Microsoft Corporation v Ling & Ors

Limited software licences may lawfully restrict transfer of certificates of authenticity, software media and documentation to a complete licensed bundle. Such restrictions do not automatically infringe competition law, although a particular licensing system may do so on its facts. A party trading in loose or counterfeit software materials may be liable for passing off, trade mark infringement, copyright infringement and authorising or procuring infringement where the materials facilitate unlicensed use. Trade mark exhaustion does not apply where the proprietor has legitimate reasons to oppose further dealings, including preventing royalty-free copying. Summary judgment is appropriate where the evidence shows no real prospect of successfully defending liability.

Microsoft claimed against Digital Now! Limited and three individuals involved in its business. The claim concerned dealings in genuine loose and counterfeit Microsoft certificates of authenticity, software media and related materials. Microsoft alleged passing off, trade mark infringement, copyright infringement, authorisation or procurement of infringement, and entitlement to additional damages.

The defendants disputed the enforceability of Microsoft’s licensing restrictions, relied on competition law and trade mark exhaustion, and denied knowingly dealing in counterfeit goods. Microsoft applied under CPR Part 24 for summary judgment on liability, with damages to be assessed or an account taken.

1. Summary judgment. The defendants had no real prospect of successfully defending the claim, and there was no other compelling reason for a trial. Judgment was therefore entered for Microsoft, with additional damages to be assessed.
2. Licensing restrictions and competition law. The licensing arrangements permitted transfer of the software licence only as a bundle including the software, media, documentation and certificate of authenticity. The defendants’ proposed double-royalty example did not show that the system operated as an unreasonable restraint of trade. The mere enablement of copyright protection through limited licences on agreed terms did not, without more, fall within Articles 81 or 82 of the EC Treaty or sections 2 or 18 of the Competition Act 1998. A specific licensing system could nevertheless raise competition concerns on its facts, but the defendants had advanced no viable case.
3. Counterfeit and loose materials. The evidence, including admissions, documents and test purchases, established that Digital knowingly traded in counterfeit Microsoft products. The evidence also gave the individual defendants no realistic prospect of avoiding responsibility for the company’s conduct or their adoption of it.
4. Passing off and copyright. Following British Telecommunications Plc v One In A Million Ltd [1999] 1 WLR 903 and Norwich Pharmacal Co. v Customs and Excise Commissioners [1974] AC 133, supplying certificates of authenticity which could facilitate passing off constituted issuing instruments of deception. Selling loose certificates and media also authorised or procured infringement where the defendants knew, or had reason to know, that they would facilitate infringement. Counterfeit certificates and copying or scanning materials gave rise to further copyright claims.
5. Trade marks and exhaustion. Use of Microsoft marks on unlicensed, stolen or counterfeit goods infringed section 10 of the Trade Marks Act 1994, including section 10(4)(b). The defendants’ reliance on section 12 failed. As explained in Centrafarm BV v American Home Products Corporation [1978] ECR 1823, the relevant exhaustion principle did not prevent Microsoft imposing conditions designed to prevent proliferation of royalty-free copies. Microsoft had legitimate reasons to oppose further dealings.

Not stated in the judgment.