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Should Patent Owners Care Whether Costco Sells Gray Market Omega Watches?

by Orlando Lopez

As the Supreme Court gets ready to hear Costco v. Omega, the amicus briefs have started to appear.  Intel, best known for a jingle and a large number of patents, filed an amicus brief a month ago.  Costco v. Omega is a copyright case appealing the Ninth Circuit decision holding that the “first sale” doctrine in copyright, which bars copyright owners from claiming copyright infringement after the copyrighted product has been sold, does not apply when the sale occurs outside the United States.  Why should a patent owner care?  Patents are patents and copyrights are copyrights and never the twain shall meet.  Not quite!  There is a similar doctrine in patents, the “patent exhaustion” doctrine, which states that an unrestricted sale of a patented item exhausts the patentee’s rights over the item.  Although the Supreme Court considered patent exhaustion in Quanta v. LG, the Supreme Court did not consider the effect of a sale abroad.  In May 2010, the Federal Circuit (CAFC), in Fujifilm Corporation v. Benun, held that the rights under a U.S. patent can be exhausted only by a first sale in the U.S.  There are some effects of the holding in Fujifilm.  Besides having an impact on large companies, restricting patent exhaustion just to items first sold in the United States has an impact on the consumer or small importer.  Under Fujifilm, a patentee can block the importation of a patented product into the United States if the first sale occurred outside the United States.

The decision of the Supreme Court on the extraterritorial application of the first sale doctrine in copyright law, could presage a similar ruling for extending patent exhaustion to sales that occur abroad.  In addition to being able to buy a cheaper Omega watch, patent owners now have an interest in whether Costco can sell Omega watches bought outside the United States.


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