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Sky Angel U.S., LLC v. Discovery Communications, LLC

United States Court of Appeals, Fourth Circuit

March 15, 2018

SKY ANGEL U.S., LLC, Plaintiff-Appellant,
v.
DISCOVERY COMMUNICATIONS, LLC; ANIMAL PLANET, L.L.C., Defendants-Appellees.

          Argued: December 7, 2017

         Appeal from the United States District Court for the District of Maryland, at Greenbelt. Deborah K. Chasanow, Senior District Judge. (8:13-cv-00031-DKC)

         ARGUED:

          Lynn E. Calkins, HOLLAND & KNIGHT, LLP, Washington, D.C., for Appellant.

          David Lawrence Yohai, WEIL, GOTSHAL & MANGES LLP, New York, New York, for Appellees.

         ON BRIEF:

          Jessica L. Farmer, HOLLAND & KNIGHT, LLP, Washington, D.C., for Appellant.

          Theodore E. Tsekerides, Gregory S. Silbert, David E. Yolkut, New York, New York, Peter D. Isakoff, WEIL, GOTSHAL & MANGES LLP, Washington, D.C., for Appellees.

          Before WILKINSON and DIAZ, Circuit Judges, and SHEDD, Senior Circuit Judge.

          DIAZ, Circuit Judge:

         This case involves a contract dispute between a media company and a television distributor. In October 2007, Sky Angel U.S., LLC obtained nonexclusive distribution rights to Discovery Communications, LLC's television programming. The written contract contained a satisfaction clause allowing Discovery to terminate the agreement if at any time it became dissatisfied with Sky Angel's method of distribution. Discovery exercised this right after learning Sky Angel's distribution path relied on the "public internet."[1] Sky Angel sued, contending that Discovery acted in bad faith because the contract expressly allowed it to use the public internet.

         Before trial, the district court held the agreement was susceptible to competing reasonable interpretations as to the scope of Sky Angel's distribution rights. Relying on extrinsic evidence adduced at trial to resolve this ambiguity, the district court found no support for Sky Angel's claim that the contract permitted distribution over the public internet, meaning Discovery acted in good faith when it terminated the contract.

         On appeal, Sky Angel claims that the district court erred by holding the agreement was ambiguous and compounded the error by misinterpreting extrinsic evidence. Sky Angel also argues that Discovery selectively waived the attorney-client privilege with respect to certain documents. Finding no error in the district court's judgment, we affirm.

         I.

         A.

         Sky Angel's problems began with a fall from heaven. The satellite the company used to distribute television services was failing and launching a replacement was cost prohibitive. In need of a new distribution model, Sky Angel landed on Internet Protocol Television or "IPTV."[2] Rather than broadcasting in real time over satellite or cable, IPTV stores programming on servers and then delivers content digitally over a highspeed network that can be configured in any number of ways. Examples of IPTV include online streaming services like Netflix as well as Verizon Fios and AT&T U-verse, which use private fiber-optic cables to deliver live television feeds to set-top boxes.

         To develop its IPTV network, Sky Angel partnered with a third company, NeuLion, Inc. Under the model they developed, Sky Angel would receive third-party content at its satellite substation and then transcode and transmit it to NeuLion's servers via a private line. From there, NeuLion would send the encoded signals over the public internet to subscribers' set-top boxes. In other words, Sky Angel relied on preexisting internet connections provided by third-party internet service providers, rather than its own private lines, to distribute programming. So long as customers had an authorized set-top box and access to the internet, they could receive Sky Angel's programming anywhere in the world.

         In 2007, Sky Angel approached Discovery about obtaining programming for its IPTV system. The bulk of the negotiations focused on understanding Sky Angel's new IPTV model. Discovery repeatedly asked whether Sky Angel planned to transmit its content over the public internet, but was told that Sky Angel would not.[3] Discovery also tasked one of its technical engineers with investigating Sky Angel's distribution system, but Sky Angel refused to share all of the requested information. Without knowing more, the engineer advised that while it was possible for Sky Angel to use an entirely closed fiber-optic network, he had "concerns that it may be going over the Internet" which could present "rights issues" for Discovery. J.A. 959-60

         In September 2007, Discovery sent Sky Angel a draft distribution agreement, under which Sky Angel would receive a nonexclusive license to distribute five Discovery channels in exchange for monthly payments determined on a per-subscriber basis. The agreement described Sky Angel's distribution system as a "cable television system." J.A. 41. Sky Angel responded by inserting language authorizing it to use IPTV technology, which it defined as:

a closed and encrypted transmission path over a national fiber-optic network and a high-speed data connection that may be a digital subscriber line . . ., cable or other broadband connection in a subscriber's ...

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