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estimating that defendant viewed one special event and seven pay-per-view programs per month given the "limitations that taste, viewing preference, programming selection and time placed on [defendant's] viewing"
Summary of this case from Comcast Cable Communications v. BowersOpinion
01 Civ. 4822 (GEL) (JCF)
April 3, 2002
REPORT AND RECOMMENDATION
Cablevision Systems New York City Corporation ("Cablevision") brings this action pursuant to the Cable Communications Policy Act of 1984 (the "Cable Act"), alleging that Eugenio Rosa illegally intercepted and received cable telecommunications by means of an illegal decoder device in violation of 47 U.S.C. § 553(a) ("§ 553") and 47 U.S.C. § 605(a) ("§ 605"). This case was referred to me for an inquest on damages after a default judgment was entered against Mr. Rosa. A hearing was held on February 5, 2002, and although notice was sent to Mr. Rosa, no one appeared on his behalf. For the reasons that follow, I recommend that plaintiff be awarded statutory damages in the amount of $18,860.00 and attorneys' fees and costs in the amount of $1,144.50.
Background
Cablevision provides cable and television programming to authorized, paying subscribers within Bronx County. (Plaintiff's Complaint ("Compl."), ¶ 6). Programming is offered in the form of "packages" such as "basic" and "standard," which subscribers can elect to receive at set monthly rates. (Compl., ¶ 7). In addition, Cablevision offers various "premium" programming services such as Cinemax, Home Box Office, and Showtime for an additional monthly charge that ranges from $7.00 to $13.00. (Compl., ¶¶ 7, 15). Subscribers may also purchase pay-per-view ("PPV") programming, consisting primarily of special events and movies, for a per-event fee. (Compl., ¶ 8). Individual movies generally cost $5.00 and are available throughout the day; special events can cost as much as $49.99 but are only available sporadically. (Compl., ¶ 15; Tr. 11).
"Tr." refers to the transcript of the evidentiary hearing held on February 5, 2002.
Cablevision distributes its programming over a system of fiber-optic cables after it is received at reception facilities via satellite or radio communication. (Compl., ¶ 10; Tr. 4). In order to watch Cablevision's programming, paying subscribers are provided with a converter, which splits signals into channels, and a descrambler, which decodes programming that Cablevision has encrypted. (Compl., ¶¶ 10, 11). The converter/descramblers are "addressable," which allows Cablevision to enable viewing remotely after a customer pays for a service or package. (Compl., ¶ 12). By this process, Cablevision prevents programming services not paid for from being viewed. (Compl., ¶ 11).
In this case, Mr. Rosa was able to evade Cablevision's security measures and receive programming without paying.
Cablevision learned of the theft after receiving sales records from a company called Teleview/Omega Holdings L.L.C.-JRC Products, Inc. ("Teleview"), which had been selling descramblers that allowed consumers to receive cable illegally. (Tr. 5-6). The confiscated sales records revealed that Mr. Rosa purchased at least two such devices.
On July 18, 1994, Mr. Rosa purchased from Teleview a J-9 combination converter-decoder ("J-9"), which was illegally programmed to descramble all of Cablevision's programming.
(Teleview Invoice dated July 18, 1994, attached as Exh. A to Plaintiff's Proposed Findings of Fact and Conclusions of Law ("Proposed Findings"); Compl., ¶¶ 18-19). On September 8, 1994, Mr. Rosa purchased a second J-9. (Proposed Findings, Exh. A; Compl., ¶ 18). Thereafter, Mr. Rosa engaged in a series of transactions with Teleview, some of which were in response to changes in Cablevision's encryption technology, but none of which were returns. (Tr. 8, 9).
It appears from the record that Mr. Rosa exchanged his J-9 for a different model, the "CFT 2200," which was shipped to him on December 16, 1994. (Proposed Findings, Exh. A; Tr. 8-9). In the next two and one-half years, he was involved in seven additional transactions with Teleview, all of which were purchases or exchanges. (Proposed Findings, Exh. A).
The equipment that Mr. Rosa ordered from Teleview enabled him to descramble programming, including PPV events and premium services, for which he was not paying. (Compl., ¶ 21; Tr. 9). The record shows that from July 18, 1994 until the complaint was filed on May 30, 2001, a period of just over 82 months, Mr. Rosa subscribed to the "family" level of service, at a cost of approximately $40 per month. (Tr. 9). Throughout this 82-month period, by means of the equipment he purchased from Teleview, he had access to premium channels for which Cablevision charges $80 per month, and to all of Cablevision's PPV programming, which can range in price from $5 to $50. (Tr. 9-11). In total, Cablevision estimates that Mr. Rosa had access to $260 worth of programming per month for which he did not pay. (Tr. 13).
Cablevision has been unable to ascertain actual damages with precision, largely because Mr. Rosa defaulted. Therefore, the plaintiff seeks maximum statutory damages of $10,000 for each violation of § 605 — one for each of the two illegal descramblers — for a total of $20,000. Cablevision also seeks attorneys' fees pursuant to 47 U.S.C. § 605(e)(3)(B)(iii).
Discussion
A. Jurisdiction
Because this case arises under federal law, this Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331. In addition, the Cable Act itself provides for jurisdiction. 47 U.S.C. § 605(e)(3)(A). There is personal jurisdiction over the defendant in this forum because the conduct complained of occurred at his home, which is located in this district. N.Y. Civ. Prac. L. R. §§ 301 302.
B. Liability
All of a plaintiff's factual allegations, except those relating to damages, must be accepted as true where, as here, the defendant defaults. See Cotton v. Slone, 4 F.3d 176, 181 (2d Cir. 1993); Time Warner Cable of New York City v. Barnes, 13 F. Supp.2d 543, 547 (S.D.N.Y. 1998). In this case, Cablevision's allegations are sufficient to establish that Mr. Rosa violated §§ 605 and 553 of the Cable Act.
Section 605 states in pertinent part that "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." 47 U.S.C. § 605(a). The relevant portion of § 553 of the Cable Act provides that "No person shall intercept or receive or assist in intercepting or receiving any communications service offered over a cable system. . . ." 47 U.S.C. § 553(a)(1). Under both sections, the unauthorized interception or reception of cable television programming that originates in the form of radio communications delivered by satellite is prohibited. See International Cablevision, Inc. v. Sykes, 75 F.3d 123, 133 (2d Cir. 1996); Barnes, 13 F. Supp.2d at 548.
The record indicates that Cablevision's programming services originate as radio signals transmitted by satellite. (Tr. 4). Thus, Mr. Rosa violated both § 605 and § 553 when he installed each of two unauthorized devices that allowed him to view all of Cablevision's encrypted premium and PPV programming. Sykes, 75 F.3d at 130. Moreover, Cablevision is a "person aggrieved" within the meaning of 47 U.S.C. § 553(c)(1) and 605(e)(3)(A) because it possesses "proprietary rights" in the communications that Rosa intercepted. See Cablevision Systems New York City Corp. v. Cruz, No. 00 Civ. 5931, 2001 WL 1388155, at *3 (S.D.N.Y. July 23, 2000). Therefore, the only question that remains is how damages will be calculated.
C. Damages
Although it has been determined that the defendant's conduct violated both § 605 and § 553, Cablevision may recover damages under only one of those sections. See Sykes, 75 F.3d at 129; Kingvision Pay-Per-View, Ltd. v. Jasper Grocery, 152 F. Supp.2d 438, 441 (S.D.N.Y. 2001). Accordingly, I will assess damages under § 605 because doing so will yield a more substantial reward. See Sykes, 75 F.3d at 129. Given the choice, Cablevision has elected to recover statutory rather than actual damages. (Compl. at 9).
Under § 605, statutory damages range from $1,000 to $10,000 for ordinary violations, but may be enhanced up to $100,000 for willful violations, or reduced to $250 for innocent ones. 47 U.S.C. § 605(e)(3)(C). However, the statutory language provides no further guidance as to how damages should be awarded. Not surprisingly, courts have applied different methods.
In this circuit, at least three different schemes have been used to calculate damages under the very typical set of facts at issue here. Perhaps the most common method is to calculate the value of the services which were stolen and apply a multiplier to that sum. See CSC Holdings, Inc. v. Ruccolo, No. 01 Civ. 5162, 2001 WL 1658237, at *3 (S.D.N Y Dec. 21, 2001) (applying multiplier of two to an estimate of the fair market value of cable services stolen). Multipliers are usually justified as necessary to deter future misconduct and to deny defendants a windfall. See, e.g., Time Warner Cable of New York City v. Domsky, No. 96 Civ. 6851, 1997 U.S. Dist. LEXIS 13505, at *18 (S.D.N.Y. Sept. 2, 1997) (doubling amount of fees awarded for deterrent effect); Time Warner Cable of New York City v. Dockins, No. 96 Civ. 6852, 1998 U.S. Dist. LEXIS 22689, at *18-21 (S.D.N.Y Sept. 4, 1998) (applying Second Circuit's interpretation of damage provisions under Copyright Act, 17 U.S.C. § 504(c), to infer that § 605 should be used to deter future misconduct).
Deterrence is not a trivial concern. It has been estimated that the pirating of cable services costs the industry approximately $5.1 billion annually in lost revenue. Cablevision Systems New York City Corp. v. Flores, No. 00 Civ. 5935, 2001 WL 761085, at *4 (S.D.N.Y. July 6, 2001).
If the estimate of actual damages is not multiplied, awards are transformed into mere late payments of amounts already owed.
Less frequently, courts will simply award a flat sum. Some have applied the statutory maximum penalty of $10,000, especially where defendants defaulted, failed to contest damages, exhibited willful conduct, or stole programming services valued in excess of $10,000. See, e.g., Flores, 2001 WL 761085, at *4 (awarding statutory maximum $10,000 in part because defendant failed to contest damages); Cablevision Systems of New York City Corp. v. Ayala, No. 99 Civ. 9281, 2000 U.S. Dist. LEXIS 9612, at *12-13 (S.D.N.Y. July 10, 2000) (awarding statutory maximum where estimated value of services stolen exceeded $10,000); Community Television Systems, Inc. v. Caruso, 134 F. Supp.2d 455, 461 (D. Conn. 2000) (awarding statutory maximum of $10,000 where defendants "employed a strategy of simply making it as difficult as possible for [plaintiff] to vindicate its rights"). Conversely, many courts have adjusted damage awards downward to reflect cooperative behavior, such as where defendants surrender unauthorized descramblers. See, e.g., Charter Communications Entertainment I, LLC v. Shaw, 163 F. Supp.2d 121, 125 (D.Conn. 2001).
Additionally, to the extent possible, many courts take into consideration indirect damages when calculating a flat sum award. For example, unauthorized cable descramblers may cause leakage, which exposes cable companies to potentially costly Federal Communications Commission sanctions. See, e.g., Dockins, 1998 U.S. Dist. LEXIS 22689, at *21. Moreover, local governments are denied tax revenue when cable programming is pirated, and cable companies lose goodwill and reputation. See Caruso, 134 F. Supp.2d at 462. And, although the effect is difficult to measure, several courts have adjusted damage awards to reflect the fact that cable pirating is a form of free riding that honest customers end up paying for. See, e.g., Dockins, 1998 U.S. Dist. LEXIS 22698, at *21.
Leakage occurs when cable signals are not securely capped. It can result in a lower quality signal throughout the cable system, and may interfere with older aviation navigation equipment. See Dockins, 1998 U.S. Dist. LEXIS 22689, at *5.
Finally, a few courts award flat sums without much explanation, making their reasoning difficult to discern. See Barnes, 13 F. Supp.2d at 548 ($1000). Frequently, these courts award damages at or near the statutory minimum, which implies that the violations in question were relatively less egregious than in those cases where the calculations are more transparent.
In choosing between the methods described above, several principles must govern. While there should be some proportionality between the loss suffered and the amount of statutory damages, the calculation should be generous enough to ensure that the plaintiff is fully compensated. This is especially true where, as here, the defendant's failure to appear prevents the plaintiff from obtaining information that would be relevant to proving actual damages.
Additionally, statutory damages should reflect the severity of the violation: long-term violations, or actions that otherwise exhibit willfulness ought to be reflected in more generous damage awards.
Finally, given that cable theft is difficult to detect and potentially costly to large numbers of secondary actors — local governments and paying subscribers, for example — damages should be calculated to deter future misconduct.
A logical starting point is to estimate the value of the programming that Mr. Rosa illegally intercepted. Having lacked an opportunity to question Mr. Rosa concerning the duration of his misconduct, I will resolve the question in favor of the plaintiff and assume that the violation began on July 25, 1994, when Mr. Rosa received the first illegal descrambler, and terminated on May 30, 2001, when Cablevision filed the complaint against him. See Cablevision Systems New York City Corp. v. Kutsenko, No. 01 Civ. 1023, 2001 U.S. Dist. LEXIS 17590, at *17 (S.D.N.Y. Oct. 30, 2001) (defendant's unauthorized usage was found to spanned the entire period in which illegal descrambler was in possession). This is a period of just over 82 months.
This is one week after July 18, 1994, when the invoices show that Mr. Rosa ordered the first illegal descrambler.
Testimony at the evidentiary hearing seemed to indicate that Mr. Rosa is still a Cablevision subscriber. (Tr. 9). However, Cablevision should not receive a damage award for any period after which it failed to take reasonable steps to terminate his service.
Cablevision has provided information regarding both the average monthly cost of premium programming services to which the defendant had access during this time, $80, and the amount he was actually paying, $40. (Tr. 13). When the difference, $40, is multiplied by the duration of the violation, 82 months, the value of the stolen premium package programming is approximately $3,280.
Additionally, the plaintiff provides PPV programing which ranges in price from $5 (movies) to nearly $50 (special events such as boxing). However, because there are multiple variables to consider, any estimate of the value of the PPV programming that Mr. Rosa intercepted will be somewhat arbitrary. Indeed, in similar circumstances, estimates have ranged from a low of $50 per month, CSC Holdings, Inc., 2001 WL 1658237, at *3, to a high of $225.
Time Warner Cable of New York City v. Fland, No. 97 Civ. 7197, 1999 WL 1489144, at *4 (S.D.N.Y. Dec. 3, 1999). In this case, that range would permit the PPV estimate to vary by $14,350: from a low of $4,100 ($50 x 82), to a high of $18,450 ($225 x 82).
Cablevision suggests that the fair market value of the PPV programming Mr. Rosa illegally intercepted is near the high end of this range: $220 per month. (Tr. 13). However, in this case, the low end of the range is more appropriate because it better reflects the limitations that taste, viewing preference, programming selection and time placed on Mr. Rosa's viewing. For example, to view $220 worth of PPV programming, one would have to watch 20 movies at $5 per movie, and 3 special events at $40 each month.
But Cablevision's PPV programming is almost certainly not so captivating. Indeed, it is safe to assume that Cablevision offers a somewhat limited number of different PPV movies per month and that special events are sporadic in both number and genre.
Moreover, Cablevision offers a wide variety of other programming services that undoubtedly competed for Mr. Rosa's viewing time.
And, even if Mr. Rosa was the compulsive television addict that Cablevision's estimate suggests, he undoubtedly had other demands on his time that would work against a high end estimate.
Thus, a fairer estimate of the value of PPV services which Mr. Rosa illegally intercepted is $75 per month. This would suggest that, every month for nearly seven years, he watched one special event at $40, and 7 movies at $5. When multiplied by the duration of his violation, 82 months, the estimated value of the PPV services which Mr. Rosa illegally intercepted is $6,150.
Altogether, then, Mr. Rosa avoided paying for $9,430 worth of cable programming: $3,280 worth of premium services, and $6,150 of PPV services. However, given that violations are difficult to detect, and that in the aggregate cable pirating presents a multi-billion dollar problem, damages should be calculated to deter future misconduct and to avoid granting defendants a windfall. See Cablevision Systems of New York City Corp. v. Lokshin, 980 F. Supp. 107, 113 (E.D.N.Y. 1997). Moreover, the particular circumstances concerning the defendant's actions in this case support an enhanced award: Mr. Rosa has demonstrated a willful disregard for the Cable Act, both by the duration of his illegal activity and by his default. See CSC Holdings, Inc., 2001 WL 1658237, at *3 (statutory maximum award was appropriate where piracy lasted over six years); Cablevision Systems New York City Corp. v. Faschitti, No. 94 Civ. 6830, 1996 WL 48689, at *2 (S.D.N.Y. Feb. 7, 1996) (considering willfulness of defendant's conduct in determining amount of statutory damages to award). Finally, the award should reflect the fact that Mr. Rosa committed at least two distinct violations of § 605, since he possessed two illegal descramblers. Community Television Systems, Inc. v. Caruso, F.3d, No. 00-9117, 2002 WL 428345, at *3 (2d Cir. March 20, 2002) (holding that each illegal descrambler purchased and installed constitutes a separate violation). Thus, the estimate of actual damages, $9,430, should be doubled, yielding an award of $18,860 in statutory damages.
D. Attorneys Fees and Costs
An award of costs, including attorneys' fees, is mandatory under § 605. 47 U.S.C. § 605(e)(3)(B)(iii); International Cablevision, Inc. v. Sykes, 997 F.2d 998, 1009 (2d Cir. 1993). In its Affirmation of Services in Support of Inquest ("Affirmation"), Cablevision has detailed counsel's hours and other disbursements.
Specifically, the plaintiff seeks reimbursement for 3 hours of attorney time billed at a rate of $145 per hour, 2.7 hours of paralegal time billed at a rate of $85 per hour, and a $300 set fee for the summons and complaint, for a total of $964.50. (Affirmation ¶¶ 3-8). Detailed time records fully support the number of hours worked, and the rates are reasonable for this district and for the nature of the tasks performed. The plaintiff has also provided documentation for $180 in disbursements, all of which are justified. (Affirmation, ¶ 9). Accordingly, an award of $1,144.50 should be made for costs and attorneys' fees.
Conclusion
For the reasons set forth above, I recommend that judgment be entered in favor of the plaintiff in the amount of $20,004.50, consisting of $18,860 in statutory damages and $1,144.50 in costs and attorneys' fees. Pursuant to 28 U.S.C. § 636(b)(1) and Rules 72, 6(a), and 6(e) of the Federal Rules of Civil Procedure, the parties shall have ten (10) days from this date to file written objections to this Report and Recommendation. Such objections shall be filed with the Clerk of the Court, with extra copies delivered to the chambers of the Honorable Gerard E. Lynch, Room 803, 40 Centre Street, New York, New York, 10007, and to the chambers of the undersigned, Room 1960, 500 Pearl Street, New York, New York, 10007. Failure to file timely objections will preclude appellate review.