In the first major business decision of the 2010 October term, the U.S. Supreme Court has decided that Swatch's Omega (SWGAY) can effectively control the pricing of its luxury watches in the U.S., which means consumers will pay more. The decision was 4-4, with Justice Elena Kagan sitting out because of her time as U.S. Solicitor General. Such a split decision upholds the lower court's ruling, which in this case was in favor of Omega.

Divided 4-4 rulings don't have the same impact as true majority decisions as they don't set a nationwide precedent. So the collision of copyright law and "gray market" goods -- items originally sold abroad, brought into the U.S. and resold here -- is still unsettled outside the boundaries of the Court of Appeals for the Ninth Circuit.

Reflecting the lack of precedential value, no opinion explaining any judge's reasoning was issued. Unfortunately for consumers, the U.S. was on Omega's side in this case, so presumably if Justice Kagan had voted on the case, she would have voted for Omega. That suggests that next time around, assuming there is a next time, consumers could lose definitively, 5-4.

The Pricing Practices at Issue

Omega watches, like most goods, are not priced the same in every country; in some countries, they are much cheaper than in the U.S. Discounters like Costco (COST) have exploited this difference by buying new Omega watches on the "gray market" from middlemen abroad at prices that are above the foreign price but still well below the U.S. price, and then profitably selling them in the U.S. at a steep discount to the standard U.S. retail price. For example, Costco was able to sell Omega's Seamaster watch for $1,299, while other U.S. retailers were charging $1,995 for it.

Although Omega knew Costco was doing this for years, the watchmaker didn't care until other retailers began to complain. At that point, Omega slapped a small, copyrighted logo on the back of its watches and attempted to use copyright law to block the importation of the watches.

Copyright law generally allows someone who has purchased a copyrighted work to do whatever they want with it -- that's how libraries lend books and why yard sales are legal. But part of the copyright law makes it unclear if the "first sale doctrine" applies when the product is manufactured outside the U.S. and the "first sale" is out of the U.S. It's this issue that the Court effectively failed to decide this time.

Ramifications for U.S. Labor Force?

As Google, eBay and others supporting Costco noted, letting Omega control the resale price of goods manufactured and first sold abroad, but not the resale price of goods manufactured in the U.S. and first sold abroad (that was a different case decided before this one) provides a strong incentive (on top of any others, like cheaper labor, lack of environmental laws, etc.) to move manufacturing jobs out of the U.S. Whether or not that incentive will trigger factory relocation remains to be seen. But it's not a good omen for our already struggling workforce.


Increase your money and finance knowledge from home

Investor’s Toolbox

Improve your investing savvy with the right financial toolset.

View Course »

Finding Stock Ideas

Learn to do your research and find investments.

View Course »

Add a Comment

*0 / 3000 Character Maximum

79 Comments

Filter by:
MARK

I thought the USA had more sense, in Europe we suffer in a numerous ways from manufacturers selling items but wanting lifetime control over their use and resale. The Swiss watch industry is not just trying to screw european and US consumers with overly high prices (subsidising its sales elswhere) it is also screwing independent qualified US watchmakers and customers by controlling supply and distribution of parts. It is now the case that if a 50 cent part in your Rolex or Omega breaks, you have to send it for a full service and repair at over $300. They claim that this is not the case and properly certified and accredited watchmakers can get access to parts, however they decide who to accredit and this means only selected main dealers who agree not to offer discounts. I would urge US consumer groups to fight this BS before it is too late, especially given none of the Swiss companies hiding behind copyright and contract law inform the consumer at the time of purchase that their watch is effectively tied into a lifetime overpriced and retrictive service and maintenance agreement. Let this supreme Court ruling stand and this will be just the start, expect similar cases from European companies from every prroduct area, it's already the case in Europe.

December 06 2011 at 9:41 PM Report abuse rate up rate down Reply
ghelm92160

We need to go back to sundails. Only problem is that there to heavy for the wrist so I guess we can wear them around the waist because in America that is the item growing the fastest!

February 27 2011 at 12:12 PM Report abuse rate up rate down Reply
Pat

Reading this article made my head spin! I do not believe I will ever be able to comprehend the reasoning process of this Supreme Court. It is not clear to me that they actually do use reasoning in their opinions. Sometimes it appears they just throw darts at a board.

February 01 2011 at 8:15 AM Report abuse rate up rate down Reply
joejteacher951

Wholly OMEGA!

December 14 2010 at 4:02 AM Report abuse rate up rate down Reply
Dave

Another example of liberal socialist leftist democats exerting their agenda of demise for the US. Market pressure dictates price, not some overseas manufacturer. What should happen is that a tarrif that doubles the price must be placed on the manufacturers who leave this country for cheaper labor elsewhere. To do business with this country, manufacturing must return here or else it won't sell anywhere.

December 14 2010 at 2:44 AM Report abuse +1 rate up rate down Reply
1 reply to Dave's comment
Jacquelyn

Good Lord do you also have Booggy Men living under your bed too. Not every thing you disaggree with is caused the the "liberal socialist lefist democates". It's BIGG business that has shipped our jobs over seas ... and I got news for you the Bigger the business the more likely their're Republicians... Get a Clue.

January 27 2011 at 4:14 PM Report abuse rate up rate down Reply
tia121987

Another republican SC decision which sends more jobs offshore!!!

December 14 2010 at 1:19 AM Report abuse rate up rate down Reply
jpatch3

This will not cost me a penny I buy Rolex.

December 14 2010 at 12:42 AM Report abuse -2 rate up rate down Reply
1 reply to jpatch3's comment
MARK

In which case you are being screwed 20 times more than any Omega owner. Omega have only just started restricted service and parts to their newer watches, if a 50 cent part in your Rolex breaks then you got no choice but pay for a $400 Service with repairs on top, Rolex stopped supplying parts to independednt US watchmakers years ago (having bought all the spares out of supply houses before hand), parts are now only available to a select few stooge dealers and of course their own national service centre. Buy a Rolex and you are tied into an overpriced lifetime repair and service contract. If you want to get out of the contract you are welcome to put your overpriced bling in the trash can when it next needs a service or repair. A Steel Rolex costs about $300 to make, anyone willing to pay $5,000 plus another $400 every 5-7 years deserves all they get and must feel proud putting independent US watchmakers out of work. Sadly the Supreme Court ruling appears to be legalising the BS accross all other European brands.

December 06 2011 at 9:56 PM Report abuse rate up rate down Reply
djparker

We are our own worst enemy. This Government of ours is determined to do the country under. Any ideas out there?

December 13 2010 at 11:51 PM Report abuse +5 rate up rate down Reply
acyrerre

WHAT DO YOU EXPECT FROM A COURT THAT HAS THE RICH PEOPLE IN MIND AND NO ONE ELSE. THIS IS WHY WE ARE LOSING JOBS TO CHEAP LABOR OVERSEAS.I HAVE NO USE FOR THOSE 9 FOOLS.

December 13 2010 at 11:26 PM Report abuse +8 rate up rate down Reply
jshedl10411

Heaven knows how much intelligence prosides on the Supreme Court.

December 13 2010 at 11:25 PM Report abuse +4 rate up rate down Reply