the importation of domestically manufactured copies first sold abroad.4 The Court reasoned that, because § 602(a) makes unauthorized importation an infringement of the rights provided by § 106 and the distribution right of § 106 is limited by the first sale doctrine of § 109(a),5 the rights granted by § 602 must also be so limited.6 In Omega, the Ninth Circuit faced a question that had been deferred in Quality King - whether the first sale doctrine applies to gray market goods manufactured abroad.7 The Ninth Circuit had previously answered that question in the negative,8 but Quality King brought this precedent into doubt.9 Writing for the three-judge panel, Judge Milan D. Smith, Jr., concluded that Quality King could be reconciled with the Ninth Circuit's case law and, therefore, did not overrule the Ninth Circuit's rule.10 Under this ruling, foreign manufacturers seeking to protect their chains of distribution received at least some reassurance that copyright law would come to their aid. While the Ninth Circuit correctly concluded that Quality King did not directly overrule its precedent, the correctness of its decision that those cases remain viable is not as clear. This Note argues that Quality King is, in fact, irreconcilable with the Ninth Circuit rule, and thus, the Omega court should have held that § 602(a) of the Copyright Act operates within the bounds of the first sale doctrine without regard to the location of a product's manufacture. Part II explains the case law leading up to Omega and summarizes the Ninth Circuit's recent Omega decision. Part III explains how the Ninth Circuit's analysis is fatally flawed and should be reversed if the Supreme Court grants certiorari. Part IV offers a brief conclusion. II. LEGAL BACKGROUND A. BMG Music and Scorpio In deciding Omega, the Ninth Circuit relied on a rule first announced by that court in BMG Music v. Perez.11 BMG Music involved a dispute regarding the domestic distribution of copyrighted sound recordings. BMG, CBS, Inc., and A & M Records, the plaintiffs in the case, owned copyrights to various sound recordings and produced phonorecords of them overseas.12 Perez purchased a number of the records and exported them to the United States where he sold them without the copyright holders' authorization.13 At trial, the district court found that Perez had willfully infringed the plaintiffs' copyrights, resulting in an injunction, damages, and attorneys' fees.14 On appeal, the Ninth Circuit held that Perez violated § 602(a) of the Copyright Act and that § 109(a) did not apply.15 According to the court, § 109(a) grants protection "only to copies legally made and sold in the United States" because only those copies are "lawfully made under [Title 17]" as required by § 109(a).16 The court based its conclusion on the fear that granting first sale protection to copies made and sold abroad would "render § 602 virtually meaningless,"17 and that doing so would eliminate copyright owners' "exclusive right to distribute copies or phonorecords of works manufactured abroad, an interest clearly protected by § 602. …