A California man who built a sizable business out of recycling electronic waste is headed to federal prison for 15 months after a federal appeals court in Miami rejected his claim that the restore disks he made to extend the lives of computers had no financial value, instead ruling that he had infringed Microsofts products to the tune of $700,000.
The appeals court upheld a federal district judges ruling that the disks made by Eric Lundgren to restore Microsoft operating systems had a value of $25 apiece, even though they could be downloaded free and could be used only on computers with a valid Microsoft license. The U.S. Court of Appeals for the 11th Circuit initially granted Lundgren an emergency stay of his prison sentence, shortly before he was to surrender, but then affirmed his original 15-month sentence and $50,000 fine without hearing oral argument in a ruling issued April 11.
Lundgren, 33, has become a renowned innovator in the field of e-waste, using discarded parts to construct things such as an electric car, which far outdistanced a Tesla in a test on one charge. He built the first electronic hybrid recycling facility in the United States, which turns discarded cellphones and other electronics into functional devices, slowing the stream of harmful chemicals and metals into landfills and the environment. His California-based company processes more than 41 million pounds of e-waste each year and counts IBM, Motorola and Sprint among its clients.
This is a difficult sentencing, Senior U.S. District Judge Daniel T.K. Hurley told him last year, because I credit everything you are telling me, you are a very remarkable person.
Before he launched his company, IT Asset Partners, Lundgren lived in China, learning about the stream of e-waste and finding ways to send cheap parts to America to keep electronics running. One of his projects was to manufacture thousands of restore disks, usually supplied by computer-makers as a way for users to restore Windows to a hard drive if it crashes or must be wiped. The disks can be used only on a computer that already has a license for the Windows operating system, and the license transfers with the computer for its full life span. But computer owners often lose or throw out the disks, and though the operating system can be downloaded free on a licensed computer, Lundgren realized that many people didnt feel competent to do that, and were simply throwing out their computers and buying new ones. ... Initially, federal prosecutors valued the disks at $299 each, the cost of a brand-new Windows operating system, and Lundgrens indictment claimed he had cost Microsoft $8.3 million in lost sales. By the time of sentencing, a Microsoft letter to Hurley and a Microsoft expert witness had reduced the value of the disks to $25 apiece, stating that was what Microsoft charged refurbishers for such disks.
But both the letter and the expert were pricing a disk that came with a Microsoft license. These sales of counterfeit operating systems, Microsoft lawyer Bonnie MacNaughton wrote to the judge, displaced Microsofts potential sales of genuine operating systems. But Lundgrens disks had no licenses and were intended for computers that already had licenses. .... Still, Hurley decided Lundgrens 28,000 restore disks had a value of $700,000, and that dollar amount qualified Lundgren for a 15-month term and a $50,000 fine. ... Randall Newman, Lundgrens lawyer on the appeal, said there was no basis to seek a rehearing from the full 11th Circuit. Lundgren said an appeal to the Supreme Court would be a costly long shot.
But he said the court had set a precedent for Microsoft and other software-makers to pursue criminal cases against those seeking to extend the life span of computers. I got in the way of their agenda, Lundgren said, this profit model thats way more profitable than I could ever be.
