The U.S. Court of Appeals for the Second Circuit has now held that even though Microsoft Corporation was entitled to summary judgment on its copyright infringement claims against an alleged counterfeiter, Island Software & Computer Services, a decision to grant the software giant $240,000 in statutory damages on grounds that the infringer acted "willfully" was inappropriate. Island Software & Computer Services v. Microsoft, Case No. 04-07744-cv (2nd Cir. June 28, 2005) (Calabresi, J.).
Island, a small software retailer, sold an alleged counterfeit copy of Windows software products to a Microsoft anti-piracy investigator. Microsoft sent Island a cease-and-desist letter. Subsequently, Island sought a declaration of non-infringement of Microsoft’s trademarks and copyrights, and Microsoft filed counterclaims for copyright and trademark infringement under the Copyright Act and the Lanham Act, respectively.
The district court granted Microsoft summary judgment on its copyright and trademark infringement claims and issued an injunction against Island. Based on statutory constraints and "Island’s behavior [which the district court found] amounted to reckless disregard or willful blindness," the court also ordered $240,000 in damages be paid to Microsoft. Based on the evidence on the record, the Second Circuit affirmed the court’s summary judgment order as to infringement. However, the Second Circuit vacated all remedies awarded to Microsoft and remanded for further proceedings.
In order to prove willfulness under the Copyright Act the plaintiff must show the defendant was actually aware of the infringing activity, or the defendant’s actions were the result of "reckless disregard" for, or "willful blindness" to, the copyright-holder’s rights. Microsoft proffered testimony that Island’s owner, Michael Brunner, was suspicious of his supplier’s credibility as a legitimate provider of Microsoft software due to its inconsistent price fluctuations of merchandise; that Island’s owner had once received an anonymous call from a customer complaining about counterfeit merchandise but failed to investigate the matter; and that none of the products sold by Island were inspected for authenticity. The Second Circuit reasoned that although this might be enough circumstantial evidence to find willfulness, at the summary judgment stage all inferences must be drawn in favor of the non-moving party, Island.
The Second Circuit reasoned a jury could find other reasons existed for Brunner’s lamentation over his supplier’s price fluctuations or the lack of an investigation of an anonymous customer complaint could be discredited by a reasonable merchant. Moreover, the court noted a jury could find that hiring a person with the expertise to inspect all products for authenticity might be "beyond what could be expected of small companies. Thus, the case was remanded for further proceedings on the issue of willfulness.
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