Directv, Inc. v. Hoa Huynh

Decision Date11 September 2007
Docket NumberNo. 05-16361.,No. 05-16362.,05-16361.,05-16362.
Citation503 F.3d 847
CourtU.S. Court of Appeals — Ninth Circuit
PartiesDIRECTV, INC., Plaintiff-Appellant, v. HOA HUYNH, Defendant-Appellee. DirecTV, Inc., Plaintiff-Appellant, v. Cody Oliver, Defendant-Appellee.

Marc J. Zwillinger, Washington, DC; Howard R. Rubin, James A. Silver, Sonnenschein Nath & Rosenthal LLP, Washington, DC; Suzanne M. Burke, Buschalter Nemer, Irvine, CA, for the plaintiff-appellant.

Jason Schultz, Electronic Frontier Foundation, San Francisco, CA; Jennifer Stisa Granick, Trevor D. Dryer, Center for Internet and Society, Stanford Law School Cyberlaw Clinic, Stanford, CA, for the amicus curiae.

Appeal from the United States District Court for the Northern District of California; Charles R. Breyer, District Judge, Presiding and Saundra B. Armstrong, District Judge, Presiding. D.C. Nos. CV-04-03496-CRB, CV-04-03454-SBA.

Before: B. FLETCHER, EUGENE E. SILER, JR.,* and HAWKINS, Circuit Judges.

Opinion by BETTY B. FLETCHER; Dissent by Judge SILER.

BETTY B. FLETCHER, Circuit Judge:

In the past three decades, satellite television programming has grown from nonexistence into a booming business, and piracy of such programming has grown apace. This case involves the attempts of a satellite programming provider to fight piracy among end-users of pirating technology through use of § 605(e)(4) of the Federal Communications Act.

I.
A.

Appellant DirecTV, Inc. ("DirecTV") furnishes satellite television programming in subscription and pay-per-view formats to customers who have purchased both the programming and the necessary equipment. In order to watch the encrypted DirecTV programming, a customer must acquire a satellite dish, an integrated receiver decoder, and a smart card, which DirecTV calls an "access card." The satellite dish receives DirecTV's encrypted signals and transmits them to the receiver, which decrypts the signal and sends it to the customer's television. Software in the access card directs the receiver to decrypt only the signals conforming to the customer's subscription package.

Individuals who seek to watch DirecTV programming without payment ("pirates") have developed methods of decrypting DirecTV's signals without subscription. By reprogramming or replacing legitimate access cards with illicit decoder technology, pirates have managed to gain unauthorized access to all of DirecTV's programming.

DirecTV fights pirates by transmitting electronic counter-measures ("ECMs") that disable illegally modified access cards by sending their access software into a loop. Once an ECM has disabled, or "looped," an illegal card, the card will not direct its receiver to access DirecTV programming unless the access card is reprogrammed. One such reprogramming device, and the device relevant on this appeal, is an "unlooper," a printed circuit board that restores functionality to a disabled access card by resolving the software loop created by the ECM. As amicus acknowledges, most unloopers currently are configured exclusively for pirating DirecTV's satellite signal.

B.

DirecTV's fight against piracy makes frequent use of the courts. See http:// www.hackhu.com (website maintained by DirecTV chronicling anti-piracy litigation actions against 25,000 defendants). In the consolidated cases at bar, DirecTV brought claims against two end-users of pirating technology, defendants-appellees Hoa Huynh and Cody Oliver. The complaints allege that the defendants each purchased one unlooper and used it "to illegally modify DIRECTV Access Cards." Complaint at 4, DirecTV, Inc. v. Huynh, No. 04-cv-3496-CRB; see also Complaint at 3, DirecTV, Inc. v. Oliver, No. 04-cv-3454-SBA.1 According to the complaints, these actions constituted conversion and violated both the Federal Communications Act of 1934, as amended, 47 U.S.C. § 605(a), (e) and the Electronic Communications Privacy Act, 18 U.S.C. §§ 2510-2521.

Defendants failed to appear or otherwise respond to DirecTV's complaints; in defaulting, defendants are deemed to have admitted all well-pleaded factual allegations contained in the complaints. See Fed.R.Civ.P. 55(a); Benny v. Pipes, 799 F.2d 489, 495 (9th Cir.1986). DirecTV moved for a default judgment and $20,000 in statutory damages against each defendant for violations of 47 U.S.C. § 605(e)(4), or alternatively, for violations of 18 U.S.C. § 2520(a), or alternatively, for violations of 47 U.S.C. § 605(a). The district court issued two separate orders in which it granted DirecTV's motions for default judgment as to liability and damages under 18 U.S.C. § 2520(a), declined to grant default judgment pursuant to 47 U.S.C. § 605(e)(4), and declined to reach the issue of liability under § 605(a). DirecTV appeals from the district court's decision not to grant default judgment as to liability under § 605(e)(4).2

In Oliver's case, the district court (the Honorable Saundra B. Armstrong presiding) stated that "47 U.S.C. § 605(e)(4) is meant to target upstream manufacturers and/or distributors of illegal pirating devices." DIRECTV, Inc. v. Oliver, No. 04-cv-3454, 2005 WL 1126786, at *3 (N.D.Cal. May 12, 2005) (order granting default judgment pursuant to 18 U.S.C. § 2520(a), but not pursuant to 47 U.S.C. § 605(e)(4)). Stating that a showing that defendant "distributed or sold equipment" was necessary to establish a violation of § 605(e)(4), id. at *4, the district court concluded that the complaint's lack of any allegation that Oliver had sold or distributed pirating devices meant that DirecTV had pled insufficient facts to establish a violation of 47 U.S.C. § 605(e)(4). The court, therefore, declined to grant a default judgment against appellees on that ground. Id.

In Huynh's case, the district court (the Honorable Charles R. Breyer presiding) dismissed the allegation that Huynh's insertion of a modified access card into a DirecTV receiver constituted "assembl[ing]" a piracy device, stating that a contrary ruling would "totally destroy the distinction between 605(e)(4) and 605(a)." DirecTV, Inc. v. Huynh, No. 04-cv-3496-CRB, at 16 n.11 (N.D.Cal. May 31, 2005) (memorandum and order granting default judgment pursuant to 18 U.S.C. § 2520(a), but not pursuant to 47 U.S.C. § 605(e)(4)). The court next concluded that § 605(e) did not apply to allegations that Huynh programmed and reprogrammed a smart card. Id. at 16 (noting statutory damages range of $1,000-$10,000 for violations of § 605(a) and range of $10,000-$100,000 for violations of § 605(e)(4)). Finding significance in Congress's decision to create different liabilities for users and manufacturers of pirating devices in § 605(a) and (e)(4) respectively, the district court determined that applying § 605(e)(4) to Huynh's alleged conduct "would nullify the distinction built into the statute." Accordingly, the district court concluded that DirecTV did not plead a violation of § 605(e)(4). Id.

II.

We have jurisdiction pursuant to 28 U.S.C. § 1291 to review the default judgments. We review them for abuse of discretion. Aldabe v. Aldabe, 616 F.2d 1089, 1092-93 (9th Cir.1980); see also Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir.1986) (setting out factors to guide district court's determination regarding the appropriateness of granting a default judgment). We review de novo questions of statutory construction such as the reach of § 605(e)(4). SEC v. Gemstar TV Guide Int'l, Inc., 367 F.3d 1087, 1091 (9th Cir. 2004).

III.
A.

Home reception of satellite television programming began in 1976, one year after Home Box Office, Inc. (HBO) began satellite transmissions of its movies to cable television providers. H.R.Rep. No. 100-887(II), at 10 (1988), reprinted in 1988 U.S.C.C.A.N. 5577, 5639. At that time, home reception of such signals was of questionable legality, as § 6053 of the Federal Communications Act outlawed the unauthorized reception of radio communications. 47 U.S.C. § 605 (1968); see also Chartwell Commc'ns Group v. Westbrook, 637 F.2d 459, 466 (6th Cir.1980) (holding the unauthorized reception of television signals intended for cable television operators violated § 605). Congress clarified the legality of home reception of satellite television programming in the Cable Communications Policy Act of 1984 ("Cable Act") by outlawing the unauthorized reception of satellite programming unless the programming was not encrypted or a subscription process had not been created. Pub.L. No. 98-549, § 5, 98 Stat. 2779 (codified at 47 U.S.C. § 605(a)-(b) (1984)). The Cable Act substantially increased penalties for unauthorized signal reception by pirates seeking "commercial advantage or private financial gain." Id. (codified at 47 U.S.C. § 605(d)(1)-(2) (1984)). It subjected to penalty the "importation, manufacture, sale, or distribution of equipment" to be used for unauthorized signal reception, id. (codified at 47 U.S.C. § 605(d)(4) (1984)); in 1988, Congress added prohibitions on the assembly or modification of equipment to be used for unauthorized signal reception. Pub.L. No. 100-667, § 205(12), 102 Stat. 3935 (codified at 47 U.S.C. § 605(e)(4) (1988)). The 1988 amendments again increased the penalties for unauthorized signal reception while maintaining the Cable Act's system of authorizing harsher punishment for pirates motivated by commercial gain. Id. at § 205(2), (3), (9)-(11) (codified at 47 U.S.C. § 605(e)(1)-(3) (1988)). For example, while end-users of pirating technologies faced criminal sanctions of a fine of up to $2,000 or imprisonment for up to six months, § 605(e)(1), pirates motivated by commercial gain faced criminal sanctions of a fine of up to $50,000, imprisonment for up to two years, or both, § 605(e)(2). The civil penalties reflected this two-tiered punishment rubric: end-users of pirating technology faced statutory damages of $1,000 to $10,000 per violation, while upstream pirates —the programmers and sellers of pirating technology—faced statutory damages of...

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