Court splits 4-4 in 'gray market' case

WASHINGTON, Dec. 13 (UPI) -- The U.S. Supreme Court Monday let stand a lower court ruling that protection for the resale of copyright- or patent-protected goods does not apply to imports.

The justices split 4-4 in the case, issuing a brief unsigned opinion that the lower court "judgment is affirmed by an equally divided court" and noting that Justice Elena Kagan took no part in the decision.

As usual, the high court did not explain why a justice withdraws from a case, but Kagan was U.S. solicitor general when the case began.

An equally divided court means the lower court ruling is allowed to stand, but no precedent has been set.

The "first sale doctrine," articulated by the Supreme Court in 1908's Bobbs-Merrill Co. vs. Straus, holds that a copyright owner's exclusive distribution right is exhausted after the owner's first sale of a particular copy of the copyrighted work.

The case before the court involved Costco and its "gray market" acquisition and sale of Swiss-made Omega watches.

Omega sells the watches all over the world through authorized distributors and retailers. Engraved on the underside of the watches is a U.S.-copyrighted "Omega Globe Design."

But the Costco Wholesale Corp. obtained the watches with the copyrighted design from the "gray market," a federal appeals court in San Francisco said.

Omega sold its watches to authorized distributors overseas; unidentified third parties bought the watches and resold them to a New York company, ENE Ltd., which in turn sold them to Costco. The wholesaler then sold them to California consumers.

Omega filed suit, but Costco argued that under the "first sale doctrine," Omega's initial foreign sale of the watches precludes claims of infringing distribution and importation in connection with the subsequent, unauthorized sales.

Eventually, the appeals court ruled: "Because there is no genuine dispute that Omega made the copies of the Omega Globe Design in Switzerland, and that Costco sold them in the United States without Omega's authority, the first sale doctrine is unavailable as a defense to Omega's claims."