Directv, Inc. v. Rawlins

• Decision Date: 21 April 2008
• Docket Number: No. 06-1430.,06-1430.
• Citation: 523 F.3d 318
• Parties: DIRECTV, INCORPORATED, Plaintiff-Appellant, v. John J. RAWLINS, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

523 F.3d 318 DIRECTV, INCORPORATED, Plaintiff-Appellant,
v.
John J. RAWLINS, Defendant-Appellee. No. 06-1430. United States Court of Appeals, Fourth Circuit. Argued: December 7, 2007. Decided: April 21, 2008.

[523 F.3d 319]

ARGUED: Howard Robert Rubin, Sonnenschein, Nath & Rosenthal, L.L.P., Washington, D.C., for Appellant. Ray Martin Kline, Raleigh, North Carolina, for Appellee. ON BRIEF: Samuel Bryant Davidoff, Sonnenschein, Nath & Rosenthal, L.L.P., Washington, D.C., for Appellant.

Before DUNCAN, Circuit Judge, HAMILTON, Senior Circuit Judge, and CATHERINE C. BLAKE, United States District Judge for the District of Maryland, sitting by designation.

[523 F.3d 320]

Vacated and remanded by published opinion. Judge DUNCAN wrote the opinion, in which Senior Judge HAMILTON joined. Judge BLAKE wrote a separate concurring opinion.

OPINION

DUNCAN, Circuit Judge:

Appellant DIRECTV, Inc. ("DIRECTV"), a satellite television service provider, commenced this action in the Western District of North Carolina against appellee John Rawlins. DIRECTV alleged that Rawlins utilized illegal devices to access DIRECTV television programming beyond the level of his paid subscription in violation of, as relevant here, the Cable Communications Policy Act of 1984 (the "Cable Act"), 47 U.S.C. § 605(a), and the Electronic Communications Privacy Act of 1986 (the "Wiretap Act"), 18 U.S.C. § 2511. After Rawlins failed to respond, the district court entered default judgment against him under both statutes. The court permanently enjoined Rawlins from continuing to violate the laws and awarded DIRECTV attorney's fees and costs. However, the court declined to award the statutory damages DIRECTV requested under either of the relevant statutory provisions.

On appeal, DIRECTV challenges only the district court's denial of statutory damages under the Wiretap Act. Finding that the district court abused its discretion, we vacate the judgment and remand for further proceedings consistent with this opinion.

I.

This litigation arises in the wake of recent dramatic technological changes in the home entertainment industry, a brief description of which provides the context for our decision here. DIRECTV provides satellite television programming to its customers through subscription services and pay-per-view options. Programming content is distributed to customers via encrypted (i.e., scrambled) signals, which are sent to satellite dishes, decrypted by receivers, and then delivered to customers' televisions. DIRECTV manages the amount and type of content provided to customers by the use of "access cards," small credit card-sized devices containing chips that instruct receivers to decrypt only those signals covered by individual customers' subscription packages. These access cards also monitor customers' pay-per-view purchases.

This method of home television viewing is a fairly recent innovation. See H.R.Rep. No. 100-887(II), at 10 (1988), reprinted in 1988 U.S.C.C.A.N. 5577, 5639 (discussing history of satellite-relayed cable programming). In 1975, Home Box Office Inc. ("HBO") began delivering movies to cable television operators via satellite. These cable operators would pay HBO, and later other satellite carriers, per-subscriber fees for access to their signals, and then deliver the signals to subscribers over cable wire. Problems arose after technological advances enabled owners of backyard satellite dishes to receive satellite carriers' signals directly, without paying the carriers or the cable operators. The legality of this practice was immediately challenged. Though not explicitly prohibited by statute, the practice was considered illegal by the Federal Communications Commission ("FCC") and held by several courts to be a prohibited use of satellite signal. However, satellite carriers were not content to rely on the legal system to prevent this type of access to their signal. Thus, they began using encryption technology and providing decryption capacity only to paying customers, effectively cutting off access to others. Id.

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In 1984, the Cable Act was enacted, clarifying the law respecting use of this technology. It legalized the sale and use of backyard dishes, authorized owners of these dishes to receive unencrypted signals under certain circumstances, and increased penalties for unauthorized signal reception, including the reception of encrypted signals. Two years later, Congress passed the Wiretap Act to enhance Federal privacy protection in the rapidly evolving telecommunications industry. See 132 Cong. Rec. S14441-04 (daily ed. Oct. 1, 1986) (statement of Sen. Leahy) (describing the need for updates to the then-existing law in light of technological advances and the cumbersome structure of the telecommunications industry). In the years following the passage of these Acts, satellite television became a multi-billion dollar business. As the industry grew, so too did efforts to gain unauthorized access to its programming.

DIRECTV entered the market in 1994, providing, as an alternative to cable television, all-digital multi-channel television programming delivered directly to home viewers via satellite. Before long, technologically sophisticated scofflaws found methods for reprogramming or replacing DIRECTV access cards with illicit decoder technology that allowed home viewers, or "end-users," to gain access to DIRECTV programming without payment. In response, DIRECTV developed electronic counter-measures, including, for example, transmitting occasional bursts of data that had the effect of disabling unauthorized access cards without harming legitimate DIRECTV access cards. In short order, however, a market emerged around the design and sale of illegal "pirate access devices," which restore the ability of disabled access cards to unscramble DIRECTV's encrypted signals or otherwise allow their users to gain access to DIRECTV's signal without payment.

In addition to availing itself of technological remedies, DIRECTV has increasingly turned to the legal system. Utilizing civil enforcement mechanisms contained in the Cable Act and the Wiretap Act, DIRECTV has aimed to curb piracy by filing complaints against alleged violators, seeking injunctive relief, damages, attorney's fees and costs. To date, DIRECTV has initiated anti-fraud and anti-piracy enforcement actions against more than 25,000 defendants. See DIRECTV, Inc. v. Hoa Huynh, 503 F.3d 847, 850 (9th Cir. 2007) (citing website maintained by DIRECTV chronicling its anti-piracy litigation efforts). The case before us is one such action.

II.

On December 1, 2001, and January 28, 2002, with the assistance of the United States Marshals Service, DIRECTV executed writs of seizure on "The Computer Shanty" and "EQ Stuff," two alleged sellers of pirate access devices. Among the items confiscated were business records that implicated Rawlins, among others. According to the seized records, Rawlins purchased the following illegal devices from The Computer Shanty: one "Netsignia 210 Programmer," one "ULPRO X Super Unlooper," and one "ULTCOMBO," which consists of a "Shanty Unlooper," a "Shanty PS2 Blue Emulator," a "Shanty Programmer," and a "Shanty Bootloader."¹ From EQ Stuff, Rawlins purchased

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one "EQ Zapulator" (a type of emulator) and one "EQ Amtel Programmer." Rawlins had each of these devices shipped to Charlotte, North Carolina, and used them to display and view DIRECTV programming without authorization. Rawlins paid a total of $852.00 for these devices. See J.A. 42-44.

On the basis of this information, DIRECTV filed a civil complaint against Rawlins on September 3, 2004, alleging, inter alia, violations of the Cable Act and Wiretap Act. When Rawlins failed to appear, the clerk entered Rawlins's default upon DIRECTV's motion.² DIRECTV thereafter moved for default judgment, seeking a permanent injunction, statutory damages,³ attorney's fees and costs. On March 8, 2006, the district court granted the motion for summary judgment with respect to DIRECTV's Cable Act and Wiretap Act claims.⁴

Turning to the requested relief, the court permanently enjoined Rawlins from violating 47 U.S.C. § 605(a) or 18 U.S.C. § 2511, and awarded DIRECTV costs and fees in the total amount of $556.96. The district court did not, however, grant DIRECTV statutory dam-ages under either Act. Relying on the plain language in each statute, the court found that, under the Cable Act, "[t]he award of statutory damages . . . is committed to the Court's discretion," and that, under the Wiretap Act, a court likewise "may, in its discretion, refuse to award any damages." J.A. 73, 67; see Nalley v. Nalley, 53 F.3d 649, 650 (4th Cir.1995) (holding that the Wiretap Act "gives the district court discretion to decline to award damages even though a violation may have occurred."). Though the court recognized that "an award of statutory damages [under the Wiretap Act] may serve the legitimate and useful purpose of deterrence," it found "that this purpose can be met by an award of costs and attorneys' fees" on the particular facts of this case. J.A. 68. The court similarly declined to award statutory damages under the Cable Act, finding injunctive relief, costs, and fees to be "sufficient deterrents." J.A. 74.

On appeal, DIRECTV seeks review only of the district court's refusal to award statutory damages under the Wiretap Act, 18 U.S.C. § 2520(c)(2). Significantly, DIRECTV did not appeal the denial of damages

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under the Cable Act, 47 U.S.C. § 605(e)(3)(C)(I)-(II), and acknowledged at oral argument that the district court did not abuse its discretion in that regard. We review the district court's denial of statutory damages under the Wiretap Act for abuse of discretion. See Nalley, 53 F.3d at 654. A district court abuses its discretion if it fails "adequately to take into account judicially recognized factors constraining its exercise," or if it bases its exercise of discretion on an...