Opinion
Case No. 2:00-CV-00217 PGC
December 29, 2003
ORDER GRANTING IN PART MICROSOFT'S MOTION FOR SUMMARY JUDGMENT, DENYING REMAINING MOTIONS FOR SUMMARY JUDGMENT, AND DENYING MOTION TO STRIKE
This case is before the court on Microsoft's motion for summary judgment (#175-1) and MBC Enterprises ("MBC"), Steve Blackburn, Marianne Blackburn, and James Craghead's motions for sumrnary judgment (#205-1 and #207-1). Also before the court is Microsoft's motion to strike defendants' surreply memorandum opposing summary judgment (#225-1). On October 1, 2003, the court heard oral argument on these matters, indicated its preliminary position with respect to the motions, and invited supplemental briefing from the parties regarding damages, attorney fees and costs, personal liability, and injunctive relief. Having reviewed the pleadings, the record on file, and the relevant law, the court GRANTS in part Microsoft's motion for summary judgment. Microsoft has established through undisputed fact that defendants are liable for copyright and trademark infringement as a matter of law. Accordingly, Microsoft is entitled to damages, attorneys fees and costs, and a permanent injunction, as explained below. Microsoft's motion for summary judgment is otherwise DENIED, and defendants' motions for summary judgment are also DENTED. Microsoft's motion to strike is DENIED as moot.
BACKGROUND
On March 13, 2000, plaintiff Microsoft Corporation filed the complaint in this case against defendants MBC Enterprises, L.C., James Craghead, and Steve Blackburn, alleging copyright and trademark infringement, among other claims. The complaint was later amended to add Marianne Blackburn. After conducting discovery, the parties filed cross-motions for summary judgment. On July 7, 2003, Microsoft filed for summary judgment on all claims seeking damages, attorneys fees and costs, and a permanent injunction. On September 16, 2003, Defendants filed motions for summary judgment seeking to dismiss plaintiffs claims and requesting attorneys fees and costs.
Microsoft develops and licenses numerous software products, including Windows 98 and Windows NT operating systems, and software applications, including Microsoft Office 2000. MBC is a Utah business owned by defendants Marianne Blackburn (99%) and James Craghead (1%), who are married. MBC runs a software distribution business out of Mr. Craghead and Ms. Blackburn's garage, of which a significant portion is devoted to the distribution of products purported to be Microsoft products. Defendants are not authorized or licensed by Microsoft to distribute Microsoft products, nor do defendants purchase regularly from Microsoft authorized distributors. Mr. Craghead is generally in charge of buying and selling for the company. He and Ms. Blackburn have sole responsibility to control MBC's business activities. Ms. Blackburn knows of MBC's ongoing business activities, is principally in charge of the company's financial operations, and receives financial benefit from the company's operations.
MBC receives its software inventory from various companies and distributes virtually all of the software received into the marketplace. It is undisputed that MBC has done and continues to do business with known counterfeiters. MBC receives samples of counterfeit software on a regular basis, including monthly shipments. Several of MBC's vendors and customers have been subject to civil and criminal investigations, and some have received penalties for distributing counterfeit and infringing Microsoft software.
The Bantech Events
MBC's own business records, as well as records obtained from a third-party Texas company known as Bantech, indicate that between 1998 and 2000, MBC received large quantities of purported Microsoft software from Bantech and that MBC distributed purported Microsoft software to Bantech, Between July 1999 and February 2000, MBC received over 11,000 units of Windows 98 software from Bantech. Between December 1999 and January 2000, defendants received about 1,200 units of Office 2000 software from Bantech.
On February 28, 2000, local and federal law enforcement officials in Texas executed a criminal search warrant at Bantech and seized business records and other evidence indicating the existence of a counterfeit distribution operation. The seized records establish "a close and ongoing business relationship between Bantech and MBC." Specifically, the documents show that MBC paid Bantech $223,799 for nearly 9,000 compact discs containing purported Microsoft software distributed to MBC. According to Agent Eng-Tow, the purported Microsoft products at Bantech were being sold at a price drastically lower than typically found in the open market. The evidence reviewed by FBI Agent Eng-Tow led him to conclude that MBC was paying Bantech for counterfeit Microsoft software imported from Singapore. No records found at Bantech indicated any other supplier, While the defendants have pointed to documents suggesting that a tiny fraction of Microsoft products at Bantech came from non-Singapore distributors, Mr. Craghead has admitted that the software at issue in this case came from Singapore, where the distributing individuals have been criminally prosecuted.
Eng-Tow Aff. ¶ 14.
In addition, one package, containing 300 counterfeit CDs of Windows 98 was discovered in a box labeled for FedEx shipment to MBC's address. It is undisputed that the Windows 98 and Office 2000 CDs seized in the Bantech raid were determined to be counterfeit. Mr. Craghead has admitted that MBC resold all the software that came from Bantech.
When asked about these matters, Jane Bannerman of Bantech, asserted her constitutional privilege against self incrimination and refused to answer questions regarding the software found at Bantech and the nature of MBC's relationship with Bantech.
The Mr. Software Events
It is undisputed that MBC distributed purported Microsoft software to a Michigan company called Mr. Software. In March 2000, Mr. Software returned to MBC 40 units of Windows NT Server software ("Windows NT") it had received from MBC because, as a Mr. Software representative stated, "[w]e've got to keep it low right now. I think Microsoft — Microsoft is — is — has been visiting us; we can't just keep a bunch of software around." Then, on June 15, 2000, an investigator for Microsoft acquired two units of Windows NT software which, according to Mr. Software, came from MBC. Those software components were determined to be counterfeit. Microsoft filed suit against Mr. Software and later settled the case.
Lacayo Dep., at 176.
SUMMARY JUDGMENT
Summary judgment is appropriate when there is "no genuine issue of any material fact and the moving party is entitled to judgment as a matter of law." In deciding a motion for summary judgment, this court reviews all the evidence in the record, construing it and drawing all inferences therefrom most favorably to the non-moving party.
See Guides, Ltd. v. Yarmouth Group Property Mgmt., Inc., 295 F.3d 1065, 1073 (10th Cir. 2002) (citations omitted).
In its Supplemental Memorandum in Opposition to Plaintiffs Motion for Summary Judgment, MBC objects to the undisputed facts set forth by Microsoft based on an alleged lack of foundation related to documents from Bantech in the record. The court overrules this objection by MBC. Not only is the objection untimely, but under Rule 56(e) of the Federal Rules of Civil Procedure the court can consider all the evidence on record, including the Bantech documents, even though it may not currently be "in a form that would be admissible at trial." The court further notes that MBC has previously received latitude from the court, which has not deemed all of Microsoft's "undisputed facts" in its Memorandum in Support of Summary Judgment, despite Rule 56(c) deficiencies in MBC's initial response memorandum.
See Thomas v. International Business Machines, 48 F.3d 478, 485 (10th Cir. 1995) (citation and quotations omitted).
ANALYSIS
The undisputed facts in this case indicate that MBC repeatedly distributed counterfeit Microsoft products in the marketplace, including Windows 98, Windows NT, and Microsoft Office products, in violation of both federal law and this court's prior injunction. Copyright Infringement
See March 30, 2000 Preliminary Injunction.
To establish copyright infringement, a plaintiff must show "(1) ownership of a valid copyright, and (2) copying of constituent elements of the work that are original." Furthermore, a copyright owner has the exclusive rights to reproduce and distribute the copyrighted work. Violation of the reproduction or distribution rights of copyright constitutes infringement regardless of intent — whether "innocent" or "accidental." It is undisputed that Microsoft owns the copyrights at issue in this case, including those covering Windows 98, Windows NT, and Microsoft Office 2000. And, as outlined previously, it is undisputed that MBC distributed counterfeit versions, or unauthorized copies, of these very Microsoft products without Microsoft's authorization. Trademark Infringement
Autoskill, Inc. v. Nat'l Educ. Supp. Sys., Inc., 994 F.2d 1476, 1487 (10th Cir. 1993).
See 17 U.S.C. § 106(1) and (3).
See id. at § 501; Pinkham v. Sara Lee Corp., 983 F.2d 824, 829 (8th Cir. 1992).
A finding of trademark infringement is appropriate where plaintiff establishes (1) existence of a valid, legally protected mark; (2) owned by the plaintiff; (3) used by the defendants in commerce without consent; (4) thereby creating a likelihood of confusion. As under copyright law, plaintiff need not prove intent to establish trademark infringement liability. In this case, it is undisputed that Microsoft has registered the trademarks at issue with the United States Patent and Trademark Office, and nearly all of them have become incontestable due to continuous use for more than five years following registration. Defendants have not challenged the validity of the marks. And it is undisputed that MBC distributed the Microsoft marks at issue in this case as part of the counterfeit Microsoft software distributed to MBC customers — without Microsoft's authorization. The software distributed by MBC carried "virtually identical" marks to Microsoft's trademarks, yet it was plainly not Microsoft software; therefore, the likelihood of confusion element is established as a matter of law. Because the copies of purported Microsoft software distributed by MBC are counterfeit products which only appear to be genuine, the court finds a substantial likelihood of confusion in the marketplace as to the source of the products. Statutory Damages for Non-Willful Copyright and Trademark infringement
See 15 U.S.C. § 1114, 1125; Marker Intl v. DeBruler, 635 F. Supp. 986, 996-97 (D. Utah 1986), aff'd 844 F.2d 763 (10th Cir. 1988).
See Daddy's Junky Music Stores, Inc. v. Big Daddy's Family Music Ctr., 109 F.3d 275, 287 (6th Cir. 1997).
See Beer Nuts, Inc. v. Clover Club Foods, Co., 805 F.2d 920, 924 (10th Cir. 1986).
See Microsoft Corp. v. Compusource Distributors, Inc., 115 F. Supp.2d 800, 807 (E.D. Mich. 2000) (citation omitted).
Beer Nuts, 805 F.2d at 924.
While intent is not a factor in establishing copyright infringement, consideration of intent is proper in assessing damages for wilful or non-wilful copyright infringement. Similarly the Lanham Act, which governs trademark law, provides for a range of statutory damages based on wilful and non-wilful infringement. In this case, Microsoft argues that MBC wilfully infringed Microsoft's copyrights and trademarks, yet it only seeks the maximum statutory damages for non-wilful infringement — $30,000 for each copyright infringed and $100,000 per counterfeit mark. The court finds that such damages are appropriate in light of the undisputed facts of this case. As MBC points out, "between willful and innocent conduct lies the domain of knowing infringement.'" The court finds that MBC's conduct easily rises to this intermediate level.
See 17 U.S.C. § 504(c)(1), 504(c)(2), and 505.
See 15 U.S.C. § 1117.
See 17 U.S.C. § 504(c)(1), 15 U.S.C. § 1117.
See 4-14 Nimmer on Copyright § 14.04 [B][1][a] (citations omitted).
Proceeding title by title, the court awards $430,000 in statutory damages for copyright and trademark infringement related to the Windows 98 software (damages on one copyright and four trademarks); $330,000 for infringement related to the Microsoft Office product (damages on one copyright and three trademarks); and $230,000 in statutory damages for infringement related to Windows NT (damages on one copyright and two trademarks) — for a total of $990,000. The court finds ample justification for this award under the factual circumstances of this case. It is undisputed that MBC continually conducted business with known counterfeiters and apparently made no attempt to obtain Microsoft authorization or to otherwise purchase product through Microsoft authorized channels. Furthermore, defendant Craghead, charged with the buying and selling for MBC, had expertise by which he knew or should have known that the product MBC was distributing was infringing product. Instead, the business model pursued by MBC embraced the receipt and distribution of questionable software from questionable sources. Ultimately, that business model led to the infringement complained of in this dispute. The fact that MBC and Bantech were subject to a year-long federal criminal investigation into conspiracy to distribute counterfeit software further suggests that MBC's conduct justified the award of damages at the high end of the non-willful spectrum.
MBC's argument that it is entitled to have a jury decide "all issues pertinent to an award of statutory damages" is misguided given the procedural posture of this case. The defendants' ever-important right to trial by jury does not negate the court's ability to award damages as a matter of law based on the undisputed facts, Here, the court's assessment of damages in this case is conservative and proper. For example, the court could have chosen to assess statutory damages for each of the seven registered copyrights related to the individual software applications which comprise the "Microsoft Office" title. Access, PowerPoint, Word, and Excel could all likely be considered viable expressions or works in their own right, the infringement of which would warrant individual statutory damages. Instead, the court has awarded $30,000 in copyright damages for the Microsoft Office software title as a whole.
Feltner v. Columbia Pictures Television, Inc., 523 U.S. 340, 355 (1998).
MBC argues in a similar vein that damages are not warranted on multiple individual trademarks related to a single product; however, such a damage award is plainly authorized by statute, is supported by the case law, and is warranted in this case in order to effectively enforce the purposes of the trademark statute. Attorneys Fees
See 15 U.S.C. § 1117(c); Compusource, 15 F. Supp.2d at 811.
While attorneys fees and costs would only be available in an "exceptional" trademark case, the Copyright Act grants discretion to the court to award costs and attorneys' fees to the prevailing party. "The prevailing party is one who succeeds on a significant issue in the litigation that achieves some of the benefits the party sought in bringing suit." Given the court's ruling herein, Microsoft is clearly the prevailing party. At this stage of the litigation, Microsoft's summary judgment claims, narrowed at oral argument, are the only claims being disposed of by the court's ruling, and the court finds that the issue of counterfeit distributions is significant in this litigation. Neither party has prevailed on the remaining claims. Given the level and type of infringement in this case, the court awards reasonable attorneys fees to Microsoft in the amount of $494,513,50 and $83,177.26 in costs.
See 15 U.S.C. § 1117(a).
See 17 U.S.C. § 505; Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 (1994).
Gamma Audio Video, Inc. v. Ean-Chea, 11 F.3d 1106, 1113 (1st Cir. 1993) (quotations and citations omitted); see also 4 Nimmer on Copyright § 14.10[B], at 14-144.
Mr. Craghead and Ms. Blackburn's Joint and Several Liability
Mr. Craghead and Ms. Blackburn are liable, jointly and severally, for MBC's infringing activity by virtue of their participation and ratification of the activity. A "corporate officer who directs, controls, ratifies, participates in, or is the moving force behind the infringing activity, is personally liable for such infringement without regard to piercing the corporate veil." It is undisputed that Mr. Craghead personally participated in the infringing activity. Ms. Blackburn, 99% owner of MBC, undisputedly had the right and ability to supervise the activity. She had a direct financial interest in the activity, and her management of finances for MBC was a significant moving force behind the infringing activity. Microsoft concedes that damage liability as to Steve Blackburn is inappropriate, and the court agrees.
Babbit Electronics, Inc. v. Dynascan Corp., 38 F.3d 1161, 1184 (11th Cir. 1994).
See Pinkham v. Sara Lee Corp., 983 F.2d 824, 834 (8th Cir. 1992); Southern Bell Tel Tel. Co. v. Associated Tel. Directory Pubs., 756 F.2d 801, 811 (11th Cir. 1985).
Permanent Injunction
Finally, the court finds that a broad permanent injunction is proper in this case to prevent the specific infringing activity discussed above, as well as other potentially infringing activities by MBC with regard to Microsoft's trademarks and copyrights. MBC has already violated provisions of the court's previous injunction order and has continued to do business with known counterfeiters. The court finds that the business model used by MBC poses substantial risk of continuing legal violations, such that a broad injunction is appropriate in this case. The court has reviewed the proposed injunction submitted by Microsoft in this case and finds that it will not "impose unnecessary burdens on lawful activity." The injunction is appropriate in order to keep MBC "a fair distance from the `margin line'" of further trademark and copyright infringement.
See Preliminary Injunction, Civ. No. 2:00-CV-00217, March 30, 2000.
Waldman Pub. Corp. v. Landoll Inc., 43 F.3d 775, 785 (2d Cir. 1994) (citations omitted).
Wolfard Glassblowing Co., v. Vanbragt, 118 F.3d 1320, 1323 (9th Cir. 1997).
CONCLUSION
Based on the foregoing, Microsoft's motion for summary judgment (#175-1) is GRANTED in part and DENIED in part. Defendants' motions for summary judgment (#205-1 and #207-1) are DENIED. Microsoft's motion to strike defendants' surreply memorandum opposing summary judgment (#225-1) is also DENIED as moot. The court awards Microsoft statutory copyright damages in the amount of $90,000 and statutory trademark damages in the amount of $900,000, for a total of $990,000 in statutory damages. In addition, the court awards Microsoft $494,513.50 in attorneys fees and $83,177.26 in costs under the Copyright Act, for a total of $577,690.76 in fees and costs.As stated previously, the court will issue a permanent injunction in favor of Microsoft and against MBC Microsoft is invited to file a prompt voluntary dismissal of the remaining claims in this case as may be appropriate.
SO ORDERED.