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The way to hell (prison) is paved with good intentions

Can I take something that’s free and then sell it?

Eric Lundgren, one of the “pioneers and biggest enthusiasts of e-recycling”, (as Washigton Post describes him), a man who devoted his life and business to the renewal and re-use of discarded electronics, has been sued to the Florida Court by Microsoft, claiming lost profits and copyright infringements. He duplicated 28,000 disks with the Windows operating system and planned to sell them – but without the installation keys.
The verdict was delivered few weeks ago. Miami based court sentenced Lundgren to $ 50,000 fine and 15 months in prison. Is this an unjust struggle of a corporation against a small man, or is there more to this story?

This text is not an attempt to evaluate the legal aspect of the verdict. It is an attempt to explain the context and logic behind all three sides’ reasoning (Microsoft, Lundgren and the Court).

Lundgren’s statement after the verdict was delivered (“If I had just written ‘Eric’s Restore Disc’ on there, it would have been fine“) actually explains this whole case.

Microsoft grants all its users the right to download Windows from the Internet for free, for the purposes of reinstalling their computers. These installations are publicly available on Microsoft’s website. All that’s needed is the activation key that comes along with the originally purchased OEM license (OEM = Original Equipment Manufacturer – a license that comes exclusively with the new computer and is non-transferable, it “lives” while the PC with which it came lives, and it “dies” when the computer dies).
The second option available to computer customers is to order or download so-called “recovery” disks (media to restore the operating system of the computer to the original factory state) from the computer manufacturer’s website. Such media are also, of course, free.

And that’s it. It’s not the simplest thing in the world, but it is possible. Here we come to the second part of this story: refurbished computers. When a company disposes of older, used computers, it usually sells these computers to a refurbishing company. This company then refreshes the computers, replaces some of their components with the newer ones, makes them re-functional for less demanding tasks or use. Now, this is where previously mentioned OEM licenses comes back into plot: It’s clear that this refurbished computer, if originally purchased with a legitimate OEM license, still has this license for Windows operating system that originally came with it (except in case of replacing the motherboard, because of Microsoft definition that the motherboard is what defines a new computer). The user who buys such a refurbished computer can get the installation free of charge (as described above), but Microsoft offers another option to the refurbishing companies: to buy legitimate recovery disks along with activation keys (in case the original ones were lost) for $ 25 apiece. This allows the refurbishers to offer a low-cost solution to their customers to simplify the Windows installation and activation process and provide them with a physical media and a key that they can store for possible reuse.
Lundgren, as he stated himself, was intending to sell the installation he had made only to the companies who had refurbished computers that had a legally purchased OEM license, so his customers, or their users, were entitled to free download and installation of the Windows operating system. And then he decided to simplify this process, so he downloaded the free, publicly available Windows installation (without a key) from the Internet and made 28,000 copies.

By his logic, there is nothing controversial there, as he has used publicly available software from the internet and by duplicating it, he wanted to make it available to the users who were already entitled to it on the grounds of valid OEM licenses supplied with their refurbished computers. Additionally, Lundgren claimed that no such disk was actually offered on the market and that the entire project was non-profit, i.e. aimed at extending the lifetime of a second-hand computers, thereby indirectly reducing the amount of electronic waste.

By Microsoft’s logic, Lundgren has caused damage to Microsoft in the following two ways:
• Lost Profits – Because refurbishers didn’t order 28,000 Microsoft’s recovery disks at $ 25 each. Microsoft considered $ 20 to be potential Lundgren’s profit per disc, so he claimed 75% of that amount (420,000 USD) for lost profits.

• Copyright Infringement. The 28.000 disks produced in the Chinese factory were visually identical to Microsoft’s or Computer manufacturer’s original media. They had logos, names and other registered trademarks of these manufacturers.

The court rejected Microsoft’s claim for lost profits because Lundgren’s media were never actually released for sale, but he was found guilty for copyright infringement and sentenced to $ 50,000 fine and a 15-month prison sentence (which is even less than the US federal sentencing guidelines in such cases).
As the judge said, this was not easy verdict to deliver, because it is quite obvious that Lundgren is by no means a criminal or a computer pirate, and he did not do this to gain any financial benefit for himself. However, the verdict, such as as it is, is probably based on the ancient legal principle (originating from Roman law): “Ignorantia legis non excusat” (ignorance of the law does not justify its violation).

That is why the Lundgren’s statement quoted earlier in this article is spot-on. If the disks copied in China had no logos and registered trademarks printed on them – no harm done.
At the end of this story, the only remaining question is the old one: Justice or law? There is no equality sign between these two, because justice is a universal principle and law (always) among other things, reflects the legislator’s interest. That is why there Is no controversy in this verdict, except with its moral aspect, where it certainly leaves a bitter taste in one’s mouth. But, it is not over yet, since the verdict is not final. Federal appeals court has granted an emergency stay of the sentence, giving Lundgren another chance to make his argument that the whole thing was a misunderstanding. We will watch the appeals process with sincere interest, especially having in mind that the US justice system functions under the precedent system and it is highly probable that any future similar cases will be treated the same as this one.

About Danko Selak

Danko Selak is the Licensing & IT Asset Management Consultant for Perpetuum Mobile d.o.o.