Chartwell Communications Group v. Westbrook

• Decision Date: 29 December 1980
• Docket Number: No. 80-1566,80-1566
• Parties: , 6 Media L. Rep. 2368 CHARTWELL COMMUNICATIONS GROUP, and National Subscription Television Detroit, Plaintiffs-Appellants, v. Philip WESTBROOK, Ind. & d/b/a Pony Electronics; Robert Moser, Jr., Ind. & d/b/a Video Vend, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 459

637 F.2d 459

61 A.L.R.Fed. 797, 6 Media L. Rep. 2368

CHARTWELL COMMUNICATIONS GROUP, and National Subscription Television Detroit, Plaintiffs-Appellants, v. Philip WESTBROOK, Ind. & d/b/a Pony Electronics; Robert Moser, Jr., Ind. & d/b/a Video Vend, Defendants-Appellees.

No. 80-1566.

United States Court of Appeals Sixth Circuit.

Argued Oct. 23, 1980.

Decided Dec. 29, 1980.

Robert P. Hurlbert, Frank G. Pollock, Dickinson, Wright, McKean, Cudlip & Moon, Bloomfield Hills, Mich., Theodore R. Opperwall, Detroit, Mich., for plaintiffs-appellants.

John B. Kemp, Kemp, Klein, Edelman & Beer, John L. Greenberg, Greenberg & Greenberg, Southfield, Mich., for defendants-appellees.

Before BROWN and BOYCE F. MARTIN, Jr., Circuit Judges, and REED, District Judge. ^*

BAILEY BROWN, Circuit Judge.

This case presents important questions concerning the nature of the over-the-air subscription television (STV) industry, and the extent to which it is protected by Section 605 of the Communications Act of 1934, 47 U.S.C. § 605. Appellants (Chartwell) operate a subscription television business in the Greater Metropolitan Detroit area. Chartwell's programming consists mainly of recently released movies, musical performances, and sporting events the typical fare of subscription and cable television services. Its services are marketed under the name "ON-TV."

Chartwell's programs are delivered to its subscribers by a television signal transmitted by WXON-TV, Channel 20, in Southfield, Michigan. WXON-TV has a subscription television license issued by the Federal Communications Commission (FCC), and Chartwell operates by virtue of a contract with WXON-TV. Subscribers are charged an installation fee of $49.50 and a monthly fee of $22.50, which covers programming and system rental and repairs. Chartwell's programs carry no advertising, and its sole source of operating income is from its subscription fees.

Chartwell's intent is that its programs be received only by paying subscribers. To ensure that its programming will only be received by its intended audience, Chartwell uses a Blonder-Tongue encoder-decoder system, installed at WXON-TV's transmitter, to encode the transmissions. The video and audio portions of the signal are encoded separately. The video portion of the signal transmitted over Channel 20's assigned frequency is "scrambled," so that a television set tuned to Channel 20 receives the signal but the image is unintelligible. The audio portion of the signal is transmitted via a separate sub-carrier frequency which cannot be received on a commercially available television or radio. Chartwell's subscribers are provided with decoders to enable them to receive the audio and unscramble the video. The decoders are leased to subscribers by Chartwell as part of the system rental. Chartwell is forbidden to sell decoders to subscribers by FCC regulations. 47 C.F.R. § 73.642(f)(3). Without the use of a decoder, a television set tuned to Channel 20 during the hours of ON-TV's operation will receive no audio and unintelligible video.

Chartwell began operating in Michigan in June, 1979. In May, 1980 the appellees, Moser and Westbrook, began to make available to the public electronic decoders that would enable persons to receive Chartwell's programming without paying the subscription fees. On July 8, 1980, Chartwell filed this action seeking to enjoin appellees from selling equipment that would enable nonsubscribers to receive Chartwell's programs. Chartwell based its claim on an implied right of action under Section 605 of the Communications Act. ¹ A number of claims based on state law were joined to the federal claim, Chartwell asserting pendent jurisdiction.

On July 8, 1980 a temporary restraining order was issued which prevented appellees from selling or distributing decoders. Appellees filed a motion to dismiss, contending that Section 605 did not provide a private cause of action, that a private cause of action could not be implied under the four part test of Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975), and that, in any case, they had not violated the statute. On August 14, 1980 the district court dismissed the complaint on the ground that a private right of action could not be implied for Chartwell under Section 605. Chartwell's request for an injunction pending appeal was denied by the district court. On August 15, 1980 Judge Kennedy of this court, acting as a single circuit judge pursuant to Fed.R.App.P. 8(a), granted Chartwell an injunction pending review by the court. On September 15, 1980 a panel of this court continued the injunction until final determination of the merits of this appeal.

We are called upon by Chartwell to decide two questions. First, does Section 605 give Chartwell a private right of action to enjoin the appellees from selling decoders? Second, assuming Chartwell does have a cause of action, is Chartwell entitled to a continuance of the preliminary injunction until the merits of the case are determined?

We think that before we can consider whether an implied remedy exists for Chartwell under Section 605, we must resolve two threshold questions. The first question is whether the proviso in the last sentence of Section 605 applies to Chartwell's method of operation. It provides that the protections of the statute shall not apply to "broadcasting" for "the use of the general public." If Chartwell is "broadcasting" for "the use of the general public" then, by definition, it is not protected by Section 605. The second question is, even if Chartwell is not so "broadcasting," does the appellees' activity in fact violate Section 605. If, despite the fact that Chartwell is not "broadcasting," appellees have not violated Section 605, Chartwell has no cause of action. ²

Section 605 protects radio communications, (which include television communications, see, Allen B. DuMont Laboratories v. Carrol, 184 F.2d 153 (3rd Cir. 1950), cert. denied, 340 U.S. 929, 71 S.Ct. 490, 95 L.Ed. 670 (1951)) from unauthorized reception, interception, divulgence, publication, etc. However, radio communications broadcast for the use of the general public are not protected. The relevant portion of Section 605 provides:

No person not being authorized by the sender shall intercept any radio communication and divulge or publish the existence, contents, substance, purport, effect or meaning of such intercepted communication to any person. No person not being entitled thereto shall receive or assist in receiving any interstate or foreign communication (or any information therein contained) for his own benefit or for the benefit of another not entitled thereto... This section shall not apply to the receiving, divulging, publishing, or utilizing the contents of any radio communication which is broadcast or transmitted by amateurs or others for the use of the general public, or which relates to ships in distress.

"Broadcasting" is defined in 47 U.S.C. § 153 as follows:

(o) "Broadcasting" means the dissemination of radio communications intended to be received by the public, directly or by the intermediary of relay stations.

The specific question for determination here is whether over-the-air subscription television (STV) is broadcasting for the purposes of Section 605. Subscription radio and television have been in existence for over 30 years, but their widespread availability to residential consumers is a relatively recent phenomenon. There has been very little litigation on the question of unauthorized reception of subscription television signals and the remedies, if any, available to the subscription television services.

The leading case on the distinction between communication that is broadcasting and communication that is not broadcasting, and the starting point of our analysis, is Functional Music, Inc., v. F.C.C., 274 F.2d 543 (D.C.Cir.1958). Functional Music was an FM radio station that provided a background music subscription service to commercial establishments. Subscribers received only the music portion of the station's regular FM broadcasts. Special equipment was installed in each subscriber's establishment that deleted all advertising material. An electronic signal was transmitted immediately prior to and after each commercial that turned off and then reactivated the specially equipped receivers. This type of FM transmission is known as simplex transmission.

The FCC determined in 1955 that background music subscription services provided by FM radio stations were not broadcasting, within the meaning of 47 U.S.C. § 153(o ), and therefore were not properly transmittable by stations licensed to provide a broadcasting service. The FCC established a rule that relegated subscription background music programs to an FM sub-carrier frequency on a multiplex transmission system an electronic system that allows transmission of multiple signals on a standard allocated FM channel. Functional Music brought an action challenging the FCC's ruling that the subscription service it was providing on a simplex basis (i. e. an FM program that can be received by anyone but with commercials deleted for subscribers) was not broadcasting.

The Commission's determination that background music was not broadcasting was based primarily on the content of the programming. According to the Commission the presentation of a highly specialized program format, deletion of advertising from subscribers' receivers and the charging of a fee for these services compelled the conclusion that background music programs constituted point-to-point communication. The Court of Appeals overruled the FCC's determination, noting that the critical factor in determining whether a particular activity is broadcasting is not the specialized content of the programming, but whether the programming is intended for the general public. The court found it clear that Functional Music intended its programs for the general public. The programs carried...