Microsoft Corporation v. The Search People Enterprises LTD

• Court: District Court, W.D. Washington
• Decided: January 23, 2025
• Docket: 2:22-cv-01113
• Status: Unknown

Opinion

1 2 3 4

5 6 7 8 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON 9 AT SEATTLE 10 11 MICROSOFT CORPORATION, a CASE NO. 2:22-cv-01113-TL Washington Corporation, 12 ORDER ON MOTION FOR PARTIAL Plaintiff, 13 v. SUMMARY JUDGMENT 14 THE SEARCH PEOPLE ENTERPRISES LTD., a British Columbia, Canada, 15 corporation; MEHTABJIT SINGH TEJA, a/k/a RONNIE TEJA, an individual; and 16 DOES 1-10, 17 Defendants. 18

19 Plaintiff Microsoft Corporation has sued The Search People Enterprises Ltd. (“TSPE”) 20 and its owner, Mehtabjit Singh Teja (a/k/a Ronnie Teja), over their distribution of software 21 product activation keys and tokens. This matter is before the Court on Plaintiff’s Motion for 22 Partial Summary Judgment. Dkt. No. 61. Having reviewed Defendants’ response (Dkt. No. 66), 23 Plaintiff’s reply (Dkt. No. 70), and the relevant record, and having heard oral argument (Dkt. 24 No. 76), the Court GRANTS the motion. 1 I. BACKGROUND 2 Plaintiff develops and licenses computer software programs protected by copyright. Dkt. 3 No. 1 (complaint) ¶¶ 20–22. One method of distribution is through digital downloads on 4 Microsoft.com and other authorized digital vendors. Id. ¶ 20. Because Plaintiff’s software is

5 capable of being installed on an unlimited number of computers, Plaintiff relies on technology 6 tools like product activation keys to protect its software from unauthorized use, counterfeiting, 7 and other misuse. Id. ¶¶ 25–26. A product activation key is a 25-character alphanumeric string 8 generated by Plaintiff and used for activating Plaintiff’s software. Id. ¶¶ 24, 27. A product 9 activation key is not a software license, nor does it constitute authorization from Plaintiff to 10 access or use software without a license. Id. ¶ 26. Plaintiff does not provide product activation 11 keys separate from licensed software, nor does it authorize others to do so. Id. 12 Plaintiff alleges that Defendants distribute Plaintiff’s product activation keys that 13 Defendants obtain on the black market and then falsely advertise and sell to customers as 14 genuine Plaintiff software. Id. ¶¶ 2–3. In numerous pre-suit test purchases, Plaintiff received

15 from Defendants a decoupled key with instructions to download copyright-protected software 16 from a website and use the key to activate it. Id. ¶¶ 31–48. Plaintiff brings claims for 17 contributory copyright infringement (see id. ¶¶ 49–57) as well as various claims under the 18 Lanham Act (see id. ¶¶ 58–87). 19 Both Defendants assert the affirmative defense of the “first sale” doctrine. See Dkt. No. 9 20 (Defendant TPSE’s Answer) at 11; Dkt. No. 18 (Defendant Teja’s Answer) at 11. Plaintiff brings 21 the instant motion for summary judgment on that defense. See Dkt. No. 61. Defendants oppose. 22 See Dkt. No. 66. On January 21, 2025, the Court heard oral argument on the motion. Dkt. 23 No. 76.

24 1 II. LEGAL STANDARD 2 Summary judgment is appropriate where “the movant shows that there is no genuine 3 dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. 4 Civ. P. 56(a). A genuine issue of material fact exists where “the evidence is such that a

5 reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 6 477 U.S. 242, 248 (1986). The inquiry turns on “whether the evidence presents a sufficient 7 disagreement to require submission to a jury or whether it is so one-sided that one party must 8 prevail as a matter of law.” Id. at 251–52. 9 The court must draw all justifiable inferences in favor of the non-movant. Id. at 255. The 10 court does not make credibility determinations or weigh evidence at this stage. Munden v. 11 Stewart Title Guar. Co., 8 F.4th 1040, 1044 (9th Cir. 2021); see also Lujan v. Nat’l Wildlife 12 Fed’n, 497 U.S. 871, 888 (1990) (“[W]here the facts specifically averred by [the non-moving] 13 party contradict facts specifically averred by the movant, the [summary judgment] motion must 14 be denied.”).

15 If the non-movant bears the burden of proof at trial, the movant only needs to show an 16 absence of evidence to support the non-movant’s case. In re Oracle Corp. Sec. Litig., 627 F.3d 17 376, 387 (9th Cir. 2010) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). Once such a 18 showing is made, the burden shifts to the non-movant to show more than the mere existence of a 19 scintilla of evidence in support of its case—the party must show sufficient evidence that a jury 20 could reasonably find for the non-movant. Id. (citing Anderson, 477 U.S. at 252). Even if the 21 non-movant does not have the burden of proof at trial, it must nonetheless show that a genuine 22 issue of material fact exists by presenting evidence in its favor. F.T.C. v. Stefanchik, 559 F.3d 23 924, 929–30 (9th Cir. 2009) (affirming summary judgment for plaintiff where defendants failed

24 to show significantly probative evidence to dispute plaintiff’s evidence). 1 In short, the Federal Rules of Civil Procedure “mandate[] the entry of summary 2 judgment, after adequate time for discovery and upon motion, against a party who fails to make a 3 showing sufficient to establish the existence of an element essential to that party’s case, and on 4 which that party will bear the burden of proof at trial.” Celotex Corp., 477 U.S. at 322 (citing

5 Fed. R. Civ. P. 56(c)). 6 III. DISCUSSION 7 A. Copyright Act 8 The federal Copyright Act grants “the owner of copyright under this title” certain 9 “exclusive rights,” including the right of reproduction (“to reproduce the copyrighted work in 10 copies or phonorecords”) and the right of distribution (“to distribute copies or phonorecords of 11 the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or 12 lending”). 17 U.S.C. § 106(1), (3). “Copies” are “material objects, other than phonorecords, in 13 which a work is fixed by any method now known or later developed, and from which the work 14 can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a

15 machine or device.” 17 U.S.C. § 101. “A work is ‘fixed’ in a tangible medium of expression 16 when its embodiment in a copy or phonorecord, by or under the authority of the author, is 17 sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise 18 communicated for a period of more than transitory duration.” Id. 19 However, the Copyright Act also limits the rights of copyright holders. Relevant to the 20 instant motion, the so-called “first sale” doctrine, codified at 17 U.S.C. § 106(3), limits the right 21 of distribution by providing that “the owner of a particular copy or phonorecord lawfully made 22 under [the Act], or any person authorized by such owner, is entitled, without the authority of the 23 copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.” 17

24 U.S.C. § 109(a). In other words, “once the copyright owner places a copyrighted item in the 1 stream of commerce . . . , he has exhausted his exclusive statutory right to control its 2 distribution.” UMG Recordings, Inc. v. Augusto, 628 F.3d 1175, 1179 (9th Cir. 2011) (quoting 3 Quality King Distribs., Inc. v. L’anza Rsch. Int’l, Inc., 523 U.S. 135, 152 (1998)). 4 Finally, “[i]n the context of a summary judgment motion in a software case, . . . the party

5 asserting a first sale defense must come forward with evidence sufficient for a jury to find lawful 6 acquisition of title, through purchase or otherwise, to genuine copies of the copyrighted 7 software.” Adobe Sys. Inc. v. Christenson, 809 F.3d 1071, 1079 (9th Cir. 2015). “To the extent 8 that the copyright holder claims that the alleged infringer could not acquire title or ownership 9 because the software was never sold, only licensed, the burden shifts back to the copyright 10 holder to establish such a license or the absence of a sale.” Id. 11 B. Application 12 Plaintiff argues that the first sale doctrine does not apply to this matter for three reasons: 13 (1) the doctrine does not apply to Defendants’ sale of product keys, which are not copies of a 14 copyrightable work (see Dkt. No. 61 at 13–15); (2) the doctrine does not apply because

15 downloads of software constitute reproduction, rather than redistribution, of Plaintiff’s software 16 (see id. at 15–17); and (3) the doctrine does not apply to digital copies of software (see id. at 11– 17 13). In response, Defendants argue that Plaintiff’s contributory copyright claim fails if the 18 product keys are not copyrightable (see Dkt. No. 66 at 12–14) and that this Court should not rule 19 that the doctrine is inapplicable to digital copies (see id. at 14–16).1 The Court finds that the first 20 sale doctrine is inapplicable as a matter of law. 21

1 Defendants also argue that Plaintiff’s motion fails because Plaintiff does not offer any admissible evidence to 22 support its motion. See Dkt. No. 66 at 6–12. But Defendants misapprehend the Parties’ respective burdens on this motion. As noted above, see supra Section II, if the non-movant bears the burden of proof at trial, the movant only 23 needs to show an absence of evidence to support the non-movant’s case. In re Oracle Corp., 627 F.3d at 387 (citing Celotex Corp., 477 U.S. at 323). “The defendant bears the burden of proof on an affirmative defense, in the same 24 way that the plaintiff bears the burden of proof on a claim for relief.” Perez v. Gordon & Wong Law Grp., P.C., No. C11-3323, 2012 WL 1029425, at *7 (N.D. Cal. Mar. 26, 2012) (citing Kanne v. Conn. Gen. Life Ins. Co., 867 1 First, the Court agrees with Plaintiff that the first sale doctrine does not apply to the sale 2 of product keys because they are not copyrightable works. See Dkt. No. 61 at 13–15. At most, 3 Plaintiff’s product keys—the material being redistributed—appear to be a “technological 4 measure” that controls access to the software, which are the actual copyrighted works. Dkt. No. 1

5 ¶¶ 20–30; 17 U.S.C. § 1201(a)(3)(B); see Microsoft Corp. v. Pronet Cyber Techs., Inc., No. C08- 6 434, 2008 WL 11517434, at *5 (E.D. Va. Dec. 5, 2008) (concluding that “Microsoft’s 7 requirement of a valid Product Key is a technological measure that effectively controls the works 8 at issue, which are protected by valid copyrights.”); Microsoft Corp. v. A&S Elecs., Inc., 9 No. C15-3570, 2017 WL 976005, at *1 (N.D. Cal. Mar. 14, 2017) (“[T]he parties have agreed 10 that, because Microsoft product keys are not copyrightable works, and therefore the sale of cards 11 containing the product keys would not be a sale of a copyrighted work, the first sale doctrine 12 does not apply to the alleged sale of such product keys . . . .”). Defendants assert that if the 13 product keys are not copyrightable, then Plaintiff’s claims for copyright infringement fail. See 14 Dkt. No. 66 at 12–14. However, Plaintiff’s claim is for contributory copyright infringement, with

15 the allegedly unlawful sale of the product keys by Defendants contributing to the copyright 16 infringement by their users who ultimately download the software (or the copyrighted work). See 17 Dkt. No. 1 ¶¶ 49–57. 18 19

20 F.2d 489, 492 n.4 (9th Cir. 1988)). Thus, where a plaintiff is moving for summary judgment on an affirmative defense, “plaintiff need not provide any evidence. It may simply point out the absence of evidence from the 21 defendant.” Karen L. Stevenson & James E. Fitzgerald, Rutter Grp. Prac. Guide: Fed. Civ. Proc. Before Trial (Cal. & 9th Cir. ed.) (April 2024 update) § 14:140. Here, Plaintiff is moving for summary judgment on an affirmative defense, and it has pointed out the absence of evidence from Defendants to support that defense (the first sale 22 doctrine). See generally Dkt. No. 61. The burden is thus initially on Defendants to “come forward with evidence sufficient for a jury to find lawful acquisition of title, through purchase or otherwise, to genuine copies of the 23 copyrighted software.” Christenson, 809 F.3d at 1079. However, since the Court finds that the first sale doctrine is inapplicable to this case as a pure matter of law, the 24 Christenson burden-shifting framework does not apply. 1 Second, the Court agrees with Plaintiff that the first sale doctrine does not apply because 2 the download of its software by Defendants’ customers constitutes reproduction, and not 3 redistribution, of a copyrighted work. By the text of the Copyright Act, the doctrine protects “the 4 owner of a particular copy” of a copyrighted work, who is permitted “to sell or otherwise

5 dispose of the possession of that copy.” 17 U.S.C. § 109(a) (emphases added). But when a 6 customer downloads a copy of Plaintiff’s software, they are creating a new copy—in other 7 words, reproducing the software. Dkt. No. 1 ¶¶ 20–21, 24, 27. They are not receiving a 8 “particular copy” from a prior owner; no software is changing hands. These facts put this case 9 outside the ambit of the first sale doctrine, which applies only to the distribution of copyrighted 10 works. See, e.g., Disney Enters., Inc. v. Redbox Automated Retail LLC, No. C17-8655, 2018 WL 11 1942139, at *9 (C.D. Cal. Feb. 20, 2018) (“Because no particular, fixed copy of a copyrighted 12 work yet existed at the time Redbox purchased, or sold, a digital download code, the first sale 13 doctrine is inapplicable to this case.”). 14 Third, there is extra reason for the Court to be cautious here. As Plaintiff points out (see

15 Dkt. No. 61 at 11–13), courts and other authorities have concluded that Section 109 does not 16 apply to the distribution of digital works (separated from hardware) and have declined to extend 17 the doctrine accordingly. See, e.g., Capitol Recs., LLC v. ReDigi Inc., 934 F. Supp. 2d 640, 655 18 (S.D.N.Y. 2013) (“[T]he first sale defense is limited to material items, like records, that the 19 copyright owner put into the stream of commerce.”), aff’d, 910 F.3d 649 (2d Cir. 2018); Redbox 20 Automated Retail, LLC v. Buena Vista Home Ent., Inc., 399 F. Supp. 3d 1018, 1033 (C.D. Cal. 21 2019) (“The first sale doctrine applies to ‘particular’ copies that exist in the material world.”); 2 22 Nimmer on Copyright § 8.13 (2024) (“[T]he digital reach of the first sale doctrine at present is to 23 a particular ‘computer, hard disk, iPod, or other memory device onto which the file was

24 originally downloaded,’ not to the file itself.”). Indeed, in 2001, the Copyright Office 1 recommended to Congress that the first sale doctrine not be extended to the distribution of digital 2 works. See U.S. Copyright Office, Library of Cong., Digital Millennium Copyright Act § 104 3 Report (2001) (“DMCA Report”). The office concluded “that § 109 does not apply to otherwise 4 unauthorized digital transmissions of a copyrighted work, reasoning that such transmissions

5 cause the recipient to obtain a new copy of the work.” Capital Recs., 910 F.3d at 659 (citing 6 DMCA Report at 79–80). This collective understanding appears undisturbed by Congress, or the 7 United States Supreme Court or, indeed, any other authority, making Defendants’ assertion of 8 this defense an extraordinary ask of this Court to apply Section 109 in a novel way. Defendants 9 make policy arguments for such an application (see Dkt. No. 66 at 14–16), but those arguments 10 fail against the statute, caselaw, and congressional inaction. 11 IV. CONCLUSION 12 Accordingly, Plaintiff Microsoft Corporation’s Motion for Partial Summary Judgment 13 (Dkt. No. 61) is GRANTED. 14 Dated this 23rd day of January 2025.

15 A 16 Tana Lin United States District Judge 17

18 19 20 21 22 23 24