Microsoft suffers setback in case against alleged infringer

In Microsoft v MBC Enterprises, the US Court of Appeals for the Tenth Circuit has reversed a district court decision granting summary judgment to Microsoft in its software piracy and trademark infringement claims. The Tenth Circuit found that the evidence produced by the defendant created genuine issues of material fact that should be presented to a jury.

Microsoft sued MBC Enterprises, a wholesale distributor of computer software and paraphernalia, for trademark and copyright infringement arising out of MBC's distribution of allegedly counterfeit Microsoft software programs. The district court granted Microsoft's motion for summary judgment, finding that (i) there was no genuine issue of material fact as to whether MBC wilfully infringed Microsoft's trademarks and copyrights, and (ii) Microsoft was entitled to judgment as a matter of law. Accordingly, the district court awarded Microsoft statutory damages, fees and costs totalling nearly $2 million, and issued a permanent injunction against MBC with respect to the further distribution of Microsoft products.

MBC appealed, asserting that sufficient evidence had been presented to raise genuine issues of material fact and the district court had thus improperly granted Microsoft's summary judgment motion.

Microsoft presented evidence that (i) MBC purchased Microsoft software from a third party called Bantech, a supplier that obtained the software from Singapore at prices drastically below the suggested retail price, and (ii) 300 units of counterfeit Microsoft software packaged and labelled for shipment to MBC's address were discovered during a Federal Bureau of Investigation (FBI) examination of Bantech's offices. Additionally, two counterfeit units of Microsoft software were found in the possession of Mr Software, one of MBC's customers.

MBC submitted declarations that:

  • one of its employees personally inspected every piece of software purchased by MBC to ensure it was authentic;

  • at no time did MBC purchase any counterfeit Microsoft software from Bantech;

  • the normal wholesale prices for authentic Microsoft software were substantially lower than the normal retail prices cited by Microsoft and the FBI; and

  • Bantech's counsel had informed MBC that US customs had withheld a shipment of Microsoft software from Bantech's Singapore inspector, and that, following an inspection of approximately 30 to 50 units, Microsoft had determined that they were authentic.

Additionally, MBC presented evidence that (i) Mr Software had also purchased software from another party that was allegedly dealing in counterfeit products, and (ii) Mr Software's Microsoft software purchased from MBC was a different version to the counterfeit goods.

The Tenth Circuit found, during its de novo review, that the evidence presented by MBC created genuine issues of material fact regarding Microsoft's allegations of trademark and copyright infringement and that the issues should be presented to a jury. Accordingly, the Tenth Circuit reversed the decision of the district court granting summary judgment in favour of Microsoft, vacated the award of statutory damages, costs, fees and a permanent injunction, and remanded the case back to the district court for further proceedings.

Todd Hales, Knobbe Martens Olson & Bear LLP, Irvine

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