The Copyright Act, R.S.C. 1985, c. C-42, sets out the rights afforded to the owner of copyright in a work. Works protected under the Copyright Act include literary works that encompass, among other things, software. The Copyright Act also provides for various remedies for copyright infringement, including statutory damages of between $500 and $20,000 per work infringed in the alternative to compensatory damages and/or profits.

The case Microsoft Corporation v. Cerrelli et al., (2006) F.C. 1509 was heard in the fall of 2006 and the public version of the decision was released on January 16, 2007. It related to the alleged sale by the defendants of counterfeit copies of 25 different Microsoft works. These included such well known programs as Windows 98, Office 97 and Office 2000.

According to Microsoft, the defendants had begun selling counterfeit software at least as early as 1997. Microsoft put the defendants on notice several times in 1997 and 1998. In 1999, the RCMP executed a search warrant against the defendants and seized about 400 software packages, virtually all of which were later determined to be counterfeit. In 2000, the Montreal Police executed a similar search warrant and seized approximately 700 additional software packages. Ultimately, the Crown did not lay charges against the defendants and the software seized by the Montreal Police was returned to the defendants before Microsoft was able to move to prevent its disposal. The defendants claimed that the returned software was thrown in the garbage and was not available to be tested for authenticity.

Mr. Justice Harrington found that the defendants knowingly infringed Microsoft's copyright and that "Mr. Cerrelli deliberately, willfully and knowingly engaged in a course of conduct likely to infringe…." He described Mr. Cerrelli as "a liar and a scofflaw" and the defendants collectively being "caught up in a web of deceit which amply demonstrates their utter disregard for the process of this Court."

In the result, the Court found that the sale of counterfeit copies of Microsoft software by the defendants constituted copyright infringement; that the behavior of Mr. Cerrelli was sufficient to attract personal liability for the infringement; and, in fact, that the defendants' behavior was so egregious that punitive damages were warranted.

The Court considered the appropriate quantum of statutory damages for the infringement of 25 works and determined that an amount of $500 for each work infringed (not for each infringing act), or $12,500 total, would have been grossly out of proportion with the infringement that had been committed. Instead, the Courts determined that the maximum statutory damages of $20,000 per work infringed, or $500,000 total, was appropriate. Having found the defendants' conduct to be outrageous, the Court awarded a further $100,000 against each of Mr. Cerrelli and the two corporate defendants, collectively, in punitive damages.

The Court also issued a permanent injunction against the defendants, prohibiting them from selling any further counterfeit copies of the 25 works. However, the Court declined to extend the injunction to any non-parties to the action. Nor did the Court extend the injunction to other Microsoft software, despite the fact that the Copyright Act specifically contemplates such a "wide injunction" in circumstances where the plaintiff satisfies the court that the defendant will likely infringe copyright in those other works if not so enjoined. One wonders what situation could possibly justify a wide injunction if the facts of this case did not.

In the end, the decision was a major victory for Microsoft, but one that took almost eight years, and undoubtedly significant expenditures, to achieve. The level of statutory damages, and the award of punitive damages, does send a significant message to software counterfeiters, although the behaviour of the defendants certainly exacerbated the damages awarded in this case and it is likely restricted to situations where such behaviour warrants the Court's disapprobation.