Supreme Court Watching ‘Gray Market’ Omega Sales

The U.S. Supreme Court will rule this fall on one of watch retailing’s most controversial issues: the legality of “gray” or secondary market brands.

On April 19, the court agreed to hear Omega’s lawsuit against Costco in the fall. The ruling could seriously impact watch retailing—particularly discount retailers and websites that sell millions in “secondary” goods purchased overseas from unauthorized dealers.

Omega first sued Costco in federal court in California in 2004. Because Omega watches feature a small copyrighted icon, the company argued that selling them without its authorization violates U.S. copyright law. Costco argued that copyright does not apply after the watches’ first sale, since they were repurchased legitimately overseas.

The initial court sided with Costco, but a higher court agreed with Omega. Costco then appealed to the Supreme Court.

A Supreme Court ruling in Omega’s favor could hamper ­discount retailers as well as sites like eBay and Amazon that sell genuine products acquired elsewhere without authorization. eBay and mass market retail associations have filed briefs supporting Costco.

A Costco win could weaken the ability of luxury brands to control distribution and support authorized dealers, increase competition in the watch market from online retailers, and possibly lead more luxury brands to sell directly to consumers.