Sky Angel U.S., LLC v. Discovery Commc'ns, LLC

95 F.Supp.3d 860

SKY ANGEL U.S., LLC

v.DISCOVERY COMMUNICATIONS, LLC, et al.

Civil Action No. DKC 13–0031.

United States District Court, D. Maryland.

Filed March 24, 2015.

Cheryl Feeley, Lynn Estes Calkins, Jessica Lynn Farmer, Holland and Knight LLP, Washington, DC, for Sky Angel U.S., LLC.

David L. Yohai, David Yolkut, Theodore E. Tsekerides, Weil Gotshal and Manges LLP, New York, NY, Peter D. Isakoff, Sarah Sophie Blanchard, Weil Gotshal and Manges LLP, Washington, DC, for Discovery Communications, LLC, et al.

MEMORANDUM OPINION

DEBORAH K. CHASANOW, District Judge.

Several motions are presently pending and ready for review in this breach of contract case: (1) a motion for partial summary judgment (ECF No. 177), filed by Plaintiff Sky Angel U.S., LLC (“Sky Angel”); (2) a cross-motion for summary judgment (ECF No. 186), filed by Defendants Discovery Communications, LLC, and Animal Planet, L.L.C. (collectively, “Defendants” or “Discovery”); and (3) motions to seal and unseal certain documents filed by both parties (ECF Nos. 179, 180, 181, and 189). The issues have been fully briefed, and the court now rules, no hearing being deemed necessary. Local Rule 105.6. For the following reasons, the parties' cross motions for summary judgment will be denied. Sky Angel's motion to seal will be granted and its motion to unseal will be granted in part and denied in part. Discovery's motion to seal will be granted.

I. Background

A. Factual Background¹

Sky Angel operates a national subscription-based, multichannel video distribution service that operates using Internet protocol technology (“IPTV”). Sky Angel delivers faith-based and family-friendly television channels to its subscribers. Sky Angel enters into contracts with individual content providers to receive their programming. Defendants, Discovery Communications, LLC and Animal Planet, L.L.C., are program content providers who offer family-friendly television programming.

On October 3, 2007, Sky Angel entered into an Affiliation Agreement with Defendants (“the Agreement”) that was to expire on December 31, 2014. (ECF No. 177–3). Pursuant to the Agreement, Defendants agreed to provide Sky Angel a nonexclusive license and right to distribute five channels via its “Affiliate Systems”: Discovery Channel, Discovery Kids Channel, Discovery Home Channel, Military Channel, and Animal Planet (together, “the Services”). In exchange for this license and the right to distribute the Services, Sky Angel agreed to pay Defendants monthly licensing fees on a per-subscriber basis. The contract provisions that are at issue in this dispute are discussed more fully below in the analysis section.

The Agreement between the parties was negotiated primarily by Elisa Freeman and Stephen Kaminski from Discovery, and Kathy Johnson and Thomas Scott from Sky Angel. Prior to entering into the Agreement, Discovery had Charles Myers conduct due diligence into Sky Angel's IPTV system. Mr. Myers sought information from both Sky Angel and NeuLion, Inc. (“NeuLion”). NeuLion, Sky Angel's third-party technology vendor, assisted Sky Angel in using IPTV to deliver multiple video programming services on a subscription basis to proprietary set-top boxes. During his due diligence review, Mr. Myers sent Sky Angel a written questionnaire regarding its system, which Mr. Myers discussed orally with Raymond LaRue, Sky Angel's engineer. Mr. Myers also spoke with NeuLion personnel regarding its technology platform to get a more complete picture of how Sky Angel's system worked. Because IPTV was new to Sky Angel in 2007, some of its personnel were not familiar with how Sky Angel's IPTV system operated and often directed Mr. Myers to NeuLion to answer technical questions. (ECF No. 186–3). Mr. Myers learned during his due diligence review that Sky Angel's System, which used NeuLion's technology, could either use the Internet or a private fiber optic circuit to transmit the programming signal from NeuLion's centralized location to subscriber's set-top boxes. (ECF No. 177–28, at 6–9). Mr. Myers informed Ms. Freeman and Mr. Kaminski that he was uncertain of exactly how Sky Angel's System would be transmitting its programming, but that he had concerns that it may be using the public Internet which could implicate “rights issues” for Discovery. (ECF No. 177–28, at 9–11, 13–15, 27–30; ECF No. 177–30, at 19–20). As discussed in the analysis below, although the parties had several discussions concerning Sky Angel's technology and Discovery performed some due diligence into this issue, the parties dispute what representations were made and what understanding was reached prior to execution of the Agreement.

In February 2008, several months after the Agreement was executed, Sky Angel launched its services to Sky Angel subscribers. (ECF No. 177–40 ¶ 5). Sky Angel's system used IPTV to deliver video programming services over a closed and encrypted path to NeuLion's central location for subsequent distribution over the Internet to proprietary set-top boxes provided by NeuLion. The NeuLion set-top boxes, which were owned or leased by Sky Angel subscribers, received the programming signals in order for the subscriber to view the Services on their televisions. From February 2008 through mid-December 2009, Sky Angel received no complaints from Discovery regarding its distribution methods, and believed it was in compliance with the parties' Agreement.

On November 8, 2009, Discovery received a letter from DISH Network, one of its larger clients, informing it that it had “recently become aware of distribution [of Discovery's programming] by the IPTV distributor known as Sky Angel.” (ECF No. 177–9). DISH requested, via the Most Favored Nation (“MFN”) clause in its contract with Discovery, to be given the same “Internet Rights and Mobile Rights” that were given to Sky Angel. (ECF No. 178–4). Discovery responded on November 25, 2009, stating, inter alia, “Thank you for bringing the Sky Angel matter to our attention. We will review the matter and take appropriate action.... We trust that this is sufficient to resolve the matters raised in your letter[.]” (ECF No. 177–11).

On November 22, 2009, William Goodwyn, President of Discovery's Domestic Distribution group, wrote an email to Elisa Freeman asking:

When you have a moment, take a look at Sky Angel to see how they are positioning themselves in the marketplace, how they talk about their service, and also see what other cable nets are also on their platform, etc. I want to see if there are any sensitivities around this for us.

Dish is making an issue around our granting IPTV rights to them so I would like to see what may be problematic for us.

(ECF No. 177–10, at 3). Ms. Freeman checked Sky Angel's website and wrote back the same day, stating:

On their website they market themselves as:

“Sky Angel is a revolutionary television that uses your high-speed Internet service to deliver over 70 faith and family channels—not to your computer—but directly to your TV. The service comes with the Sky Angel set-top box that delivers a digital-quality picture and does not require an outside dish, antenna, or professional installation.”

(Id. at 2). Based on this information alone, Mr. Goodwyn decided to terminate the Agreement. (ECF No. 177–37, at 69–76).

In mid-December 2009, Elisa Freeman telephoned Tom Scott of Sky Angel to inform him that Discovery was terminating the Agreement. The only details she would provide Mr. Scott were that the decision was coming from senior management and because Discovery was uncomfortable with Sky Angel's distribution methodology it was exercising its right to terminate under § 12.1 of the Agreement. (ECF No. 177–27, at 45–51). Thereafter, Brian Collins, the Senior Vice President of Programming for Sky Angel, telephoned Ms. Freeman asking for additional information regarding the termination and inquiring whether there were any specific concerns Discovery had with Sky Angel's distribution methodology, but again was provided no additional information. (ECF No. 177–33, at 4–8). On January 22, 2010, Discovery sent Sky Angel a termination letter stating:

We have determined that the distribution methodology used by and on behalf of [Sky Angel] is not satisfactory. Accordingly, pursuant to Section 12.1 of the Agreement, we hereby elect to terminate the Agreement. In order to provide for an orderly transition process, including notification to your subscribers, we will provide you with a three (3) month transition period; accordingly, the Agreement will terminate effective on April 22, 2010.

(ECF No. 177–12). Sky Angel's response, dated March 4, 2010, stated that:

[D]iscovery has known that Sky Angel operates an IP System for its distribution of video programming, as provided for in [ ] the Affiliation Agreement. The IP System operated by Sky Angel has functioned flawlessly throughout the term of the Affiliation Agreement, Discovery did not object to it for more than two years, and Discovery has no reasonable basis for any belief that this IP distribution methodology is in any way unsatisfactory.

(ECF No. 177–13, at 2). In this letter, Sky Angel also offered to “cooperate in establishing the security of its system to Discovery's reasonable satisfaction.” (Id. at 3). On March 19, 2010, Defendants responded reiterating that Discovery's decision to terminate the Agreement was based on § 12.1 of the Agreement, but providing no additional details, and confirming that Sky Angel's access to Discovery's programming would cease on April 22, 2010. (ECF No. 177–14).

In an effort to avert termination, Sky Angel filed an emergency petition with the Federal Communications Commission (“FCC”) seeking to halt any disruption in programming signals. (ECF No. 177–34, at 3–4). The FCC denied Sky Angel's request for a temporary injunction (Id. at 4), but Discovery made several representations to the FCC that provide additional details regarding its termination decision. Discovery explained to the FCC that it had terminated its...