Retailers Risk Lawsuits After Costco Ruling

ISSAQUAH, Wash. — The implications of a split 4-4 Supreme Court ruling on Monday upholding a lower court’s decision against the right of Costco Wholesale Corp., based here, to buy Omega watches on the international market and sell them at a deep discount off the manufacturer’s suggested retail may give retailers pause in procuring gray market goods overseas.

ISSAQUAH, Wash. — The implications of a split 4-4 Supreme Court ruling on Monday upholding a lower court’s decision against the right of Costco Wholesale Corp [2]., based here, to buy Omega watches on the international market and sell them at a deep discount off the manufacturer’s suggested retail may give retailers pause in procuring gray market goods overseas.

The case involves a copyright infringement charge brought by Omega against Costco for the unauthorized sale of the copyrighted watches.

Costco argued such reselling was legal based upon a first-sale doctrine in the copyright law. However, the lower court ruled the first-sale doctrine only applies to goods made legally and sold in the U.S. The copyright law does not extend beyond U.S. borders.

Sources said retailers are now at greater exposure to such manufacturer lawsuits if they attempt to procure foreign-made, copyrighted goods on the international market and import them to the U.S.

The evenly split Supreme Court vote was due to the withdrawal of Justice Elena Kagan, who participated in the case as President Obama’s solicitor general and in that capacity filed a brief urging the court not to hear Costco’s appeal.