Omega S.A. v. Costco Wholesale Corporation , 776 F.3d 692 ( 2015 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
OMEGA S.A., No. 11-57137
Plaintiff-Appellant,
D.C. No.
v. 2:04-CV-05443-
TJH-RC
COSTCO WHOLESALE CORPORATION,
Defendant-Appellee.
OMEGA S.A., No. 12-56342
Plaintiff-Appellant,
D.C. No.
v. 2:04-CV-05443-
TJH-RC
COSTCO WHOLESALE CORPORATION,
Defendant-Appellee. 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.
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.
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 high-
end 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.
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
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 1355.1 In 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
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. at1355–56. 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 of Kirtsaeng 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.
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
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
OMEGA S.A. V. COSTCO WHOLESALE CORP. 9
the parties did not brief or argue in this appeal.1 Indeed, 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.
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
clubs which sell merchandise, including brand-name watches,
to their members at lower prices than are available through
many other retailers.
Sometime before March 2003, Swatch U.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
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.
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 one-
eighth 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.
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
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
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 in Kirtsaeng, 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).
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
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
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.
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.
20 OMEGA S.A. V. COSTCO WHOLESALE CORP.
28 (2006).6 If 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.
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;
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.
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
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, gray market 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 copyright-
like 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.
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
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.
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 non-
copyrightable 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
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.
OMEGA S.A. V. COSTCO WHOLESALE CORP. 29
APPENDIX A