Eric Lundgren, a Southern California man built a sizable business out of recycling electronic waste. He is now headed to federal prison for 15 months after a federal appeals court ruled against his claim that the restore disks that he made to extend computers’ lives had no financial value. They said that he had infringed Microsoft Corp. for $700,000.
The judge’s ruling was upheld that each disc Eric Lundgren made had a value of $25, even though the software they contained could be downloaded free and the disks could only be used on computers with a valid Microsoft license. The court initially granted him an emergency stay of his prison sentence but reverted to the original 15-month sentence and $50,000 fine without hearing oral arguments.
Lundgren, 33 is a renowned innovator in the field of electronic waste and uses discarded parts to construct things like an electric car. That car outdistanced a Tesla on a single charge. He also built the first electronic hybrid recycling facility in the US which turns discarded electronics into functional devices.
“This is a difficult sentencing,” 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.” Eric Lundgren lived in China before he launched his company IT Asset Partners.
He learned about the stream of electronic waste and found ways to send cheap parts to the US to keep electronics running. One such project is what got him in trouble. He manufactured thousands of restore disks. These are disks supplied by computer makers as a way for users to restore Windows software to a hard drive if it crashes.
The computer owners normally lose the disks and even though everything can be downloaded free of cost, the people were hesitant to do that and simply threw out their computers to buy new ones. 28,000 of these disks were made and shipped to a broker in Florida.
The plan was to sell the disks to computer refurbishings shops for 25 cents each. This would save them time to make the disks themselves. But, the shipment was seized by US Customs officers in 2012 and they were never sold. The Florida broker, Robert Wolff, called Eric Lundgren and offered to buy the disks himself but it was part of a government sting operation.
Woldd sent $3,400 to Lundgren and both of them were charged with conspiracy to traffic counterfeit goods and criminal copyright infringement. Wolff made a plea deal and only got six months of home arrest. Lundgren pleaded guilty but kept arguing that the disks had no value so they were not harming anyone.
No computer manufacturers including Microsoft sell restore disks. They give them for free and the software is free to download for those who have a license. Lundgren said he was just making those disks available for them in case they needed them again.
The disks were initially valued at $299 each but a Microsoft letter to Hurley and a Microsoft expert witness reduced the value of the of the discs to $25. But both the letter and the expert were pricing a disc that came with a Microsoft license. “These sales of counterfeit operating systems displaced Microsoft’s potential sales of genuine operating systems,” Microsoft lawyer Bonnie MacNaughton wrote to the judge. But Lundgren’s discs had no license; they were intended for computers that already had licenses.
Glenn Weadock, a former expert witness for the government in its antitrust case against Microsoft, was asked: “In your opinion, without a code, either product key or COA [certificate of authenticity], what is the value of these reinstallation discs?”
“Zero or near zero,” Weadock said. Why would anybody pay for one? Lundgren’s lawyer asked. “There is a convenience factor associated with them,” Weadock said. Hurley still decided that the restore disks had a value of $700,000 and that qualified Lundgren for a 15-month prison sentence along with $50,000 fine. The judge disregarded Weadock’s testimony.
“I don’t think anybody in that courtroom understood what a restore disc was,” Lundgren said. A three-judge panel of the 11th Circuit deferred to Hurley in his judgment that Weadock was not credible, and that “while experts on both sides may have identified differences in functionality in the discs, [Hurley] did not clearly err in finding them substantially equivalent.”
Lundgren said that the court had set a precedent for software makers to pursue criminal cases against people looking to extend the lifespans of their devices. “I got in the way of their agenda,” Lundgren said, “this profit model that’s way more profitable than I could ever be.”
Lundgren said he wasn’t sure when he would be surrendering. He said prosecutors in Miami told him he could have a couple of weeks to put his financial affairs in order, including plans for his company of more than 100 employees. “But I was told if I got loud in the media, they’d come pick me up,” Lundgren said. “If you want to take my liberty, I’m going to get loud.”