UPDATE 1-US high court won't decide Costco-Swatch case

Mon Dec 13, 2010 10:48am EST

* Deadlocked court affirms ruling for Swiss watchmaker

* Costco backed by business groups, companies like eBay

* Dispute involved imported Swiss-made watches (Adds details of case, Justice Kagan recusing herself)

By James Vicini

WASHINGTON, Dec 13 (Reuters) - The U.S. Supreme Court said on Monday that it deadlocked by a 4-4 vote and will not decide a copyright infringement case involving Costco Wholesale Corp (COST.O) over reselling luxury imported Swiss-made watches produced by a Swatch Group (UHR.VX) unit.

In a case between the top U.S. warehouse club and the world's largest watchmaker, the deadlock means that the justices automatically affirmed a U.S. appeals court ruling that Swatch's Omega unit retained the rights to watches it made and sold abroad that later were imported into this country.

The Supreme Court's action was not a ruling on the merits of the dispute and it does not set a national precedent, but it does have the result of resolving the case in Omega's favor.

It had been one of the court's more important business cases, with implications for the multibillion-dollar so-called "gray market," in which brand name goods protected by trademark or copyright are imported via third parties into the United States.

Retailers from Costco to Amazon.com Inc (AMZN.O) have faced legal problems over the resale of goods that brand holders say infringes their copyright.

A number of business groups, retailers and companies, such as online auctioneer eBay Inc (EBAY.O), had supported Costco before the Supreme Court. The Obama administration backed Omega.

Costco obtained Omega's Seamaster watches through a series of transactions. It sold each of them to consumers in California for $1,299, a third less than the suggested retail price.

Omega first sold the watches to authorized distributors overseas. Unidentified third parties bought them and sold them to a New York company, which in turn sold them to Costco.

Although Omega approved the initial foreign sale, it did not authorize the importation of the watches into the United States or the sales by Costco.

After Costco's sale of 43 watches in 2004, Omega sued and claimed Costco's actions amounted to copyright infringement.

A federal judge ruled for Costco, but the appeals court sided with Omega.

The Supreme Court deadlocked because Justice Elena Kagan did not participate in the case, presumably because she had been involved with it previously as solicitor general. She has recused herself from a number of cases, but this was the first one so far that ended up with a tie vote. (Editing by Gerald E. McCormick, Dave Zimmerman)

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