DirecTV Spends Another Day In Court

By | June 28, 2004 | Feature

By Paul Dykewicz

The sale of El Segundo, Calif.-based DirecTV to the News Corp [NWS] media-empire last December has led the largest satellite TV services provider in the United States to take a much more aggressive stance in the marketplace and, as a result, in the courts.

Rival EchoStar Communications [DISH] of Littleton, Colo., traditionally has been known for its propensity to file lawsuits against business partners and others but DirecTV has taken a lesson, becoming a tenacious defender of its interests, particularly since its sale by former owner General Motors [GM]. The latest example occurred when DirecTV accused EchoStar and its EchoStar Satellite LLC unit of false advertising.

In a lawsuit filed in the U.S. District Court for the Central District of California, DirecTV claimed EchoStar created “false and misleading” advertisements to distribute to customers in rural areas that had been provided with DirecTV services exclusively by Pegasus Satellite Television, a for-profit distributor of DirecTV services in certain locales. That sales relationship changed June 1, when DirecTV signed a new marketing agreement with the National Rural Telecommunications Cooperative (NRTC) that terminated the previous exclusive marketing rights of Pegasus as of Aug. 1 (SN, June 7).

In its suit, DirecTV claimed the EchoStar advertising campaign conveyed the message that DirecTV may discontinue service to customers who receive it in Pegasus territories.

According to court paperwork filed by DirecTV, “The ads falsely suggest that DirecTV customers in territory once serviced by Pegasus will be unable to receive DirecTV programming after August 31, 2004, and that Pegasus customers need to switch to Dish Network if they wish to receive satellite TV programming.”

Contrary to EchoStar’s “false and misleading representations,” there will be no interruption in DirecTV programming service to customers living in areas traditionally served by Pegasus, DirecTV claimed in its lawsuit.

Steve Caulk, an EchoStar spokesman, defended his company in an email statement sent out to the industry immediately after news of the lawsuit broke, saying his company’s position is that its advertising efforts in response to the unraveling DirecTV/Pegasus business relation- ship are “factually” accurate.

“It informs Pegasus customers of the risk that they may lose service and the great alternative available to them by switching to Dish Network,” Caulk wrote. “We intend to vigorously defend against the litigation.”

DirecTV is seeking unspecified damages, as well as a temporary restraining order, a preliminary injunction and a permanent injunction prohibiting EchoStar and its representatives from continuing its advertising campaign.

While DirecTV is just beginning to fight EchoStar in the courts, it has been winning legal disputes against Pegasus.

Pegasus last Thursday lost its bid to gain a preliminary injunction to halt implementation of the June 1 marketing agreement between DirecTV and NRTC. The decision followed an earlier ruling by the same judge that denied a request from Pegasus for a temporary restraining order to prevent implementation of the same marketing agreement.

The new marketing relationship DirecTV and the NRTC announced June 1 spurred Pegasus to file for Chapter 11 protection with the U.S. Bankruptcy Court in Portland. The Pegasus requests for a temporary restraining order and a preliminary injunction was a byproduct of those developments.

The rulings by Chief U.S. Bankruptcy Judge James Haines Jr., in Portland, Maine, allows DirecTV to market its service and to activate new customers in rural U.S. territories where Pegasus previously sold DirecTV services exclusively. The judge also held the NRTC did not owe Pegasus a fiduciary duty, as a matter of law, NRTC officials said.

Pegasus’ case is “futile,” said Bob Phillips, the cooperative’s CEO and president, in response to last Monday’s ruling. Based on the outcome of decisions thus far, he may be right.

With fewer U.S. television viewers left who do not already subscribe to either satellite or cable TV, attempts to raid competitors of their customers should only gain in intensity.

Paul Dykewicz is senior editor and senior analyst of Satellite News. He can be reached at 301/354-1769 or at pdykewicz@accessintel.com.

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