Supreme Court To Decide Fate Of Luxury Items Gray Market: Costco v. Omega

by Ariel Adams (RSS feed)
Apr 21st 2010 at 6:02AM

This topic is near and dear to my heart because of the legal aspect and the watch aspect. I am not going to present to you a law school style outline of the legal history or implications of this case, but rather what it all means.

Back in 2004 Omega got pissed at Costco for selling Omega watches that it purchased not from Omega as an authorized dealer, but rather from gray market distributors. Costco has some good deals on high-end watches because it legally buys watches from people who have inventory acquired from unsold authorized retailer inventory or otherwise from retailers around the world. Costco is able to buy these slightly older model watches at lower prices. At the same time, they are not bound by Omega's pricing policies that govern authorized dealers.

Omega can't stop Costco from selling the watches because Costco legally bought them from sources that somewhere down the line, legitimately bought them from Omega. So after much bitching and moaning, Omega sued on a copyright claim.

The claim says Costco had no right to sell products with Omega intellectual property without Omega's permission. The first court sided with Costco, and Omega appealed. The second court sided with Omega, and the Costco appealed to the Supreme Court. At this point the Supreme Court doesn't need to hear the case. For the most part, the Supreme Court chooses the cases it wants to hear. Recently, the Supreme Court announced that it would hear the case in the Fall. The case is: Costco Wholesale Corp. v. Omega, S.A., 08-1423.

Aside from being interesting as the parties are companies most people know well, the outcome of the case has some serious implications. On the one hand, the case might strike a serious blow to the life of the gray market, which are lower cost goods that are resold into the market and ultimately sold at lower prices to consumers. On the other hand, the case might validate the gray market, forcing brands like Omega that are highly price sensitive to rethink their business model and reduce their reliance on third party authorized dealers.

The watch world will be looking very closely at the issue, especially as the decision is published in the next year.

Major watch brands are also preempting the gray market issue by making serious changes to the way they do business. This of course also applies to luxury brands that offer products other than just watches. Instead of selling as much product to authorized dealers as possible, the business model of the future for luxury brands may likely be to sell directly to consumers. This strategy would bypass traditional dealer networks altogether.

Ariel Adams publishes the luxury watch review site aBlogtoRead.com.

Tags: case, costco, court, gray market, omega, suit, supreme court

Filed under: Timepieces / Watches

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Reader Comments (Page 1 of 1)

Tim Jackson Apr 22nd 2010 4:47PM

Great article, I'm eager to see the outcome, changes are coming to our watch world or at least the way they are marketed & sold.
Thank you for your insight.
I also loved the Doomsday article you wrote about brands doing away with independent third party "traditional retailers".
I've been telling my clients it's going to change for the past 5 years, and it is coming to pass. Love the products, really struggle with the Companies producing them.
Cheers,
Tim

johnallencruises Apr 27th 2010 11:53PM

I LUV COSTCO...WHERE ELSE DO YOU GET A LIFETIME WARRANTY FOR A GREY MARKET WATCH INVICTA ROLEX ETC WHEN THEY HAVE THEM TO SELL.......I DO NOT KNOW ANY OTHE MERCHANTS NOT EVEN SAMS CLUB. WITH A CHEAP PRICE TO BOOT.
GOD BLESS COSTCO FOR HAVING A LIBERAL RETURN POLICY AND SELLING HIGH END WATCHES FOR LESS. AMERICANS LUV DEALS AND COSTCO IS THE REAL DEAL!!!!!!!!!!!