Microsoft v. Harmony Computers & Electronics, CV 94-123 (RJD).

• Decision Date: 11 February 1994
• Docket Number: No. CV 94-123 (RJD).,CV 94-123 (RJD).
• Citation: 846 F. Supp. 208
• Parties: MICROSOFT CORPORATION, Plaintiff, v. HARMONY COMPUTERS & ELECTRONICS, INC., and Stanley Furst, Defendants.
• Court: U.S. District Court — Eastern District of New York

846 F. Supp. 208

MICROSOFT CORPORATION, Plaintiff, v. HARMONY COMPUTERS & ELECTRONICS, INC., and Stanley Furst, Defendants.

No. CV 94-123 (RJD).

United States District Court, E.D. New York.

February 11, 1994.

Brian W. Brokate, Beth M. Frenchman, Gibney, Anthony & Flaherty, New York City, for plaintiff.

Benjamin H. Segal, New York City, for defendants.

MEMORANDUM OF DECISION

DEARIE, District Judge.

This is an action for copyright infringement, trademark infringement, and related statutory and common law claims. Plaintiff Microsoft Corporation, a developer, manufacturer, and marketer of computer software programs, seeks declaratory and injunctive relief and treble damages against Harmony Computers & Electronics Inc. ("Harmony") and its president, Stanley Furst (together the "defendants"), for allegedly selling, without license or authorization, copyrighted Microsoft MS-DOS and Microsoft Windows software programs and accompanying materials ("Microsoft Products" or "Products").

BACKGROUND

On January 12, 1994, upon plaintiffs ex parte application and based on plaintiffs evidence that defendants were illegally copying and distributing Microsoft Products in violation of plaintiffs exclusive rights as the copyright holder, the Court ordered the seizure and impoundment of Microsoft Products and related business records at defendants' retail establishment, and temporarily restrained defendants from copying, using, distributing, secreting, or destroying any of plaintiff's copyrighted software.

Pursuant to the Court's Order, United States Marshals seized and impounded 106 pieces of Microsoft software. (Frenchman Decl. ¶ 4). The Court held an initial hearing on plaintiffs motion for preliminary injunction on January 20, 1994. At that time, the parties did not identify any material facts in dispute and indeed most of the relevant facts are well established. Also at that time, the Court invited the parties to submit any supporting papers. On January 24, 1994, the Court extended the Temporary Restraining Order until February 1, 1994, pending the Court's decision on plaintiffs motion for preliminary injunction.

Plaintiff argues that because defendants are not licensed by Microsoft, they are not legitimately in possession of, and are not entitled to sell, any Microsoft Products, whether counterfeit or not. To the extent that defendants bought their Microsoft Products from legitimate Microsoft licensees, plaintiff argues that defendants violated Microsoft's licensing restrictions by distributing the Products "stand-alone," that is, by themselves rather than bundled with one of the personal computer systems manufactured by Microsoft licensees. Furthermore, plaintiff alleges, and defendants acknowledge, that defendants persisted in their sales of Microsoft Products despite being notified of the alleged illegality of their activity by plaintiff's cease and desist letters of April 19, June 16, July 14, and September 14, 1993. Plaintiff has advised the Court, by the declarations of Robert Wanezek, Program Manager of Microsoft's Replication Group, and of Lee Gates, its Software Design Test Engineer, that twenty-one pieces of the Products seized from defendants' premises were counterfeit.

Defendants do not contest that they sold Microsoft Products, or that they sold such Products stand-alone as well as loaded onto the hard disks of computers. Defendants argue, however, that because the Products they sold were purchased from Microsoft licensees, they are immune from liability for copyright infringement under the first sale doctrine. In response, plaintiff argues that the first sale doctrine does not apply to the present case because Microsoft never sells but rather only licenses its Products. Defendants also deny that any of the Microsoft Products that they sold were counterfeit. Alternatively, defendants argue, even if any of the Products were counterfeit, they bought them from Microsoft, licensees under the good faith belief that the Products were genuine.

Although the Court attempted to set a date for a potential evidentiary hearing, both parties indicated that they would have difficulties assembling the witnesses needed for such a hearing prior to the expiration of the Temporary Restraining Order. Moreover, upon review of the papers, the Court concluded that no evidentiary hearing was required to resolve the motion for preliminary injunction. By Order of February 1, 1994, the Court granted plaintiffs motion for preliminary injunction.

DISCUSSION

I. Standard for Preliminary Injunction

A party seeking a preliminary injunction must establish both irreparable injury and either (1) a likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in favor of the movant. ICN Pharmaceuticals, Inc. v. Khan, 2 F.3d 484, 489 (2d Cir.1993); Bourne Co. v. Tower Records, Inc., 976 F.2d 99, 101 (2d Cir.1992).

II. Prima Facie Case

To establish a prima facie case of copyright infringement, the plaintiff must show that (1) it is the valid owner of a copyright and (2) defendant has engaged in unauthorized "copying," see Video Trip, 866 F.2d at 51-52; Hasbro Bradley, Inc. v. Sparkle Toys, Inc., 780 F.2d 189, 192 (2d Cir. 1985), where "copying" "is shorthand for the infringing of any of the copyright owner's five exclusive rights, described at 17 U.S.C. § 106." S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1085 n. 5 (9th Cir.1989). Section 106 of title 17 of the United States Code provides in relevant part:

The owner of copyright under this title has the exclusive rights to do and to authorize (1) to reproduce the copyrighted work in copies ...

. . . .

(3) to distribute copies ... of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending ...

17 U.S.C. § 106 (1977). Upon establishing a "reasonable likelihood of success on the merits," in an action for copyright infringement, irreparable injury is presumed. Bourne, 976 F.2d at 101; Video Trip Corp. v. Lightning Video, Inc., 866 F.2d 50, 51-52 (2d Cir.1989); Apple Computers, Inc. v. Formula Int'l Inc., 725 F.2d 521, 525-26 (9th Cir.1984).

A. Copyright Ownership

Microsoft has submitted certificates of federal copyright registration, which constitute prima facie evidence of the validity of plaintiff's copyrights. 17 U.S.C. § 410(c) (1977).¹ Defendants do not contest that plaintiff owns the copyrights to Microsoft Products.

B. Unauthorized Distribution

Defendants are not Microsoft licensees and therefore are not authorized to sell Microsoft Products. Barbara Schmidt, an accounting supervisor for Microsoft's domestic Original Equipment Manufacturer ("OEM") licensing, declares that defendant Harmony was never at any time a Microsoft licensee. See (Schmidt Decl. ¶ 3); (Schmidt Supplemental Decl. ¶ 3). Defendants do not contest this fact. Furthermore, although defendant Stanley Furst was a signatory to a license agreement dated December 2, 1993, between Microsoft and another one of Furst's companies, Everything Computers, Inc., (Schmidt Supplemental Decl. ¶ 3)²; (Furst Aff. of January 25, 1994, ¶ 5), Mr. Furst was not himself a Microsoft licensee. (Schmidt Supplemental Decl. ¶ 5). The license held by Everything Computers does not authorize defendants Harmony or Furst to distribute Microsoft Products.

Defendants sold Microsoft Products, as evidenced by the fact that private investigators hired by Microsoft successfully bought various Microsoft Products from defendants, (Holmes Decl. ¶¶ 3-8), that Harmony advertised the sale of MS-Dos 6.0, (Holmes Decl. Ex. 5), and that persons who had bought Microsoft Products from Harmony had called Microsoft's Piracy Hotline to question the legitimacy of their purchases. (Erickson Decl. ¶¶ 7-8). Defendants do not contest that they sold Microsoft Products, (Furst Aff. of January 17, 1994, ¶ 2), nor do they dispute that such activity would constitute copyright infringement absent the protection of the first sale doctrine. Because defendants are not authorized by Microsoft to distribute Microsoft Products, their distribution of those Products constitutes a prima facie case, that is, a likelihood of success on the merits of plaintiff's copyright infringement claim. Irreparable harm to plaintiff is therefore presumed.

Defendants argue that they in good faith believed that they were buying Products from authorized Microsoft licensees, and that their sales of the Products were therefore lawful. It is unlikely, in this case, that defendants were innocent infringers, as they were notified by Microsoft of the unlawfulness of their activities by letters dated April 19, June 16, July 14, and September 14, of 1993. (Lowe Decl. ¶ 3, Ex. A). Moreover, good faith is no defense against liability for copyright infringement. ISC-Bunker Ramo Corp. v. Altech, Inc., 765 F.Supp. 1310, 1331 (N.D.Ill.1990) ("there is no such thing as a bona fide purchase for value in copyright law"). Accordingly, defendants' good faith defense must fail.

Finally, it is undisputed that any sale of counterfeit Microsoft Products by defendants would violate the federal copyright laws. Plaintiff has submitted the declarations of Robert L. Wanezek, Program Manager of Microsoft's Replication Group, and of Lee R. Gates, a Software Design Test Engineer for Microsoft, and samples of seized "counterfeit" Microsoft Products from defendants' premises, to support their claim that defendants sold counterfeit Products. Although defendants deny that any of the Products they sold were counterfeit, they provide no evidence to contradict plaintiffs sworn assertions. In the absence of an evidentiary hearing, and given that plaintiff is likely to succeed on the merits of its copyright infringement claim on the grounds that defendants were not licensees and therefore not authorized to distribute any Microsoft products, counterfeit or not, ...