Limits on IP Protection: Copyright Misuse

By Jaiana Casanova

Reviewed by Kyu Hee Chu

As we all know, the purpose of Intellectual Property protection is to grant exclusive rights over certain assets, such as music, books, inventions, among others; giving the owners monopoly over the assets and the opportunity to capitalize on them for a specific period of time. After this time has passed, the asset becomes part of public domain. This happens specifically with Patents and Copyrights.

However, even if a monopoly is awarded to the owners of these exclusive rights, there are certain limits, generally related to anti-competitive practices, or just misconduct on behalf of the owner, which are not necessarily illegal, but are considered inappropriate. This generally occurs when owners try to use their rights to gain additional protection than as granted under the copyright and/or patent laws. This has been called the doctrine of Patent and Copyright misuse.

Copyright misuse is an equitable defense for copyright infringement, under which, a party may avoid liability if the copyright holder shows an inappropriate conduct when enforcing the copyright.

Although not generally used by courts, the District Court of the Eastern District of California recently granted Costco Wholesale Corporation summary judgment against the Swiss Watchmaker Omega, based on the finding that Omega was engaging in Copyright misuse.

This case started in 2003, after Omega, not being able to control the grey market sales[1] of its product which created discontent amongst its US Distributors, created an engraving on the back of its watches and obtained a copyright registration over it, with the purpose of having more control over the importation of its watches. Then in 2004, Omega filed suit against Costco for copyright infringement as a result of the importation of unauthorized copyrighted material, referring to the engraving on the back of the watch.

Since then, the case has moved up, from the district court, which tossed out the case based on the first sale doctrine[2], the court of appeals which overturned the prior decision, and then to the U.S. Supreme Court, which decided to hear the case in order to solve the issue about whether the first sale doctrine applied to products purchased abroad, and if whether these products where protected under the Copyright Act. However, the Justices tied 4-4, after Justice Kagan recused herself, and the case was remanded to the District Court, where each side moved for summary judgment.

Once again, the District Court decided in favor of Costco, this time based on the doctrine of Copyright misuse. The court referred to the Fourth Circuit definition of Copyright misuse, indicating that it “occurs when a copyright is being used in a manner violative of the public policy embodied in the grant of copyright.”[3] In addition, the District Court concluded:

“Here, Omega concedes that a purpose of copyrighted Omega Globe Design was to control the importation and sale of its watches containing the design, as the watches could not be copyrighted. Accordingly, Omega misused its copyright of the Omega Globe Design by leveraging its limited monopoly in being able to control the importation of that design to control the importation of its Seamaster watches.”

In consequence, this decision resulted in Omega not being allowed to pursue its claim for copyright infringement.

It is very certain that this case will not stop here. After so many years and major expenses on behalf of both parties, it is highly likely that Omega will try to appeal this decision, continuing its intent to control the grey market, which regardless of being perfectly legal and involving billions of dollars in trade each year, is not the preferred practice for retailers, in particular retailers of luxury goods.

[1] Grey Market Sales: Official products sold into a market unintended by the manufacturer.

[2] First Sale Doctrine: according to Federal Law, after a a copy of a protected work is purchased legally, the copy may be sold without consent of the copyright holder

[3] Lasercomb Am. Inc., v. Reynolds, 911 F.2d 970, 978 (4th Cir. 1990)


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