Microsoft Corp. v. Grey Computer

• Decision Date: 21 December 1995
• Docket Number: Civ. A. No. AW 94-221.
• Citation: 910 F. Supp. 1077
• Parties: MICROSOFT CORPORATION, Plaintiff, v. GREY COMPUTER, et al., Defendants.
• Court: U.S. District Court — District of Maryland

910 F. Supp. 1077

MICROSOFT CORPORATION, Plaintiff, v. GREY COMPUTER, et al., Defendants.

Civ. A. No. AW 94-221.

United States District Court, D. Maryland, Southern Division.

December 21, 1995.

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COPYRIGHT MATERIAL OMITTED

Thomas Nicholas Tartaro, Preston, Gates, Ellis & Rouvelas Meeds, Washington, DC, Jane H. Barrett, Preston, Gates & Ellis, Los Angeles, CA, for plaintiff Microsoft Corp.

George Z. Petros, Annapolis, MD, for defendants Grey Computer, Inc., a Maryland Corporation, Adieba Hijazi, Bilal Hijazi aka Bilel Hijazi, Husim Hijazi, Integrated Computers Electronic, Inc., a Maryland Corporation, Hiatham Hijazi.

MEMORANDUM OPINION

WILLIAMS, District Judge.

Microsoft Corporation ("Microsoft") instituted this civil action against Grey Computer, Inc. ("Grey"), Integrated Computer Electronic, Inc. ("ICE"), Intelligent Data Systems ("IDS") and their respective principals.¹ Microsoft claims that Defendants infringed upon their copyrights and trademarks by selling or distributing counterfeit copies of Microsoft's software products.

After discovery, Microsoft moved for summary judgment on issues of liability and damages against Direct Wholesale, Dewitt Williams and Timothy Mazoch (collectively "Defendants"). It also seeks a permanent injunction to prevent Defendants from further distributing, offering for sale or selling counterfeit computer software bearing Microsoft's marks. ICE, a third-party plaintiff, also moved for summary judgment on issues of liability and damages against the Defendants and against Williams and Mazoch, individually. The Court has jurisdiction under 28 U.S.C. §§ 1331, 1332, 1338 and the doctrine of pendent jurisdiction.

I.

Microsoft is the worldwide leader in computer software. It offers a wide range of products and services for businesses and personal use, each designed with the mission of making it easier and more enjoyable for people to take advantage of the full power of personal computing every day. Microsoft is the owner of valid and incontestible registered trademarks in and to "Microsoft" and "MS-DOS" for use in connection with computer software.² It is the owner of registered copyrights in and to all MS-DOS 5.0, 6.0 and 6.2 software products, including User's Reference Manuals and User's Guides and Screen Displays ("Windows Software Products"). Microsoft has caused it trademarks to be registered in the United States Patent and Trademark Office on the Principal Register.

Direct Wholesale opened for business in February 1993. Mazoch and Williams are equal and sole shareholders. Ninety to ninety-five percent of Direct Wholesale's business was in distributing software products. While almost all of the software products Direct Wholesale distributed were Microsoft products, Microsoft has never licensed Direct Wholesale, Timothy Mazoch or Dewitt Williams to manufacture, replicate, distribute, market or advertise any MS-DOS or Windows Software Product, manuals, or packaging.

During it operations, Direct Wholesale received at least two news releases regarding Microsoft software. The releases provided:

Microsoft has alleged that Micro Innovation, Inc. of Houston, also known as MIC, was producing unlicensed MS-DOS 5 and Windows 3.1 under its own tradename, and distributing its product throughout the PC Innovations stores and other resellers nationally. Simultaneously seizures at seven Houston-area locations netted 35,000 units of MS-DOS and Windows, with a street value of approximately $2 million. Microsoft legally licenses MS-DOS and Windows to computer manufacturers to include with their PCs for sale. However, Microsoft's license agreements prohibit the sale and/or distribution of Microsoft's products by themselves, without an accompanying PC. . . . Any consumers or resellers having questions about the legitimacy of Microsoft products should contact the Microsoft piracy hotline at (800) NOCOPYN.

Despite having received notice of Microsoft's prohibition of selling its software without an accompanying PC, Direct Wholesale continued to buy purported Microsoft software products from its California suppliers without accompanying PCs.

Direct Wholesale then sold the software to companies like ICE. From 23 July 1993 through 27 December 1993, ICE paid Direct Wholesale $195,773.63 for the purported Microsoft software to use in its PC sales. Direct Wholesale represented to ICE that it had good and merchantable title. Direct Wholesale also represented that it was an authorized distributor of Microsoft products.

On 31 January 1994, Microsoft commenced this action by filing its Complaint against Grey Computer, ICE and their respective principals, among others. In its original complaint Microsoft alleged copyright infringement, trademark infringement, false designation of origin and unfair competition arising out of the Defendants' purported sale of counterfeit copies of Microsoft's software products. On 1 February 1994, Microsoft personnel accompanied the U.S. Marshal Service as it executed a Writ of Seizure and Impound issued by this Court against Grey and ICE. Consequently, Microsoft obtained information indicating that Grey and ICE were involved in unauthorized distribution of counterfeit versions of Microsoft MS-DOS and Windows software products. Such information included a recently arrived shipment of approximately 1,000 units of alleged counterfeit Microsoft software products from Direct Wholesale. The information also included business records of Grey and ICE which confirmed that Direct Wholesale was the source of supply for the seized units of unauthorized Microsoft software products.

On 2 February 1994, Microsoft filed its First Amended Complaint adding Direct Wholesale as a party defendant and obtained a Supplemental Writ of Seizure and Impound against Direct Wholesale. On 4 February 1994, the U.S. Marshal, accompanied by Microsoft's attorneys, seized a box of eighteen diskettes containing Microsoft Windows software and along with various business records from Direct Wholesale. The records suggested that Direct Wholesale distributed counterfeit Microsoft software products nationally, as well as to Grey and ICE. The records, some of which were cryptically coded, also indicated that Direct Wholesale purchased and distributed unauthorized Microsoft software products in an unusual and suspicious manner. The seizures eventually revealed that Direct Wholesale purchased and distributed approximately 45,848 units of counterfeit Microsoft software products. Thereafter Microsoft filed another amended complaint adding Direct Wholesale's sole shareholders and officers, Dewitt Williams and Timothy Mazoch, as party defendants.

Microsoft subsequently examined about 1,000 units of the seized software. The examination confirmed Microsoft's suspicions that the software products were unauthorized and counterfeit reproductions of Microsoft software products. ICE and Grey, among others, filed crossclaims and a third-party complaint against Direct Wholesale. Microsoft settled its dispute with ICE, Grey, Adieba Hijazi, Bilal Hijazi, Hiatham Hijazi, Husim Hijazi, Intelligent Data Systems, Inc. and Nasser Faraj. Accordingly, the Court entered separate stipulated permanent injunctions against each of these defendants.

Based on information it gathered during the seizures and other relevant information, Microsoft moved for summary judgment against Direct Wholesale, Williams and Mazoch on its claims of copyright and trademark infringement, unauthorized distribution, false designation of origin and unfair competition. On 25 September 1995, the Court heard oral argument regarding Microsoft's and ICE's motions for summary judgment.³ Despite notice, Defendants chose not to attend the hearing. For the reasons set forth more fully below the Court will issue a written order granting Microsoft's and ICE's motions for summary judgment as to their third-party complaint. The Court will also grant Microsoft's request for a permanent injunction and will order the impounded counterfeit software products delivered to Microsoft for destruction.

II.

Summary judgment is appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). The moving party bears the burden of demonstrating the absence of any factual issues. While the Court must construe all facts and reasonable inferences drawn therefrom in the non-movant's favor, the mere existence of a scintilla of evidence will not defeat a motion for summary judgment. Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corporation, 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). The opposing party must provide the Court with specific facts establishing a genuine issue for trial. Anderson, 477 U.S. at 252, 106 S.Ct. at 2512. For the reasons set forth below and in open court on the record, the Court will issue an order granting both motions for summary judgment.

III.

Microsoft urges that this is a clear cut case of copyright and trademark infringement. Microsoft alleges Defendants distributed counterfeit goods, bearing Microsoft's marks. Microsoft asserts that Defendants distributed poor quality copies of its copyrighted works and deceived consumers.

Defendants urge that they were innocent infringers. Williams and Mazoch posit that they conducted Direct Wholesale's business according to the practices and procedures they learned while working as salesmen/brokers in the computer software field.

A. Copyright Infringement

To establish copyright infringement Microsoft had to show that it owned the copyrights at issue and that Defendants "encroached upon one of the exclusive rights they conferred." Avtec Systems, Inc. v. Peiffer, 21 F.3d 568, 571 (4th Cir.1994) (citing 17 U.S.C. § 501(a); Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 660 (4th...