Microsoft Corp. v. Ion Technologies Corp.

• Decision Date: 24 January 2007
• Docket Number: Civ. No. 05-1935 (JNE/SRN).
• Citation: 484 F.Supp.2d 955
• Court: U.S. District Court — District of Minnesota
• Parties: MICROSOFT CORPORATION, Plaintiff, v. ION TECHNOLOGIES CORPORATION, The World Online Communications Corporation, and Paul Martin, Defendants and Counter-Plaintiffs, v. Microsoft Corporation, Reginald Hinton, Randy Bradley, and Bradley, Andrew, Christopher & Kaye, Counter-Defendants.

484 F.Supp.2d 955

MICROSOFT CORPORATION, Plaintiff, v. ION TECHNOLOGIES CORPORATION, The World Online Communications Corporation, and Paul Martin, Defendants and Counter-Plaintiffs, v. Microsoft Corporation, Reginald Hinton, Randy Bradley, and Bradley, Andrew, Christopher & Kaye, Counter-Defendants.

Civ. No. 05-1935 (JNE/SRN).

United States District Court, D. Minnesota.

January 24, 2007.

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Roy M. Bartlett, Esq., Covington & Burling, and Catherine Ahlin-Halverson, Esq., Maslon Edelman Borman & Brand, LLP, for Microsoft Corporation, Randy Bradley, and Bradley, Andrew, Christopher & Kaye.

Bruce H. Little, Esq., Lindquist & Vennum, P.L.L.P., Minneapolis, MN, for Ion Technologies Corporation, The World Online Communications Corporation, and Paul Martin.

Reginald Hinton did not appear.

ORDER

ERICKSEN, District Judge.

This is an action by Microsoft Corporation to recover damages arising from and to enjoin alleged violations of the Anticounterfeiting Amendments Act of 2004, 18 U.S.C. § 2318 (2000 & Supp. IV 2004) (amended 2006), by Ion Technologies Corporation (Ion), The World Online Communications Corporation (World Online), and Paul Martin. Microsoft also seeks to recover damages arising from Ion's and Martin's alleged breaches of a settlement agreement entered into in October 2004. Ion, World Online, and Martin assert counterclaims against Microsoft for abuse of process¹; against Reginald Hinton, Randy Bradley, and Bradley, Andrew, Christopher & Kaye (BACK) for conversion and civil conspiracy²; and against Hinton for breach of common law duty of loyalty. The case is before the Court on Bradley and BACK's motion for summary judgment and on Microsoft's motion for partial summary judgment.³ Bradley and BACK assert that the claims for conversion and civil conspiracy should be dismissed. Microsoft asserts that it is entitled to summary judgment on its claims against Ion and Martin for violation of section 2318 and breach of contract. For the reasons set forth below, the Court dismisses the claims against Hinton, Bradley, and BACK, and grants in part and denies in part Microsoft's motion.

I. BACKGROUND

Microsoft develops, advertises, markets, distributes, and licenses software. Microsoft packages and distributes software with Certificates of Authenticity (COAs), which help end-users verify that they have received genuine Microsoft software. Ion is a software distributor that is owned by World Online. Martin is the president and chief executive officer of both Ion and World Online. Hinton is a former employee of Ion. Bradley is a private investigator who does business as BACK.

In 2001, Microsoft commenced an action (2001 Action) against Ion and Martin for copyright infringement, trademark infringement, false designation of origin, deceptive trade practices, and unfair competition. In 2003, the Court concluded that Ion and Martin were liable to Microsoft on these claims. Microsoft Corp. v. Ion Techs. Corp., Civ. No. 01-1769, 2003 WL 21356084, at *6 (D.Minn. May 30, 2003). On October 22, 2004, Microsoft, Ion, and Martin reached a settlement. As part of the settlement, Ion and Martin agreed not to sell stand-alone COAs.⁴ Ion and Martin also agreed to make payments to Microsoft. They have made no such payments.

During the two months following the settlement, Ion continued to sell standalone COAs. On December 23, 2004, the Anti-counterfeiting Amendments Act of 2004 took effect. Under the Act, it is unlawful to knowingly traffic in illicit COAs. 18 U.S.C. § 2318. From December 27, 2004, to January 17, 2005, Ion made at least nine shipments of stand-alone COAs. Invoices associated with these shipments are dated no later than December 22, 2004. Microsoft contends that Ion backdated at least some of the invoices. Ion disputes Microsoft's contention.

In early 2005, Microsoft learned of an advertisement by Ion for stand-alone COAs on a website, pricesignal.com. In May 2005, Microsoft retained Bradley and BACK to attempt to purchase stand-alone COAs from Ion. Bradley and BACK attempted to purchase stand-alone COAs from Ion via pricesignal.com, but they did not receive a response. Bradley and BACK then telephoned Ion in an attempt to purchase stand-alone COAs.

On May 24, 2005, Bradley telephoned Ion and spoke to Hinton. Bradley asked to purchase stand-alone COAs. Hinton responded that the sale of stand-alone COAs was illegal. Nevertheless, Hinton ultimately agreed to sell stand-alone COAs to Bradley. Hinton insisted that Bradley make payment to Hinton personally, that the sale remain confidential, and that the sale not be disclosed to Ion. After sending payment to an address supplied by Hinton, Bradley received ten stand-alone COAs. Hinton obtained the COAs from Ion's inventory, but he did not pass any proceeds of the transaction to Ion or Martin. In July 2005, Bradley purchased twelve stand-alone COAs from Hinton under similar circumstances. The next month, Microsoft commenced this action.

II. DISCUSSION

Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R.Civ.P. 56(c). The moving party "bears the initial responsibility of informing the district court of the basis for its motion," and must identify "those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the moving party satisfies its burden, Rule 56(e) requires the party opposing the motion to respond by submitting evidentiary materials that designate "specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). In determining whether summary judgment is appropriate, a court must look at the record and any inferences to be drawn from it in the light most favorable to the party opposing the motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

A. Microsoft's motion

1. Section 2318

a. Ion

Microsoft first contends that it is entitled to summary judgment on the issue of whether Ion violated 18 U.S.C. § 2318 by making at least nine shipments of standalone COAs from December 27, 2004, to January 17, 2005. Under section 2318, it is illegal, in certain circumstances,⁵ to knowingly traffic in an "illicit label affixed to, enclosing, or accompanying, or designed to be affixed to, enclose, or accompany" a copy of a computer program. 18 U.S.C. § 2318(a)(1)(B). An illicit label is "a genuine certificate, licensing document, registration card, or similar labeling component" that is used by the copyright owner to verify that a copy of a computer program is neither counterfeit nor infringing on any copyright and that is, without the copyright owner's authorization, distributed or intended for distribution not in connection with the copy of the computer program to which the label was intended to be affixed by the copyright owner. Id. § 2318(b)(4). The term "traffic" means "to transport, transfer, or otherwise dispose of, to another, as consideration for anything of value or to make or obtain control of with intent to so transport, transfer or dispose of." Id. § 2318(b)(2). A copyright owner who is injured, or is threatened with injury, by a violation of section 2318(a) may bring a civil action. Id. § 2318(f).

Here, it is undisputed that Microsoft owns the copyrights in the programs associated with the COAs shipped by Ion from December 27, 2004, to January 17, 2005; that the COAs are illicit labels; that Ion knew of the Anti-counterfeiting Amendments Act of 2004 on the Act's effective date; that Ion received payment for the COAs; and that Ion shipped the COAs after the Act's effective date. Ion argues that it did not violate the Act because the sales were complete before December 23, 2004, regardless of the shipping dates. The Court rejects Ion's argument. Even if Ion took the orders before the Act's effective date, the Act unambiguously prohibited Ion's shipment of the illicit labels.⁶ See id. § 2318(b)(2); cf. Restatement (Second) of Contracts § 264 cmt. a (1981). Viewed in the light most favorable to Ion, the record reveals that Ion violated the Act by shipping standalone COAs from December 27, 2004, to January 17, 2005. The Court therefore grants Microsoft's motion insofar as it seeks summary judgment on the issue of Ion's liability for these shipments.

b. Martin

Microsoft next argues that it is entitled to summary judgment on the issue of whether Martin is liable for Ion's violations of the Act. To establish Martin's liability, Microsoft relies on the standards for vicarious liability that apply to copyright infringement. See Pinkham v. Sara Lee Corp., 983 F.2d 824, 834 (8th Cir.1992). Vicarious copyright liability has been described as an "outgrowth" of respondeat superior. Gordon v. Nextel Commc'ns, 345 F.3d 922, 925 (6th Cir.2003); Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 261-62 (9th Cir.1996). Vicarious copyright liability exists where a defendant has (1) the right and ability to supervise the infringing activity, and (2) an obvious and direct financial interest in the copyrighted materials' exploitation. Pinkham, 983 F.2d at 834. It does not require the defendant's knowledge of the infringing activity. Cass County Music Co. v. C.H.L.R., Inc., 88 F.3d 635, 638 (8th Cir. 1996); see Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 125 S.Ct. 2764, 2776 n. 9, 162 L.Ed.2d 781 (2005). Similarly, "the state of mind of the copyright infringer is of no consequence to liability." Cass County Music, 88 F.3d at 637. Conversely, liability under section 2318 arises from "kno...