Lessons from a long-running dispute 2 min read
The most recent decision regarding the six-year intellectual property dispute between Microsoft Corporation and computer retailer and wholesaler CPL serves as a warning about the importance of obtaining all appropriate licences when installing third party software.
Key takeaways
- In Microsoft Corporation v CPL Notting Hill Pty Ltd (No 7) [2022] FedCFamC2G 590, Microsoft was only successful in establishing its case for unauthorised reproduction under section 36(1) of the Copyright Act 1968 (Cth) (the Copyright Act). The remainder of its claims for copyright infringement for supply and authorisation, breach of the Australian Consumer Law (the ACL) and trade mark infringement were dismissed.
- This decision highlights that businesses should take care to ensure that they have secured all appropriate licences when installing third party software on devices intended for sale.
Overview
In February 2019, the Federal Court of Australia ordered a retrial of the proceeding between Microsoft and CPL, whereby a judge of the then named Federal Circuit Court awarded over $2.6 million in compensatory and additional damages to Microsoft for copyright and trade mark infringement. On remittal, Justice Baird of the Federal Circuit Court and Family Court dismissed the entirety of Microsoft's case, save for one element of its copyright infringement claim.
Background
The applicants (referred to collectively as Microsoft) own copyright in various versions of computer programs comprising the Windows operating system, including Windows 7. Microsoft is also the registered owner and authorised user of trade marks for the words MICROSOFT and WINDOWS, as well as the Windows Device logo (the Microsoft trade marks).
The first respondent, CPL, is a retailer of computers and parts, and builds and sells new computers that are sometimes pre-installed with a Microsoft Windows operating system, including Windows 7.
CPL admitted that from July 2015 to January 2016, it custom built and supplied to order to end users 30 new computers pre-installed with Windows 7. Each of those 30 computers affixed a loose certificate of authenticity (COA), (that is, a COA not packaged together – in the same packaging – with media containing a copy of Windows 7 for installation). Microsoft intended the COAs for use with refurbished computers, and alleged that CPL's above conduct infringed copyright in Windows 7 by making unauthorised reproductions (infringement under s36(1)); supplying infringing articles (infringement under s 38); and authorising infringement by end users of new computers supplied with Windows 7 pre-installed, on which COAs were affixed (infringement under s36(1)).
While Microsoft's main case against CPL was for copyright infringement, it also alleged that CPL contravened s18 of the ACL and infringed its trade marks. Microsoft sought declarations, permanent injunctions, compensatory and additional damages.
The Federal Circuit Court and Family Court's decision
Microsoft successfully established its claim for copyright infringement under s36(1) of the Copyright Act against CPL for reproduction by pre-installation. Justice Baird awarded compensatory damages under s115(2) of the Copyright Act for the 30 instances of copyright infringement. The remainder of Microsoft's case – ie copyright infringement under s 38 and 36(1) of the Copyright Act for supply and authorisation – failed, as well as its claim for contravention of the ACL and trade mark infringement.
The copyright case
Microsoft's claim against CPL for unauthorised reproduction by the 30 instances of pre-installation of Windows 7 turned on whether the reproduction occurred without Microsoft's licence. Having regard to Microsoft's licensing and distribution structure, Justice Baird found that the loose COAs used by CPL in the 30 new computers were supplied to it under an exclusive refurbisher agreement between a Refurbisher Company and Microsoft. As such, the 30 instances of installation of Windows 7 by CPL did not have the benefit of a system builder licence.
Microsoft's case for infringement under s38 of the Copyright Act failed because it did not establish that CPL knew, or ought to have known, that the process of pre-installation of Windows 7 Pro on the 30 new computers and subsequent sale amounted to an infringement of copyright. Similarly, Microsoft's case for authorising infringement under s36(1) of the Copyright Act also failed, as Microsoft had sole control over activation, and in the 30 relevant instances, Microsoft, not CPL, activated the end user's copy of Windows 7.
The ACL case
Microsoft's ACL claim alleged that CPL expressly or impliedly represented 'Computer Software Representations' to purchasers and 'COA Representations' by the sale of loose COAs for Windows 7. Microsoft alleged that CPL's conduct represented to a purchaser that they were:
- licensed to use the installed Windows 7 on their computer; and
- licensed by CPL to apply the loose COA to a computer system, and to install, activate and use Windows 7 associated with the loose COAs and product keys.
Microsoft alleged that these representations were untrue and thus in contravention of s18 of the ACL.
Microsoft's ACL claim failed. Justice Baird considered that no user was misled or deceived, or likely to be misled or deceived, by the alleged representations. The user acquired a genuine copy of Windows 7, which Microsoft permitted them to use without activation. To the extent a purchaser sought activation, Microsoft activated their copy of Windows 7.
The trade mark case
Microsoft's trade mark claim alleged that CPL applied trade marks or marks deceptively similar or substantially identical to Microsoft's trade marks 'to items' without its consent. CPL successfully made out a defence to trade mark infringement under s123 of the Trade Marks Act 1995 (Cth). Justice Baird held that the affixing of the COA labels to the 30 computers signified a trade connection between Microsoft and the Windows software (not between Microsoft and the computers). Because Microsoft had itself affixed its trade marks to the Windows software, CPL was entitled to use the trade marks to refer to that software.
Actions you can take now
- If you are concerned about potential infringement of third-party IP, take steps to investigate the matter and seek legal advice.