Microsoft sues Toronto company for $250,000

In its latest move against software piracy, Microsoft Corp. is suing an Ontario company that it alleges has been selling and distributing counterfeit Windows certificate of authenticity labels.

According to a statement of claim filed in the Federal Court here, the software giant has claimed

Mississauga, Ont.-based Raeco Industries Ltd. and its sole officer and director, Ross Borge, infringed the federal Trade-mark Act.

According to a court document, a copy of the claim was served to Borge Dec. 20. When CDN asked Borge about the allegations, he said “What’s this in regards to?” Then he refused further comment.

In the action Microsoft is demanding a court order that the defendants have infringed Microsoft’s trademark, an injunction restraining the officers, directors and employees of Raeco from passing off their wares as Microsoft’s, and punitive damages of $250,000.

Microsoft alleges Raeco operates a Mississauga, Ont. Company called, which it claims imported, offered for sale, sold and distributed counterfeit COA labels as genuine ones for the Windows operating system, according to the Dec. 1 statement of claim.

A COA helps users identify genuine Microsoft software and includes bar codes to track product and anti-counterfeiting features such as holograms, according the company’s Web site. Labels are one component of licensed Microsoft software and are not sold separately.

In its detailed claim, Microsoft alleges its marks were used in a way that depreciates their value; directed public attention to counterfeit COA labels causing confusion between them and genuine Microsoft products; passed off labels as Microsoft’s; and used a false description to mislead the public of the character, quality or mode of manufacture, or production of the products.

The claims have yet to be proven in a court of law.

The statement also claims that the defendants should know of Micrososft’s rights because Borge allegedly executed a settlement in 2002 when he was with another Ontario company that he would not import or sell counterfeit Microsoft programs or documents or infringe its trademarks of any company he ran.

It also alleges that in 2003 he consented to a judgment forbidding Borge and two other persons from infringing Microsoft marks.

Mark Mitchell, partner at Toronto law firm Lang Michener LLP said it is relatively unusual in an intellectual property case like this for the plaintiff to seek damages.

“Normally the intension or the manner in which the defendant acts doesn’t really matter,” said Mitchell. “If there’s been an infringement of rights then the damages are either the damages you’ve suffered by reason of your lost sales or the profits that have been gained by the infringer.”

Diana Piquette, Microsoft Canada’s license compliance manager, said in the past the majority of legal actions against resellers have been for “hard disk loading” or when a system builder sells a PC with unlicensed software pre-installed. Piquette added that recently there’s been an increase in the creation and distribution of counterfeit COA labels as if they are licenses.

“Microsoft wanted to take this to court as well as make an announcement to educate our resellers to show them that we’re out there, we’re aware of what’s going on and we’re protecting honest resellers by keeping on top of all different types of piracy that are there,” said Piquette in an interview with CDN last week following a press release issued by Microsoft Canada. “We’re also there to protect our innocent customers.”

Frankie Wong, president of Toronto-based solution provider Elco Systems Inc. said he is pleased to see Microsoft is working to weed out illegitimate software practices, but added stiffer penalties are needed to keep companies from re-offending.  Microsoft could sue a company for $65 million, he argued, but at the end of the day, the company walks.

“This is good news that Microsoft is initiating this kind of action,” he added, “and I think they need to do more,”

Piquette said the majority of leads that Microsoft receives on alleged illegal activity come from customer and reseller calls to its hotline. Microsoft also has a team of internal and external people that make test purchases at reseller sites across the country. If Microsoft finds a reseller engaging in an illegal activity, Microsoft gets a cease and desist order. After that, Microsoft follows up with a second visit at which time if the reseller isn’t complying with the order it lays charges.

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Jim Love, Chief Content Officer, IT World Canada

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