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Costco v. Omega and Copyright Misuse

November 24, 2010

The Supreme Court recently heard oral arguments in Costco Wholesale Corp v. Omega, S.A.. The question directly raised in the case is if watches, containing a small copyrighted image on the back, first sold in Switzerland and later imported into the United States, will infringe the copyright holder’s rights upon importation. This issue is discussed in detail on Patently-O, so I will not rehash it here. However, the facts of the case raise other interesting questions.

One such question, and focus of this post, is if Omega is subject to the equitable defense of copyright misuse because of their use of a negligible copyrighted image to control the importation and sale of a non-copyrighted article (the watch). Copyright misuse is something of an elephant in the room in the case because it is not directly at issue, and was not mentioned at oral argument. However, some amici have raised the issue in their briefs, so it will be interesting to see how the Court responds, if at all.

The leading case for IP misuse is Morton Salt v. G.S. Suppiger. There, the Supreme Court identified that when a patent or other IP is used to prevent competition in areas outside of the limited grant of rights, equity will prevent assertion of the rights. The court notes that a patent promotes public policy by providing the inventor with special rights to the invention only, and not to anything outside of the patent grant. Regarding articles outside of the grant, competition is a positive factor that promotes public policy and should not be interfered with by the patent holder. Therefore, any attempts of a patent holder to extend their rights to non-patented items interferes with competition on the open market and amounts to misuse.

The Court held that a patent “granted in the furtherance of a public policy may not claim protection of his grant by the courts where it is being used to subvert that policy.” In other words, a patent holder may not use his patent rights to interfere with the sale of non-patented articles. Likewise, a copyright holder may not use his copyright rights to interfere with the sale of non-copyrighted articles. This reasoning has been applied to copyrights in Lasercomb America v. Reynolds, a Fourth Circuit decision upholding the concept of copyright misuse.

In Costco, copyright misuse should apply. Omega is using a copyrighted image to control the sale of a non-copyrighted watch. The image is subtle, inconsequential, and has no impact on the watch purchase. Omega should not be allowed to claim protection of copyright in this case because copyright is being used to subvert competition in the sale of non-copyrighted items.

Copyright law promotes artists and artistic expression by preventing others from copying and reselling an artist’s works. Omega’s attempts at preventing the sale of a non-copyrighted watch with a copyrighted image on the back does not promote artistic expression. Instead, doing so is an attempt to subvert competition in the open market of non-copyrighted articles and constitutes copyright misuse.

It is clear that Omega is misusing their copyright, the question is if and how the Supreme Court will address the issue. Omega’s lawyers have done a clever job twisting copyright law to attempt to control the importation and use of their watches, and further, they have managed to avoid a direct Supreme Court showdown regarding the misuse of their copyright. The issue is in front of the court however, thanks to amicus briefs, and hopefully the Court will smell something fishy and delve into the issue.

*Special thanks to Professor Thomas G. Field, Jr. for taking the time to discuss this topic with me, and pointing out appropriate case law.

One Comment leave one →
  1. February 26, 2011 1:19 pm

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