Case analysis

Computer Software Copyright Case

Keith Straitmann owned a small computer store named The Computer Shop in Cedarburg, Wisconsin, one of many such businesses in small-town rural America. He custom built inexpensive personal computers for small businesses and individuals in Cedarburg, and had a clientele that was interested primarily in low cost personal computer systems. Most of the personal computers sold by The Computer Shop retailed for only $500-600, complete with a monitor, a keyboard, and a mouse (the more expensive systems have an LCD monitor, while the cheaper systems have a CRT monitor). The personal computers were sold with only Microsoft Windows XP and Microsoft Office XP installed on them, and did not come with operator's manuals or other software.

The Computer Shop sells only six to fifteen personal computers a month, and cannot afford to advertise either in the local newspaper, the Yellow Pages, or a local radio station, and has only a basic Internet site. The cost of a legitimate copy of Microsoft Windows XP can add anywhere from $80-160 to the wholesale cost of a personal computer, and the cost of a legitimate copy of Microsoft Office XP can add at least $125 to the wholesale cost of a personal computer. Since the local market will not bear a higher cost (thanks to low end personal computers being available from Dell by mail order), The Computer Shop provides the personal computers they sell with Windows XP and Office XP preinstalled, but without any documentation or discs.

Even with these cost-cutting measures, The Computer Shop was not making a profit, and Mr. Straitmann sold the business to you six months ago for the cost of the computers in inventory. You previously operated a computer store in Illinois, and buy in larger quantities from a hardware vender in China who sells you the personal computers with Windows XP and Office XP preinstalled and with (you assume) Microsoft licensed CD's of the software for each personal computer. You have pointed out to several of Mr. Straitmann's customers who returned to The Computer Store with software problems that they don't have a Microsoft Product ID Code that would allow you to reinstall the software on their personal computers. On at least one such personal computer that has been so returned, it is unclear whether it was sold before or after you bought The Computer Store. This morning, you were served with a complaint naming The Computer Store and Mr. Straitmann as defendants in U.S. District Court in Milwaukee in a lawsuit filed on behalf of Microsoft for software piracy.

What are the potential issues for you in connection with the lawsuit? What would your first steps be? How would you attempt to resolve the issue, keeping in mind that you cannot afford to hire an expensive law firm to defend the litigation against Microsoft.

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