The opinion of the court was delivered by: John Grady, Senior District Judge
Before the court is Microsoft Corporation's motion for summary judgment. For the following reasons, the motion is granted in part and denied in part.
Plaintiff Microsoft Corporation ("Microsoft") brings this copyright and trademark infringement action against defendants V3 Solutions, Inc. ("V3") and Mike Vaia, alleging the unauthorized distribution of Microsoft software. The undisputed facts are as follows.
Plaintiff and the Copyrights and Trademarks at Issue
Plaintiff Microsoft is a Washington corporation that develops, advertises, markets, distributes, and licenses computer software. [ Page 2]
Its software is distributed in all fifty states and throughout the world.
Microsoft owns valid copyrights in several software programs relevant to this action: Microsoft Office 2000 Professional (Registration Number TX 4-905-936), Microsoft Access 2000 (TX 4-905-950), Microsoft Excel 2000 (TX 4-905-949), Microsoft Outlook 2000 (TX 4-906-019), Microsoft PowerPoint 2000 (TX 4-905-952), Microsoft Publisher 2000 (TX 4-905-937), Microsoft Word 2000 (TX 4-905-951), Microsoft Office 97 (Professional Edition) (TX 4-395-984), Microsoft Access 97 (TX 4-395-639), Microsoft Excel 97 (TX 4-395-640), Microsoft Outlook 97 (TX 4-395-686), Microsoft PowerPoint 97 (TX 4-395-685), and Microsoft Word 97 (TX 4-395-687).*fn1 These copyrights were registered in compliance with the Copyright Revision Act of 1976, 17 U.S.C. § 101 et seq., and Copyright Office regulations. [ Page 3]
Microsoft is also the owner of the following valid registered trademarks: "MICROSOFT" for computer programs and computer programming services (Trademark and Service Mark Registration Number 1,200,236); "MICROSOFT" for computer hardware and software manuals, newsletters, and computer documentation (Trademark Reg. No. 1,256,083); Windows Flag Logo for computers, computer peripherals, and computer programs and manuals sold as a unit (Trademark Reg. No. 1,816,354); "WINDOWS" for computer programs and manuals sold as a unit (Trademark Reg. No. 1,872,264); Colored Windows Logo for computers, computer peripherals, and computer programs and manuals sold as a unit (Trademark Reg. No. 1,815,350); Puzzle Piece Logo for computer programs and instruction manuals sold as a unit (Trademark Reg. No. 1,982,562); "POWERPOINT" for pre-recorded computer programs recorded on magnetic disks (Trademark Reg. No. 1,475,795); "MICROSOFT ACCESS" for computer programs for use with databases and manuals sold as a unit (Trademark Reg. No. 1,741,086); "OUTLOOK" for computer programs, namely programs providing enhanced electronic mail and scheduling capabilities and instructional manuals sold as a unit (Trademark Reg. No. 2,188,125); and "WINDOWS NT" for computer programs, namely operating system programs including an operating environment and [ Page 4]
instructional manuals sold as a unit (Trademark Reg. No. 1,955,219).
Microsoft distributes its software for installation or distribution in the retail chain to end users as a package of components, which includes CD-ROM(s) or diskettes(s), an end-user license agreement ("EULA"), a user's manual, a Certificate of Authenticity, and a registration card. Microsoft does not distribute and has not distributed its software into the retail chain of distribution without these components.
Microsoft operates a discount volume licensing program called the Microsoft Open License Program ("MOLP"). Pursuant to the MOLP, an individual or business can obtain licenses from an authorized Microsoft reseller that entitle the licensee to operate specified Microsoft software at a specified number of computer workstations. Microsoft provides its MOLP customers with a license agreement that designates the type of software a MOLP licensee may obtain and the number of workstations on which the software may be loaded.
MOLP licensees are entitled to participate in Microsoft's World Wide Fulfillment ("WWF") program. Under the WWF program, MOLP licensees can buy CDs containing copies of particular software. The CDs are available at a low price because the MOLP licensees have already paid for their licenses; the CDs simply serve as the means — the specific media — by which they can use the [ Page 5]
licenses. The WWF program was developed for customers' convenience as an easy way to install licensed software and obtain back-up copies. MOLP licensees are entitled to "fulfill" their license up to the number of workstations specified in the license. When ordering CDs from the World Wide Fulfillment Center, the buyer uses a Volume License Number obtained when the license was purchased. Institutions typically do not want many WWF CDs. Microsoft provides those institutions with just the number of CDs they need in order to install and operate their systems; this could be just a few CDs for hundreds of users. The WWF CDs as well as the CD case liners bear a legend stating that they are not for retail distribution.
Defendants and the Allegedly Infringing Activity
Defendant V3 is an Illinois corporation that sells and distributes computer hardware and software. Defendant Mike Vaia is the sole officer and director of V3 and owns 100% of the corporation. Over time, V3 has employed a varying small number of employees totaling no more than four or five. Vaia personally manages the day-to-day operations of V3 and has primary responsibility for its software acquisitions. During the time period relevant to the complaint, V3 conducted business out of [ Page 6]
Vaia's home in Wood Dale, Illinois, and (since June 2000) from office space in Elmhurst, Illinois.*fn2
From May 1998 to early 1999, prior to owning and operating V3, Vaia was the "technical coordinator" for St. Viator High School ("St. Viator") in Arlington Heights, Illinois. (However, Vaia was not a school employee, nor was he on the school's payroll.) As technical coordinator, Vaia was responsible for maintaining the school's computer network and providing technical support. Until early 2000, Vaia continued a service relationship with St. Viator. During this time, V3 provided technical services to the school, including having a V3 employee on-site at St. Viator who procured technology products for the school.
On October 22, 1999, law enforcement officials from the Wood Dale, Illinois Police Department and the Illinois Attorney General's Office executed a criminal search warrant at Vaia's home in Wood Dale. Police officers seized a substantial number of Microsoft WWF CDs as well as various counterfeit copies of Microsoft software.*fn3 Thus, there are two categories of software [ Page 7]
seized from V3 at issue in this case: (1) the WWF CDs; and (2) counterfeit software.
Microsoft alleges that in the three years prior to the filing of its complaint, defendants were involved in a "large-scale" distribution of WWF CDs, which Microsoft considers to be infringing. Microsoft states that in September 1999, it obtained information that Vaia was ordering excessive quantities of Microsoft software through the WWF program.
According to Microsoft, the software orders were placed by Vaia in the name of St. Viator High School. St. Viator had anywhere from 80 (St. Viator's estimate) to 150 (Microsoft's estimate) computers. Vaia had registered St. Viator in Microsoft's MOLP for three licenses that allowed St. Viator to install a total of 750 units of software on St. Viator's workstations. One license, issued May 13, 1999, was for 150 units of Microsoft Office 97 (Professional Edition). Another license for 100 units of the same product was issued on May 25, 1999. The third license, for 500 units of Microsoft Office 2000 Professional, was issued on July 16, 1999.
The first time software was ordered in St. Viator's name (with Vaia as the contact person listed on the invoice), 400 WWF CDs [ Page 8]
containing Microsoft Office 97 (Professional Edition) were ordered. Microsoft contends that Vaia continued to order "excessive" quantities of software through St. Viator's licenses, totaling at least 17,121 units of software. Vaia was the only person at V3 who was responsible for obtaining software through the WWF program.
While Vaia admits that he obtained a large number of Microsoft WWF CDs and that the CDs were not for St. Viator, he claims that Microsoft erred in that Vaia's software orders for V3 were mistakenly associated with those of St. Viator. Vaia's explanation is that the licenses obtained through the MOLP were really for V3 and not for any particular customer of V3, but were incorrectly labeled as "being owned by the St. Viator school." (Defendants' Response to Plaintiff's Statement of Material Facts, ¶¶ 52-57, 61, 62, 69; Declaration of Michael Vaia, ¶ 11.) He states that "[a]ttempts were made by V3 to have the name on the licenses changed to properly reflect ownership by V3 Solutions," although he does not describe these "attempts." (Id.) Vaia states that V3 used the licenses to purchase WWF CDs from Microsoft-authorized distributors and resold the CDs to other resellers or "brokers" and not end users. V3 bought the WWF CDs for about $15 each and resold them to other resellers for between $50 and $60 each. V3's gross [ Page 9]
revenue for distributing the approximately 17,121 units of Microsoft software was $887,264.25.
Microsoft maintains that the error that Vaia asserts took place was not possible because when software is ordered through the WWF program, the required authorization number must be provided in order to confirm that the party ordering the software has a license for it. According to Microsoft, Vaia must have provided the license number for St. Viator when he ordered the software; otherwise, he would not have been able to obtain the software. Vaia himself did not have a license that would allow him to obtain WWF CDS.
At the time Vaia was a technology consultant to St. Viator, the school possessed at most two copies of the Microsoft Office 97 (Professional Edition) CD. Today, St. Viator has approximately 200 personal computers (excluding Macintosh computers), and over the past year the school has acquired 230 additional licenses for Microsoft Office. St. Viator currently has only one CD-ROM each of Microsoft Office 95, Microsoft Office 97, Microsoft Office XP, and three or four CDs of Microsoft Office 2000 Professional. [ Page 10]
Software Seized During the Execution of the Search Warrant
According to Microsoft, "large quantities of counterfeit and/or infringing Microsoft Software CDs were found" at Vaia's residence (out of which he was conducting V3's business) when the search warrant was executed, (Plaintiff's Statement of Material Facts, ¶ 92.) However, Microsoft fails to specify exactly how many counterfeit copies (as opposed to the WWF CDs, which Microsoft contends are "infringing") were found. Regarding the number of units seized that were actually identified as counterfeit, Microsoft submits the declaration of Tamara Sellers, a Microsoft employee specializing in the detection of software piracy. Sellers states:
On December 9, 1999, at the Wood Dale Police
Department, in Wood Dale, Illinois, I examined
Microsoft software that, based on representations
from officers of the Wood Dale Police Department,
had been seized from the residence of Mike Vaia
during the execution of a search warrant on or
about October 22, 1999. found that the software
provided to me for analysis included: twenty-one
units of counterfeit Microsoft Office 97
Professional Edition ("Office Pro 97") software
components, one unit of counterfeit Microsoft
Office Pro 97 software, and one hundred
counterfeit Microsoft Office Pro 97 End User
License Agreements ("EULAs").
(Appendix in Support of Microsoft's Motion for Summary Judgment, App. 3, Declaration of Tamara Sellers, ¶ 15.) Several things are unclear from a review of this paragraph: how much software was [ Page 11]
actually seized; whether Sellers was "provided" with all of the seized software (and if not, how much of it she was provided with); what the distinction is between Office Pro 97 software "components" versus "software"; which "components" were counterfeit; and how Sellers came to the conclusion that the components, software, and EULAs were counterfeit.
Vaia testified that in order to determine whether software is counterfeit, one would have to open the software and thoroughly inspect it. Still, said Vaia, V3 trains its employees about the risks of counterfeit software and instructs them to take precautions to avoid acquiring counterfeit software. Vaia stated that V3 acquired small quantities of counterfeit software on occasion and would either send it back to the vendor or keep it for reference purposes in a box marked "Counterfeit" or "Do Not Resell."
Vaia stated that he would sometimes refer to Microsoft's piracy web site in order to determine whether certain software was counterfeit. In addition, he would rely on industry word-of-mouth and past experience to avoid working with vendors who had sold counterfeit products. Another factor that defendants used to determine "good" sources for software included the perceived genuineness of samples V3 received, but the primary considerations [ Page 12]
for choosing software suppliers were price and availability of certain titles. Other than the WWF CDs discussed supra, defendants did not acquire software from Microsoft-authorized distributors because of price. Vaia described those distributors' prices as "too close to retail." Vaia admitted that in investigating suppliers, sometimes suppliers were not as forthcoming as he would like. In addition, some of the vendors from which defendants bought software did not always provide invoices and appeared to be lax in recordkeeping. (Appendix in Support of Microsoft's Motion for Summary Judgment, App. 4, Transcript of Deposition of Michael Vaia.)
After the search warrant was executed, defendants began "actively searching" for new suppliers for Microsoft products. On March 9, 2000, V3 received a warning letter from Microsoft stating that "Microsoft has received a report that you may have distributed illegal and/or unlicensed Microsoft software products." (Id., Ex. 12.) The letter did not describe any specifics.
Other Counterfeit Software
On March 6, 2000, an investigator hired by Microsoft ordered two units of Microsoft Office 97 (Professional Edition) and two units of Microsoft Office 2000 Professional from V3. On March 10, the investigator received a package containing the software, opened [ Page 13]
the package and inspected its contents, and then repackaged and shipped the software to Microsoft. (Id., App. 10, Declaration of Robert Holmes.) Microsoft analyzed the software it received from the investigator and determined that it was counterfeit. (Id., App. 3, Declaration of Tamara Sellers, ¶¶ 16-18.)
On March 14, 2001, another investigator hired by Microsoft ordered two units of Microsoft Office 97 (Professional Edition) from V3. The investigator received the software on March 15, opened it and labeled the software, and then shipped the software to Microsoft. Sellers examined this ...