GAGLIARDI, District Judge:
Plaintiff Orth-O-Vision, Inc. ("Orth-O-Vision") has commenced this action against Home Box Office, Inc. ("HBO"), Time, Inc. ("Time"), and Morris Tarshis, Director of Franchises of the City of New York, alleging inter alia, violations of the federal antitrust laws and breach of contract. Jurisdiction lies pursuant to 28 U.S.C. §§ 1337, 1343(3) and principles of pendent jurisdiction. Defendants Time and HBO have counterclaimed for violations of the Federal Communications Act, the Copyright Act, New York's Penal Law and the common law of unfair competition. Time and HBO now move for partial summary judgment on each of these claims and a permanent injunction restraining Orth-O-Vision from appropriating HBO's subscription program service. Alternatively, Time and HBO move for a preliminary injunction restraining Orth-O-Vision from infringing HBO's copyrights. For the reasons stated and to the extent indicated below, HBO's motion for partial summary judgment and a permanent injunction is granted.
Statement of Facts
HBO, a subsidiary of Time, transmits a pay television subscription program service from a microwave transmitter atop the Empire State Building. HBO's programming consists both of programs originated and copyrighted by HBO and programs, such as motion pictures and sporting events, the performance rights to which it has acquired through licensing agreements. HBO leases its microwave transmitter from Microband Corporation of America ("Microband"), a common carrier licensed to provide Multipoint Distribution Service ("MDS") by the Federal Communications Commission ("FCC"). HBO has contracted with a number of affiliates to provide its program service to multiple fixed receive points, generally large residential buildings, for a monthly service fee. The affiliates, in turn, acting as middlemen, sell the program service to individual residents. Each building is equipped with reception equipment, including a microwave parabolic antenna, a frequency down-converter, an address decoder, and a coaxial cable or antenna lead-in wire which feeds the MDS generated signals to home television receivers. Individual subscribers pay a monthly fee to the affiliates for the program service.
In addition, the agreement provided that in the event of Orth-O-Vision's breach of any of the terms or provisions, HBO "may, at its option, suspend delivery of the HBO Service until such default is ended or remedied, terminate this Agreement, or may declare this Agreement breached and all unpaid amounts including all Minimum Payments immediately due and payable."
Orth-O-Vision's president, Alfred Simon, contends that in the course of the negotiation of the 1974 agreement, HBO officials represented to him that, notwithstanding the unambiguous contractual provisions to the contrary, Orth-O-Vision would be permitted to defer payments to HBO for its program service until such time as Orth-O-Vision had the financial capability to pay and that Orth-O-Vision would have the unlimited right to expand its operations throughout the Borough of Queens. Simon further contends that HBO reaffirmed these oral understandings after the execution of the 1974 agreement. Defendants deny having made any such oral representations to Simon either before or after the execution of that contract.
From the commencement of their relationship in 1974, Orth-O-Vision's payments to HBO were sporadic and incomplete. In November, 1974, the parties met to discuss both Orth-O-Vision's indebtedness to HBO and its right to expand into other buildings. HBO's officers informed Simon that any further expansion had to be "on a solid financial base," and Orth-O-Vision agreed to make minimum monthly payments to HBO of $4500. Orth-O-Vision failed to meet this new payment schedule and in early 1975, HBO sent a letter to Orth-O-Vision stating that Orth-O-Vision's outstanding indebtedness exceeded $31,000 and threatening to terminate HBO's service within forty-five days. This threat was not carried out. In April, 1975, the parties met once again and Orth-O-Vision agreed to pay receivables on a current basis and an additional $27,000 over the following year to cover arrearages. Once again, Orth-O-Vision failed to make the required payments. In October, 1975, HBO sent Orth-O-Vision notice of termination of the contract because of its continued inability to pay. The parties again met to resolve their differences in November, 1975, and HBO agreed to rescind its termination in exchange for Orth-O-Vision's promise to make minimum monthly payments of $2,000 in liquidation of the total amount then due of $65,000. Orth-O-Vision's payments remained sporadic.
Through 1975, the parties also disagreed as to Orth-O-Vision's right to expand its operations to other apartment buildings in Queens. HBO informed Orth-O-Vision that no further expansion would be permitted as a result of New York's enactment of legislation limiting the expansion of MDS systems within the state.
In March, 1976, notwithstanding their earlier disputes, Orth-O-Vision and HBO met to discuss a new affiliation agreement. Simon contends that in the course of these negotiations HBO officials told him that Orth-O-Vision would have to give up its rights to deferral of payments to HBO. In addition, HBO's officials allegedly told Simon that Orth-O-Vision would not be permitted to expand until New York changed its law. Simon contends that he told HBO that he disagreed with its interpretation of New York law. Nevertheless, in July 1976, Orth-O-Vision and HBO entered into a new affiliate agreement superseding the 1974 agreement. Orth-O-Vision was represented by counsel during the course of these negotiations.
Under the 1976 agreement, Orth-O-Vision agreed to pay to HBO $5.00 per month per subscriber. In a separate letter agreement, Orth-O-Vision agreed to pay back its indebtedness of approximately $118,000 in monthly installments of at least $2500. The new affiliate agreement listed approximately thirty-two apartment complexes to which Orth-O-Vision would be permitted to sell HBO's program service and expressly provided that any further expansion would require HBO's consent. The parties clearly viewed MDS as a precursor to cable television in Queens. HBO was expressly permitted to terminate the agreement on forty-five days' written notice if it entered into an agreement to supply programming to a cable television system franchised to operate in Queens. If HBO terminated the agreement pursuant to this clause, it would be required to "make all reasonable efforts" to encourage the cable television system to agree to purchase Orth-O-Vision's assets and subscribers "for reasonable compensation". In the event of Orth-O-Vision's breach, HBO again retained the right either to suspend delivery until the default were remedied, terminate the agreement, or declare the agreement breached and accelerate Orth-O-Vision's payment obligation. The agreement once again recited that it contained the "full understanding of the parties" and that any modification or waiver of its provisions would have to be in writing.
Since commencing this lawsuit in June, 1977, Orth-O-Vision has not made any payments to HBO despite the fact that Orth-O-Vision has continued to market HBO's program service to Queens subscribers. Nor has Orth-O-Vision supplied HBO with the monthly subscriber reports required by the contract. Orth-O-Vision's stated justifications for these actions are: 1. the oral understanding with HBO permits Orth-O-Vision to defer payment until it is sufficiently profitable; and 2. the damages sought by Orth-O-Vision from HBO exceed the amount owed pursuant to the contract. Orth-O-Vision currently owes HBO approximately $750,000 and, over the entire course of its relationship with HBO, Orth-O-Vision has made payments of only $187,951.92. On August 17, 1978, counsel for HBO informed Orth-O-Vision, through its counsel, that the 1976 affiliate agreement was terminated and that Orth-O-Vision should cease the appropriation of HBO's signal. MDS technology did not permit HBO to discontinue its transmissions to Orth-O-Vision, but HBO did cease the shipment of subscriber program guides as required by the affiliate contract. In October, 1978, after a hearing,
Orth-O-Vision has continued to market HBO's program service with program guides that identify the service as Orth-O-Vision's and nowhere mention HBO. On November 2, 1978, counsel for HBO again informed Orth-O-Vision's counsel that HBO considered the contract terminated and that Orth-O-Vision's continued interception and use of the HBO signal violated federal and state law. Some of the programs transmitted by HBO are original works in which HBO owns and has registered the copyrights. From September, 1978 through February, 1979 twelve of these copyrighted works were transmitted approximately 50 times in the aggregate to all of HBO's New York area affiliates. Each of those transmissions was intercepted by Orth-O-Vision and retransmitted to its subscribers. HBO has sent monthly bills to Orth-O-Vision since the August, 1978 termination and has, on occasion, referred potential new customers to Orth-O-Vision.
Orth-O-Vision's complaint alleges a conspiracy among defendants HBO, Time and Tarshis in violation of the federal antitrust laws for the purpose of limiting plaintiff's ability to supply pay-television originated by HBO to customers and potential customers in the New York metropolitan area. Orth-O-Vision alleges that Knickerbocker Communications Corporation ("Knickerbocker"), now a Time subsidiary, has applied for a franchise from New York City and State for the delivery of pay television services to the Borough of Queens, and that the defendants have sought to destroy plaintiff's business so that Knickerbocker would be able to obtain a franchise and operate without competition from Orth-O-Vision. In 1978, the New York City Board of Estimate granted a cable television franchise to Knickerbocker for the Borough of Queens.
I. The Propriety of HBO's Termination of the 1976 Affiliate Agreement
Since each of HBO's claims turns upon a finding that Orth-O-Vision lacks the authority to use HBO's signal, the threshold issue on this motion is whether HBO lawfully terminated the 1976 affiliate agreement with Orth-O-Vision. Orth-O-Vision's failure to remit payments to HBO and to submit subscriber reports each month since April, 1977 is clearly a material breach of the 1976 affiliate agreement. That agreement expressly grants to HBO the right, upon Orth-O-Vision's breach of any of its terms, to suspend delivery of its service and terminate its affiliate relationship with Orth-O-Vision. Orth-O-Vision contends, however, that its refusal to pay was justified in light of HBO's oral representations made both before and after the signing of the 1974 agreement to the effect that Orth-O-Vision would be permitted to defer payments until it was financially capable to do so and to expand without limitation.
Orth-O-Vision next contends that HBO's participation in an unlawful conspiracy
Finally, Orth-O-Vision argues that certain of HBO's actions subsequent to the termination of the contract equitably estop HBO from asserting Orth-O-Vision's breach of the agreement. Specifically, Orth-O-Vision contends that HBO, by billing Orth-O-Vision for use of its signal subsequent to termination and referring potential customers for the program service to Orth-O-Vision, acted in a manner inconsistent with the contract's repudiation and must therefore be estopped from terminating it. New York courts have defined the doctrine of equitable estoppel in terms of six essential elements. The party claiming estoppel must establish: 1. conduct by the estopped party which amounts to concealment of material facts; 2. the estopped party's intention that such conduct shall be acted upon by the other party; 3. the estopped party's knowledge of the real facts; 4. the other party's ignorance of the facts; 5. his reliance upon the conduct of the estopped party; and 6. his change of position to his prejudice as a result. Gratton v. Dido Realty Co., Inc., 89 Misc.2d 401, 391 N.Y.S.2d 954, 955 (Sup.Ct.1977), aff'd, 63 App.Div.2d 959, 405 N.Y.S.2d 1001 (1978). Orth-O-Vision's claim of estoppel founders upon virtually every one of these doctrinal elements. HBO's billing of Orth-O-Vision for its use of the signal and its referral of customers to HBO, when considered in conjunction with HBO's letters demanding that Orth-O-Vision desist from the interception of its signal, HBO's termination of the distribution of its program guides, and HBO's vigorous litigation of the instant motion for injunctive relief, can hardly be interpreted as materially misleading behavior. In any event, Orth-O-Vision's affidavits set forth no facts showing that it has relied upon Orth-O-Vision's "equivocal" acts to its detriment. Orth-O-Vision's defense of equitable estoppel must thus be rejected.
Having concluded that HBO's termination of the 1976 agreement deprived Orth-O-Vision of the authority to vend HBO's signal, the court will next consider HBO's various claims for injunctive relief.
II. HBO's Claims for Summary Judgment and Permanent Injunctive Relief
A. The Federal Communications Act Claim
The Federal Communications Act provides a "mantle of privacy" for all communications except radio and television broadcasts intended for the public. KMLA Broadcast Corp. v. Twentieth Century Cigarette Vendors Corp., 264 F.Supp. 35, 39 (C.D.Cal.1967). 47 U.S.C. § 605 provides in pertinent part:
The Federal Communication Act elsewhere defines "radio communication" as "the transmission by radio of . . . signals, pictures, and sounds of all kinds" and "broadcast" as the "dissemination of radio communications intended to be received by the public, directly or by the intermediary of relay stations." 47 U.S.C. § 153(b), (o). In Reitmeister v. Reitmeister, 162 F.2d 691, 694 (2d Cir.1947), the Second Circuit recognized an implied private right of action for violations of this section.
The leading precedent concerning the statutory definition of "broadcast" is Functional Music, Inc. v. FCC, 107 U.S.App.D.C. 34, 274 F.2d 543, cert. denied, 361 U.S. 813, 80 S.Ct. 50, 4 L.Ed.2d 81 (1958). Functional Music involved a functional background music service which had been "superimposed upon traditional [FM] broadcasting services." 274 F.2d at 544. Subscribers, generally commercial institutions, received the petitioner's regularly scheduled broadcasts but with all advertising matter received by the ordinary listener deleted. For a fee, petitioner transmitted a supersonic signal which activated special equipment installed in subscribers' radio receivers to cut off the advertisements heard over conventional receivers. Reasoning that the service's format was highly specialized and directly adaptable to subscribers' needs, and that the petitioner exacted a fee for its services, the FCC concluded that the petitioner's operations were "point-to-point communications" and not properly transmittable by a station licensed to provide a broadcasting service. Id. at 545, 548. The District of Columbia Circuit, per Judge Bazelon, vacated the FCC's order, stating:
Id. at 548 (emphasis in original).
The issue presented in this case is whether the converse of the rule in Functional Music is also true: does the transmission of programming which is of interest to the general public constitute "broadcasting" even though one cannot view the programs
Id. at 9.
From the factual record before the court on this motion for summary judgment, there is little to distinguish HBO's MDS transmissions from those of STV systems. Both media involve the transmission of radio communications that members of the general public cannot receive without the installation of special equipment for a fee. More significantly, HBO's programming, consisting of recent movies, sports events and variety shows, differs little from conventional broadcast fare and is obviously intended to appeal to a mass audience.
One of the important circumstances from which HBO's "intent" might be inferred is the extent to which MDS facilities are technologically capable of reaching the general public. The technological limitations of MDS may be such as to render the analogy to over-the-air subscription television inapt, but no such showing has been made by HBO. Accordingly, HBO's motion for partial summary judgment on its Federal Communications Act claim must be denied.
B. The State Law Claims: Unfair Competition and the New York Penal Law
HBO next claims that Orth-O-Vision's unauthorized use of the HBO program service may be enjoined pursuant to two distinct state law theories. HBO invokes New
This court's initial inquiry must be whether Congress, pursuant to its powers to regulate commence and to grant copyrights, has prohibited New York's regulation of the aspects of commerce involved in this case. Jones v. Rath Packing Co., 430 U.S. 519, 525, 97 S.Ct. 1305, 51 L.Ed.2d 604 (1977); Goldstein v. California, 412 U.S. 546, 561, 93 S.Ct. 2303, 37 L.Ed.2d 163 (1973). Although the Constitution does not prohibit the states from protecting intellectual property, Goldstein, supra, 412 U.S. at 553-61, 93 S.Ct. 2303, when Congress has "unmistakably ordained that its enactments alone are to regulate a part of commerce, state laws regulating that aspect of commerce must fall." Jones, supra, 430 U.S. at 525, 97 S.Ct. at 1309.
Fortunately for our purposes here, Congress, in the Copyright Act of 1976, made its preemptive intentions quite explicit.
In the case of motion pictures and audiovisual works, the Copyright Act grants the copyright owner exclusive rights to "perform" works (to show their images in any sequence or to make the sounds accompanying them audible to the public by means of any process) and to "display" them (to show individual images nonsequentially to the public by means of any process). The common law unfair competition doctrine upon which HBO relies seeks to vindicate equivalent, if not identical, rights; the misappropriation of which HBO complains is the lost right to exhibit for a profit the audiovisual works that comprise its programming. See, Metropolitan Opera Association, Inc. v. Wagner-Nichols Corp., supra, 101 N.Y.S.2d at 492. In the context of this case, "misappropriation" consists simply of acts of public performance. As such, it undoubtedly constitutes a right "within the general scope of copyright as specified by section 106" and HBO's unfair competition claim is preempted by federal law. See, 1 M. Nimmer, supra, 1.01[B], at 1-16 to 1-19.
HBO's New York Penal Law claim arguably survives federal preemption because it may be construed to involve an element which is not part of a cause of action for copyright infringement—the intent to avoid payment. Even if this claim were so construed, HBO has cited no New York authority in support of judicial implication of a private right of action for violations of the statute. Moreover, Orth-O-Vision contends that its intent has been to defer, not to avoid, payment to HBO. An issue of fact is thus presented with respect to this claim which cannot be resolved on HBO's motion for summary judgment.
Accordingly, HBO's motion for summary judgment on both its unfair competition and New York Penal Law claims must be denied.
C. The Copyright Law Claim
As the copyright owner of twelve audiovisual works which have been retransmitted
The initial issue raised by HBO's copyright claim is whether Orth-O-Vision's unauthorized retransmission constitutes infringement. Use of copyrighted material no matter how extensive and widespread is not infringement unless it conflicts with the statutorily recognized exclusive rights. Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 95 S.Ct. 2040, 45 L.Ed.2d 84 (1975). Under the 1909 Copyright Act and two Supreme Court decisions interpreting it, Orth-O-Vision's retransmission of copyrighted material, though unauthorized, would not have been deemed infringement. In Fortnightly Corp. v. United Artists Television, Inc., 392 U.S. 390, 88 S.Ct. 2084, 20 L.Ed.2d 1176 (1968) and again in Teleprompter Corp. v. Columbia Broadcasting System, Inc., 415 U.S. 394, 94 S.Ct. 1129, 39 L.Ed.2d 415 (1974), the Court held that cable television systems do not "perform" copyrighted works when they transmit copyrighted works to subscribers. The Court reasoned that the cable television function of enhancing the subscriber's capacity to receive broadcast signals, irrespective of the distance between the subscriber and the broadcaster or the extent to which the cable operator originated his own programming, was too passive a role to be treated as "performance" and thus did not conflict with the copyright owner's exclusive right to perform his work.
The Copyright Act of 1976, however, has substantially revamped the law of secondary transmissions. Although the 1976 Act does not expressly define secondary transmission as "performance," both the structure of the Act and its legislative history establish clearly that this was the Congressional intent. 2 M. Nimmer, supra § 8.18[B], at 8-195 to -198. Since Orth-O-Vision's secondary transmissions do not fall within the scope of any of the exemptions or limitations set forth in 17 U.S.C. § 111, its secondary transmissions of HBO's copyrighted works constitute acts of infringement.
A permanent injunction, the relief requested by HBO, is frequently granted to the prevailing party in an infringement action as a matter of equitable discretion. See, e. g., Samet & Wells, Inc. v. Shalom Toy Co., Inc., 429 F.Supp. 895, 904 (E.D.N. Y.1977); Fisher-Price Toys v. My-Toy Co., 385 F.Supp. 218, 223 (S.D.N.Y.1974); 3 M. Nimmer, supra, § 14.06[B] at 14-49 to -50. Orth-O-Vision, however, raises two objections to a permanent injunction. First, Orth-O-Vision claims that the court's decree must be limited to the twelve copyrighted works that Orth-O-Vision has already retransmitted to its subscribers. Second, Orth-O-Vision argues that HBO's violations of the antitrust laws bar injunctive relief under the doctrine of unclean hands.
As of the date of the submission of its motion, HBO has transmitted twelve registered copyrighted works which Orth-O-Vision has infringed. The injunction sought by HBO, however, would extend not only to future infringements of those twelve works but also to any future infringement of HBO's shows not yet published or copyrighted. Orth-O-Vision argues that registration of one's copyright in a given work is a statutory prerequisite to commencing an action for its infringement, and that this court cannot enjoin the infringement of any work which has not been registered.
Orth-O-Vision also contends that HBO, by participating in an unlawful conspiracy to drive Orth-O-Vision out of business, has "unclean hands" and is undeserving of equitable relief.
Orth-O-Vision's final claim is that HBO's motion for injunctive relief, representing the culmination of a conspiracy to drive Orth-O-Vision out of business is itself violative of the antitrust laws. Notwithstanding Orth-O-Vision's characterization of HBO's conduct, a party's assertion of non-frivolous legal positions before courts
HBO's motion for partial summary judgment is granted. The court determines that HBO is entitled to a permanent injunction against Orth-O-Vision's infringement of all of HBO's present and future copyrighted works.
Settle decree on five days' notice.
The Sears-Compco doctrine was generally viewed as applicable to copyright law, see, e. g., Cable Vision, Inc. v. KUTV, Inc., 335 F.2d 348, 350 n.1 (9th Cir. 1964), cert. denied, 379 U.S. 989, 35 S.Ct. 700, 13 L.Ed.2d 609 (1965), but a number of lower courts, generally in cases involving "tape piracy", sought to limit its preemptive effect to state laws involving "copying", rather than outright "appropriation" of another's product. See, e. g., Compu-marketing Services Corp. v. Business Envelope Manufacturers, Inc., 342 F.Supp. 776, 777-78 (N.D.Ill.1972); Tape Industries Association of America v. Younger, 316 F.Supp. 340, 350 (C.D. Cal.1970) (three-judge court), appeal dismissed, 401 U.S. 902, 91 S.Ct. 880, 27 L.Ed.2d 801 (1971); Capitol Records, Inc. v. Greatest Records, Inc., 43 Misc.2d 878, 252 N.Y.S.2d 553, 556-57 (1964). This distinction was criticized by courts and commentators alike as insufficiently protective of federal interests. See, e. g., International Tape Manufacturers Association v. Gerstein, 344 F.Supp. 38, 50-54 (S.D. Fla. 1972), vacated for lack of ripeness, 494 F.2d 25 (5th Cir. 1974); 1 M. Nimmer, Copyright § 1.01[B] at 1-17 to -19 (1978 ed.); Note, The "Copying-Misappropriation Distinction: A False Step in the Development of the Sears-Compco Pre-Emption Doctrine, 71 Colum.L. Rev. 1444 (1971). Additional confusion was engendered with the decisions in Goldstein v. California, 412 U.S. 546, 93 S.Ct. 2303, 37 L.Ed.2d 163 (1973) (sustaining state statute affording copyright protection for subject not eligible under federal copyright law) and Kewanee Oil Corp. v. Bicron Corp., 416 U.S. 470, 94 S.Ct. 1879, 40 L.Ed.2d 315 (1974) (sustaining state common law of trade secrets), which some viewed as undermining the Sears-Compco doctrine. Ives Laboratories, Inc. v. Darby Drug Co., 601 F.2d 631, 640, 641 (2d Cir. June 11, 1979).
HBO also claims that Orth-O-Vision, by distributing program guides to subscribers that do not attribute the programming to HBO, has engaged in "palming off', a business tort akin to "unfair competition". Because the element of deception inherent in "palming off" is not an element of a copyright infringement claim, the "passing off" cause of action is not preempted by federal law. 1 M. Nimmer, supra, § 1.01[B], at 1-12 to 1-13. Nevertheless, this is not a case of "palming off" because that tort involves the tortfeasor's misleading customers into believing that the product he produces emanates from or has been endorsed by another. See, Metropolitan Opera Association v. Wagner-Nichols Recorder Corp., supra, 101 N.Y.S.2d at 491. Ortho-O-Vision, by contrast, has apparently misled customers that a service emanating from another has been produced by Orth-O-Vision itself.