Cable service provider engaged in reverse passing off of DirecTV signal (and other bad acts)

Northeast Cable Televis., LLC v. DirecTV, LLC, 2019 WL 1767066, No. 18CV2559 (N.D. Ohio Apr. 22, 2019)

DirecTV’s satellite television service provides hundreds of channels. For certain kinds of multiple-unit properties (usually a hotel or motel, hospital, college dormitory, or individual office), DirecTV sometimes provides service through a Satellite Master Antenna Television System”(SMATV). In that case, the SMATV property owner or manager is the “customer.” DirecTV charges monthly fees based on the type of property as well as the programming ordered and the number of individual units with access to the programming. The SMATV customer is prohibited from charging the individual viewers for DirecTV programming, and from rebroadcasting, retransmitting, or reselling DirecTV programming.  DirecTV sometimes subcontracts with dealers, who may not themselves bill the properties for DirecTV programming except in rare cases.

Northeast Cable’s principal Pezzenti represented that, in 2003, he was approached by a representative of an authorized DirecTV dealer, which proposed an arrangement according to which Northeast Cable would transmit DirecTV programming to 14 multi-unit properties in Ohio and pay the bills to DirecTV on the properties’ behalf. Northeast Cable thus entered “service agreements” with 14 properties in which it charged a monthly fee in exchange for providing necessary equipment, performing maintenance, and paying DirecTV’s programming bill each month. On SMATV Viewing Agreements with DirecTV, Pezzenti or Northeast Cable usually listed itself as the “authorized customer,” “general manager,” or something similar.

Northeast Cable routinely bills about $4,300 to $4,500 per month for one property, whereas DirecTV would have billed the properties at about $1,400 to $1,600 per month if it had billed directly [maybe for the reported number of units], and the greater expense seems to be the general rule. DirecTV further alleged that Northeast Cable vastly underreported the number of units receiving programming service at the SMATV properties, for example reporting 25 units when DirecTV’s own investigation uncovered 127 active units.  Further, in two cases, it broadcast DirecTV programming from one SMATV property to another non-SMATV property.

Northeast Cable also allegedly held itself out as the SMATV properties’ “cable television programming provider,” omitting any reference to DirecTV. For example, one ad says, “Are you overpaying? Why pay double to watch the same channels? Call Northeast Cable today! Ditch the dish and get the same channels for half price.” Northeast Cable also distributed a “TV Channel Selection Guide,” listing the channels available through Northeast Cable without any indication that DirecTV was the true source of the programming. In letters to residents, Northeast Cable described itself as “your cable television service provider.” [Seems like a Dastar issue, testing the difference between goods and services.]

Under 47 U.S.C. § 605(a), “[N]o person receiving, assisting in receiving, transmitting, or assisting in transmitting, any interstate or foreign communication by wire or radio shall divulge or publish the existence, contents, substance, purport, effect, or meaning thereof, except through authorized channels of transmission or reception...to any person other than the addressee, his agent, or attorney....” “[A]n entity violates § 605(a) if it transmits a television signal to viewers other than those intended by the sender, even if that entity is authorized to transmit the signal to some other viewers.” That was what was happening here.  47 U.S.C. § 553(a) further provides that “No person shall intercept or receive or assist in intercepting or receiving any communications service offered over a cable system, unless specifically authorized to do so by a cable operator or as may otherwise be specifically authorized by law.” Ditto.

Under the Electronic Communications Privacy Act, 18 U.S.C. § 2511(1), “it is illegal to intentionally intercept electronic communications.” “Northeast Cable acquired DirecTV’s programming signal by representing itself as a legitimate SMATV customer even though it was not ‘the owner or manager of the business entity.’” And here I breathe a partial sigh of relief, because even though this is not good conduct, calling that “interception” seems to create the same problem as broad interpretations of the CFAA: the court said that it wasn’t clear that this misrepresentation was interception.  However, with respect to retransmitting the signal from contractually covered to uncovered properties via microwave and underground cable, the court viewed this as “patently” in violation of the ECPA.  I don’t know why that’s interception as opposed to reception by someone authorized to receive it and retransmission in excess of that authorization, especially given the statutory sections above already covering the problem, but then again this is not my field.  The cited case, Luis v. Zang, 833 F.3d 619 (6th Cir. 2016), is about someone who shouldn’t have been receiving the transmission in the first place (spyware).

Lanham Act false designation of origin: it’s reverse passing off! “Until recently, SMATV property owners and managers understood Northeast Cable to be their programming provider and were unaware (in some cases) that DirecTV was at all involved in their programming…. The harm to DirecTV is apparent: Northeast Cable’s deception deprives DirecTV of revenues and business relationships it otherwise would likely enjoy.”

False advertising: it was false for Northeast Cable to hold itself out as “your cable television service provider,” and to represent that subscribers would “[d]itch the dish” when they “subscribe” to Northeast Cable, because the programming with Northeast Cable came from DirecTV’s satellite dish service. The court skipped over materiality and reiterated that “Northeast Cable’s deception deprives DirecTV of revenues and business relationships it otherwise would likely enjoy,” which is … not actually the false advertising liability standard. 

Common-law fraud: Northeast Cable’s representation of itself as the “customer,” specifically, as a “property owner or manager” in SMATV Viewing Agreements with DirecTV; representations that most of its properties had 20 to 25 units even though many of them had dozens or hundreds; and use of signal from elsewhere to support new properties were fraudulent.

Tortious interference: “The properties had SMATV contracts with DirecTV, whether they knew it or not.” Northeast Cable deliberately caused those properties to breach their contracts with DirecTV by “encouraging and instructing the properties to charge residents individually for their television programming…. And but for Northeast Cable’s involvement, DirecTV would likely have enjoyed greater revenues and better business relationships with the SMATV properties.”  [This doesn’t quite match up with the “Northeast Cable charged more than DirecTV would have” statements above, but it could easily be the case that DirecTV would have charged less per any given number of units.]

Unjust enrichment: that too.

Irreparable harm: This proceeding and the underlying investigation has damaged Northeast Cable’s reputation.  Further, the “relationship” between Northeast Cable and DirecTV is “going to end...once this litigation is over” and Northeast Cable will cease doing business at that time. “In the meantime, absent an injunction, DirecTV will be tied to a sinking ship. … As Northeast Cable’s reputation suffers, so too will DirecTV’s reputation, not just with individual viewers and property owners and managers, but also with authorized dealers and content distributors.”  [I’m not so sure that follows.  It’s pretty clear from all this that DirecTV is not responsible for the hinky stuff, and it appears to have communicated that to the property managers here; the customers, as the court pointed out, didn’t even know they were getting DirecTV. The remaining arguments are far more persuasive.]

Although revenue lost from fraud is ordinarily compensable with money damages, “DirecTV understandably lacks confidence that all properties and all units have now been accounted for and that all corresponding damages will be recoverable down the road.”  And DirecTV might have legal and regulatory exposure in the meantime: it has contractual obligations to accurately compensate content providers according to the total number of viewers, and possibly regulatory obligations to maintain accurate records of its programming transmissions. “As long as DirecTV continues to pay its content providers according to Northeast Cable’s disorganized and deflated reports, it may be exposed to legal and regulatory enforcement.”  Plus, Northeast Cable is going out of business and the injury may be irreparable because it can’t pay damages.