Costco's Deep Discount Ticks Off a Luxury Watchmaker

PHOTO: Costco wholesale club store in Mount Laurel, New Jersey, Aug. 6, 2014.John Greim/LightRocket via Getty Images
Costco wholesale club store in Mount Laurel, New Jersey, Aug. 6, 2014.

Costco attracts a range of loyal fans with discounted goods like hot dog meals for $1.50, bulk toilet paper and discounted luxury goods, which has ruffled the feathers of companies such as Omega.

The Swiss luxury watchmaker has been in a legal dispute with Costco for more than a decade, saying the warehouse company infringed on its copyright for a high-end watch.

Costco can sometimes sell goods at discounted prices to consumers after buying them at cheaper prices abroad in what's called the "gray market." In the case of Omega, it was reportedly selling watches at cheaper prices in Paraguay than it did in the U.S.

That allowed Costco to buy those watches at a discount and sell them for about $1,299 in its stores in the U.S., where Omega's preferred selling price is $1,999, the Wall Street Journal reported.

Omega, a subsidiary of Swatch Group, started selling the Seamaster, engraved with Omega's copyrighted "miniscule" globe design, in 2003, court records show. Though Costco was not an authorized Omega retailer, it started selling the watch in 2004, a court document states. Costco bought 117 Seamaster watches on the gray market from a New York-based company that bought watches intended to be sold abroad, court records state.

PHOTO: Omega’s high-end Seamaster watch, engraved with its copyrighted globe design, was the center of a dispute with Costco. US Court of Appeals
Omega’s high-end Seamaster watch, engraved with its copyrighted globe design, was the center of a dispute with Costco.

After fighting the case all the way to the Supreme Court, earning a win for Omega, but then having the highest court overrule itself due to a legal issue, the watchmaker brought its case to a federal appeals court. On Tuesday, that court decided that Omega can't sue Costco over products the watchmaker sold to foreign distributors.

"Omega's right to control importation and distribution of its copyrighted Omega Globe expired after that authorized first sale [abroad], and Costco's subsequent sale of the watches did not constitute copyright infringement," the court said in its decision.

An attorney for Omega declined to comment.

Costco did not respond to a request for comment.