Microsoft Corporation v P4 Com Ltd & Ors

The claimant is Microsoft Corporation, which appears by Mr. Simon Malynicz. The defendants are P4 Com Ltd. ('P4') and Dr. Mozaffar Nami, a director and shareholder of P4. They appear by Miss Anna Edwards-Stuart.

There are two applications before me. The first application, dated 12^th December 2006, was issued by both defendants and asks for summary judgment under CPR Part 24 on their counterclaim. In the event, on 16^th January 2007 the defendants indicated that only P4 was pursuing that application. The essential basis of it is that there is no arguable case that P4 was involved in any of the matters of which Microsoft complains. Last week it dawned on the defendants that if P4 is entitled to judgment on that basis on the counterclaim, it follows logically that Microsoft's claim, as at present pleaded against both P4 and Dr. Nami, must also fail. That is because the claim is levelled primarily against P4 and liability is only sought to be attached to Dr. Nami personally on the basis that he was a director of P4 who wrongfully procured it to do the wrongful acts alleged against it. There is, however, no application before me by either defendant for summary judgment on, or for the striking-out, of the claim. I am, nevertheless, asked to take that logical further step if P4 is held entitled to judgment on the counterclaim. Microsoft's position is that it recognises the logic of the point that has so belatedly occurred to the defendants, but asserts that that point will never be reached since P4's summary judgment application deserves to be dismissed.

The second application - one dated 6^th February 2007 - is by Microsoft, asking for permission to amend its Particulars of Claim. The application is responsive to the point which has led to P4's application. I need say little more about it than that Miss Edwards-Stuart indicated that it is not opposed in principle, although the precise formEULAtion of the amendment has not yet been produced. Following the conclusion of the argument on Monday, I asked Mr. Malynicz to have a draft available this morning. The amendment is not aimed at a direct meeting of the fundamental point arising out of P4's application, but does involve a basic re-shaping of Microsoft's case against Dr. Nami personally. If the claim, as at present pleaded, were in principle liable to be struck out, it would, following that amendment, anyway continue against Dr. Nami.

There are important differences of fact between the parties, but I will first summarise the story from Microsoft's perspective, as explained by Christopher Oldknow, an attorney employed by Microsoft Ltd., a subsidiary of Microsoft. Microsoft Ltd. markets Microsoft's products in the United Kingdom and also provides after-sales support and services for those products. Mr. Oldknow is also a physicist and is experienced in analysing purported Microsoft products to ascertain their authenticity or otherwise. Microsoft's claim against both defendants is for copyright and trade mark infringement and passing-off arising out of what it contends are substantial dealings in counterfeit Microsoft software by them.

In November 2003 Microsoft issued proceedings against several defendants referred to in the evidence as 'the Teales'. The claims were against various companies, as well as against certain individuals called Teale. They were in respect of over £6 million worth of allegedly counterfeit and otherwise infringing software. The claims had been preceded by the carrying out of many test purchases by Microsoft which showed some 90 per cent of the products so obtained to be counterfeit or illicit. On 20^th November 2003 Mr. Justice Lewison made injunctive, disclosure and delivery up orders against the defendants in those proceedings. On 24^th February 2004 those defendants submitted to judgment for more than £6 million, and they disclosed to Microsoft when, to whom, and in what quantities counterfeit software had been sold.

Microsoft learnt from that disclosure that an entity called Phase 4 was a trade buyer from one of the Teale entities, namely Isis Distribution Ltd. ("Isis"), one of the defendants in the Teale proceedings. Phase 4 bought quantities of software from Isis over the period April 2002 to June 2003 for onward sale. Microsoft asserts that, whilst there are conflicting estimates of the quantity and value of the software so bought, the documentation shows it to be a high number, and it suggests that disclosure from the defendants, which has not yet taken place, will reveal it to be yet higher.

Microsoft's case is that Phase 4 was, as it still is, the trading name of the first defendant, P4, which was at all material times the operator of a computer store in Harrogate. Its case is that P4's business was and is that of providing computer hardware and software to the public and to other businesses both via the Harrogate store and its two websites - namely, www.phase-4.net, and www.p4com.com. Its further case is that Dr. Nami was at all material times (namely, the period from April 2002 to June 2003) the sole director and shareholder of P4, was also its sole directing mind and will, was personally responsible for directing and procuring all that it did and so is jointly and severally liable with P4 for the infringing activities of which Microsoft complains.

Microsoft's assertions are based on the obtaining from Isis of its invoices to Phase 4, plus its so-called Quickbook accounting package, part of which logs Phase 4's purchases. Microsoft also asserts that this does not represent the entirety of Phase 4's involvement in infringing software. It claims that it is likely that Phase 4 also sourced purported Microsoft products from other outlets. It has recently discovered that in November 2002 Phase 4 also purchased purported Microsoft software from Netcom Distributors Limited, although on 20^th April 2005 Dr. Nami had earlier, and apparently inaccurately, told Microsoft that Phase 4 had merely been "offered" software by Netcom. Dr. Nami there listed three other Phase 4 suppliers in addition to Isis, but disclosure has not yet been provided in respect of the software supplied by them.

Focusing simply on the Isis invoices, Microsoft asserts that it reveals a disturbing picture. They show that Phase 4 was buying software at "too good to be true" prices. As an example, Mr. Oldknow refers to Invoice 8768, dated 5^th February 2003 (in fact, it appears there are two such invoices). This reveals that Phase 4 bought quantities of "Microsoft Office 2000 Pro Lic" for £29 per copy, which Mr. Oldknow suggests is absurdly low for a full professional version of one of Microsoft's headline products - namely, the Office 2000 Professional suite of programs comprising Microsoft Word, Microsoft Excel, Microsoft Outlook, etc. He explains that the royalty rate payable to Microsoft by sellers of the full box retail version (which would be supplied in a glossy box with a certificate of authenticity, a licence, a manual, and a registration card) for Office 2000 Pro was between £379 and £389 during the period 2000 to the end of 2002. £29 represents less than 10 per cent of that rate.

Mr. Oldknow recognises that the £29 price might relate to Original Equipment Manufacturer ("OEM") product - that is, product pre-installed into computers by system builders. Dr. Nami's case is that that was and is Phase 4's primary business. But even in such cases the royalty rate for Office 2000 Professional in 2002 was around £206 and, in 2003, was around £187. The explanation for the lower rate as compared with the rate for a software package sold separately is because the OEM licence is more restrictive: it is not transferable other than with the machine in question, and back-up support is provided by the system builder rather than Microsoft. But even if this is what the £29 was paid for, it was still only some 15 per cent of the royalty rate in respect of authentic OEM product. Microsoft asserts that the defendants, who Mr. Oldknow says claim to be experienced in the computer trade, must have known that what they were buying could not have been genuine licenced product.

The second point that Mr. Oldknow makes about the Isis invoices is that they repeatedly use the abbreviation "LIC", as in the invoices referred to. His experience from other infringement cases has taught him that the word "licence" or the abbreviation "LIC" on invoices generally indicate that the trade was in quantities of stand-alone end user licence agreements ("EULAs") and/or quantities of stand-alone certificates of authenticity ("COAs") for Microsoft software. In either case, so he asserts, that is illegal, and he invites the inference that these defendants were dealing in counterfeit licences. Mr. Oldknow expands upon this by explaining how disclosure following the Teale proceedings has revealed considerable evidence of trade by Isis in counterfeit licences - in particular relating to Office 2000 Professional software. He gives certain examples of that, referring in particular to sales by Isis of counterfeit Office 2000 Professional licences for £29, and says that it follows that the LICs dealt in by Isis were counterfeit. He expands on that by explaining that Microsoft has never produced licence "packs" in respect of Office 2000 Professional. Microsoft provides EULAs in the retail boxes of the product, and in the OEM product, but it was never possible to buy packs of licences in the manner traded by Isis. Its further case is that P4 sold to the public, or to other trade buyers, the counterfeit Microsoft software or licences that it purchased from Isis, although Microsoft has not yet been given disclosure showing what happened to the purchased material.

Correspondence between both sides commenced in April 2005. It is necessary to summarise some of it, since two letters in particular are material to P4's summary judgment application.

On 15^th April 2005 Wragge & Co., Microsoft's solicitors, wrote to the directors of P4 Properties Ltd. It is obscure why they chose to do so. It is a different company from P4, and I shall call it P4P. They asserted that Microsoft had discovered that P4P had dealt in counterfeit or otherwise infringing software as a result of its dealings with Isis during the period April 2002 to June 2003. They invited P4P to negotiate a compromise and sign some enclosed undertakings, and they threatened proceedings if a swift compromise was not reached. They claimed that Microsoft was entitled to damages of some £105,000 for P4P's infringement of its trade marks and copyrights.

On 18^th April 2005, having received that letter, and having no doubt noted the period in respect of which Microsoft was alleging that infringing material had been purchased by P4P, Dr. Nami telephoned Wragge & Co. and spoke to their Miss McNeill. He told her that P4P had nothing to do with Microsoft's complaints. Apparently, its only role was that of the owner of the Harrogate premises. It is accepted that P4P is irrelevant to the story, and following that telephone call it dropped permanently out of Microsoft's sights. According to Miss McNeill's attendance note, however, Dr. Nami further told her that he "traded on his own from around 2002. Then incorporated [P4] trading as Phase 4 - he is a director of this company (same address)".

Pausing there, Miss McNeill's note does not record Dr. Nami as having told her when P4 started so trading. However, since Wragge & Co.'s letter of 15^th April 2005 had been exclusively about infringing activities occurring during the period 2002 to 2003, it is understandable that Wragge & Co. might well have inferred from what Dr. Nami had said that P4 had started trading as Phase 4 during that period. If that was not the position, why did he bring P4 into the story at all?

That conversation resulted in a letter from Wragge & Co., dated 18^th April 2005 to Dr. Nami in which they enclosed a new set of undertakings "to be executed by you as director of [P4] trading as Phase 4 and you in your personal capacity as a previous sole trader under the Phase 4 name". So, Wragge & Co. appeared by that letter to be accepting that Dr. Nami had at some point traded on his own, but that P4 had taken over the business. The further inference is that their understanding was that P4 had so taken it over during the currency of the relevant period because the operative parts of the enclosed documents opened with the words "In consideration of your agreement not to commence legal action against us [that is P4 and Dr. Nami] in respect of the sale of counterfeit Microsoft products listed in para 1 below for the period April 2002 to June 2003, we undertake, acknowledge and represent as set out below ----". So the undertaking proceeded on the basis that P4 had been the relevant trader at least during part of the relevant period. That can only have been based on Wragge & Co.'s understanding of what Dr. Nami had told them.

Dr. Nami replied to that letter on 20^th April 2005, signing it as a director of P4 and referring to the earlier letter of 15 April and the intervening telephone conversation of 18^th April. It appears he had not yet received Wragge & Co.'s letter of 18^th April. He repeated that "The business previously traded as a sole trader under the name Phase 4" (a reference to his own previous activities as a sole trader). He went on to say that "Neither business has ever knowingly infringed any intellectual property rights of your client. We have at all times dealt openly with organisations that have widely advertised themselves as legitimate distributors of Microsoft Products". He said that "notwithstanding our denials, we are very happy to give you an appropriately worded undertaking so as to protect your clients in the future". He also said that "We have arranged to see our solicitor ..." - namely, Walker Morris. That letter can only have confirmed Wragge & Co.'s understanding that Dr. Nami was accepting that P4 had traded as Phase 4 during at least part of the relevant period. If not, P4 was irrelevant to the claims that Microsoft was making, and one might have expected Dr. Nami to have picked that up.

Walker Morris came on the scene with a letter of 22^nd April 2005. They appear to have had no doubt about the position. They headed their letter, as they did all subsequent correspondence, "Phase 4 COM Ltd.", i.e. P4. They opened it by saying that they acted for P4. They said that "Our client was unaware, and had no reason to believe, that the software supplied by [Isis] may be counterfeit (or otherwise infringing). It prides itself on the quality and integrity of its service".

Two points arise from that. First, Walker Morris were there conveying in the clearest terms that P4 was the entity trading as Phase 4 during the relevant period since they were obviously there referring to 'its', i.e. P4's, understanding as to the nature of the software that had been purchased. At no point prior to the issue of proceedings did they suggest that P4 was irrelevant to the story on the basis that, as P4's case now is, it only started trading in February 2004. Secondly, Microsoft regards P4's claimed innocence in the matter as incredible since its position is that no-one who claims the experience in the computer and software market that Dr. Nami does can have regarded genuine Microsoft software as available for the prices that Phase 4 paid.

Wragge & Co. responded on 6^th May 2005, also now, and for the first time, heading their letter "Phase 4 Com Ltd.", i.e. P4. No doubt they took their lead on that from Walker Morris. They said that Isis' disclosure revealed that "your client" had purchased a total of 355 Microsoft products from Isis, and the reference there to "your client" was obviously to P4. They referred to the Isis consent order in which Isis had acknowledged as counterfeit the computer software containing Microsoft trade marks that it had bought and sold. They said it followed that so must have been the products bought by P4. They explained Microsoft's damages calculation of some £105,000. They concluded their letter by inviting "your clients" (in the plural) to sign the undertaking enclosed with their letter of 15^th April. That was obviously a mistaken reference to the undertakings enclosed with the letter of 18^th April. The prior undertakings had been directed to the directors of P4P which had since dropped out of the story. The latter undertakings had been directed to P4 and Dr. Nami and it was obviously those undertakings that Microsoft wanted.

Correspondence between the solicitors continued for about a year. I was not taken to it in any detail. It continued to be headed in the same way, that is by treating the main protagonist as P4. It nowhere discussed who had actually been carrying on the Phase 4 business during the material time of April 2002 to June 2003, but continued silently repeating the common assumption that it was P4. Whether Dr. Nami ever read what his solicitors were writing on his behalf is unknown - at any rate to me - but the inference from that correspondence is that he never instructed them that P4 was irrelevant to the story. The correspondence was devoted to exchanges about the substantive merits or otherwise of Microsoft's case - not to the question of whether or not the correct target for it was P4 or someone else.

I must, however, pick up the correspondence again on 28^th September 2006 when Wragge & Co. wrote to Walker Morris a letter, again headed 'P4', enclosing a draft of the proposed claim form and Particulars of Claim. They said that proceedings would be issued within seven days unless "your client" agreed to sign undertakings substantially in the form of those provided by them on 18^th April 2006, and made a reasonable financial offer to settle the dispute. It is obvious that the undertakings there referred to were those provided on 18^th April 2005 and that Wragge & Co.'s reference to 2006 was a mistake.

Walker Morris replied to that letter on 29^th September, saying they found it quite extraordinary. They failed to pick up the last obvious point and also, quite extraordinarily, claimed to interpret Wragge & Co.'s reference to the letter of 18^th April 2006 as being a reference to one which they had themselves, by coincidence, written on that day. They made some adversarial points which led to nothing constructive and so Microsoft issued its claim form on 19^th October 2006. Its service was accompanied by Particulars of Claim. I must now summarise the pleadings so far served.

Paragraph 1.1 of the Particulars of Claim described what Microsoft does. Paragraph 1.2 listed its various UK registrations for the trade mark Microsoft. Paragraph 1.4 asserted the copyright interests it has in its computer programs, packaging graphics and the design and text of its documentation, including COAs. Paragraph 2 described how its products divided into categories, namely, retail products and OEM products, with in both cases a EULA being provided to the end user. It explained that EULAs are never sold separately. Paragraph 3 asserted that P4 was incorporated on 15 July 1996 and had since carried on business as a dealer in computer software; and that Dr. Nami was at all times its sole director and shareholder and ran its business. Microsoft alleged that he "carried out or participated in or directed, procured or controlled the acts of [P4] about which complaint is made herein. The knowledge of [Dr. Nami] is to be imputed to [P4]". Paragraph 3.3 pleaded that subsequent "references to "the Defendants" were to both or either of them". The pleading did thereafter include various references to "the Defendants". However, paragraph 3 explained the sense of those references: they were all references to acts done by P4 at the direction or procurement of Dr. Nami.

In anticipation of the central issue now raised between the parties there is nothing in the pleading that can rationally be interpreted as an allegation against Dr. Nami that anything done by him was done otherwise than as a director of P4. In the light of the history I have summarised it is not surprising that Microsoft should have regarded P4 as the primary defendant. Had they cast their mind back to what Dr. Nami had told Miss McNeill on 18^th April 2005 they might, out of an abundance of caution, have alleged in the alternative that during the whole or part of the material period Dr. Nami had carried on the Phase 4 business as a sole trader. But it is easy to understand why they did not. The picture tacitly painted by P4's own solicitors in the long run-up to the proceedings was that any claim that Microsoft might be so rash as to bring was one that lay against P4.

Paragraph 4 pleaded the acts complained of, which were that the defendants (using that phrase in the sense I have described) in the course of trade sold and supplied counterfeit software products and documentation which purported to be genuine Microsoft products. The Particulars pleaded the issue of the Teale proceedings on 12^th November 2003 (including a claim against Isis) Mr. Justice Lewison's order of 20^th November 2003 and the compromise of those proceedings on 24^th February 2004. They pleaded in paragraph 4.2.9, a list of purchases by the defendants from Isis. Several of the listed items bear the abbreviation 'LIC' which Microsoft asserted mainly related to the purchase of loose, counterfeit COAs or EULAs rather than software. Microsoft invited the inference that thereafter the defendants sold the products or offered them for sale in the course of their business. Paragraph 5 asserted that, and why, the defendants' actions amounted to trade mark infringement, passing off and copyright infringement and gave particulars of the knowledge about these matters that the defendants must have had. Paragraph 6 asserted that Microsoft would rely at the trial on all infringing acts by the defendants of which it then knew. As I have said, it has since learned of the Netcom purchases in respect of which it also wishes to claim, and it expects to learn of other purchases in the course of disclosure. Paragraph 9 alleged that the defendants threatened and intended to repeat the acts complained of. The relief claimed is for injunctions, delivery up and disclosure.

Before coming to the defence, I should refer to an intervening exchange of correspondence. On 17^th November 2006 Mr. Cantrill of Walker Morris e-mailed Miss Sunderland of Wragge & Co. and, amongst other things, took the point that at all material times P4 was a dormant company and that Dr. Nami had been trading as a sole trader under the name Phase 4. He referred to Dr. Nami's conversation with Miss McNeill on 18^th April 2005, although I have explained that her notes did not record Dr. Nami as having been as precise as Mr. Cantrill might now be interpreted as suggesting. Of course, Walker Morris themselves had been overtly content during their extended correspondence tacitly to convey that they themselves understood the relevant trader to have been P4. Mr. Cantrill could not, however, resist from concluding his e-mail by saying that, "We find it extraordinary that despite all what[sic] has been told you previously, [P4] has nevertheless now been sued by your client". Whatever had been so said, it had not been said by Mr. Cantrill. Wragge & Co. replied on 23^rd November 2006, referring to certain evidence which they said pointed to P4 as having in fact been the relevant trader, and said that P4 would remain a defendant "at least until we see the defence".

P4 and Dr. Nami served a joint defence and counterclaim on 1^st December 2006. Paragraph 3 asserted that Microsoft's distribution channels do sometimes sell EULAs separately - something which is apparently news to Microsoft. Paragraph 4 alleged that neither defendant had ever carried on business as a dealer in computer software; that P4 never participated in any of the acts complained of; and that Dr. Nami never did so either. Particulars were given of that allegation. They were to the effect that at the material times (April 2002 to June 2003) Dr. Nami personally carried on business as a specialist computer system builder under the trading name of Phase 4 or Phase 4 Computers or Phase 4 Computer & Multimedia Solutions, and did so from the Harrogate shop. That that business included designing, building and installing micro computer systems for use in homes and offices, web design, development of bespoke software and related services. He never carried on business as a dealer in, or distributor of, computer software. He has, however, "From time to time ... acquired software packages containing machine code that he has installed on hardware configurations that he has designed and built for his customers in accordance with their instructions." Save for Norton anti-virus software, he has never stocked, dealt in or distributed packaged software.

As for P4's role, the defendants asserted that it was only after the events upon which Microsoft sues that Dr. Nami transferred his business to P4. Down to then, P4 was a dormant company. The defendants asserted that (as I have explained) Dr. Nami told Wragge & Co. of this during a telephone call on 18^th April 2005, and also that Walker Morris confirmed it in their letter of 22^nd April 2005. I comment that I cannot see that Walker Morris there did anything of the sort. On the contrary, their letter conveyed a different picture.

The defendants denied the infringing acts alleged against them. They repeated the points earlier made and also said that every item of optical or magnetic media distributed by the Teales under Microsoft's marks "would have stored code that had been produced by" Microsoft and that at least some, if not all, of those items would have been produced by Microsoft or its licencees and would have been put on the market by, or under the authority of, Microsoft. The defendants admitted that some of the software items listed by Microsoft at paragraph 4 of its Particulars of Claim "were acquired from the Teales", but said (i) that there are circumstances (which they did not explain) in which EULAs and COAs can be sold separately; and (ii) that even if some of the supplied items infringed Microsoft's intellectual property rights, it cannot be inferred that they all did. The defendants pleaded that all such items that Dr. Nami purchased and re-sold were purchased and sold in good faith and after taking Microsoft's own recommended steps to identify whether it was counterfeit. It is said that Dr. Nami sought, and was given, a written assurance by James Whitmarsh of Isis that all Isis products were genuine Microsoft Products. That, I interpose to say, is a most unimpressive one-liner. The pleading went on to allege that if they were not genuine products, there was no practical way that Dr. Nami could have identified them as such. The defendants do not, they say, threaten and intend to infringe Microsoft's intellectual property rights.

The counterclaim repeated the defence. In paragraph 12 the defendants asserted that by letters dated 15^th April 2005 (that is, the letter directed to the directors of P4P) and 28^th September 2006 (that is the letter before action) Microsoft's solicitors, Wragge & Co., "threatened the defendants with proceedings for infringement of its trade marks". The defendants then said that they were "persons aggrieved" within section 21 of the Trade Marks Act 1994, but that the threats were groundless as none of the exceptions in section 21(1)(a),(b), or (c), (2) or (4) applied. They claimed that, by reason of such threats, they suffered loss, damage and expense, which they have not sought to particularise, saying it "can only be determined upon on an inquiry". They said that by a letter of 18^th April 2006, and reminders in two letters of 27^th November 2006 the defendants' solicitors asked Microsoft's solicitors for an acknowledgement that the threats were groundless, promises not to repeat or continue them and a contribution to the defendants' loss, damage and expense. They say they have had no reply to that. The defendants then said that, unless it were to be restrained, Microsoft would continue, or repeat, its threats and so cause the defendants further loss, damage and expense. The relief sought on the counterclaim was for a declaration that Microsoft's threats were groundless, injunctions against their repetition and an inquiry as to damages pursuant to section 21(2)(c) of the Trade Marks Act 1994.

In the light of the counterclaim it is convenient to set out the material parts of section 21, which read as follows:

“21.

Remedy for groundless threats of infringement proceedings

(1)

Where a person threatens another with proceedings for infringement of a registered trade mark other than -

(a)

the application of the mark to goods or their packaging,

(b)

the importation of goods to which, or to the packaging of which, the mark has been applied, or

(c)

the supply of services under the mark,

any person aggrieved may bring proceedings for relief under this section.

“(2)

The relief which may be applied for is any of the following -

(a)

a declaration that the threats are unjustifiable,

(b)

an injunction against the continuance of the threats,

(c)

damages in respect of any loss he has sustained by the threats;

and the plaintiff is entitled to such relief unless the defendant shows that the acts in respect of which the proceedings were threatened constitute (or if done would constitute) an infringement of the registered trade mark concerned ...”

Microsoft served a reply and defence to counterclaim on 9^th January 2007. As to the defendants' point based on section 21 Microsoft asserted

"(7)

Paragraph 14 is denied. The act in respect of which proceedings were threatened constituted an infringement of registered trade marks concerned, pursuant to the proviso to section 21(2) of the Trade Marks Act 1994. Further, and in any event, the Defendants have not suffered any loss or damage as a result".

In the meantime, on 12^th December 2006 the defendants issued their application for summary judgment on the counterclaim. It is supported by statements made by Dr. Nami and Mr. Cantrill of Walker Morris on 12^th December. It is responded to by Mr. Oldknow of Microsoft. Dr. Nami and his son, Benjamin Nami, have served evidence in reply. The final round of evidence was from Miss Sunderland of Wragge & Co. who made two witness statements last week.

As I have said, that application is pursued now only by P4. Its essence is that Microsoft has no case that deserves to go to trial to the effect that P4 was trading as Phase 4 at any point during the period April 2002 to June 2003. If so, it follows that the threats against P4 were groundless and so entitle P4 to summary judgment on its section 21 claim. It also follows - although the defendants only realised this last week - that if there is no arguable case against P4 then Microsoft's entire claim must fail since that is a claim currently founded exclusively on the assertion that (i) P4 was the relevant trader; and (ii) that Dr. Nami is liable for having procured P4 to commit the infringing acts that it did commit.

I have earlier referred to Microsoft's proposed amendment. Its purpose is to allege in the alternative that if P4 was not the entity trading as Phase 4 during the relevant period, then Dr. Nami was trading under that name as a sole trader. As I have also said, there is no objection to that amendment. So Microsoft's case is, as matters stand at present, anyway going to go to trial if only against Dr. Nami, and success by P4 on its application is not going to prevent that. Nor, until last week, did the defendants seem to think otherwise.

I do not propose to detail the fairly extensive evidence that has been exchanged on the factual question as to whether or not P4 was trading as Phase 4 during the relevant period. Both counsel, in their excellent and succinct arguments, focused very clearly on the rival assertions, and I hope it will be sufficient if I simply summarise them.

P4's case is that, even though it was admittedly incorporated in 1996, it was a dormant company at all material times. I was referred to its Companies House filing history, which records that during the relevant period its accounts were returned on the basis that it was dormant. On 19^th November 2006 its accountants, Walker Associates, wrote a "To Whom It May Concern" letter to the effect that P4 was dormant down to 1 February 2004 when it commenced trading, and that down to then the Phase 4 business was conducted by Dr. Nami as a sole trader. The evidence includes a series of NatWest bank statements covering the relevant period, the account name being "Dr. Mozaffar Nami trading as Phase 4", and which are said to show payments against the various Isis invoices.

By contrast, on 30^th October 2003 P4 opened an account with Barclays, the account name being "P4 COM Ltd. trading as Phase 4". It was opened with a nil balance and the first credit - one of £5,904.59 - was not made until 18^th February 2004, by when P4's case is that it was up and running as Phase 4. That evidence is supported by Dr. Nami and by Benjamin Nami, his son, who acquired a 50 per cent holding in P4 from his father in February 2004 and also became a co-director. Benjamin Nami had previously been working full-time in Dr. Nami's business since 2000. P4 also became registered for VAT with effect from 1^st February 2004 and its registration number is different from that under which Dr. Nami had previously been registered. It is said by P4 that insofar it is part of Microsoft's case that Dr. Nami may have been untruthful about what he has asserted as to P4's role, that is to cast an unjustified slur upon him, there is, it is said, also nothing in the point that Walker Morris' own letters can be said to have completely missed the point that P4 had never traded during the relevant period. Whilst it is accepted that Microsoft criticises Dr. Nami's commercial integrity, and claims he must have known he was dealing in counterfeit software, Miss Edwards-Stuart submitted that he has a complete answer to these assertions which are said to be unfounded and to reflect a misunderstanding on the part of Microsoft as to the true nature of the software industry in which Dr. Nami was operating.

Microsoft's case is that at the moment the court only has a part of the relevant picture, and that even that part raises a question as to whether Dr. Nami is telling the whole truth. The history is that P4 was incorporated in 1996 as Phase 4 Consultancy Limited. Dr. Nami was at all times down to February 2004 its sole director and shareholder and it is at least an inference that the trading name Phase 4 used during the relevant period could be a reference to P4. Moreover, the company changed its name to P4 COM Limited in February 2003, which was a year before it claims to have started trading. What was the reason for that change of name at the time? Mr. Malynicz says that the way in which a software business is going to promote itself is via the internet. He referred me to a photograph of the front of the Harrogate shop, taken in November 2004, at a time when P4 was admittedly trading. The shop front reveals P4's website as being www.phase-4.net. Dr. Nami's position is, or appears to be, that in fact that was never P4's website. But the evidence shows that the website goes back to 2001 and that P4 was at all times its owner.

Searches against the website also show that it was promoting the Phase 4 business and that it makes no suggestion that Phase 4 was simply the business name of Dr. Nami. The website gives as Phase 4's office an address at Northway House in North Yorkshire. It is in fact Dr. Nami's home but it is also P4's registered office. Dr. Nami gives what is said to be some unconvincing evidence to the effect that this website was simply used by work experience students from two universities as part of various projects. He also says that the real P4 website was and is www.p4com.com. However, the evidence shows that that too goes back to 2003, before P4 is said to have been trading. In June 2003 that website was telling the world: "For all your computer needs why not arrange for a P4 COM on-site engineer to undertake on-site repairs and installations, networking, training and tuition. Our engineers can provide you with quality service and customer care in the comfort of your own home or business". The reference to"P4 COM" is, on the face of it, to P4, yet Dr. Nami says it did not start trading for another eight months.

Mr. Malynicz submitted that these matters require investigation and that they can only be properly investigated after disclosure and cross-examination. At the moment the court is being asked to decide a matter of disputed fact on the basis of a selection of evidence that P4 has chosen to put before it and before there has been any disclosure. The evidential picture remains incomplete. In particular, Microsoft knows virtually nothing about how Phase 4 onward sold its computers and software. Who carried that out and how? There are aspects of Dr. Nami's evidence which Mr. Malynicz says give rise to questions as to its truth and the court cannot safely decide at this stage of the litigation the disputed question of fact as to whether or not P4 was trading during the relevant period. He emphasised that this is an application under Part 24, and it is no part of the court's function at this stage to attempt to engage in some sort of min-trial as to disputed matters of fact.

Miss Edwards-Stuart submitted that the evidence was really all one way and that it points to P4 having been dormant at the relevant time. It may be, as she has to accept, that P4 was the owner of the two websites, but it does not follow from that that it was carrying on any trading. There is no reason, she said, to allow this issue to go to trial and that I should decide the point here and now. She accepts, however, that if I decline to find that P4 was carrying on any relevant trading at this stage, P4 cannot hope to achieve any success in its summary judgment application. Whether it is entitled to relief under section 21 could, in that event, only be decided after a trial.

I have not found this application wholly straightforward, since I am disposed to accept that there is currently before the court a good deal of fairly sold documentary support for the view that P4 was not trading as Phase 4 at the relevant time. Having said that, I also remind myself that this is an application under CPR Part 24. It is not the trial. The relevant facts are primarily within P4's knowledge, and I am being asked to decide this matter essentially on the basis of the evidence that P4 has chosen to put before the court. There has not yet been any disclosure in the proceedings and there has been no cross-examination of Dr. Nami, whose evidence, Microsoft says, is in certain respects very questionable. Experience of litigation teaches that disclosure and cross-examination can be revelatory and can cast a whole new light on a case. In the circumstances, P4 may be said to have been somewhat ambitious in its bid to expect the court to decide finally, here and now, a disputed question of fact, being one in respect of which Microsoft says there is more than one possible answer and which can only fairly and safely be resolved at trial.

In my view, it can at the very least be said that there are serious questions as to P4's role at the material time, arising out of the use of the two websites to which I have referred. It may also be that disclosure will raise other questions. In principle, therefore, I consider that it would be quite wrong for the court to work on the basis that it has before it at this stage all it needs in order to answer the factual questions posed by this application. In my judgment, the court will only be able to do that at the trial, and should not even attempt to engage upon that exercise at this stage.

I therefore take the view that P4 is not entitled to succeed on its summary judgment application and I dismiss that application.

I now have to rule on costs. The position is that I have permitted a proposed amendment to the Particulars of Claim and then directed, as is usual, that the costs of, and occasioned by, that amendment must be borne by the claimant, Microsoft. That, however, does not go to the costs of the hearing before me on Monday and, indeed, today, or the costs leading up to that which incurred in respect of the defendants' application for summary judgment on the counterclaim, an application which, as from 16^th January 2007, was pursued only by the first defendant, P4.

Mr. Malynicz's position is that as that summary judgment application has been dismissed, costs should follow the event, and both defendants should pay the costs down to 16^th January, and P4 should pay the costs subsequent to that.

Miss Edwards-Stuart resists that, and she says that had Microsoft produced to the defendants the amendment for which I have today given leave at an earlier stage, the summary judgment application would never have been pursued. That is on the basis that the nature of the proposed amendment to paragraph 3.2 of the Particulars of Claim is now to allege that Dr. Nami was at all material times a director and shareholder of P4, whereas previously it had alleged that he was "the sole" director and shareholder of P4. What Miss Edwards-Stuart says is that that means that the claim that her clients are now facing is a claim not just in respect of the period down to February 2004 when Dr. Nami was the sole director, but is extending it beyond that period to cover subsequent periods. Her submission is that that means that even if the defendants could have demonstrated that P4 was not trading during the prior period, it of course is not in dispute that it was trading during the subsequent period, and therefore the claim as against P4 would nevertheless have to proceed.

That is, on the face of it, an attractive argument, but it is one which, I have to say, does not convince me at all. Walker Morris were presented with a proposed amendment to the Particulars of Claim on 2 January, 2007. That was an amendment which simply focused on alleging - although I think somewhat inadequately - an alternative claim against Dr. Nami personally, but still confined the claim ---- or implicitly confined the claim - essentially to the pre-February 2004 period. Walker Morris did not agree to that amendment. They said in response to the application,

The stance there being taken was, on the face of it, the completely unreasonable stance that they were not even prepared to agree to that amendment at that stage, and that is why the amendment application had to be pursued to the hearing before me; and when the matter did come before me Miss Edwards-Stuart gracefully conceded that there could be no reason in principle why the amendment application should not have been agreed to.

Walker Morris responded to that application, as it seems to me, entirely unreasonably. I am furthermore also entirely unconvinced that if there had been put before Walker Morris the amendment which I have now been asked to sanction, their attitude would have been any different. The stark fact is that it had not occurred to Walker Morris that the nature of the case they were making in relation to their summary judgment application actually went to the heart of the substantive claim against their clients. It was confined to seeking judgment on the counterclaim. It was not an application to strike out Particulars of Claim and, as I explained I think at least twice in my Judgment (and I should not have explained it more than once), that was a thought that only occurred to Walker Morris last week.

Accordingly, the focus of the summary judgment application was in no way conditioned by the nature of the Particulars of Claim. Indeed, that is not entirely surprising because the essence of the counterclaim is a claim based on allegedly groundless threats of infringement based on alleged dealings by P4 and Dr. Nami, as its director, in relation to counterfeit goods which had been purchased by Phase 4 (as I shall now call it) between April 2002 and June 2003. The threats letters relied upon for the counterclaim were, first, the letter of 15^th April 2005 to P4P, and although that letter was not in fact directed to either of the defendants, Mr. Malynicz conceded that he was taking no point that that was, as it were, an answer to the defendants' reliance on that letter for their threats case. The other letter relied upon was the letter before action, which was sent on 28^th September 2006 and sought to avoid proceedings by once again inviting the defendants to offer the undertakings which had been sent with the letter of 18^th April 2005, which were in terms focused on the particular purchases which had been effected during the period April 2002 to June 2003.

That was the basis of the counterclaim - one related to alleged threats in relation to purchases effected during a particular period. I am entirely unconvinced from what I have seen of the correspondence that Walker Morris would have backed down in any respect at all from the pursuit of the summary judgment application in relation to the counterclaim had the defendants presented to them in early January the proposed amendment which they presented to me this morning.

In my judgment this is a straightforward case where the defendants have chosen to seek summary judgment in relation to their counterclaim and have failed. In my judgment the right solution as regards costs is that both defendants should pay the costs of their application down to 16^th January, and P4 should pay the costs of the application since 16^th January. That is what I shall order.

As regards costs, I have already ruled that the claimants are entitled to their costs of the summary judgment application, and I have indicated the way that those costs are to be split as between both defendants. It also seems to me that they are entitled to their costs of the amendment application - that is, the costs of having to ask the court for that permission, the defendants having quite unreasonably refused to agree to the amendments which were earlier proposed.

A schedule of costs has been put before me which is in the quite high figure, as it would seem to me, of £23,240.75 excluding VAT. Although that is regarded as high, it pales into modesty when compared with the very substantial costs figure for the defendants which, for a period from 27^th November to 19^th February excluding VAT, is £63,137.75, almost the whole of which must be referable to the costs in relation to the summary judgment application.

The mere fact that the defendants' costs schedule is so enormous does not mean that the claimant's figure, as it were, goes through on the nod. I have to be satisfied that it is a proportionate figure, and that the separate items making it up are for reasonable sums.

It seems to me overall that it is a broadly proportionate schedule of costs having regard to what was obviously a good deal of quite heavy work which had to be engaged in by Microsoft in order to meet this application.

I do, however, have reservations as to whether 30.2 hours on documents by Jennifer Sunderland can be said to be an amount of time which is reasonable for the paying parties to pay. I do not of course question that she did spend that amount of time, but the question is whether it is reasonable for the paying parties to pay for that length of time. I propose to reduce that element of the bill from thirty hours' worth to twenty hours' worth - whatever that reduced number may be. I propose also to reduce the time spent on correspondence from 7.35 hours to five hours in relation to Miss Sunderland. Again, I do not question that she spent 7.35 hours, but, for the same reason as before, I propose to reduce that.

I do not propose to make any other adjustments to the bill, which appears to me to be reasonable. Accordingly, I will assess costs in whatever the revised figure is, having made those two adjustments.