U.S. top court to hear Costco-Swatch copyright case

* Costco backed by business groups, companies like eBay

* Appeals court ruled against Costco, prompting appeal

* Dispute involved imported Swiss-made watches

By James Vicini

WASHINGTON, April 19 (BestGrowthStock) – The U.S. Supreme Court
said on Monday it would hear Costco Wholesale Corp’s (COST.O: )
appeal in a copyright infringement dispute with a Swatch Group
(UHR.VX: ) unit over imported Swiss-made watches.

The high court is expected to hear arguments in the case,
which pits the top U.S. warehouse club operator against the
world’s largest watchmaker, during its upcoming term that
begins in October.

Omega, a Swatch group unit, manufacturers watches in
Switzerland and sells them globally through a network of
authorized distributors and retailers. Engraved on the
underside is a U.S.-copyrighted “Omega Globe Design.”

Costco obtained watches bearing the copyrighted design from
the so-called “grey market” through a series of transactions.

Omega first sold the watches to authorized distributors
overseas. Unidentified third parties bought the watches and
sold them to a New York company, which in turn sold them to
Costco, which sold them to consumers in California.

Although Omega approved the initial foreign sale, it did
not authorize importing the watches into the United States or
the sales by Costco.

After Costco’s sale of 43 watches in 2004, Omega sued and
claimed that Costco’s actions amounted to copyright
infringement.

Costco argued that under the U.S. Copyright Act’s
first-sale doctrine the initial foreign sale of the watches
precluded infringement claims over subsequent unauthorized
sales.

A federal judge ruled for Costco, but a U.S. appeals
disagreed and held the first-sale doctrine did not apply to
imported goods manufactured abroad.

In the so-called “grey market,” legitimate brand name goods
protected by trademark or copyright are imported via third
parties into the United States, frustrating brand owners who
want ultimate control over distribution.

Retailers from Costco to Amazon.com Inc (AMZN.O: ) have faced
legal problems over the resale of goods that brand holders say
infringes their distribution rights.

Luxury brands, for example, do not like to see their pricey
goods sold at retailers or online stores they do not control,
arguing that such distribution undermines their cachet.

A number of business groups and companies, such as online
auctioneer eBay Inc (EBAY.O: ), filed briefs in support of
Costco.

In appealing to the Supreme Court, Costco’s attorneys
argued that the appeals court’s ruling was inconsistent with
the plain language of the copyright law and that the issue was
of great importance.

But the U.S. Justice Department urged the Supreme Court to
reject Costco’s appeal. It said the appeals court’s ruling
reaffirmed well-settled law.

Costco and its supporters have argued that the appeals
court decision could mark the end of secondary markets, lead to
higher unemployment and encourage companies to move
manufacturing overseas.

While such concerns are troubling, Justice Department
lawyers said such potential adverse policy effects are a direct
consequence of the decision by Congress in 1976 to expand
the law’s ban on authorized imports beyond pirated copies.
(Additional reporting by Alexandria Sage in San Francisco;
Editing by Richard Chang)

U.S. top court to hear Costco-Swatch copyright case