Movie Systems, Inc., an Iowa Corporation v. Mad Minneapolis Audio Distributors, a Division of Smoliak & Sons, Inc., a Minnesota Corporation, and of Video Club, Inc. And Gary Smoliak

Citations: 717 F.2d 427; 54 Rad. Reg. 2d (P & F) 932; 1983 U.S. App. LEXIS 24292Docket: 82-1799

Court: Court of Appeals for the Eighth Circuit; September 2, 1983; Federal Appellate Court

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MAD Minneapolis Audio Distributors and its manager, Gary Smoliak, appeal a district court's denial of Movie Systems' motion for civil contempt. The appellants argue that the district court's order modifies a prior injunction by removing its conditions and making it absolute, asserts that this modification lacked changed circumstances and an evidentiary hearing, and claims that the modified injunction does not meet the specificity requirements of Federal Rule of Civil Procedure 65(d). The Eighth Circuit Court affirms the district court's order.

Movie Systems, Inc., a licensee of Home Box Office (HBO), holds exclusive rights to distribute HBO's service in the Minneapolis-St. Paul area. In March 1982, MAD and Smoliak advertised and sold microwave antenna systems that allowed homeowners to intercept HBO programming illegally. Subsequently, Movie Systems filed a lawsuit against MAD, Smoliak, and other parties, alleging violations of federal and state laws regarding the interception of communications, unfair competition, and unjust enrichment. The defendants counterclaimed, alleging antitrust violations and infringement of their constitutional rights.

On May 28, 1982, Movie Systems sought a preliminary injunction, supported by affidavits. The district court granted the injunction on June 11, 1982, finding that Movie Systems had demonstrated a likelihood of success on the merits, particularly regarding the intended use of the microwave antennas sold by the defendants, which was primarily to receive HBO programming.

The June 11 order prohibited the defendants from several actions related to the programming of Plaintiff Movie Systems, Inc. Specifically, they were enjoined from: (1) interfering with or using the programming without authorization; (2) assisting others in such unlawful activities; and (3) dealing in equipment capable of intercepting the programming, provided they knew or had reason to believe that the purchaser intended to use it for such purposes. Following this, on June 18, 1982, Movie Systems filed a motion for civil contempt, supported by affidavits. A hearing on this motion occurred on June 22, 1982, during which the court received opposing affidavits from the defendants. The district court ultimately denied the contempt motion, suggesting that the issues could be better resolved through a clarification of the preliminary injunction's terms. The court underscored that the injunction prohibits sales of the questioned electronic devices if the seller has reason to believe the buyer intends to use them to receive the plaintiff's programming. The court noted extensive advertising and media coverage regarding the defendants' equipment, which indicated that such products were primarily marketed for intercepting programming. Consequently, the injunction broadly prohibits the sale of these devices. Following this, the appeal regarding the June 22 clarification was filed, with Movie Systems contending that the court lacked jurisdiction under 28 U.S.C. Sec. 1292(a)(1) since the order was merely a clarification and not a modification of the injunction.

The preliminary injunction issued on June 11, 1982, prohibited MAD and other defendants from selling equipment capable of intercepting Movie Systems' programming under two conditions: (1) if they advertised or communicated that the product could be used for interception, and (2) if they knew or had reason to believe a purchaser intended to intercept Movie Systems' programming. The June 22 order clarified this injunction by removing these conditions, establishing an absolute prohibition on sales of such equipment. The district court determined that defendants should be aware of the intent of purchasers based on the findings regarding the equipment's primary use. The June 22 order is recognized as a modification of the original injunction, consistent with 28 U.S.C. Sec. 1292(a)(1), and reinforces its enforcement. Movie Systems argued there was no motion to modify the preliminary injunction, but the district court deemed the contempt motion as a basis for issuing a clarifying order, which is viewed as responsive to Movie Systems' concerns. MAD contended that modifying the preliminary injunction required a strong showing of new circumstances, referencing cases related to final injunctions. However, the court clarified that modifications to preliminary injunctions do not require such a stringent standard and can be made equitably based on changes in facts, law, or other relevant reasons.

Supporting affidavits submitted with the motion for civil contempt on June 18 provided sufficient grounds to modify the June 11 injunction. One affidavit included a newspaper interview with MAD's counsel, Marc Kurzman, indicating that MAD intended to continue selling antennas without mentioning HBO. The affidavits demonstrated that MAD persisted in sales activities following the June 11 order. For instance, when approached by a Movie Systems' employee posing as a customer, a MAD employee deferred the sale of an HBO antenna, suggesting the customer return later with a different reason. Another employee explained technical requirements related to a microwave transmitter when asked about purchasing an HBO antenna.

The defendants' affidavits corroborated ongoing sales efforts aimed at complying with the June 11 order while minimizing its restrictions. Kurzman's affidavit acknowledged discussions with his clients about the order, directing them to sell antennas except to known HBO interceptors. Additional affidavits revealed that managers at various stores were instructing customers on alternative uses for antennas and misleadingly reassuring them about legal implications. For example, one manager stated that customers would not face trouble for using multipurpose antennas, while another claimed to have a sign indicating the sale of multipurpose antennas rather than HBO antennas, refusing sales to customers explicitly seeking HBO antennas.

This evidence prompted the district court to reassess its findings related to the June 11 order, leading to a necessary clarification and modification of the injunction. The court's decision was upheld, with no abuse of discretion found in the order issued on June 22.

MAD contends that the June 22 order improperly modifies an injunction without an evidentiary hearing, arguing that conflicting affidavits were submitted regarding the antennas' intended use. MAD's primary complaint stems from the district court's June 11 finding that the defendants' equipment was solely designed to receive HBO programming from Movie Systems. The June 11 order was issued after reviewing affidavits from both parties, and MAD’s counsel confirmed reliance on these affidavits to present their case. Since MAD did not appeal the June 11 order, it cannot now contest the factual findings made at that time.

Regarding the affidavits related to the civil contempt motion, MAD does not assert that a material factual dispute exists nor has it effectively pursued the issue on appeal. The court found no significant contradiction among the affidavits concerning the defendants' continuing sales activities, negating the necessity for an evidentiary hearing. It noted that preliminary injunctions typically require swift decisions, allowing for affidavits to be submitted in lieu of witness testimony.

MAD's argument that the June 22 order lacks specificity was deemed unfounded, as the order explicitly prohibits sales of equipment capable of receiving HBO programming, fulfilling the requirement for clear notice of prohibited conduct. The court reviewed MAD's other arguments, including those related to the modification of preliminary injunctions, and found them unmeritorious. It declined to consider issues raised for the first time during oral arguments.

The court emphasized the lengthy procedural history of the case, highlighting delays in reaching a permanent injunction decision, and recommended scheduling a hearing for the permanent injunction as soon as possible. The district court's order was ultimately affirmed.

During the June 22 hearing, MAD did not request to present testimony, although it referenced an upcoming motion for judgment on the pleadings. The district court identified a conflict in affidavits concerning contempt and suggested that testimony be taken. While Movie Systems' counsel noted the presence of witnesses in the courtroom, MAD's counsel did not make similar remarks. Subsequently, MAD's counsel sent a letter to the court citing case law that argues against issuing a preliminary injunction without an evidentiary hearing, referencing several cases from various circuits. However, the court reviewed these cases and found them unpersuasive in the context of the present facts.