UPDATE: US Supreme Court Splits Evenly In Costco Case
December 13 2010 - 11:42AM
Dow Jones News
The U.S. Supreme Court announced Monday that it was deadlocked
4-4 on whether Costco Wholesale Corp. (COST) could be held liable
for copyright infringement for reselling luxury Swiss watches it
obtained through second-hand sources.
The court's even split means that a lower-court ruling against
Costco stays in place, though the case sets no new Supreme Court
precedent because it ended in a tie.
The deadlock provided an anti-climactic conclusion to a case
that had potentially significant implications for discount stores,
and for companies like eBay Inc. (EBAY) that facilitate secondary
markets for the resale of CDs, software and other goods.
The tie was possible because Justice Elena Kagan was recused in
the case, having worked on it while she served as U.S. solicitor
general.
At issue was a lawsuit filed by Omega SA, a unit of The Swatch
Group Ltd. (SWGAY, UHR.VX), alleging that Costco violated U.S.
copyright law in 2004 by selling Omega Seamaster watches it
obtained from third parties who had imported them into the U.S.
Costco sold the watches for $1,299, well below Omega's suggested
retail price of $1,999. The watches were engraved with a small
emblem Omega had registered with the U.S. Copyright Office.
The discounter argued that Omega could not impose limits on how
its watches are imported and resold once the watchmaker made its
first sale of the goods abroad.
Omega responded that the "first sale" rule did not apply when a
manufacturer made the goods abroad and never authorized their
importation into the U.S.
The software, publishing, movie and music industries, seeking to
protect the strength of their own U.S. copyrights, filed legal
briefs supporting Omega in the case.
Amazon.com Inc. (AMZN), Target Corp. (TGT), Google Inc. (GOOG),
eBay and retailing groups filed briefs supporting Costco. They
argued the lower court ruling could threaten companies that resell
foreign-made goods, stifle secondary markets and lead to higher
prices for consumers.
A federal appeals court sided with Omega in 2008, saying the
watch maker retained rights to products that it made and sold
abroad which were later imported into the U.S.
The case now returns to the lower courts for further
proceedings. A trial on Omega's copyright claims has not been
held.
Representatives for Costco and Omega did not immediately respond
to requests for comment.
The case is Costco Wholesale Corp. v. Omega SA, 08-1423.
-By Brent Kendall, Dow Jones Newswires; 202-862-9222;
brent.kendall@dowjones.com
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