69 F.3d 381 (9th Cir. 1995), 93-56222, Allarcom Pay Television, Ltd. v. General Instrument Corp.

• Citation: 69 F.3d 381
• Party Name: 95 Cal. Daily Op. Serv. 8503, 95 Daily Journal D.A.R. 14,671 ALLARCOM PAY TELEVISION, LTD., a Canadian corp., Plaintiff-Appellant, v. GENERAL INSTRUMENT CORP., a Delaware corp.; Cable Home Communication Corp., a Delaware Corp.; Showtime Networks, Inc., a Delaware corp., Defendants-Appellees.
• Case Date: November 02, 1995
• Court: United States Courts of Appeals, U.S. Court of Appeals — Ninth Circuit

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69 F.3d 381 (9th Cir. 1995)

95 Cal. Daily Op. Serv. 8503,

95 Daily Journal D.A.R. 14,671

ALLARCOM PAY TELEVISION, LTD., a Canadian corp., Plaintiff-Appellant,

v.

GENERAL INSTRUMENT CORP., a Delaware corp.; Cable Home

Communication Corp., a Delaware Corp.; Showtime

Networks, Inc., a Delaware corp.,

Defendants-Appellees.

No. 93-56222.

United States Court of Appeals, Ninth Circuit

November 2, 1995

Argued and Submitted Feb. 6, 1995.

Page 382

[Copyrighted Material Omitted]

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Jean P. Nogues and Stephen D. Marks, Mitchell, Silberberg & Knupp, Los Angeles, California, for plaintiff-appellant.

Michael G. Ermer, Irell & Manella, Newport Beach, California, for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before: BRUNETTI and KOZINSKI, Circuit Judges, and SHADUR, ^[*] Senior District Judge.

BRUNETTI, Circuit Judge:

Allarcom Pay Television, Ltd. appeals from two orders of the district court dismissing, pursuant to Fed.R.Civ.P. 12(b)(6), its Federal Communication Act (FCA) claims and its various California state law claims against General Instrument Corporation and Showtime Networks, Inc. We have jurisdiction under 28 U.S.C. Sec. 1291. We affirm the dismissal of the FCA claims and reverse the dismissal of the state law claims.

FACTS AND PROCEEDINGS BELOW

In July 1992, Allarcom filed a complaint in federal district court against Showtime, General Instrument, and another defendant not party to this appeal. That complaint alleged the following facts. Allarcom is authorized by the Canadian government to be the exclusive provider of English-language subscription television (STV) programming in Western Canada. Allarcom has obtained the exclusive

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right from producers such as MCA, Paramount, Touchstone, etc. to exhibit their motion pictures on STV in Allarcom's territory. Allarcom transmits its signal to local cable television companies and other authorized receivers who pay for the service.

Showtime has the right to exhibit many of the same pictures on its STV service in the United States, but has no such license to exhibit those pictures in Canada. Showtime transmits its programming by means of satellite to authorized receivers. The "footprint" of that satellite signal allows it to be received in Allarcom's territory.

General Instrument manufactures and sells the "VideoCipher II" system (VC II), which scrambles and descrambles satellite television signals, thereby allowing the broadcaster to protect those signals from unauthorized reception. Many programmers, including Showtime, use the VC II to transmit their signal to customers in the United States. Various programmers, such as CNN, who are so authorized under Canadian law, use the VC II to transmit their signal to customers in Canada. Accordingly, the VC II has a legitimate use in Canada.

One of the elements of the VC II is a decoder device that enables its holder to receive and descramble STV programs. A person can alter that decoder so that it will unscramble signals that the holder is not authorized to receive.

According to the complaint, General Instrument and Showtime knew that compromised VC II decoders were being sold and used extensively in Allarcom's territory to receive unauthorized STV signals, including Showtime's signal. This practice nullified Allarcom's exclusive rights in that territory and deprived Allarcom of potential customers and income. Despite such knowledge, General Instrument and Showtime continued to use and promote the VC II system. Furthermore, General Instrument, through its dealers and with Showtime's knowledge, continued to sell VC II decoders in the US and Canada in numbers far in excess of any authorized users and to people whom it knew or had reason to know were using the decoders for the purpose of receiving American STV programming in Allarcom's territory. Defendants profited from this conduct.

Allarcom's complaint alleged that by this conduct, General Instrument and Showtime had assisted persons in receiving communications to which they were not entitled, in violation of the FCA, 47 U.S.C. Sec. 605(a). The complaint also alleged that General Instrument had manufactured and distributed devices knowing or having reason to know that the devices were primarily of assistance in the unauthorized decryption of satellite cable programming, in violation of the FCA, 47 U.S.C. Sec. 605(e)(4). The complaint also alleged a copyright infringement claim and various California state law claims. As relief, Allarcom requested compensatory and statutory damages. It also requested that the court require General Instrument to recall all VC II decoders, that it permanently enjoin defendants from manufacturing and distributing the VC II in its current form, and that it enjoin them from distributing any decoding device in excess of the legitimate uses therefor.

In December 1992, the district court concluded that the complaint did not state a claim under Sec. 605 upon which relief could be granted, and dismissed the FCA claim without leave to amend pursuant to Fed.R.Civ.P. 12(b)(6). The court also dismissed Allarcom's copyright infringement claim and most of its state law claims with leave to amend.

In January 1993, Allarcom filed a first amended complaint alleging only state law claims. On the basis of factual allegations similar to those in the original complaint, it claimed that General Instrument and Showtime had engaged in unfair competition, interference with contract, and interference with prospective economic advantage. In July 1993, the district court dismissed the amended complaint without leave to amend, concluding that both the FCA and the Federal Copyright Act preempted Allarcom's state law claims.

Allarcom timely appeals from both dismissals.

STANDARD OF REVIEW

We review de novo a dismissal for failure to state a claim. Everest and Jennings,

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Inc. v. American Motorists Ins. Co., 23 F.3d 226, 228 (9th Cir.1994). We limit our review to the contents of the complaint ¹ and assume that all allegations of material fact are true. Buckey v. County of Los Angeles, 968 F.2d 791, 794 (9th Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 599, 121 L.Ed.2d 536 (1992).

FEDERAL COMMUNICATIONS ACT CLAIM

1. Showtime

   Allarcom claims that Showtime "assisted" the piracy of satellite programming by people in Western Canada, in violation of the FCA, 47 U.S.C. Sec. 605(a), by helping those people steal its own STV broadcasts. We conclude that this allegation does not state a claim under the FCA.

   Sec. 605(a) provides, in pertinent part,

   No person not being entitled thereto shall receive or assist in receiving any interstate or foreign communication by radio and use such communication (or any information therein contained) for his own benefit or for the benefit of another not entitled thereto.

   In other words, Sec. 605(a) prohibits a person not entitled to a signal from assisting another's piracy of that signal. Showtime owns its own signal, and is therefore entitled to that signal and does not fall within the subsection's prohibition.

   Nor can Allarcom rely upon 47 U.S.C. Sec. 605(e)(4) to support its FCA claim. That section provides, in pertinent part,

   Any person who manufactures, assembles, modifies, imports, exports, sells, or distributes any electronic, mechanical, or other device or equipment, knowing or having reason to know that the device or equipment is primarily of...