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HOME BOX OFFICE, INC. v. ADVANCED CONSUMER TECH.

November 6, 1981

HOME BOX OFFICE, INC., Plaintiff, against ADVANCED CONSUMER TECHNOLOGY, MOVIE ANTENNA, INC., RICHARD S. KALIN, Defendants.


The opinion of the court was delivered by: SOFAER

OPINION AND ORDER

ABRAHAM D. SOFAER,D.J.:

The scheme sought to be enjoined in this litigation is a straightforward attempt by defendants to exploit a television service offered by plaintiff Home Box Office, Inc. ("HBO") to paying subscribers. Before being temporarily restrained on January 29, 1981, defendants manufactured and sold equipment that permitted purchasers to intercept HBO programs and thus avoid the need to pay HBO's subscription fee. Defendant Advanced Consumer Technology ("ACT") manufactured the equipment, which was distributed by defendants Movie Antenna, Inc. ("MAI") and MAI's president, Richard Kalin, among others. Plaintiff now seeks permanently to enjoin defendants from reanufacturing, selling, or advertising this equipment. For the reasons set forth in this opinion, and on the basis of the following findings, an injunction is granted.

 I. Factual Background

 HBO transmits a variety of motion pictures, sports events, and other entertainment programs, generally unavailable on commercial television. It owns and has registered the copyrights to many of the programs it provides. HBO does not transmit the programs directly to its ultimate customers; rather, the programs are sent to affiliates who sell HBO service on a retail basis, and who pay to HBO a large portion f the revenues they collect. HBO programs do not contain commercial advertisements; its sole source of revenue from its television business are the payments it receives from affiliates.

 In the New York City area, HBO transmits its programs to affiliates in two ways: by underground cable and through the air via microwave signal. Only the latter method of transmission is at issue in this litigation. To provide microwave service, HBO leases time on transmitters owned by the Microband Corporation of America ("Microband"), a common carrier licensed by the Federal Communications Commission ("FCC") to provide a service called Multipoint Distribution Service ("MDS"). Microband's MDS operates on a portion of the radio band, 2150-2162 megahertz ("MHz"), that has been allocated by the FCC specifically for "point-to-point" microwave transmission. Nicroband provides access to its MDS system on a first-come, first-served basis, pursuant to a tariff that it files with the FCC. Only one entity may lease an MDS channel at any given time and, in New York City, HBO is Microband's only subscriber.

 The microwave signed transmitted by HBO cannot be received on conventional television sets without supplemental equipment. To receive HBO programing, one must have a special antenna, designed to pick up the relatively high-frequency MDS signal, and a down-converter that transforms the signal to a frequency that conventional television sets are able to receive. *fn1" The antenna and down-converter are supplied by HBO's affiliates to customers who pay a monthly subscription charge. The affiliate installs an antenna and down-converter on the roof of each house or apartment building within range of the MDS signal, and in which HBO service is desired. The signal is received by the antenna, down-converted, and then transferred to individual television sets through wire cables. Many HBO affiliates also provide their customers with other non-commercial television services, most of which are transmitted via cable rather than by radio signal.

 Defendant ACT manufactures an antenna and down converter that enables purchasers to receive MDS' on conventional television sets. ACT had been selling this equipment to outlets and customers throughout the nation, until it was forced to stop doing so in California by statute, and in all other states by this Court's temporary injunction. Defendant MAI was incorporated by defendant Richard Kalin to sell these products to the general public in the New York City area.The equipment is technologically simple, and can be installed by the purchaser. In some cases, a customer must purchase an extra power source to transmit the signal from the antenna and down-converter to his television set. In the New York City area, the ACT equipment can only be used to receive HBO programming. If another entity leased MDS time from Microband, however, its signal could be received by anyone who owned the ACT product.

 HBO, or any other MDS user, can provide some protection from unauthorized reception by arranging with Microband to seramble its MDS signal. A scrambled signal is received, by those who possess the appropriate microwave equipment, in unintelligible form.To see the proper image, the receiving party must have a descrambler. HBO thus far has chosen not to scramble its signal.

 ACT also sells a device known as an Earth Station, which is a large antenna capable of receiving signals trasmitted by satellites, amplifying them, and converting the signals to a frequency that can be tuned by conventional television sets. Earth Stations are apparently capable of receiving all or most of the signals that are now transmitted by satellite, including a large number of television broadcasts and private telephone communications. Transcript ("Tr.") 84-85 (Testimony of Mark Elden). Many of these communications are protected by scrambling, but descramblers may also be used in conjunction with Earth Stations. *fn2"

 HBO alleges that defendants' activities violate section 605 of the Communications Act of 1934, federal copyright and trademark laws, and various state laws. Defendants' activities do in fact violate section 605, so no need exists to reach and decide plaintiff's other claims. *fn3"

 II. Section 605 of the Communications Act of 1934

 Section 605 of the Communications Act of 1934 provides in pertinent part that no unauthorized person "shall receive or assist in receiving any interstate or foreign communications... for his own benefit or for the benefit of another not entitled thereto." 47 U.S.C. ┬ž 605. Defendants have undoubtedly assisted others in receiving interstate communications, for the purpose of profiting on sales of equipment that enables non-subscribers to obtain HBO services for which they have not paid. The statute further provides, however, that its prohibitions "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...." Id. Defendants claim that this proviso removes their conduct from section 605's prohibition, because HBO's transmissions are broadcast for general consumption.

 The problems posed by this litigation stem from the recent revolution in microwave technology that enables consumers willing to make a modest investment in simple equipment to receive MDS transmissions that previously were available only to authorized persons or at substantial cost. The FCC has considered many of the problems associated with these technological advances and has breliminarily concluded that the unauthorized interception of MDS broadcasts violates section 605. FCC, Public Notice, Unauthorized Interception and Use of Multipoint Distribution Service (MDS) Transmissions (Jan. 24, 1979). Courts have nevertheless felt free to construe section 605 independently of the FCC's judgment, and while most decisions have been consistent with the FCC's position, National Subscription Television v. S & H TV, 644 F.2d 820 (9th Cir. 1981), rev'g No. 80-829 (C.D. Cal. Aug. 4, 1980); Chartwell Communications Group v. Westbrook, 637 F.2d 459 (6th Cir. 1980); Home Box Office, Inc. v. Pay TV of Greater New York, Inc., 467 F. Supp. 525 (E.D.N.Y. 1979), there is some authority to the contrary, Orth-O-Vision, Inc. v. Home Box Office, Inc., 474 F. Supp. 672 (S.D.N.Y. 1979) (dictum).

 Defendants contend that HBO transmissions are "intended for the use of the general public," and therefore fall outside the reach of section 605. Memorandum in Opposition to Application for Injunction at 6. HBO's microwave broadcasts should be viewed as intended for the general public, defendant contend, because its signal can be received by equipment widely available to, and within the means of, the general public, and HBO has taken no steps to protect its signal from unauthorized reception; because HBO's programs are ...


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