4. EchoStar's Arrangement with NPS
The permanent injunction required EchoStar to cease its distant network service on December 1, 2006. On November 29, however, two days before that injunction was to take effect, EchoStar unveiled the scheme at issue in this appeal. In return for a substantial payment, EchoStar is collaborating with third-party NPS to provide, over EchoStar' s facilities, a complete package of (i) the non-broadcast channels unaffected by the injunction (sold in EchoStar' s own name) plus (ii) the distant network signals that EchoStar is prohibited from transmitting (sold in NPS' s name). Until this arrangement, NPS was essentially a niche provider of " large-dish" satellite television service. EchoStar apparently calculated that, by arranging for NPS to front for it in the delivery of network programming to EchoStar' s customers, this scheme would enable it to circumvent the severe consequences of the permanent injunction by offering its subscribers essentially the same programming line-ups they enjoyed before the injunction.
Under this scheme, NPS agreed to pay EchoStar nearly $2 million annually to transmit programming of NPS' s choice- which both sides understood would include distant network signals- from EchoStar
' s satellite transponders, through EchoStar
' s allotted frequencies, to EchoStar
' s rooftop dishes, through EchoStar
' s set-top boxes, where they are unscrambled by EchoStar
' s access cards, en route to EchoStar
' s existing subscriber base. NPS also agreed to take EchoStar' s place in paying the statutory royalties for the retransmission of these broadcast signals.
EchoStar ensured that this scheme would work by relentlessly supporting NPS' s recruitment of the EchoStar distant-signal customers affected by the injunction.
SUMMARY OF ARGUMENT
Section 119(a)(7)(B) provides that, when a satellite carrier engages in a pattern or practice of willful or repeated copyright infringement, a court shall issue " a permanent injunction barring the secondary transmission by the satellite carrier" of distant network signals. This statutory language is clear: EchoStar may not engage in the " secondary transmission" of distant network signals, even at the behest of third parties. But that is precisely what EchoStar is doing under its arrangement with NPS. Retaining full operational control over its transmission and reception infrastructure, EchoStar is using its
satellite transponder to retransmit, over its
FCC-licensed frequencies, the signals of distant network stations to its
EchoStar argued below, and the district court appeared to agree, that the penalty provision of Section 119(a)(7)(B) is inapplicable here on the theory that EchoStar is a mere transmission " conduit" for NPS and falls within the " passive carrier exemption" of 17 U.S.C. § 111(a)(3). That conclusion is wrong as a matter of law for two reasons. First, the passive carrier exemption, where applicable, exempts providers only from liability for copyright infringement
. It does not exempt them from the penalty provision
of Section 119(a)(7)(B), which flatly prohibits an enjoined carrier from engaging in the secondary transmission of distant network signals whether or not such transmission constitutes copyright infringement. And in any event, EchoStar' s argument fails because Congress has expressly precluded " satellite carriers" like EchoStar from invoking the passive carrier exemption as authorization for the provision of secondary transmissions. 17 U.S.C. § 122(i).
The breadth of Section 119(a)(7)(B) was no mistake. Congress designed that provision to give satellite carriers a powerful incentive not to engage in the type of systematic copyright infringement that undermines privately negotiated intellectual-property rights and imperils the economic model underlying free over the-air broadcasting. That deterrent can work as intended only if the penalized carrier faces the prospect not just of losing revenue from the delivery of distant network signals, but also of losing customers altogether- customers who are likely, because of the loss of distant network signals, to defect to a competitive service provider for all
television services. Otherwise, Section 119(a)(7)(B) adds little to ordinary copyright remedies. But this special deterrent would come to naught if, as EchoStar argues, an enjoined carrier may easily accomplish indirectly, through its business partner, what it is barred from doing directly. The history of this case, in which plaintiffs were forced to litigate for eight years before finally obtaining relief against EchoStar, provides a vivid example of why Congress prescribed strong medicine for extreme infringements.
Finally, EchoStar' s position here would nullify not only the penalty provision of Section 119(a)(7)(B), but also, in all likelihood, the " if local, no distant" provision enacted in 2004. In essence, that provision bars a satellite carrier from retransmitting the signals of a distant
network affiliate to new customers in a geographic market in which the same satellite carrier is also retransmitting the signals of a local
affiliate of the same network, even if those customers are in areas " unserved" by conventional terrestrial broadcasts. 47 U.S.C. § 339(a)(2)(C), (D)(iv). If EchoStar were to succeed in obtaining the precedent it seeks here, it could collaborate with companies such as NPS to defeat the " if local, no distant" rule on the theory that it, EchoStar, is providing only " local" network signals and is serving as a mere conduit for the " distant" network signals ostensibly provided by others. Thus, EchoStar' s position here would nullify not one but two Acts of Congress. This Court should avoid that perverse outcome by directing the district court to issue an injunction faithful to the language and purpose of Section 119(a)(7)(B).