How Much is a Restore CD Worth?

How do you put a price on something that is given away for free?

Microsoft LogoThere’s not much doubt or dispute that Eric Lundgren committed copyright infringement and created counterfeit works.

Lundgren, using a factory in China, printed 28,000 restore discs for Microsoft Windows. Each was labeled so that they appeared to be official disc from Dell when, in truth, they were unofficial clones.

His goal with the discs was to sell them to computer repair and refurbishing shops so they could provide the discs to customers purchasing used machines. While this was certainly a business operation, Lundgren was primarily motivated by reducing electronic waste (E-waste), a cause that has been his life’s work for years.

However, U.S. Customs officers seized the shipment of discs and, after a brief sting operation, arrested Lundgren on charges related to criminal copyright infringement and traffic in counterfeit goods.

Now Lundgren will be going to prison for 15 months. Having lost his appeal at the Eleventh Circuit and out of practical appeals, Lundgren has accepted the fact he’s going to prison.

But even though his time in prison seems to be certain, there’s still a tremendous debate about why. According to Lundgren and those who follow his work, he’s going to prison as a martyr for getting in the way of planned obsolescence.

Microsoft, however, paints a picture of Lundgren as not only someone attempting to deceive the public, but to interfere with legitimate programs to refurbish and recycle computers.

The answer, as is usual, lies somewhere in the middle but the cases raises a lot of questions about the value of digital goods, especially how much a copy is worth when it doesn’t come with a license.

Copies vs. Licenses: What IS a Recovery Disc?

Windows 95 LogoOne of the key elements to this story is the distinction between a copy of an application and the license to use it. The copy is the bits and bytes that make up the application, the code of it. The license, on the other hand, is what is required to actually use the software, usually in the form of a key.

Microsoft, like most software companies, has gotten away from selling copies of applications and began selling licenses. On the internet, it’s simply easier to control who can run your software rather than who has a copy of it.

This is obvious when you look at Microsoft Windows recovery discs. They are discs designed to be used by consumers to restore a computer to its original configuration should something go wrong. Whether it’s hard drive failure, corruption or viruses, a restore disc can return your computer to the state it was bought in as long as there are no hardware issues.

To achieve this goal, restore discs have a copy of Microsoft Windows them, but that copy is useless unless activated by providing a key from Microsoft itself. Without that legitimate Windows license, the disc is not useful.

As a result of this, while Lundgren did distribute copies of Microsoft Windows, they weren’t cracked or altered copies. The only way to run them was to buy a license from Microsoft.

From a copyright standpoint, these distinctions might seem like splitting hairs. Lundgren did make unauthorized copies of Microsoft software (including both Windows and the restore disc software) and that is a copyright infringement. It’s just that the infringement was of something not valuable by itself.

The issue is, with criminal copyright law, these distinctions matter a great deal. That’s because the value of the copied not only can determine the severity of the punishment, but whether the infringement is criminal in nature at all.

The Value of a Restore Disc

Donating MoneyWhen the government first began pursuing the case, they valued the discs at $299 each. That amount is significantly more than the full value of even the latest versions of Windows (which none of these were), and claimed that Lundgren cost Microsoft some $8.3 million.

Microsoft, however, argued that a more apt comparison was with their own refurbishment program, which charges $20-$40 per license. The court agreed with that approach and opted to value the discs at $25 apiece, which created the $700,000 figure.

The problem with that, as many have noted, is that Lundgren’s discs are not a replacement for the license, they only replace the physical restore disc. Nothing else.

If you want or need a new restore disc for Windows 7, you can download one now for free from Microsoft. All you need is your key. To that end, Lundgren’s replace the download and burning process, but not the key.

Because of this, expert witness Glenn Weadock, testifying for Lundgren, put the value of the license-less discs at “zero or near zero”. It was simply a tool to help someone avoid having to download and burn a freely-available ISO file.

The value of a restore disc is key to this case. Since the distribution didn’t take place by an electronic means, the retail value of the work needs to have a retail value of more than $1,000 to even be eligible for criminal copyright infringement. With 28,000 discs, that’s an extremely low threshold, even a value of 4 cents per disc would be enough to qualify it.

But it still raises the question: How does one find a retail value of something that, typically, isn’t sold at retail and is often given away for free digitally. That’s exactly the thorny question the court had to wrestle with.

Lundgren had suggested that the value would be closer to $4, which is still more than enough to qualify it for criminal copyright infringement. Even under the sentencing guidelines, which require a value of $2,500, it would only take a value of 9 cents per disc to push it over.

However, the value still plays a role in sentencing. The penalty a first time offender can receive “up to five years” with a great deal of leeway. Fifteen months is one quarter of the maximum, but he may have gotten even less if the value had been ruled to be lower.

To make matters worse, fifteen months is also an amount that’s more than what some of The Pirate Bay’s founders got in Sweden.

While it’s unfair to compare two separate justice systems with different laws, it highlights a point: Criminal copyright infringement is a rarely-used tool, one that’s typically reserved for the most extreme cases. But, while Lundgren’s case is definitely an extreme one, it also isn’t the type of case the law is usually used for or that its designed for.

But that is the story of this case. It’s the story about a counterfeiter and infringer who, because of the nature of his act, forced the courts to ask unknowable questions that, when answered, gave us an uncomfortable outcome.

Bottom Line

Lundgren isn’t some puritanical hero in the fight against E-waste. By making copies of the restore discs and presenting them as Dell’s he did commit copyright infringement and counterfeiting. Whether or not it should be legal wasn’t a question for the court to answer and it came to the correct conclusion.

Likewise, Microsoft isn’t some Captain Planet villain seeking to destroy the earth through planned obsolescence. Not only do they offer their own refurbishment program but they actually argued that the value was lower than what the government tried to say.

However, Lundgren also isn’t the typical defendant we see here. While he would have made a decent profit on the discs, he’s hardly running a mammoth criminal empire and it’s unlikely his counterfeit discs would have done Microsoft significant harm (if any). Without the license keys, he wasn’t replacing any sales. In short, he wasn’t fostering piracy.

Likewise, Microsoft still argued that the value of the discs was far higher than it likely was. The $20-$40 estimate includes a disc with a key, the latter of which Lundgren was not providing or replacing.

Simply put, there are no clean hands here. Both Microsoft and Lundgren did things that paint them in a bad light.

In the end, this case is an example of how the march of technology finds ways to test our copyright laws in strange and unpredictable ways.

While it’s a frustrating outcome, there’s not much doubt that the courts got the law right. Whether or not this should be legal is a separate question and one that will have to wait for another day.

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