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Costcos Opposition to Omegas Motion for Summary - Collen IP

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NORMAN H. LEVINE (SBN 061884)
AARON J. MOSS
CLAMAN & MACHTINGFR LLP
1900 Avenue of the Stars 2 1"loor
Los Angeles, California $0067-4590
Telephone: 3 10.553.3610
Fax: 3 10.553.0687
Attorne s for Defendant
Costco h o l e s a l e Corporation
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
OMEGA S.A. and THE SWATCH
GROUP (U.S.) INC.,
Plaintiffs,
VS.
COSTCO WHOLESALE
CORPORATION,
Defendant.
CASE NO. CV 04-5443 TJH (RCX)
DEFENDANT COSTCO
WHOLESALE CORPORATION'S
MEMORANDUM OF POINTS
AND AUTHORITIES IN
OPPOSITION TO OMEGA'S
MOTION FOR SUMMARY
JUDGMENT
Declaration of Aaron J. Moss and
L-Response
xhibits in Support Thereof;
to Statement of
Uncontroverted Facts and
Conclusions of Law; Evidentia
Objections and Proposed Order iled
Concurrently Herewith]
B
Date: TBD Pursuant to Court Order
of November 2 1,2006
Time: 9:30 a.m.
Courtroom: 17
Action Filin Date: July 14,2004
Trial Date: febmary 6,2007
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
1
TABLE OF CONTENTS
2
Page
3 I.
INTRODUCTION ..........................................................................................1
4 11.
FACTS ............................................................................................................. 3
5
A.
The Parties and Their Businesses. ......................................................... 3
6
B.
Omega's Use of the Ome a Globe to Attem t to Improperly
Conpol Importation and ostco's Lack of &owledge of the
Design. ...................................................................................................4
C.
Costco's Purchase and Sale of the Omega Seamaster Watches
Containing the Omega Globe. ...............................................................6
7
8
9
10
111.
11
8
ARGUMENT...................................................................................................7
A.
There is a Factual Dispute Concerning the Elements of Section
602. ........................................................................................................7
12
1.
Omega Conferred Implied Authority to Import..........................8
13
2.
Section 602 Does Not Require That An Expression of
Authority Refer To A Particular Importer. ...............................14
3.
Non-Importing Retailers Are Not Liable Under Section
602(a). .......................................................................................15
4.
Costco Did Not Acquire Watches Outside Of The United
States. ........................................................................................18
14
15
16
17
B.
Omega's Claims Are Barred By the First Sale Doctrine. ...................18
C.
Omega Engaged In "Copyright Misuse" And Its Actions Violate
Public Policy........................................................................................2 1
20
D.
The Omega Globe Is A Useful Article Not Subject to Copyright. .....24
21 IV.
CONCLUSION.............................................................................................-25
18
19
22
23
24
25
26
27
28
1564368.7
8250015i
71
1
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
TABLE OF AUTHORITIES
Page
FEDERAL CASES
4ltera Corp. v. Clear Logic, Inc.,
1079 (9th Cir. 2005) ....................................................................... 23
3MG Music v. Perez,
952 F.2d 318 (9th Cir. 1991) .................................................................. 19, 21
ZBS v. Scorpio Music Dist.,
569 F, Supp. 47 (E.D. Pa. 1983).................................................................... 21
Zhamberlain Group, Inc. v. Skylink Techs, Inc.,
381 F.3d 1178 (Fed. Cir. 2004) .....................................................................22
Zoo1 Fuel, Inc. v. Comett,
685 F.2d 309 (9th Cir. 1982) .........................................................................14
Ienbicare U.S.A. Inc. v. Toys "R" Us, Inc.,
3 (9th Cir. 1996) ................................................................
18, 21
Iisenos Artisticos E Industriales, S.A. v. Costco Wholesale Corp.,
97 F.3d 377 (9th Cir. 1996) ............................................................8, 9, 14, 17
3ffects Associates, Inc. v. Cohen,
08 F.2d 555 (9th Cir. 1990) ...........................................................................8
Znesco Corp. v. Jan Bell Mktg.
2 F. Supp. 1021 (N.D. Ill. 1998)................................................................16
3aliano v. Harrah's Operating Co.,
16 F.3d 4 11 (5th Cir. 2005) .........................................................................25
Sospel Missions of America v. City of Los Angeles,
28 F.3d 548 (9th Cir. 2003) .........................................................................14
n re Merchants Grain, Inc. Bv and Through Mahern,
93 F.3d 1347 (7th Cir. 1996) .........................................................................16
nternational Motor Contest Ass'n. v. Staley
34 F. Supp. 2d 650 (N.D. Iowa 2006) .........................................................23
(emedy v. Allied Mut. Ins. Co.
52 F.2d 262 (9th Cir. 1931) ......................................................................... 10
A n z a Research Int'l, Inc. v. Quality King Dists., Inc.,
98 F.3d 1109 (9th. Cir 1996) .........................................................................19
>afayettev. Louisiana Power & Light Co.,
435 U.S. 389 (1978).......................................................................................22
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
Table of Authorities (Continued)
Page
Lasercomb Am. Inc. v. Reynolds,
9 11 F.2d 970 (4th Cir. 1990) .........................................................................22
Lexmark Int'l, Inc. v. Static Control Components, Inc.,
387 F.3d 522 (6th Cir. 2004) .................................................................. 22,23
Naif? v. McClatchy Newspapers,
599 F.2d 335 (9th. Cir. 1979) ..........................................................................9
Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Co., Inc.,
9 (9th Cir. 2000) .......................................................................18
Open Source Yoga Unity v. Choudhury
7
.P.
B
3 U.S. Dist.
Li%g 1O~fo"&.~&~l!"A"&??,
2005) ......................................................-23
Parfums Givenchy, Inc. v. C & C Beauty Sales, Inc.,
32 F. Supp. 1378 (C.D. Cal. 1993) ................................................................7
Parfums Givenchy v. Drug Emporium, Inc.,
38 F.3d 477 (9th Cir. 1994) ........................................................ 16, 17, 20, 2 1
Poe v. Missing Persons,
745 F.2d 1238 (9th Cir. 1984) .......................................................................25
Practice M m t . Info. Corp. v. American Med. Ass'n,
1 Y.3d 5 16 (9th Cir.), amended, 133 F. 3d 1140 (9th Cir. 1997) ..............23
3uality King Dists., Inc. v. L'Anza Research Int'l, Inc.,
523 U.S. 135 (1998).......................................................................... 20,21,23
Sakamoto v. Duty-Free Shopper. Ltd.,
764 F.2d 1285 (9th Cir. 1985) .......................................................................17
Smith v. United States,
508 U.S. 223 (1993).......................................................................................16
rwentieth Century Music Corp. v. Aiken,
(1975).....1................................................................................. 21
Jnidisco, Inc. v. Schattner,
24 F.2d 965 (Fed Cir. 1987) ......................................................................1 5
Jnited States. v. Derr
3 ( h h Cir. 1992) ........................................................................15
Jnited States v. Paramount Pictures, Inc.,
34 U.S. 131 (1948).......................................................................................22
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
Table of Authorities (Continued)
Page
'EDERALSTATUTES
7 U.S.C. 5 101 ........................................................................................................ 24
7 U.S.C.
7 U.S.C.
5
106 ....................................................................................... 2, 18, 19,20
109 ........................................................................................... 19, 20, 21
7 U.S.C. 5 112(e)...................................................................................................... 8
7 U.S.C. 5 115(a)(2).................................................................................................8
7 U.S.C. 5 501(a).................................................................................................... 16
7 U.S.C.
5 602 .....................................................................1, 2, 7, 8, 14, 15, 17, 19
ed. R. Civ. P. 37(c)(l) .............................................................................................. 9
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
MEMORANDUM OF POINTS AND AUTHORITIES
I.
INTRODUCTION
This action arises from plaintiff Omega, S.A.'s ("omega")' efforts to block
defendant Costco Wholesale Corporation's ("Costco") lawful sale of genuine
Omega watches. In doing so, Omega has attempted to use the Copyright Act, not
for its intended purpose of fixthering the publication of creative expression, but
purely as an anti-competitive tool to control the importation of watches that are
outside the scope of copyright protection.
Omega concedes that absent its purported copyright claim, it cannot prevent
Costco from selling Omega's watches. In an improper attempt to invoke copyright
law, however, Omega's attorneys devised an artifice by which Omega engraved a
simple, tiny design consisting of three Greek "Omega" symbols inside a circle (the
"Omega Globe") on the back edge of one Omega watch model, Seamaster Model
No. 253 1.80. The Omega Globe measures less than one-half centimeter in
diameter and is barely perceptible:
The back of the Omega Seamaster Model 2531.80
shown approximately actual size. Moss Decl., Exh. "Q."
1
All claims of an affiliated company, plaintiff The Swatch Group (U.S.), Inc.,
were voluntarily dismissed pursuant to an agreement with Costco on November 27,
2006.
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
Omega registered a copyright in the Omega Globe and thereafter brought
this lawsuit, claiming Costco violated sections 106 and 602 of the Copyright Act
(17 U.S.C.
$5
106,602) by selling Seamaster watches with the Omega Globe in its
warehouse stores.
Omega's summary judgment motion should be denied for several
independent reasons:
First, Omega cannot establish the absence of material facts regarding the
elements of section 602, which requires that a defendant: (1) "import" a
copyrighted work; (2) that a defendant has "acquired outside the United States";
(3) "without the authority of the owner of copyright." Under Ninth Circuit law,
authority may be implied, and implied authority to import exists where a copyright
owner sells its works without export restrictions. Omega's claim to a "consistent,"
"well-defined" and "strict" territorial distribution policy is belied by the evidence,
which demonstrates that except for one distributor in each of three countries,
Omega has no written sales agreements with its more than 250 distributors and
retailers, and imposes no restrictions as to whom its retailers or their customers
may resell watches. In addition, the undisputed evidence demonstrates that Costco
did not "import" the Omega watches sold in its warehouse stores; nor did it acquire
these watches from "outside the United States." Because Omega cannot establish
these elements of its claims, summary judgment should not only be denied for
Omega, but entered in Costco's favor.
Second, Omega's claims are barred by the "first sale doctrine," which
provides that a copyright owner's "first sale" of a lawhlly-made copy extinguishes
the owner's right to control W h e r downstream sales or distribution of that copy.
Costco is entitled to the protection of the first sale doctrine even where Omega's
watches were made and first sold abroad. As argued in its October 20,2006
motion, Costco is also entitled to summary judgment in its favor on this ground.
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
Third, by using the Copyright Act to further its strategy of controlling
importation, Omega has violated public policies underlying the Act and has
engaged in "copyright misuse." This defense applies where, as here, Omega has
attempted to leverage the limited monopoly conferred by its copyright in the
Omega Globe to control products (watches) outside of that monopoly.
Fourth, Omega's claims fail because the watch containing the Omega Globe
is a "useful article" not subject to copyright protection. Under the Copyright Act,
objects, like watches, that have an intrinsic utilitarian function are not eligible for
copyright protection. Individual design elements are only eligible to the extent
they are capable of existing independently of the utilitarian aspects of the article.
The validity of Omega's copyright presents a triable issue, because the Omega
Globe is a simplistic, unoriginal arrangement of common public domain symbols
that has no commercial value independent of the watch.2
[I.
FACTS
A.
The Parties and Their Businesses.
Omega manufactures watches in Switzerland. Omega's Statement of
Uncontroverted Facts ("SUF"), Fact 1. It has more than 250 designated
distributors and retailers that sell its watches throughout the world. Declaration of
Aaron J. Moss ("Moss Decl."), Exh. "R"[Omega's List of Agents]. Except as to a
single distributor in each of Paraguay, Israel and Turkey, Omega has no written
sales contracts with any of these distributors and retailers. Moss Decl., Exh. "I"
:Deposition of Raynald Aeschlimann ("RA Depo.") 133:11- 134%; 24O:22-241:8].
Yor does Omega impose any restrictions as to whom retailers or the customers of
-etailers may resell watches.
Id.[RA Depo. 121:24- 122:11; 122:19 -124:3;
! As Omega has not moved for summary judgment as to remedies (Mem., 18:6),
2ostco reserves its arguments on this issue.
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
248: 11-24951. Many of Omega's distributors have sold watches for direct or
indirect resale outside of their designated territories. In the majority of cases,
Omega has not terminated its relationships with these distributors, and they
continue to be distributors today.
Id.[RA Depo. l56:8-159: 13; 161:16-162:5;
179:23-180:6].
Defendant Costco operates membership warehouse clubs. It sells brandname merchandise, including fine watches, to its customers at lower prices than its
competitors. As an example, Omega's suggested retail price for the Omega
"Seamaster" watch at issue in this lawsuit is $1,995. Moss Decl., Exh. " W [I2004
Price List]. Costco sold t h s watch for $1,299. Moss Decl., Exh. "P" [Pretrial
Conf. Order Stipulated Fact ("Stip. Fact") 101. In addition to low prices, Costco
offers a generous customer satisfaction policy: if any watch purchased by a Costco
member requires service, or if the member is dissatisfied with his or her purchase
at any time for any reason, Costco will repair the watch or refimd the member's
money. Moss Decl., Exh. "K" [Costco Guarantee]. This guarantee is better and
more comprehensive than the warranty provided by Omega on its watches, which
is limited to three years. Moss Decl., Exh. "S" [Omega Warranty].
Some Omega dealers in the United States have complained about Costco's
sales of Omega watches, because they dislike the competition. Moss Decl., Exh.
"F" [Deposition of Robert Ernrnons ("RE Depo."), 79: 1-81:2]; Exh. "M"
[Deposition of Yann Gamard ("YG Depo."), 59: 11-62:24]; Exhs. " G and " H
[emails from Omega's dealers].
B.
Omega's Use of the Omega Globe to Attempt to Improperly Control
Importation and Costco's Lack of Knowledge of the Design.
While Omega has not designated Costco as an "authorized" dealer of Omega
watches, Omega has known for many years that Costco sells Omega watches at its
warehouse stores. Moss Decl., Exh. "F" [RE Depo. 123:17-124:8]. However,
Omega took no legal action against Costco until now because it knew it is not
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
unlawhl for Costco to resell genuine Omega watches. Moss Decl., Exh. "M" [YG
Depo. 124:8- 125:3]. Nevertheless, because authorized dealers complained about
price competition, Omega's legal department devised a plan to try to prevent these
watches from being resold by retailers such as Costco. In 2003, Omega registered
a copyright in the "Omega Globe" with the United States Copyright Office and
placed a tiny engraving of the Globe on the back edge of one of its best selling
watches, the Seamaster Model 253 1.80. Moss Decl., Exh. "P" [Stip Fact 11. Yann
Gamard ("Gamard"), the highest ranking representative of Omega's U.S. affiliate,
the Swatch Group ("TSG"), testified that the Omega Globe was designed and used
by Omega specifically to control the importation of Omega watches and "to
prevent unauthorized dealership." Moss Decl., Exh. "M" [YG Depo. 65:7-66:3;
68:3-15; 133:25-136:20; 139:21-140:14; 142:25-143:12].
Omega did not inform Costco of its plan. To the contrary, at the same time
3mega was placing the Omega Globe on its Seamaster Watch, Omega led Costco
to believe that it might be interested in Costco becoming an "authorized" dealer of
3mega watches. Gamard and other top officials of TSG met with Costco
-epresentatives on several occasions to discuss Omega's selling watches directly to
Zostco. Moss Decl., Exh. "M" [YG Depo. 95: 19-99:22; 104:7-17; 112:22-1l7:23;
122:6-125:3]. Gamard invited several Costco representatives to meet with him at
TSG's New Jersey headquarters and thereafter offered to fly to Costco's Seattle
leadquarters to discuss a business relationship.
Id.[YG Depo. 129:18-130: 151.
rhese discussions took place at the same time that, unbeknownst to Costco, Omega
was placing the Omega Globe on its watches.
Id.[YG Depo. 160:13-163:1;
163:19-22; l42:25-143: 121.
Omega did not conceal the Omega Globe only from Costco. It made a
:onscious decision not to publicize the Omega Globe at all. The Omega Globe
was not only tiny and hidden on the back of the Seamaster Watch, but Omega's
Jice President of International Sales, Raynald Aeschlimann ("Aeschlimann"),
5
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
1 testified that Omega intended to keep the Omega Globe confidential from all
2 outsiders, including its own distributors and consumers at large. Moss Decl., Exh.
3 "I" [RA Depo. 69: 18-23; 76: l5-78:14; 99: 16-101:111. Omega has no evidence that
4 it marketed or advertised the Globe in any way, and it was obviously not a feature
5 that enhanced the watch or its attractiveness to consumers.
6
C.
Costco's Purchase and Sale of the Omega Seamaster Watches
Containing the Omega Globe.
7
Costco has purchased Omega watches and resold them to members in its
8
1I
9 warehouses for many years. Moss Decl., Exh. "F" [RE Depo. 123:17-124:8]. In
1011calendar year 2004, among the many Omega watches it purchased were 117
5
9
d
11 Seamaster style Omega watches, Model No. 253 1.80, containing the Omega
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12 Globe. Moss Decl., Exh. "P" [Stip. Fact 51. Costco sold 43 of these watches to its
13 members in calendar year 2004.
[Stip. Fact 61. Costco did not import these
14 watches. Rather, it obtained them from one of its suppliers, ENE Ltd. ("ENE),
15 F.O.B. New York. Moss Decl., Exh. "0" [Deposition of Emil Minahi ("EM
16 Depo.") 12:17-191. After this action was filed, Costco learned, through documents
o
m
2Q
17 produced in the lawsuit, that ENE obtained many of these watches fiom
Timeworks, Inc. in New York [EM Depo. 70:4-71:161, which in turn obtained
I
19 them from Switzerland - a territory in which Omega admits that it imposes no
I
20 contractual, territorial restrictions on resales. Moss Decl., Exh. "I" [RA Depo.
21 l28:25-129:11; 173:ll-15; 175:8-151.
22
In July 2004, Omega filed this copyright action against Costco, and shortly
23 thereafter filed a motion for preliminary injunction. After receiving Omega's
24 motion for preliminary injunction, Costco voluntarily stopped selling the watches
251 and decided not to oppose the motion on the merits, but rather wait to challenge
1
I
27 of the 117 Omega Seamaster watches containing the Omega Globe that Costco
26 Omega's claims until it developed a fuller record, which it now has done. The 74
1I
1564368.7
71825-0015
6
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
purchased from ENE in 2004 that had not been sold are being held by Omega
pending the outcome of this lawsuit. Moss Decl., Exh. "P" [Stip. Fact 71.
The preliminary injunction was thus issued without Costco or the Court
addressing any of the issues raised in this opposition. After it was issued, Costco
directed ENE not to send watches to Costco that contained the Omega Globe.
Declaration of Thomas Gulick ("Gulick Decl."), Exh. "0." Costco properly
continued to do business with ENE, buying watches that were not Omegas and
buying Omegas that did not have the Omega Globe. On two occasions in 2005 and
2006, however, ENE mistakenly shipped Costco several hundred Globe watches.
Costco immediately turned these watches over to Omega. Gulick Decl., Exhs.
"N," "o."~
111.
ARGUMENT
A.
There is a Factual Dispute Concerning the Elements of Section 602.
It is Omega's burden to prove three elements to establish a section 602
violation (subject to Costco's defenses): (1) it must be the "owner of copyright" of
the Omega Globe; (2) copies of the Omega Globe must have been imported into
the United States "without the authority of the owner of copyright"; and (3) the
imported copies must have been "acquired outside the United States." Parfums
Givenchy. Inc. v. C & C Beauty Sales. Inc., 832 F. Supp. 1378, 1383 (C.D. Cal.
1993).
3
Ome a makes many different styles of Omega watches. Ome a concedes that
mly "Eeamaster" style watches are at issue in this case. FAC, 7 13 18,33,36].
Ln a discovery motion, Omega stated that "[tlhis case is NLY ased on Ome a
Seamaster watches with the cop ghted Omega Globe Design. The sale of a1
3ther watches is corn letely irre evant to this issue of the unauthorized importation
3f the Omega Globe esign." Moss Decl. Exh. "L" [Portions of March 1,2006
Joint Sti ulation Re: Costco's Motion to dompel Discovery]. The watches that
were de!Iivered to Costco after the in unction issued were not Seamasters, and thus
u-e not the subject of t h s lawsuit. ulick Decl., Exhs. "N," "0."
I5
b b
P
d
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
f
There is a triable issue of fact as to each of these three statutory
requirements. First, the evidence shows that Omega at least impliedly authorized
the importation of Omega Globe watches into the United States by not imposing
export restrictions. Second, Costco did not "import" watches with the Omega
Globe into the United States. Third, Costco did not acquire watches with the
Omega Globe "outside the United States."
1.
Omega Conferred Implied Authority to Import.
-
In Disenos Artisticos E Industriales. S.A. v. Costco Wholesale Corp., 97
F.3d 377 (9th Cir. 1996), plaintiff, owner of copyrights in Lladro figurines,
contended that Costco violated section 602 by obtaining figurines designated for
sale abroad and selling them in the U.S. without permission. The Ninth Circuit
held that Costco had at least implied authority to sell plaintiffs figurines, because
plaintiff had licensed their sale abroad without any export restrictions:
"Authorization by a copyright owner to export goods to anywhere in the world
necessarily implies authority to import the goods into the United States. So do
sales without restriction on export into the United States. No written or express
authorization to import is required under 17 U.S.C. 6 602(a)." 97 F.3d at 382
(emphasis added).
Disenos comports with the plain language of section 602, whch prohibits
importation into the U.S. only "without the authority of the owner of the
copyright." 17 U.S.C. В§ 602(a). Section 602(a) does not require the "express
consent" of the copyright owner to import. Cf. 17 U.S.C.
5
112(e) (requiring "the
express consent of the owners of copyright"); 17 U.S.C. 8 115(a)(2) (requiring "the
express consent of the copyright owner"). In section 602(a), unlike elsewhere in
the Act, Congress chose a term, "without authority," that does not require consent.
"Authority" is much broader than "consent." Authority may be express or
implied, and may even be implied from conduct or course of dealing.
Associates, Inc. v. Cohen, 908 F.2d 555,558 (9th Cir. 1990).
-
-
-
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
Effects
If a copyright owner does not impose exportation restrictions on its
ownstream sellers, they remain free to sell to anyone they choose. Naifv v.
McClatch~Newspapers, 599 F.2d 335, 337 (9th. Cir. 1979). For purposes of
section 602, the absence of exportation restrictions necessarily implies authority to
import into the United States, thereby defeating a claim for unauthorized
importation as a matter of law. Disenos, 97 F.3d at 382 (granting summary
judgment for defendant). The evidence of implied authority here at least raises a
triable issue of fact.
In its motion, Omega asserts that it "insists that contracts with its distributors
include detailed 'territorial restrictions."' (Mem, 23:3-4). It also claims that it has
a "well-defined, unambiguous and consistent method" of territorial restrictions
(Mem. 24: 1) and a "tightly woven and strictly enforced" distribution scheme
(Mem. 23: 13). The evidence is to the contrary. Indeed, Omega has written
contracts with only three of its more than 250 distributors and retailers. Except for
agreements with one distributor in each of Paraguay, Turkey and Israel, there are
no written distributorship agreements, let alone the "detailed territorial restrictions"
which Omega claims to exist.4 Omega's Aeschlimann testified that there is
nothing; other than Omega's contracts with distributors that would prevent them
from exporting watches to the United States. Moss Decl., Exh. "I" [RA Depo.
111:9-131. The absence of such agreements demonstrates Omega's complete lack
of any consistent policy prohibiting re-exportation of watches.
4
Costco on several occasions asked Omega to produce all of its distributorshp
contracts. Moss Decl., flTl2 and 3 & Exhs "A,' "B", "C" and "D" [RA De o.
133:11- 134:24]. Costco's counsel specifically warned Omega's counsel t at
Omega could not rely on documents it did not produce in discove
u rId.
E omega's
and
zounsel confirmed that, other than the agreements with Para ua
Israel, no other distributor a eements exist. Moss Decl., E A .
[RA BePo,
240:22-241:8 . Of course, #mega may not come forward for the first time wlth
zvidence of a ditional agreements. Fed. R. Civ. P. 37(c)(l).
Xi"?
a
9
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
ВЈ'
In support of the supposedly undisputed fact that "Omega's contracts with
its distributors and retailers limit the territories in which they can sell and distribute
the watches," Omega cites TSG's "U.S. Brand Policy Statement" (SUF 13), which
it concedes is the only document on which it relies to support its importation
restrictions. Moss Decl., Exh. " E [Omega's Response to RFP No. 21. However,
as Aeschlimann testified, this policy applies only to watches sold in the United
States. Moss Decl., Exh. "I" [RA Depo. 126:9-111. Omega does not rely on the
U.S. Brand Policy Statement to prohibit the sale or import of watches into the U.S.
from other countries.
a.[RA Depo. 125:16-191.
Paragraph 11 of Aeschlimann's declaration in support of Omega's motion
conclusorily states that Globe watches "sold by Omega to any of its distributors
outside the U.S. are subject to similar distribution agreements that restrict their
exportation and resale outside of the geographic territory for that distributor."
Aeschlimann's deposition testimony was to the contrary5
Q: The Omega distribution policy does not include any restrictions as to
whom retailers or distributors may resell?
A. Namely, no.
***
Q: Are there any restrictions as to who the customers of the retailers
can resell Omega watches to?
A: No.
***
Q: There's nothing in any Omega policy that would restrict that
customer from selling those 100 watches to whomever he chooses?
A: No.
5
Declarations by a witness that contradict previous de osition testimon must be
&re arded.
Kennedy v. Allied Mut. Ins. Co., 952 .2d 262,266 (9tg Cir.
19917.
P;
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
Q: Even if it's someone in the United States.
A: If you're talking about the retailer, no.
Q: I'm tallung about somebody who buys from the retailer.
A: Uh-huh. No.
Q: There would be no restriction imposed by Omega as to whether or
not the customer or the retailer could sell those 100 watches to the
United States, yes?
***
A: No.
Q: No restriction?
A: No.
Moss Decl., Exh. "I" [RA Depo. 110:18-22; 122:19-22; 123:7-124:3. See also RA
Depo. 107:22-25; 121:24-124:3; 248: 11-24951.
In its motion, Omega identified only two countries, Egypt and Paraguay,
from which watches sold by Costco containing the Omega Globe supposedly
originated. Omega has not produced any written agreement with its Egyptian
distributor. See fh.4, above. Indeed, Aeschlimann testified that no such
agreement, written or oral, was even discussed with the Egyptian distributor:
Q: What are the terms with Gasser & Company regarding the export
of watches to the United States?
A: The terms of what is the basis of this agreement with him is that
his territory is Egypt, including duty free in Egypt.
Q: And is that the only term that pertains to whether or not he can
export watches to the United States?
A: He cannot export watches outside of Egypt and that was never a
point of discussion fiom his side.
Q: When you say it was never a point of discussion, what do you
mean? He never discussed that with you?
11
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
A: What I want to say is that, this is a clear point on which we never
had to discuss regarding a verbal agreement.
Moss Decl., Exh. "I" [RA Depo. 245 :25-246:18 (emphasis added)].
Aeschlimann also testified that after Omega's Paraguayan distributor sold
watches that ended up at Costco, the distributor signed a letter stating that it would
lever again sell watches directly to the United States. Moss Decl., Exh. "I" [RA
3epo. 162% 164:1I]. However, when Costco requested the letter in discovery
3mega admitted that it does not exist. Moss Decl., Exhs. "B, bbC,99 and bbD"
99
I9126105 and 11121/05 letters to Omega's counsel; Omega's 12/06/05 supplemental
.esponse to RFP No. 41. Indeed, two-and-a-half years after this lawsuit was filed,
)9% of Omega's distributors still operate under no agreement prohibiting the sale
)f watches outside their territories.
Many of the Seamaster watches containing the Omega Globe that Costco
urned over to Omega pursuant to the preliminary injunction originated from an
)mega retailer in Switzerland (via several intermediate sales to Timeworks, ENE
md then Costco). Moss Decl., fi 23, Exh. "Y" [invoices produced by Timeworks
wrsuant to Omega's subpoena]. Omega's "officially designated" retailer in
gwitzerland is Barth Davos. Declaration of Raynald Aeschlimann, Exh. "A."
3eschlimann admitted in his deposition, contrary to the assertions in Omega's
notion, that this Swiss retailer is under no export restrictions whatsoever:
Q: So there is no contractual basis for prohibiting - or at least as of
August 2004 [the date of the lawsuit], there was no contractual basis
for prohibiting Barth from selling watches that ended up at Costco?
A: No.
***
Q: Did you enter into any agreement after August 2004 restricting
Barth's ability to sell watches outside of the Swiss territory?
A: No.
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
Moss Decl., Exh. "I" [RA Depo. 173:11-15; 175:12-15. See also RA Depo.
l28:25-129: 11; 175:8-111.
Finally, Omega claims in its motion that it strictly enforces these phantom
territorial restrictions, "terminating any distributor who is in breach." (Mem.,
23: 11- 12). Once again, this statement is belied by the evidence. Aeschlimann
testified in his deposition that Omega only terminated
of the 11 distributors
that sold watches that ended up at Costco. Moss Decl., Exh. "I" [RA Depo. 156:8159:131. Moreover, he testified that these two distributors were not terminated
because they sold watches that ended up at Costco: "they were terminated in time
after this, but that was not because of this."
Id.[RA Depo. 157:16-20]. Many of
the Omega distributors that sold watches that ended up at Costco were not
terminated and continue to be distributors today. Moss Decl., Exh. "I" [RA
179:23-180:6; 161:16-162:51.~
Omega has been aware for years that Omega watches are sold all over the
United States by retailers that are not designated by Omega. According to
Omega's own study, Omega watches are sold by every Sam's Club, every UltraDiamond store, at various stores in the New York and Los Angeles jewelry
districts, and on more than 100 internet web sites. Moss Decl., Exh. " X [Omega
U.S. Gray Market Analysis]. Omega has not taken action against any of these
companies. Moss Decl., Exh. "I" [RA Depo. 180:8-183:141. Nor has Omega
taken any action against the authorized distributors fiom whom these watches
originated, despite adnxtting that it can track all Omega watches by serial number.
Aeschlimann Decl., 7 5. Indeed, Aeschlimann testified that Omega did not even
6
For example, Roltime Ltd. is Ome a's designated distributor in Israel.
Roltime's corporate officer, David olturak, submitted a declaration in su port of
&mega's motion). Aeschlimann testified that he is aware of instances in w ich
Roltime has sold br distributed roducts outside its territory. Moss Decl, Exh. "I"
RA Depo. 144:19-22]. Nevert eless, Roltime continues to be an authonzed
istributor. Declaration of David Polutrak, 7 1.
&
f
R
R
13
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
ask its distributors the names of the customers who sold the watches that ended up
at Costco because that information was "confidential" and was the distributors'
own "business." Moss Decl., Exh. "19'[RADepo. l 6 O Z - 161:15; 166:20-167:11.
Far from having a "consistent" and "strictly enforced" scheme of territorial
restrictions on distribution, t h s evidence reveals that, under Disenos, Omega has
implicitly authorized the importation of its watches into the United States by
selling them without restrictions on export. This evidence defeats Omega's section
602 claim as a matter of law.7 At the very least, it raises a triable issue of fact
requiring the denial of Omega's motion.
2.
Section 602 Does Not Require That An Expression of Authority
Refer To A Particular Importer.
Perhaps recognizing that its distributors and retailers were implicitly
authorized to import Omega watches into the United States, Omega argues that it
explicitly notified Costco that it did not have Omega's authority to sell Omega
watches. (Mem., 24:7-26). While this is false, as discussed below, it is irrelevant
to Omega's section 602 claim.
Section 602 requires a plaintiff to prove that importation was "without
authority." It does not require that the expression of authority refer specifically to
a particular importer. Instead, Costco is entitled to the benefit of the implied
authority that Omega has conferred on its foreign distributors and retailers. Omega
sold watches to these distributors and retailers without imposing restrictions on the
purchasers to whom they could resell the watches. By law, all subsequent
purchasers acquire the same authority the upstream licensees received. Subsequent
purchasers obtain all rights and title of the sellers in the goods they purchase.
I
See
has not moved for summary judgment, the Court may grant
in its favor on any issue sua s onte if the facts and law warrant
of America v. City of L K ~ ~ 328
S F.3d
,
548 (9th Cir.
v. Connett, 685 F.2d 309,3 11 (9th Cir. 1982).
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
Unidisco, Inc. v. Schattner, 824 F.2d 965,968 (Fed Cir. 1987) (where a patent
owner gives a licensee "authority to sell the product," a subsequent purchaser from
the licensee "had authority to resell the product it purchased").
In any event, Omega never "explicitly notified" Costco that it could not sell
Omega watches. Indeed, Omega engaged in a plan to string Costco along,
misrepresenting that it was amenable to doing business with Costco. Omega
representatives met with Costco representatives several times to discuss the
possibility of Costco entering into a direct business relationship with Omega.
Moss Decl., Exh. "M" [YG Depo. 95: 19-99:22; 104:7-17; 112:22-117:23; 122:6125:3]. One of the terms of a potential Omega-Costco direct sales agreement
proposed by Omega was that Costco would only buy Omega watches from Omega,
showing that the parties understood that Costco was under no such restrictions
absent an agreement. Gamard's last communication to Costco (after the Globe was
placed on the watch) was that "[tlhe line is open" and "I look forward to
continuing the discussion." Moss Decl., Exh. " N [10/27/03 Letter from Gamard].
Finally, it is undisputed that Omega never notified Costco of the existence of
the Omega Globe, much less that the Globe was copyrighted or that Omega
sontended that Costco did not have authority to distribute the Omega Globe. Moss
Decl., Exh. " M [YG Depo. 163:19-22].
3.
Non-Importing Retailers Are Not Liable Under Section 602(a).
Omega also fails to state a claim under section 602 because the statute
xoscribes only "importation" and Costco did not import. The undisputed evidence
lemonstrates that Costco obtained watches with the Omega Globe in New York.
Moss Decl., Exh. "0" [EM Depo. 12:17-19].
The statutory language is specific. It deems only the act of "importation" to
)e an infringement. 17 U.S.C. fj 602(a). The plain meaning of the words is that
mly those who participate in the act of "importation" face inhngement liability.
fiis plain language controls. United States. v. Derr, 968 F.2d 943,945 (9th Cir.
15
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
1992) ("Statutory construction always starts with the language of the statute itself.
This starting point is the ending point when the statute clearly and unambiguously
expresses Congress' intent.").
The court so held in Enesco Corp. v. Jan Bell Mktg.:
Because neither the statute nor its legislative history
provides a definition, the court will give the term
"importation" its plain meaning.
See Smith v. United
States 508 U.S. 223,228 (1993) ("When a word is not
-9
defined by statute, we normally construe it in accord with
its ordinary or natural meaning."); In re Merchants Grain,
Inc. By and Through Mahern, 93 F.3d 1347, 1353 (7th
Cir. 1996) (stating same rule). "Importation" is defined
as "the act of bringing goods and merchandise into a
country fi-om a foreign country." Black's Law Dictionary
755 (6th ed. 1990). Because plaintiffs have offered no
evidence that defendant brought goods into the United
States from a foreign country, defendant cannot be held
liable for an act of "importation."
992 F. Supp. 1021, 1023 (N.D. Ill. 1998).
If section 602(a) were not clear enough, section 501(a) would be. It deems
an inhnger anyone "who imports copies or phonorecords into the United States in
violation of €j602." 17 U.S.C.
5 501(a) (emphasis added).
Costco was not
someone who "imports"; thus, it is not an inhnger of section 602.
The Ninth Circuit has not squarely decided this issue. In Givenchv, the
court stated that copyright inhngement "occurred when Drug Emporium
attempted to distribute the perfume that had been imported." Parfums Givenchv v.
Drug Emporium, Inc., 38 F.3d 477,480 (9th Cir. 1994). The defendant in that
case, however, did not argue a distinction between retailers who import and those
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
1 who do not; it instead chose to litigate a different issue (lack of standing). The
2 arguments Costco presents were thus not presented or decided in Givenchy.
3 "Unstated assumptions on non-litigated issues are not precedential holdings
4 binding future decisions . . ." Sakamoto v. Durn-Free Shopper. Ltd., 764 F.2d
5 1285, 1288 (9th Cir. 1985). Indeed, in Disenos, the Court admitted that the
6 plaintiffs argument that section 602 imposed liability on non-importers gave the
7 court "pause." The Ninth Circuit recognized that if a non-importer could be liable,
8 "every little gift shop in America would be subject to copyright penalties for
9 genuine goods purchased in good faith from American distributors, where
5
10 unbeknownst to the gift shop proprietor, the copyright owner had attempted to
1I
11 arrange some different means of distribution several transactions back." 97 F.3d at
H13 non-importer can be liable for importation under section 602," deciding the case
1
I
14 for Costco on the alternative ground of implied authority. 97 F.3d at 380. No
I15 Ninth Circuit case has subsequently addressed the issue, and district court cases
1
1
I
16 that have found liability are wrongly decided, because they ignore the plain
I
17 language of the statute.
12 380. Ultimately, the Ninth Circuit had "no occasion to decide whether Costco as a
I
If Omega prevails, retailers will risk litigation whenever they deal in goods
181
19 they do not purchase directly from the copyright owner, chilling both commerce
1
I
20 and ~ o m ~ e t i t i o n . ~
A
"chain of distribution" were not held
a straw to import the
instance the nonsuch as cqntributory.
Here, Costco d ~ not
d partxipate
1564368.7
7 1825-0015
17
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
4.
Costco Did Not Acquire Watches Outside Of The United
States.
Finally, "Section 602 bars unauthorized importation only of 'copies . . . that
have been acquired outside the United States." Denbicare U.S.A. Inc. v. Toys " R
Us, Inc., 84 F.3d 1143, 1148-49 (9th Cir. 1996) (emphasis in original). Costco did
lot acquire watches containing the Omega Globe Design "outside of the United
States." Costco purchased the Omega watches at issue F.O.B. New York.
Because the watches were already in the United States when Costco acquired them,
Zostco did not acquire them outside of the country, and did not violate section 602.
B.
Omega's Claims Are Barred By the First Sale ~ o c t r i n e . ~
Contrary to Omega's assertion (Mem., 17:23-24), Costco does not bear the
mrden of proof as to its affirmative defenses for purposes of this motion for
summary judgment. Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Co., Inc., 210
F.3d 1099, 1102 (9th Cir. 2000) (moving party without the ultimate burden of
~ersuasionat trial has both initial burden of production and ultimate burden of
~ersuasionon motion for summary judgment).
Section 106(3) of the Copyright Act gives a copyright owner the exclusive
.ight to distribute copies of its copyrighted works to the public. Section 602(a)
zives copyright owners the right to prohibit the unauthorized importation of copies
)f copyrighted works that have been acquired outside the United States, and
~rovidesthat a violation of that section is "an inhngement of the exclusive right to
itistribute copies or phonorecords under section 106.'' However, both of these
iections are limited by the "first sale doctrine," codified at 17 U.S.C.
5 109, which
~rovidesthat "the owner of a particular copy . . . lawfully made under this title . . .
s entitled, without the authority of the copyright owner, to sell or otherwise
For a fuller discussion, see Costco's October 20?,2006 Motion for Summary
'udgment ("MSJ") at 7- 17. Moss Decl, Exh. "U.
I
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
dispose of the possession of that copy . . ." The doctrine thus prevents a copyright
owner who has made a "first sale" from controlling the subsequent downstream
sale or distribution of its copyrighted works.
Here, Omega received the benefit of the first sale of its Seamaster watches
when it sold those watches to its distributors in Egypt, Paraguay and other
countries. Omega had the right to control the timing of these first sales and to set
the price of its products. Having made those sales, however, Omega cannot
control the downstream sales of its products as well.
Despite the plain language of the Copyright Act, old Ninth Circuit decisions
held that section 602 superceded section 109 - in other words, that a copyright
owner's importation rights are not cut off by the owner's first sale of copyrighted
works abroad. See, e.g, BMG Music v. Perez, 952 F.2d 3 18 (9th Cir. 1991);
Parfums Givenchy, 38 F.3d 477. Omega relies on these cases, ignoring that they
were effectively superseded by the Supreme Court in Quality Kina Dists., Inc. v.
L' Anza Research Int'l, Inc., 523 U.S. 135 (1998), which reversed the Ninth
Circuit's opinion, 98 F.3d 1109 (1996).1В°
The Supreme Court in Qualitv King unanimously concluded that the
Copyright Act did not prohibit the defendant's importation and resale of L'Anza
products without the plaintiffs permission. The plaintiffs exclusive distribution
right did not extend to the products it had already sold, even where the products
were first sold to a foreign purchaser. 523 U.S. at 139. "Despite L'Anza's
As set in Costco's motion for summary judgment, even before the Supreme
Court rulin ,the Ninth Circuit re eatedl ex ressed concern about, and attempted
to narrow, t e holding of BMG 8usic. '[~]l?e strongest argument against applying
BMG Music is that some of its language, applied literally to circumstances not
b e f o r e B M G Music, would lead to absurd and unintended results, such as
givin foreign manufactured goods greater cop ght rotection than oods
manu actured in the United States." Parhuns $encl&
38 F.3d at 4 2;
Denbicare, 84 F.3d at 1149-50, acknowledged ' widesp;ead criticism" of the BMG
Music rule. L'Anza Research Int'l, Inc. v. Quality King Dists., Inc., 98 F . 3 d m ,
m 9 t h . Cir 1996), recognized that "the consensus among legal scholars is that
:he reasoning of [the prior cases] is flawed."
lo
%
C
f
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
:ontention to the contrary . . . the owner of goods lawfully made under the Act is
:ntitled to the protection of the first sale doctrine in an action in a United States
;out even if the first sale occurred abroad." 523 U.S. at 145 n.14 (emphasis
3dded).
Qualitv King recognized the "clarity of the text" of sections 1O6(3), 1Og(a)
md 602(a). 523 U.S. at 145. The plain language of the statute makes section 602
subject to the first sale doctrine, which means that a copyright owner may not use
ds "importation right" to control the sale of goods after the first sale.
Id.
Justice Ginsburg issued a one paragraph concurrence, in wbch she "join[ed]
:he Court's opinion recognizing that we do not today resolve cases in which the
dlegedly infringing imports were manufactured abroad." 523 U.S. at 154. Seizing
In this lone concurrence, and ignoring that the "clarity of the text" does not
support the possible distinction whch the concurrence suggested, Omega argues
:hat it is not bound by Qualitv King because the Omega watches at issue here were
manufactured outside of the United States. Nothing in the Supreme Court's
manimous opinion, however, purports to make the place of manufacture
ieterrninative, or limits the first sale doctrine to goods manufactured in the United
States. Justice Ginsburg only raised the question; she did not purport to answer it.
Vo other justice joined Justice Ginsburg's concurrence, and had the majority
ntended such a limitation, it presumably would have stated so explicitly.
Omega's argument that "lawfully made under this title" means
'manufactured in the United States" fails as a matter of plain meaning. If
2ongress intended to limit the application of the first sale doctrine in section 109 to
~oodsmade only in the United States, it would have said: "Notwithstanding the
xovisions of section 106(3), the owner of a particular copy . . . lawfully
nanufactured in the United States, or any person authorized by such owner, is
mtitled, without the authority of the copyright owner, to sell or otherwise dispose
)f the possession of that copy or phonorecord." Instead, section 109 refers to "a
20
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
particular copy. . . lawfully made under this title." 17 U.S.C. $ 109(a). Moreover,
nothing in the legislative history of the first sale doctrine limits the doctrine to
goods made in the United States. Moss Decl., Exh. "U" [Costco's MSJ, 12:16-27].
Viewing section 602 in the context of other provisions in the Copyright Act, such
as the now-expired manufacturing requirement, compels this same conclusion.
Moss Decl., Exh. "V" [Costco's Reply re MSJ, at 2: 16-3:2].
A refusal to apply the first sale doctrine to goods manufactured abroad
would give foreign manufactured goods greater protection than those made in the
U.S. This result would be "absurd," and therefore contrary to the rule that
~nterpretationsthat produce absurd results should be avoided. Parfums Givenchy,
38 F.3d at 482; Denbicare, 84 F.3d at 1149-50.
Finally, none of the unpublished district court cases decided after Oualitv
engaged in any meaninghl (much less persuasive) analysis of the phrase
'lawfully made under this title." Instead, these cases uncritically relied on pre3uality King decisions like BMG Music, Parfums Givenchv, and CBS v. Scorpio
Music Dist., 569 F. Supp. 47 (E.D. Pa. 1983) - decisions that have been criticized
-epeatedlyby the Ninth Circuit and, as discussed in Costco's Motion for Summary
hdgment, do not survive Qualitv King. Moss Decl., Exh. "U" [Costco's MSJ,
14:22-15:111.
C.
Omega Engaged In "Copyright Misuse" And Its Actions Violate
Public Policy.
The purpose of the U.S. Copyright Act is to grant authors of creative works
L
limited monopoly in those works, not as an end in itself, but rather as a means of
lchieving "public benefit" and to "reward creativity." Twentieth Centuw Music
:om. v. Aiken, 422 U.S. 151, 156 (1975).
Omega's lawsuit is not designed to protect the Omega Globe or any artistic
Aements which may be contained in the design. Omega is attempting to use the
L1
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
Omega Globe as a vehicle to control importation, and subsequent sales, of watches
that are not subject to copyright protection and that may otherwise be freely traded.
Omega admits that the Omega Globe was designed for the purpose of
controlling U.S. importation of its watches. Moss Decl., Exh. "M" [YG Depo.
143:8- 121. In this manner, Omega has attempted to leverage the limited monopoly
granted under the Copyright Act contrary to public policies underlying the Act, as
well as policies regarding competition, the free flow in commerce of genuine
goods, and restraints on the alienation of property. Competition is the
"fundamental principle governing commerce in this country." Lafa~ettev.
Louisiana Power & Light Co., 435 U.S. 389,398 (1978). In interpreting
intellectual property laws, courts have historically limited copyright claims when a
plaintiff attempts to use its limited monopoly to secure an exclusive right not
granted to it - especially when the effect is to restrict freedom of competition.
See,
Q, Lasercomb Am. Inc. v. Reynolds, 9 11 F.2d 970,978 (4th Cir. 1990)
(competition invoked to limit rights of copyright owner to bring an infringement
action when "the copyright is being used in a manner violative of the public policy
embodied in the grant of copyright"); United States v. Paramount Pictures, Inc.,
334 U.S. 131, 158-59 (1948) (competition invoked to preclude copyright owner
fi-om block-booking copyrighted works).
Courts have also rejected attempts by plaintiffs to use copyrights to protect
or control the market in an uncopyrighted work. See e.g., Lexmark Int'l, Inc. v.
Static Control Components, Inc., 387 F.3d 522 (6th Cir. 2004); Chamberlain
Group. Inc. v. Skylink Techs. Inc., 38 1 F.3d 1178 (Fed. Cir. 2004).
In Lexmark, the court rejected an attempt by a printer manufacturer to use
zopyright law to prohbit a third party fi-om selling a computer chip that permitted
the use of aftermarket toner cartridges in the printer. Lexmark, 387 F.3d 522. The
zourt noted that there is no copyright protection for a work when "granting
protection to the expressive component of the work necessarily would extend
22
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
protection to the work's uncopyrightable ideas."
Id.at 535.
This is especially true,
the Court held, when the quantum of originality in the plaintiffs copyrighted work
(there, a simple computer program) was so low.
Id.at 540-41.
Likewise, the quantum of originality present in the Omega Globe (a simple
arrangement of uncopyrightable symbols) is & minimis, and yet Omega is
attempting to leverage that design to control distribution of the watches
themselves, which are not protected by copyright.
See Quality King, 523 U.S. at
150 ("we must remember that its principal purpose was to promote the progress of
the 'useful Arts,' U.S. Const. Art. I, 5 8, cl. 8, by rewarding creativity, and its
principal function is the protection of original works, rather than ordinary
commercial products that use copyrighted material as a marketing aid"). Unlike
the plaintiff in Quality King, Omega does not even attempt to use the Omega
Globe as an aid to market the useful articles to which it is affixed. Indeed, the
Omega Globe was placed on its watch specifically so that it would
be seen -
i.e.,small, on the back, and without publicity.
In recent years, courts have referred to a particular species of public policy
violation as "copyright misuse" - the attempt to leverage the limited monopoly
conferred by the U.S. Copyright Act to control areas outside the monopoly.
m,Altera Corp. v. Clear Lopic, Inc.,
See,
424 F.3d 1079, 1090 (9th Cir. 2005);
International Motor Contest Ass'n. v. Stalev, 434 F. Supp. 2d 650,664 (N.D. Iowa
2006). The Ninth Circuit recognizes copyright misuse as an affirmative defense to
copyright inhngement claims. Practice M m t . Info. Corp. v. American Med.
Ass'n, 121 F.3d 516,520 (9th Cir.), amended, 133 F. 3d 1140 (9th Cir. 1997); see
Open Source Yoga Unity v. Choudhury, 74 U.S.P.Q.2d (BNA) 1434,2005
U.S. Dist. LEXIS 10440, "24 (N.D. Cal. April 1,2005) (doctrine of copyright
Misuse permits a party accused of copyright infi-ingement to challenge the
mforceability of the copyright based on the plaintiffs improper attempt to secure
m exclusive right not granted by the Copyright Office).
23
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
The Copyright Act was not designed to restrict the otherwise legal sale of
usefbl articles of commerce, and Omega's attempt to use the Act for that purpose
should be rejected. Under Omega's theory, tiny copyrighted designs could be
placed (indeed, hidden) on items such as electronics, h i t u r e , or (for that matter),
bananas, to restrict the sale of those goods in the U.S., and notwithstanding that
authorized first sales of the goods have already been made abroad.
Magistrate Judge Chapman commented favorably on Costco' s copyright
misuse defense:
Court: I actually think plaintiffs' [sic; defendant's]
affirmative defense of the misuse of copyright is really
pretty well taken. . . . I don't think this was the purpose
of the copyright statutes at all to cover this particular use
by Omega.
Moss Decl., Exh "T" [Transcript of August 9,2006 Discovery Hearing]. There is,
at minimum, a triable issue of fact as to whether Omega violated public policy and
misused its copylght in the Omega Globe.
D.
The Omega Globe Is A Useful Article Not Subject to Copyright.
Contrary to Omega's suggestion (Mem., 12:20-23), Costco denied that
Omega has a valid copyright in the Omega Globe. Answer to First Amended
Complaint, f[ 32. The watch containing the Omega Globe is a ''usefid article" not
subject to copyright protection.
Section 101 of the Copyright Act defines a "usefbl article" as "an article
having an intrinsic utilitarian function that is not merely to portray the appearance
of the article or convey information." The individual design elements of the
Omega Globe are only eligible for protection to the extent they are capable of
existing independently of the utilitarian aspects of the article. 17 U.S.C. 5 101.
While Omega has ostensibly registered a copyright in artwork, it used that
copyright on a barely-visible engraving for the sole purpose of obtaining
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
importation protection for the watch to which it is affixed.
See Galiano v. Harrah's
Operating Co., 416 F.3d 41 1,416 (5th Cir. 2005) (where a plaintiff registered a
copyright in two dimensional artwork, but used the design on clothing, court held
that plaintiff was seeking protection for a "useful article").
Poe v. Missing Persons, 745 F.2d 1238, 1242-43 (9th Cir. 1984), held that
-
the resolution of the "critical factual question" of whether an item is an artwork or
-
a useful article is for the trier of fact after a trial on the merits. The trier of fact
may consider, among other things, evidence of the plaintiffs intent in designing the
article and of the items' marketability as a work of art.
The Omega Globe is a simplistic collection of public domain symbols that
would not be marketable to a sigkificant segment of the community separate and
apart from the watch on which it is placed. See Poe, 745 F.2d at 1243. Moreover,
because the purpose of the Omega Globe was to prevent unauthorized dealership
and control importation (Moss Decl., Exh. "M" [YG Depo. l74:23- l75:2]), a jury
must be permitted to decide whether the Omega Globe is an unprotected "useful
article," and summary judgment is inappropriate.
IV.
CONCLUSION
For the foregoing reasons, and for the reasons set forth in Costco's motion
for summary judgment, Costco respectfully requests that Omega's motion be
denied, and that summary judgment be granted in Costco's favor.
DATED: December 22,2006
GREENBERG GLUSKER FIELDS
Attorneys for ~efendantCostco
Wholesale Corporation
COSTCO'S OPPOSITION TO OMEGA'S MOTION FOR SUMMARY JUDGMENT
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