Intellectual Property

Pay-Per-View Wrestles With Bar Owners


Pay-Per-View Wrestles With Bar Owners

Illustration by Chi Birmingham

On the evening of May 8, 2010, Juan Castillo walked up to Plaza Mexico Bar & Grill in a strip mall in Laredo, Tex., paid the $5 cover, then went inside and ordered a Coors Light. He began watching the televised Ultimate Fighting Championship bout between Josh Koscheck and Paul Daley. In the 25 minutes Castillo was in the restaurant, he counted 80 patrons enjoying the action, including Koscheck getting kicked in the eye during the mixed martial arts fight. He also took three photographs to chronicle his visit.

That description by Castillo in court documents led to a federal court order for Plaza Mexico to turn over $32,500 to the UFC’s sales agent for not paying the $1,100 commercial fee to show the pay-per-view event. Promoters such as Joe Hand Promotions, UFC’s exclusive commercial pay-per-view licensee in the U.S., the UFC itself, and J&J Sports Productions, which promotes boxing matches, have filed thousands of suits against bars, restaurants, and other U.S. businesses to punish such video “pirates,” claiming they and residential cheaters cost them millions of dollars in lost revenue. Many suits are based on the work of undercover investigators armed with cameras. “These types of lawsuits are part of our comprehensive antipiracy efforts,” says Lawrence Epstein, general counsel for Las Vegas-based Zuffa, which owns Ultimate Fighting Championship.

The price for watching a pay-per-view bout at home might be $50, while businesses typically pay $1,500 to $3,000 or more, depending on the size of the venue, according to J&J Sports President Joseph Gagliardi. Many commercial establishments look for ways to illegally use a lower-priced residential signal.

The pain to the pocketbook can be harsh if they’re caught, however. Under federal telecommunications and copyright laws, showing a boxing match, soccer game, or mixed martial arts event without paying the required commercial fee could potentially result in a bar or restaurant owner getting hit with up to a $260,000 bill.

UFC, which claims to be the largest U.S. commercial pay-per-view provider with 5,000 to 6,000 venues signed up for its events, and other promoters have not been shy about going to court. Last year, J&J Sports filed 708 lawsuits; Joe Hand filed 515; and UFC itself 41, according to court dockets. The legal offensive not only guards his own revenue but also that of venues that pay the required fee, says Gagliardi. “It’s the protection for the guy who honestly puts up his money,” he says. The sport’s promoters are even enlisting paying customers to help them ferret out pirates. The UFC’s Epstein says bars that pay up are given a list of other area establishments that also have paid, and the recipients often report venues that are not on the list but advertise that they’ll be showing the event.

Pirates typically violate the law by paying the residential rate and then using coaxial cable or a wireless receiver to redirect the signal from a neighboring residence to their establishment, or ordering the event for their home TV and then taking their cable or satellite box to their business, according to court papers. Others simply improperly register for a pay-per-view match, claiming that their business locations are actually private homes.

The federal law against satellite interception allows a judge to award damages of up to $10,000 per violation, with a penalty as high as $100,000 if it was done “willfully” and for “commercial advantage.” If the proprietor wasn’t aware of the law, the judge can lower the award to $250. The law against cable broadcast intervention also allows for up to $10,000 per violation and an enhancement of up to $50,000. The copyright owner can sue for infringement as well, tacking on another penalty of up to $150,000. So a maximum award for a combined satellite and copyright violation would total $260,000.

Some piracy judgments can indeed be big: In October 2009 a federal judge ordered Rio De La Plata Bakery Shop in Queens, N.Y., to pay $110,000, plus $540 in attorneys’ fees, to Setanta Sports North America for showing the March 2009 World Cup qualifying soccer match in which Argentina beat Venezuela, 4-0. (Carlos Gimenez, the bakery’s owner, didn’t return a call for comment on the lawsuit or the damages award.) Attorneys say most are settled out of court for as little as $5,000, or are subject to a default judgment because the defendant didn’t respond to the lawsuit.

UFC says that from 2006 through January 2012, it collected $4.7 million in settlements from commercial cases. Paul Overhauser, an Indianapolis lawyer who has represented hundreds of restaurants in piracy suits, says sports promoters use the large amounts of past awards to pressure other defendants to settle. “They’ll say, ‘You better settle with us right away for $10,000 because this other one paid $150,000,’” he says. “If you’re a business owner and you get a letter like that, it’s pretty compelling.”

The bottom line: Facing a maximum fine of $260,000, many bar owners are settling suits that claim they improperly showed sports pay-per-view events.

Weidlich is a reporter for Bloomberg News in New York.

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