U.S. High Court Will Decide Omega ‘Gray Market’ Case

The U.S. Supreme Court has agreed to rule on one of watch retailing’s most controversial issues: genuine brands bought overseas by retailers from unauthorized dealers and resold at lower prices in the United States, the so-called “gray” or “secondary” market.
The court on April 19 said it will hear the case of discount warehouse giant Costco vs. Swiss luxury sport watch Omega (owned by Swatch Group). Its decision will affect U.S. watch retailing and Internet and national discount retailers, which do a multibillion annual business in “secondary” goods, suggest some observers.
Omega is using copyright infringement to fight its case. There is a small icon, copyrighted in the United States, on Omega watches sold by Costco. Selling them without its authorization violates U.S. copyright law, Omega says. Costco argues the copyright doesn’t apply after their first sale, especially those repurchased legitimately overseas and resold here.
The case began in 2004 when Omega sued Costco in federal court in California. The court sided with Costco. Omega went to the federal appeals court, which sided with Omega. Costco appealed to the Supreme Court, which will hear the case this fall.
A ruling for Omega could hamper discount retailers as well as Internet companies like eBay and Amazon that sell genuine products acquired elsewhere without authorization. It also could affect the lower prices they offer. Several court briefs supporting Costco have been filed by eBay, consumer advocate groups, and mass market retailer associations.
A ruling for Costco could weaken the ability of manufacturers (especially luxury brands) to control distribution and support authorized dealers, increase the competition many jewelers who sell watches feel from discounters and e-tailers, and possibly lead more luxury brands to sell directly to consumers.