Disenos Artisticos E Industriales v. Costco Wholesale Corp.

Disenos Artisticos E Industriales, S.A. (Disenos) (plaintiff) was part of an affiliated group of entities that manufactured and sold Lladro figurines. In the United States, the business strategy of Lladro USA, Inc. (plaintiff) was to market the figurines only through select upscale retailers. Disenos owned the copyright on the figurines and licensed it to four Spanish corporations, all affiliated with the Lladro group, to manufacture the figurines. The manufacturers were also licensed to sell the figurines worldwide; however, the manufacturers contracted with the parent corporation, Lladro Comercial, S.A., to sell their entire output to the parent corporation, which then distributed the figurines. The parent corporation sold the figurines directly to retailers in some countries and to distributors in others. In its contract with Lladro USA, the parent corporation agreed not to export the figurines to anyone within the United States except Lladro USA. From 1990 through 1994, Costco Wholesale Corporation (Costco) (defendant) sold Lladro figurines in its stores. All the figurines sold by Costco were genuine and were made under the manufacturing license granted by Disenos. However, Lladro USA neither sold the figurines to Costco nor authorized Costco to sell them. Rather, it appeared that most of the product in the Costco stores had been distributed in Spain and wound up in the United States through distribution channels other than those intended by the Lladro affiliates. In other words, the figurines sold in Costco stores were gray-market goods. Disenos and Lladro USA sued Costco, alleging that Costco’s sales of Lladro figurines were unauthorized and violated 17 U.S.C. § 602(a), which prohibited the importation of copyrighted works obtained outside the United States without the copyright owner’s authority. The district court granted summary judgment to Disenos and Lladro USA, and Costco appealed.