microsoft vs. global electronic recycling

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COMPLAINT - 1 DWT 27557817v5 0025936-002268

Davis Wright Tremaine LLP LAW OFFICES

1201 Third Avenue, Suite 2200 Seattle, WA 98101-3045

206.622.3150 main · 206.757.7700 fax

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON

AT SEATTLE

MICROSOFT CORPORATION, a Washington corporation, Plaintiff, v. GLOBAL ELECTRONIC RECYCLING, LLC, an Arizona corporation; DANNY L. KIRKPATRICK, an individual; GARY L. KIRKPATRICK, an individual; and JOHN DOES 1 – 10, Defendants.

))))))))))))))

No. 2:15-cv-1461 COMPLAINT FOR DAMAGES

)

Microsoft Corporation (“Microsoft”) files this Complaint against defendants Global

Electronic Recycling, LLC (“GER”), Danny L. Kirkpatrick, Gary L. Kirkpatrick, and John

Does 1 – 10 (collectively, “Defendants”), alleging as follows:

I. INTRODUCTION

1. This is an action for breach of contract, breach of implied covenant of good

faith, negligence in performance of services, negligent supervision, and contributory copyright

infringement (the “Claims”). The Claims arise from the theft of over 70,000 Microsoft Office

2010 software product activation key cards (the “product key cards”) belonging to Microsoft

while the product key cards were entrusted to Defendants and in their custody and control.

Defendants’ failure to secure and protect Microsoft’s product keys cards resulted in the theft,

Case 2:15-cv-01461-BAT Document 1 Filed 09/11/15 of 10

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illegal distribution, and subsequent activation of tens of thousands of copies of pirated and

unlicensed Microsoft Office software worth millions of dollars.

2. As described in greater detail below, Microsoft contracted with GER to perform

certified destruction, recycling, and/or reuse of Microsoft property, including returned, current,

and/or obsolete Microsoft software and associated materials. Under the contract, Microsoft

delivered large volumes of property to GER, including the product key cards, which Microsoft

no longer wished to sell for a variety of reasons. The product key cards contain Office 2010

product activation keys that can be used to activate Office 2010 software. Pursuant to its

contract and related statements of work with Microsoft, GER was required to destroy the

product key cards and to implement and maintain security policies and procedures to secure

them until the destruction was accomplished. GER failed to comply with these contractual

obligations. GER and its principals also failed to exercise reasonable care in the performance

of their services and in supervising the employees entrusted with handling the product key

cards. As a direct and proximate of Defendants’ breaches and failures, the product key cards

were taken from Defendants’ possession and subsequently sold in the black market, enabling

rampant piracy, theft, and unauthorized use of Microsoft software. In addition to their liability

for breach of contract and negligence, GER and its principals are liable for copyright

infringement, under principles of secondary liability, for the unauthorized distribution,

reproduction, and/or use of Microsoft’s copyrighted software.

II. PARTIES

3. Microsoft is a Washington corporation with its principal place of business in

Redmond, Washington. Microsoft develops, markets, distributes, and licenses computer

software, among other products and services.

4. GER is an Arizona corporation based in Phoenix, Arizona, that provides

recycling and disposal services for electronics and associated materials. GER processes,

recycles, and disposes of electronics, such as computer hardware, software, and other computer


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related material. GER contracted with Microsoft to destroy and dispose of Microsoft products,

including Microsoft software and related material such as product key cards.

5. Danny L. Kirkpatrick and Gary L. Kirkpatrick are the owners of GER and are

each executive officers of the company. As such, Danny and Gary Kirkpatrick have the right

and ability to supervise GER’s employees, and hold dominant influence over GER and its

policies, including GER’s policies concerning the security and protection of Microsoft’s

products and material. Danny and Gary Kirkpatrick are therefore subject to liability for the

wrongful conduct set forth below, either directly or under principles of secondary liability.

On information and belief, John Does 1 – 10 include (1) one or more GER employees and/or

agents that stole and illegally distributed the Microsoft Office product key cards valued at

millions of dollars; (2) one or more downstream distributors of the stolen product key cards;

and/or (3) other individuals and/or entities involved in the theft and/or distribution of the

product key cards.

III. JURISDICTION & VENUE

6. The Court has subject matter jurisdiction over Microsoft’s copyright

infringement claim pursuant to 17 U.S.C. § 501 and 28 U.S.C. §§ 1331 and 1338(a). The Court

has supplemental subject matter jurisdiction over Microsoft’s state law claims pursuant to 28

U.S.C. § 1367(a). The Court also has subject matter jurisdiction over this matter pursuant to 28

U.S.C. § 1332(a) because this action is between citizens of different states and the matter in

controversy exceeds $75,000, exclusive of interest and costs.

7. The Court has personal jurisdiction over GER because, under GER’s contract

with Microsoft, GER expressly consented to the jurisdiction of Washington courts and “waived

all defenses of lack of personal jurisdiction.” The Court has personal jurisdiction over GER’s

principals, Danny and Gary Kirkpatrick, because they expressly aimed their conduct at

Washington in that they (1) had actual or constructive knowledge of Microsoft’s intellectual

property rights (including Microsoft’s registered copyrights and Microsoft’s residence in

Washington); (2) acted, at a minimum, with willful blindness to, or in reckless disregard of,


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Microsoft’s rights; and (3) knew of or should have known that their conduct would harm

Microsoft in Washington. See Wash. Shoe Co. v. A-Z Sporting Goods, Inc., 704 F.3d 668 (9th

Cir. 2012).

8. Venue is proper in this Court because GER, under its contract with Microsoft,

consented to venue in the federal courts sitting in King County, and agreed Washington law

would govern this dispute. Venue is also proper in this Court pursuant to 28 U.S.C. § 1400(a)

because Defendants are subject to personal jurisdiction in the Western District of Washington.

See Brayton Purcell LLP v. Recordon & Recordon, 606 F.3d 1124 (9th Cir. 2010).

9. Pursuant to Local Civil Rule 3(d), intra-district assignment to the Seattle

Division is proper because the claims arose in this Division where (a) Microsoft resides, (b) the

injuries giving rise to the suit occurred, and (c) Defendants directed their unlawful conduct.

IV. FACTS COMMON TO ALL CLAIMS

Piracy in the Software Industry

10. Software developers lose billions of dollars in annual revenue from software

piracy, which is the unauthorized and unlawful copying, downloading, and distribution of

copyrighted and trademarked software and related components. Software developers, like

Microsoft, are not the only victims of software piracy. Customers are also victims, as they are

often deceived by distributors of pirated software who go to great lengths to make the software

appear genuine and authorized.

11. Microsoft has implemented a wide range of initiatives to protect its customers

and combat theft of its intellectual property. Relevant here, and among other measures,

Microsoft requires vendors like GER that dispose of Microsoft software and related

components to implement and maintain security procedures at their facilities and to comply

with Microsoft’s Supply Chain Security Compliance Policies and Procedures.

Microsoft’s Relevant Intellectual Property Rights

12. Microsoft develops, advertises, markets, distributes and licenses computer

software products for business, home, and educational use, including a suite of productivity


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software of called Microsoft Office 2010 (“Office 2010”). Office 2010 is available in a number

of versions; each includes certain combinations of products, programs and features. Versions

include Office Professional 2010, Office Home and Business 2010 and Office Home and

Student 2010. Microsoft holds a valid copyright in Office Professional Plus 2010, the most

expansive version of Office 2010. As a result, Microsoft’s copyright in Office Professional

Plus 2010 encompasses all other versions of Office 2010. Microsoft duly and properly

registered its copyright in Office Professional Plus 2010 with the United States Copyright

Office. A true and correct copy of the Registration Certificate for Microsoft Office

Professional Plus 2010, bearing the number TX 7-151-840, is attached as Ex. A.

GER’s Contract to Dispose of and Protect Microsoft Property

13. On July 6, 2009, Microsoft and GER entered into a Materials Handling and

Disposition Agreement (“Agreement”) and an accompanying Statement of Work (“SOW”),

effective through July 5, 2019 (jointly, the “Contract”). See Ex. B (Agreement), Ex. C (SOW),

and Ex. D (Amendment).

14. Under the Contract, GER agreed to dispose of returned, current, and/or obsolete

Microsoft hardware and software (“Microsoft Material”). Specifically, GER promised to

provide “certified destruction and recycling, reuse and or recovery of plastic and metallic

component parts of Microsoft Material.” Ex. C at § 1.A.

15. Recognizing the threat of software piracy, GER agreed to render all intellectual

property associated with the Microsoft Material unusable for its originally intended use,

promised not to resell any Microsoft intellectual property, and further promised not to even

send Microsoft Material to a landfill for disposal. Ex. C at §§ 1.A, 1.D, 1N.

16. GER expressly acknowledged the “impact of pirating and cannibalization of

Microsoft products,” and agreed to securely store Microsoft products and “prevent the slippage

of Microsoft Materials back into the retail sales channel.” Ex. C at § 1N. GER also agreed that

it would “protect all Microsoft Materials against loss or injury while the Microsoft Materials

are under its control and/or its possession,” and specifically promised to “implement and


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maintain security procedures and measures … reasonably sufficient to prevent the theft or

disclosure of Microsoft Materials to any unauthorized persons.” Ex. B at § 4.6(a). GER further

agreed to comply with Microsoft’s Supply Chain Security Compliance Policies and Procedures,

id. § 2.5(b).

17. GER assumed responsibility in the Contract for any loss of Microsoft Materials

while the materials are under the control or possession of GER or its agents. Ex. B at § 4.7;

see id. at § 4.1 (“Vendor holds Microsoft Materials solely for Microsoft’s benefit as bailee.”).

18. The Contract requires GER to fully compensate Microsoft for the loss or

misappropriation of any Microsoft Material. It provides: “In addition to all other remedies

available to Microsoft at law or equity or under this Agreement, if Vendor unlawfully,

improperly, or without prior authorization from Microsoft removes, retains, possesses,

misappropriates, loses, damages or fails to return Microsoft Materials or any other Microsoft

property or Intellectual Property, Vendor will fully compensate Microsoft (at estimated retail

price, or market or replacement value) for that property.” Id. at § 9.6.

19. The prevailing party in an action to enforce any right or remedy under the

Contract is entitled to recover attorneys’ fees, costs and other expenses. Id. at § 13.2.

20. Pursuant to the Contract, Microsoft, its affiliates, or authorized third parties

regularly delivered Microsoft Material to GER, and entrusted GER with the secure handling,

storage, and certified disposal of Microsoft Materials. GER Failed to Secure and Protect

21. In approximately September 2014, detectives with the Phoenix Police

Department contacted Microsoft to advise it of an ongoing police investigation into the theft of

Microsoft Office product key cards from GER and subsequent illegal distribution of those cards

to facilitate the activation of pirated and unlicensed software by unwitting consumers.

22. Microsoft is informed and believes that the investigation has identified a number

of individuals who have stolen and distributed over 70,000 Microsoft Office product key cards.

These product key cards are worth millions of dollars.


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23. Microsoft is informed and believes that one or more GER employees were

involved in the theft and illegal sale of Microsoft Office product key cards while the product

key cards were under GER’s possession or control.

24. Microsoft is further informed and believes that the John Does, including, but not

limited to, the defendants named in the Indictment, sold the product key cards to enable the

activation and use of pirated and unauthorized copies of Microsoft Office software.

V. CAUSES OF ACTION

First Claim: Breach of Contract (Against Defendant GER)

25. GER entered into a valid, binding, and enforceable Contract with Microsoft for

the certified disposal of Microsoft Material.

26. Microsoft satisfied its obligations under the Contract.

27. GER has materially breached its Contract with Microsoft by, among other

things: (1) failing to secure and protect Microsoft Material from theft or loss; (2) failing to

provide the certified disposal of all Microsoft material; ((3) failing to implement and maintain

adequate security measures; and (4) failing to comply with the Microsoft Supply Chain and

Security Compliance Policies and Procedures.

28. Microsoft has suffered damages as a direct and proximate result of GER’s

breach of its contractual duties.

Second Claim: Breach of Implied Covenant of Good Faith (Against Defendant GER)

29. The Contract imposed upon each party an implied covenant of good faith and

fair dealing in its performance. GER had a duty to perform its obligations under the Contract in

a manner faithful to its purpose so that Microsoft could obtain the full benefit of performance.

30. The purpose and intent of the Contract was for GER to securely handle and

dispose of Microsoft products, including software and associated intellectual property. GER

specifically acknowledged the potential impact of the theft or loss of Microsoft property and

owed a good faith duty to take measures to secure and protect all Microsoft Materials.


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31. GER breached its duty of good faith by failing to implement and maintain

adequate security over the Microsoft property with which it was entrusted, thereby frustrating

the purpose of its contract with Microsoft.

32. Microsoft has suffered damages as a direct and proximate result of GER’s

breach of its duty of good faith.

Third Claim: Negligence in Performance of Services (Against Defendant GER, Danny Kirkpatrick and Gary Kirkpatrick)

33. Defendants owe a duty to their clients to use reasonable care in the handling and

safekeeping of the property with which they are entrusted. Specifically, Defendants owed a

duty to Microsoft to implement and maintain security procedures and measures reasonably

designed to prevent the theft/loss of Microsoft property, including product key cards, while

such property was and is under the custody and control of Defendant.

34. As described above, Defendant breached that duty by failing to implement and

maintain appropriate security procedures and measures to prevent the theft/loss of over 70,000

product key cards.

Microsoft has suffered at millions of dollars in actual damages from the rampant piracy

proximately caused by the theft/loss of the product key cards and the foreseeable unauthorized

use of such product key cards to activate unlicensed and pirated software. Microsoft’s damages

are continuing due to additional activations of pirated and unlicensed software with the product

keys. Fourth Claim: Negligent Supervision

(Against Defendants GER, Danny Kirkpatrick and Gary Kirkpatrick)

36. Defendants had a duty to exercise reasonable care to supervise their employees,

and subordinates, and prevent them from stealing Microsoft’s property while entrusted to

Defendants possession or control.

37. On information and belief, one or more of Defendants’ employees and

subordinates acted outside the scope of their employment in stealing and reselling thousands of

Microsoft product keys.


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38. On information and belief, one or more of Defendants’ employees and

subordinates presented a risk of stealing Microsoft product or otherwise harming Microsoft and

Defendants knew or should have known about this risk.

39. Defendants had the ability to control their employees and subordinates and the

necessity and opportunity for such control.

40. On information and belief, Defendants failed to exercise reasonable care in

controlling and supervising one or more of their employees and subordinates from stealing over

70,000 Microsoft product keys from the possession or control of GER.

41. Microsoft has suffered damages as a direct and proximate result of Defendants’

negligence and failed supervision.

Fifth Claim: Contributory Copyright Infringement (Against All Defendants)

42. Microsoft is the sole owner of Microsoft Office 2010 and the corresponding

copyright and Certificate of Registration with the registration number listed above.

43. Microsoft is informed and believes that one or more John Doe Defendants

caused and materially contributed to the infringement of Microsoft’s copyright by stealing

and/or subsequently distributing over 70,000 Microsoft Office product key cards that were used

to activate pirated and unlicensed copies of Microsoft Office 2010 software.

44. The failure of Defendants GER, Danny Kirkpatrick and Gary Kirkpatrick to

secure and protect the Microsoft product key cards enabled, facilitated, and contributed to the

unauthorized copying and/or distribution of Microsoft Office. At a minimum, Defendants

GER, Danny Kirkpatrick and Gary Kirkpatrick acted with willful blindness to, or in reckless

disregard of, Microsoft’s registered copyright.

45. Defendant GER is liable for the infringing acts of its employee(s) under the

doctrine of respondeat superior. The Kirkpatrick Defendants are likewise liable for the

infringement attributable to GER or its employees and/or agents because the Kirkpatricks, as

GER’s co-owners and executive officers, hold dominant influence over the company and


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responsibility over the inadequate security that ultimately enabled the infringement.

Accordingly, Defendants GER, Danny Kirkpatrick and Gary Kirkpatrick are, at minimum,

secondarily liable for the infringement of Microsoft’s copyrights.

46. As a result of Defendants wrongful conduct, Microsoft is entitled to recover its

actual damages from the infringement. Alternatively, Microsoft is entitled to statutory damages

under 17 U.S.C. § 504(c). The Court should enhance the award of statutory damages in

accordance with 17 U.S.C. § 504(c)(2).

VI. PRAYER FOR RELIEF

Microsoft respectfully requests that the Court:

A. Enter judgment in Microsoft’s favor on all claims;

B. Require Defendants to pay all general, special, actual, and statutory damages

that Microsoft sustained, or will sustain, as a result of Defendants’ unlawful acts, and that such

damages be enhanced as provided by 17 U.S.C. § 504(c);

C. Order Defendants to pay to Microsoft’ the costs and reasonable attorneys’ fees

incurred in prosecuting this action as a prevailing party under the Contract, and as provided for

under 17 U.S.C. § 505; and

D. Grant Microsoft such other, further and additional relief as the Court deems just

and equitable.

DATED this 11th day of September 2015.

DAVIS WRIGHT TREMAINE LLP Attorneys for Microsoft Corporation By s/Bonnie MacNaughton

Bonnie MacNaughton, WSBA #36110 John A. Goldmark, WSBA #40980 Angela Galloway, WSBA #45330 1201 Third Avenue, Suite 2200 Seattle, WA 98101-3045 Telephone: 206-622-3150 Fax: 206-757-7700 E-mail: [email protected] [email protected] [email protected]


Jacob Demmitt

microsoft vs. global electronic recycling

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