Omega S.A. v. Costco Wholesale Corp.

• Decision Date: 20 January 2015
• Docket Number: Nos. 11–57137,12–56342.,s. 11–57137
• Citation: 113 U.S.P.Q.2d 1434,776 F.3d 692
• Parties: OMEGA S.A., Plaintiff–Appellant, v. COSTCO WHOLESALE CORPORATION, Defendant–Appellee. Omega S.A., Plaintiff–Appellant, v. Costco Wholesale Corporation, Defendant–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

776 F.3d 692

113 U.S.P.Q.2d 1434

OMEGA S.A., Plaintiff–Appellant

v.COSTCO WHOLESALE CORPORATION, Defendant–Appellee.

Omega S.A., Plaintiff–Appellant

v.Costco Wholesale Corporation, Defendant–Appellee.

Nos. 11–57137

12–56342.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 3, 2013.

Filed Jan. 20, 2015.

Barry R. Levy (argued), Horvitz & Levy LLP, Encino, CA; Jess M. Collen and Thomas P. Gulick, Collen IP, Ossining, NY, 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, CA, for Defendant–Appellee.

Appeal from the United States District Court for the Central District of California, Terry J. Hatter, Senior District Judge, Presiding. D.C. No. 2:04–CV–05443–TJH–RC.

Before: DOROTHY W. NELSON, KIM McLANE WARDLAW, and JOHNNIE B. RAWLINSON, Circuit Judges.

Opinion by Judge NELSON

; Concurrence by Judge WARDLAW.

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.

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., ––– U.S. ––––, 133 S.Ct. 1351, 185 L.Ed.2d 392 (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. Id.

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 I, 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 (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, 131 S.Ct. 565, 178 L.Ed.2d 470 (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 ‘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. Id. 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, 97 S.Ct. 2264, 53 L.Ed.2d 113 (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, 114 S.Ct. 1510, 128 L.Ed.2d 274 (1994).

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, 28 S.Ct. 722, 52 L.Ed. 1086 (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 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 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...