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Microsoft Corp. v. AGA Solutions

March 12, 2007

MICROSOFT CORPORATION, A WASHINGTON CORPORATION, PLAINTIFF,
v.
AGA SOLUTIONS, INC., A NEW YORK CORPORATION, D/B/A/ ADVANCED SOFTWARE SOLUTIONS AND ADVANCED COMPUTER SOLUTIONS; MITCHELL S. ACKERMAN, A/K/A/SCOTT SIMON, WANTAMANSION, AND MEGAHERTZ932, AN INDIVIDUAL; AND LEE K. ACKERMAN, A/K/A/ PASSPORT 2002, AN INDIVIDUAL; DEFENDANTS.



The opinion of the court was delivered by: Hurley, Senior District Judge

MEMORANDUM OF DECISION & ORDER

Plaintiff, Microsoft Corporation, ("Plaintiff" or "Microsoft") commenced this lawsuit asserting various causes of action premised on Defendants alleged distribution of counterfeit or unlicensed software and components. Presently before the Court are two motions. One motion is by Defendants Mitchell S. Ackerman ("Ackerman") and AGA Solutions, Inc. ("Solutions") to dismiss the third (Lanham Act), fifth (New York Deceptive Trade Practices Act), eighth (unjust enrichment) and ninth (accounting) causes of action in the First Amended Complaint. The second motion is by Defendant Lee K. Ackerman ("Lee") to dismiss all claims asserted against her.*fn1 For the reasons set forth below, the motions to dismiss are GRANTED as to the eighth*fn2 and ninth cause of action but are otherwise DENIED.

Background

The following allegations are taken from the First Amended Complaint ("FAC" or complaint).

Microsoft develops, advertises, markets, distributes and licenses a number of computer programs. These programs are recorded on magnetic diskettes and CD-ROMs and are packaged and distributed with associated proprietary materials such as user's guides, manuals and end user license agreements. The software programs are distributed with Certificates of Authenticity and/or Certificate of Authenticity Labels (referred to as "COAs" or "COALs") which are manufactured with security features to make duplication difficult. The COAs help end-users verify they have genuine Microsoft software. [FAC ¶¶10-11.] Microsoft specifically alleges that it holds copyrights for the following software and associated user's reference manuals, user's guides, and screen displays: Microsoft Windows XP Professional, Microsoft Windows XP Professional x64 Edition, and Microsoft Windows XP Home, Microsoft Windows 2000 Professional, Microsoft Windows 98, Microsoft Windows 2003 Server, Microsoft Windows 2000 Server, Microsoft Windows NT Workstation 4.0, suites of software programs known as Microsoft Office 2003 (and associated programs), suites of software program known as Microsoft Office XP (and associated programs), suites of software programs known as Microsoft Office 2000 (and associated programs), Microsoft Office 97 Professional Edition, Microsoft Exchange Server 2003 Enterprise, Microsoft SQL Server 2000, Microsoft Office FrontPage 2003, Microsoft One Note 2003, Microsoft Project 2003, Microsoft Project 2002, Microsoft Publisher 2002, Microsoft Visio 2003 Professional, Microsoft Visual Studio .NET Enterprise Architect 2003, Microsoft Business Contact Manager and it is the sole owner and licensor thereof. [FAC ¶¶ 12-31; 54.] In addition, Microsoft has registered trademarks and service marks for, inter alia, Microsoft, Windows, Windows flag logo, Colored Windows Logo, Powerpoint, and Outlook. [FAC ¶32.]

Ackerman and Lee are husband and wife. Ackerman is a director, officer and shareholder of Solutions. According to the Complaint, Ackerman and Lee both personally participated in and/or had the right and ability to supervise, direct and control the wrongful conduct alleged. [FAC ¶ 5-6.]

Through the use of two websites and at least three internet action accounts, Defendants advertised, distributed and sold counterfeit, tampered and infringing software and components covered by Microsoft's copyrights and trademarks. This activity took place at least through November 2005 and the operation was run from Ackerman's and Lee's residence. [FAC ¶ 36.] Ackerman, also known as Scott Simon, registered the accounts "wantamansion" and "megahertz932" with the on-line auction service Ebay and used these accounts to sell illegal software through December 2004 and January 2005. Lee registered an account with Ebay and posted illegal software under the name "passport2002" until at least March 2002. [FAC ¶¶ 34-35.]

Beginning about May 2002, Microsoft began to receive complaints from individuals and businesses about software they had purchased from Defendants. Upon analyzing the software purchased by these third parties, as well as test purchases made by private investigators hired by Microsoft, Microsoft determined that much of the software was counterfeit, had security features that had been tampered with and/or were unlicensed or infringing. [FAC ¶¶ 36-41.] Also, in July 2005, United States Custom Agents seized a shipment of 50 units of Microsoft Windows XP Professional that entered the United States from China and whose intended recipient was Ackerman using an alias. A sample unit analyzed by Microsoft confirmed that the software, COA Label and manual were counterfeit. [FAC ¶¶ 42-44.]

In the Fall of 2005, approximately 2,500 units of counterfeit, tampered and/ or infringing Microsoft software were seized from Ackerman's and Lee's joint residence pursuant to a search warrant. Apparently, the basement of the residence had been set up to function as an office, with five work stations, a shrink wrap machine and various shipping materials. Also seized from the residence were COA labels, Product Key labels, End User License Agreements and other software related components covered by Microsoft's copyrights and bearing Microsoft's registered trademarks or imitations thereof. [FAC ¶ 45-47.]

At least through December 2005, Defendants also maintained a website that prominently displayed a large number of Microsoft products and represented that Defendants sell only genuine Microsoft products. In addition, the Website includes photos of a brick store front when in fact the business was operated from Ackerman's and Lee's residence and a private mailbox in Jericho, New York. [FAC ¶¶ 49-51.]

This action was filed on December 13, 2005. The complaint alleges nine causes of action. The first cause of action is for copyright infringement. The second cause of action is for trademark infringement pursuant to 15 U.S.C. § 1114, et seq. The third cause of action is asserted pursuant to 15 U.S.C. § 1125 et seq and is for false designation of origin, false description and false representation of Microsoft packaging. The fourth cause of action is for trafficking in counterfeit labels, illicit labels and counterfeit documentation and packaging in violation of 18 U.S.C. § 2318. The fifth cause of action is for violation of New York State's Deceptive Trade Practices Act, N.Y. Gen. Bus. Law § 349. The sixth, seventh and eighth causes of action assert claims for common law unfair competition, imposition of a constructive trust and unjust enrichment, respectively. The ninth and final cause of action seeks an accounting pursuant to 17 U.S.C. § 504, 15 U.S.C. § 117, and 18 U.S.C. §2318.

Lee has moved to dismiss all causes of action asserted against her on the grounds that they are barred by the three year statute of limitations period applicable to each of the claims and because they fail to sufficiently allege her active involvement in the alleged wrongful acts. Lee, Ackerman and Solutions all move to dismiss the third, fifth, and ninth causes of action as legally insufficient.

DISCUSSION

I. Standard for Motion to Dismiss

The court may not dismiss a complaint under Rule 12(b)(6) unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. King v. Simpson, 189 F.3d 284, 286 (2d Cir. 1999); Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir. 1996). The complaint need only provide "a short and plain statement of the claim showing that the pleader is entitled to relief." Swierkiewicz v. Sorema, 534 U.S. 506, 512 (2002) (quoting Fed. R. Civ. P. 8(a)(2)). Thus, "a plaintiff is required only to give a defendant fair notice of what the claim is and the grounds upon which it rests." Leibowitz v. Cornell Univ., 445 F.3d 586, 591 (2d Cir. 2006). Nonetheless, "a plaintiff's allegations, accepted as true, must be sufficient to establish liability." Amron v. Morgan Stanley Investment Advisors Inc., 464 F.3d 338, 344 (2d Cir. 2006).

In construing a complaint on a Rule 12(b)(6) motion, the Court must accept all factual allegations in the proposed complaint as true and draw all reasonable inferences in favor of the plaintiff. King, 189 F.3d at 287; Jaghory v. New York State Dep't. of Educ., 131 F.3d 326, 329 (2d Cir. 1997). The Court must confine its consideration "to facts stated on the face of the complaint, in documents appended to the complaint or incorporated in the complaint by reference, and to matters of which judicial notice may be ...


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