TKR Cable Co. v. Cable City Corp.

• Decision Date: 01 October 2001
• Docket Number: No. 98-5341,98-5341
• Citation: 267 F.3d 196
• Parties: (3rd Cir. 2001) TKR CABLE COMPANY, v. CABLE CITY CORPORATION; JAY GRABERT; CHRIS SCHAD; JOHN DOES 1-10; JANE DOES, 1-10; UNIDENTIFIED CORPORATIONS 1-10; UNIDENTIFIED BUSINESS ENTITIES 1-10; MADELAINE MURPHY; KENNY JOHNSON; ONE STEP AHEAD, INC., CABLE CITY, INC., JAY GRABERT AND CHRIS SCHAD, APPELLANTS
• Court: U.S. Court of Appeals — Third Circuit

Page 196

267 F.3d 196 (3rd Cir. 2001)

TKR CABLE COMPANY, v. CABLE CITY CORPORATION; JAY GRABERT; CHRIS SCHAD; JOHN DOES 1-10; JANE DOES, 1-10; UNIDENTIFIED CORPORATIONS 1-10; UNIDENTIFIED BUSINESS ENTITIES 1-10; MADELAINE MURPHY; KENNY JOHNSON; ONE STEP AHEAD, INC., CABLE CITY, INC., JAY GRABERT AND CHRIS SCHAD, APPELLANTS

No. 98-5341

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Argued April 17, 2001

October 1, 2001

On Appeal from the United States District Court for the District of New Jersey District Judge Garrett E. Brown, Jr.

Eugene P. Franchino (argued), 3 Mills Court Flemington, New Jersey 08822, Attorney for Appellants

Patrick J. Sullivan (argued), Daniel J. Lefkowitz, Lefkowitz, Louis and Sullivan, 350 Jericho Turnpike, Suite 300 Jericho, New York 11753, Attorneys for Appellee

Before: Alito, Rendell, and Fuentes, Circuit Judges

OPINION OF THE COURT

Fuentes, Circuit Judge.

TKR Cable Company ("TKR") brought this action against sellers of cable television descramblers, seeking statutory damages and injunctive relief for alleged violations of 47 U.S.C. SS 553 and 605. On cross-motions for summary judgment, the District Court determined, among other things, that (1) the defendants had conducted 16 sales of cable descramblers in violation of SS 553 and 605, and (2) through these sales, the defendants had assisted in the interception of radio communications and therefore were subject to the more severe statutory penalties of S 605, rather than the relatively lenient penalties of S 553. After an evidentiary hearing on damages, the court imposed the minimum damages pursuant to S 605 of $10,000 per device, for a total of $160,000. The court also awarded counsel fees and granted injunctive relief.

The issue on appeal is whether S 605, which prohibits the unauthorized interception of radio communications, applies to the sale of cable decoding equipment. The defendant sellers, Cable City Corporation and its officers Jay Grabert and Chris Schad (collectively "Cable City"), argue that S 553 is the sole statutory remedy for cable piracy of signals sent over terrestrial cable lines, and that S 605 applies only against offenders who directly intercept satellite or radio broadcasts as they pass through open air.

We hold that a cable television descrambler does not facilitate the interception of "communications by radio" and therefore the statutory damages available under S 605 do not apply here. Accordingly, we will vacate the penalties imposed and remand the case for further proceedings.

I.

TKR, based in Piscataway, New Jersey, provides cable television services under the authority of various municipal franchises it has purchased. These franchises authorize TKR to construct, operate, and maintain cable television systems in parts of Middlesex, Monmouth, and Somerset counties. TKR offers its subscribers programming in packages, which include Basic and Standard services, as well as the option to elect premium programming services, such as Cinemax, Home Box Office ("HBO"), and Showtime, each at an additional monthly charge. TKR also offers Pay-Per-View programming, providing subscribers the opportunity to purchase individual movies, sporting events, or other entertainment at a per event fee. TKR transmits the signals for all of its cable television services from its reception facilities in Piscataway to the homes of subscribers through a network of cable wiring and equipment. To prevent subscribers from receiving services they have not purchased, TKR encodes the signals, providing paying subscribers with a decoder that deciphers transmissions for the appropriate channels. Scrambling constitutes the primary means by which TKR, as well as most cable service providers, prevent theft of their transmissions.

In spite of TKR's precautions, the cable theft business persists. Cable pirates have permeated the marketplace with unauthorized decoders that render viewable previously scrambled transmissions. In most cases, TKR cannot detect or prevent the theft of its programming services without permission from a subscriber to inspect his or her home.

Cable City conducted a cable piracy operation out of an office in Matawan, New Jersey. Specifically, Cable City sold cable television decoders to the public, offering descrambling services to the region for a profit. Cable City represented to customers that its descramblers were "bullet protected" or "bullet proof," meaning that they could circumvent TKR's electronic security measures designed to disable pirate decoders. Cable City advertised and marketed its illicit wares to TKR's subscribers via "Val-Pak" direct mailings, promoting their descramblers as devices designed for use on TKR's cable television system.

TKR initially noticed Cable City's activities in or around April 1996 when some of its employees received these Val-Pak mailings. The advertisements stated that Cable City sold cable television decoders, remarking in smaller print, "Anyone implying theft of cable services will be denied a sale." The mailings further stated in yet smaller print, "It Is Not The Intent Of Cable City To Defraud Any Pay Television Operator And We Will Not Assist Any Company Or Individual In Doing The Same." In response to these developments, TKR retained a private investigator who visited Cable City's office and later purchased a descrambler based upon the representation of a Cable City sales agent that the device would "get" all of the premium and Pay-Per-View channels. During testing at TKR's facility, the descrambler received and permitted viewing of all of TKR's scrambled programming services, including premium and Pay-Per-View programming.

On June 14, 1996, TKR sought and obtained an ex parte temporary restraining order from the District Court, enjoining Cable City from further sales of cable television descramblers. The order further froze the defendants' business and personal assets and granted expedited discovery. The order additionally authorized the seizure of cable television descramblers, business records, and the proceeds of descrambler sales.

After a hearing on June 27, 1996, the court issued an order entering a preliminary injunction: (1) enjoining the continued sale or marketing of decoders; (2) enjoining the alteration, removal, or destruction of any business records concerning transactions involving decoders; (3) enjoining the transfer, withdrawal, or encumbrance of any assets without a showing that such action would be necessary for personal expenses or legitimate business expenses; (4) reaffirming the prior grant of expedited discovery; and (5) imposing upon the defendants a duty to notify TKR of their subsequent obtainment of any of the above items (i.e., cable decoders, business records, illicit proceeds) and to retain such items pending a further order of the court. See TKR Cable Co. v. Cable City Corp., No. 96-2877(GEB), 1996 WL 465508, at *12 (D.N.J. July 29, 1996).

Following discovery, the parties filed cross-motions for summary judgment. On January 27, 1998, the District Court granted TKR's motion for summary judgment as to all but one defendant, holding Cable City liable under both 47 U.S.C. SS 553 and 605. The District Court also entered a permanent injunction prohibiting Cable City "from selling or otherwise distributing any equipment intended for unauthorized reception of any communication service offered over [TKR's] cable system." TKR Cable Co. v. Cable City Corp., No. 96-2877(GEB), slip op. at 11, 13 (D.N.J. Jan. 27, 1998); see also 47 U.S.C. S 553 (1991 & Supp. 2001); 47 U.S.C. S 605 (1991 & Supp. 2001). The court denied Cable City's cross-motion for summary judgment. Id. The District Court determined that S 605(a) applies to Cable City's conduct, stating that "the prohibition contained in section 605(a) against the unauthorized interception of `radio communications' has also been interpreted to include cable television transmissions." Id. at 4 (quoting TKR Cable Co. v. Cable City Corp., 1996 WL 465508, at *6). Following a subsequent hearing on damages, the District Court issued a memorandum opinion, finding that Cable City had made 16 decoder sales. See TKR Cable Co. v. Cable City Corp., No. 96-2877(GEB), slip op. at 5-6 (D.N.J. June 11, 1998). In accordance with S 605, the court assessed statutory damages of $10,000 per violation, amounting to a total damage award of $160,000, plus attorneys' fees and costs of $96,514.33. Id.; see also TKR Cable Co. v. Cable City Corp., No. 96-2877(GEB), slip op. at 2 (D.N.J. Jan. 25, 1999). Cable City filed this appeal.

The District Court exercised jurisdiction pursuant to 28 U.S.C. S 1331. We have jurisdiction under 28 U.S.C. S 1291. With respect to the District Court's decision to enter a temporary restraining order and a preliminary injunction freezing the defendants' assets, we review the District Court's legal conclusions de novo, its factual findings for clear error, and its ultimate decision to grant injunctive relief for an abuse of discretion. Maldonado v. Houstoun, 157 F.3d 179, 183 (3d Cir. 1998). Regarding the District Court's decision to grant summary judgment to TKR, our review is plenary. Pennsylvania Ass'n of Edwards Heirs v. Rightenour, 235 F.3d 839, 841 (3rd Cir. 2000). Summary judgment is appropriate where the record, viewed in the light most favorable to the non-moving party, shows that there is no genuine issue of material fact and that the moving party is entitled to summary judgment as a matter of law. Stanziale v. Jargowsky, 200 F.3d 101, 105 (3d Cir. 2000) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986)).

II.

Cable City's principal argument is that the District Court erred in subjecting it to the exacting liability provisions of S 605, rather than assessing liability under the milder provisions of S 553.¹ Section 605 subjects Cable City to a minimum liability of $10,000 in damages for each of its...