Microsoft chalks up a win in software piracy battle

In Microsoft Corporation v 9038-3746 Quebec Inc, the Federal Court of Canada has found a Montreal-based software retailer and its directing mind liable for the infringement of Microsoft Corporation's trademark rights and copyrights by possessing and importing, for the purpose of selling, distributing and offering for sale, counterfeit CD-ROMs containing Microsoft software, as well as related documentation which was marked with Microsoft's registered trademarks.

The corporate defendant, operating under the name Inter-Plus, and its principal, Carmelo Cerrelli, sold a variety of CDs containing copies of Microsoft software programs which were imported from the United States through unauthorized distribution channels. The CD-ROMs containing the programs were covered with well-known trademarks owned by Microsoft. In August 2000 Microsoft commenced a lawsuit for trademark and copyright infringement relating to counterfeit Microsoft products, including software that had been seized from the Inter-Plus premises on two separate prior occasions by the Royal Canadian Mounted Police and the Montreal Urban Community Police. Microsoft alleged that 10 of its trademarks, in addition to copyright in 25 of its programs, were infringed in connection with the counterfeit products, and sought the maximum amount of statutory damages available under the Copyright Act for each of the 25 copyrights, in addition to punitive and exemplary damages.

In its reasons for judgment, the court issued a declaration that the 10 trademarks and 25 copyrights at issue in the case were valid, subsisting and infringed by the defendants.

It found that the CDs and all accompanying material imported and sold by Inter-Plus were counterfeit because they were neither manufactured by Microsoft nor by any of its authorized replicators. The court further held that Inter-Plus imported the counterfeit works into Canada for the purpose of offering them for sale, selling and distributing them, and that, in addition to denying Microsoft the profit to which it was entitled on the sale of genuine copies, Inter-Plus's distribution of the counterfeit items at unusually low prices prejudicially affected Microsoft's relationship with its chain of legitimate suppliers.

In accordance with Section 27(3) of the Copyright Act, the court noted that it was irrelevant whether Inter-Plus knew or should have known that the importation of the copies infringed copyright. Nevertheless, it went on to state that even if the works had not been imported, it would have found, on the balance of probabilities, that Inter-Plus knew or ought to have known that the items in which it was trading were counterfeit.

With respect to the infringement of Microsoft's rights by Inter-Plus, the court found its directing mind, Cerrelli, personally liable. Although it held that Cerrelli could not be found vicariously liable for the acts of Inter-Plus because he did not personally infringe Microsoft's rights, the court stated that it had:

"no difficulty whatsoever in finding on the balance of probabilities that Cerrelli deliberately, wilfully and knowingly engaged in a course of conduct likely to infringe Microsoft's trademark and copyright entitlements and pressed on regardless."

Ultimately, Inter-Plus and Cerrelli were found jointly and severally liable to Microsoft. In addition to ordering a delivery up of all infringing material, the court awarded C$500,000 in statutory damages, the maximum amount available under the Copyright Act, as well as C$100,000 in punitive damages against Inter-Plus and a further C$100,000 against Cerrelli personally, stating that the conduct of the defendants was "outrageous" .

A permanent injunction was also granted against Inter-Plus and Cerrelli restraining them, their servants, employees or agents and any other person, corporation or entity acting under their instructions or control from selling, distributing or importing into Canada counterfeit copies of the programs in issue and from infringing Microsoft's trademarks.

Of particular note, the court declined to extend the injunction against the defendants from "dealing in Microsoft products other than those packaged and licensed to Microsoft's satisfaction", holding that that this was, in effect, seeking an order that the defendants be kept out of the grey market. In this regard, the court noted that, in some instances, non-counterfeit products have made their way out of the authorized distribution network and that the Copyright Act "cannot be invoked to support Microsoft's current business model". However, it was quick to point out the distinction between the copyright and trademarks, namely that copyrights were limited to specific computer programs and related material while the trademarks were not. Rather, the trademark MICROSOFT differentiated Microsoft's goods and services from those of others, even if the goods had not yet been created or services not yet offered. Accordingly, the court ordered that the defendants were enjoined from dealing in counterfeit marks.

Christina Capone Settimi, Ogilvy Renault LLP, Toronto