April 14 (Bloomberg) -- On the evening of May 8, 2010, Juan Castillo walked into Plaza Mexico Bar & Grill in a strip mall in Laredo, Texas, paid the $5 cover to a woman in a flowery dress, went inside and ordered a Coors Light.
He began watching the televised Ultimate Fighting Championship bout between Josh Koscheck and Paul Daley. He saw Koscheck getting kicked in the eye during the mixed martial arts fight. In the 25 minutes Castillo was in the restaurant, he counted 80 patrons. He took three photographs.
Castillo’s statement about what he saw led to a court order for Plaza Mexico to give the UFC’s distributor $32,500 for not paying the $1,100 commercial fee to show the pay-per-view event. Promoters such as Joe Hand Promotions Inc. and the UFC itself have filed thousands of suits against bars, restaurants and other U.S. businesses to punish such “pirates,” claiming they and residential cheaters cost them millions of dollars in lost revenue.
“These types of lawsuits are part of our comprehensive anti-piracy efforts,” said Lawrence Epstein, general counsel for Las Vegas-based Zuffa LLC, which owns Ultimate Fighting Championship.
The companies send investigators into bars and restaurants the night of an event to gather photographic or video evidence that the establishment showed it without paying the fee.
The price for watching a pay-per-view boxing event at home might be $50, while businesses typically pay $1,500 to $3,000 or more depending on the size of the venue, said Joseph Gagliardi, president of J&J Sports Productions Inc., which promotes boxing matches.
Showing a boxing match, soccer game or mixed martial arts event without paying the commercial fee could potentially result in a bar or restaurant owner getting hit with a $260,000 bill.
Last year, J&J Sports filed 708 lawsuits; Joe Hand Promotions filed 515; and UFC itself 41, according to a search of court dockets.
Both Gagliardi and Joe Hand Jr., president of Joe Hand Promotions, have said in court papers that they believe their companies have lost millions of dollars to piracy.
The legal effort against pirating protects not only his own revenue but also that of venues that pay the fee as required, Gagliardi said in an interview.
“The most important part of what we do with litigation going after the guys who pirate the events -- it’s the protection for the guy who honestly puts up his money,” he said.
Epstein of the UFC said paying bars are given a list of others in the area that also paid, and they often report non-paying venues that advertise they’re showing the event.
From 2006 through January of this year, UFC, which calls itself the world’s leading professional mixed martial arts organization, has collected $4.7 million in settlements from commercial cases, UFC said. It is the largest commercial pay-per-view provider, with 5,000 to 6,000 venues signed up for its events, it said.
The owners typically violate the law by paying the residential rate, redirecting the signal from a neighboring residence to their establishment or ordering the event for their home TV and taking the satellite box to their business, according to court papers.
The federal law against satellite interception allows a judge to award damages 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 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, tacking on another maximum penalty of $150,000.
A maximum award for a combined satellite and copyright violation would total $260,000.
In October 2009, U.S. District Judge Jack B. Weinstein in Brooklyn, New York, ordered Rio De La Plata Bakery Shop in Queens, New York, to pay $110,000, plus $540 in attorneys’ fees, to Setanta Sports North America Ltd. for showing the March 2009 World Cup qualifying soccer match in which Argentina beat Venezuela 4 to 0.
Carlos G. Gimenez, the bakery’s owner, didn’t return a call for comment on the lawsuit or the damages award.
On Feb. 24, U.S. District Judge George P. Kazen in Laredo ordered Plaza Mexico and three individuals connected to it to pay Feasterville, Pennsylvania-based Joe Hand Promotions the maximum $10,000, plus a $20,000 enhancement and $2,500 in lawyers’ fees. Plaza Mexico and the other defendants never responded to the lawsuit and the judge granted Joe Hand Promotions a default judgment.
Telephone directory information had no listing for Plaza Mexico in Laredo.
Julie Cohen Lonstein, a lawyer who sues on behalf of sports promoters including Campbell, California-based J&J Sports and UFC, said most of her cases get settled. “There’s an opportunity to settle them for less money than what the statute would allow,” said Lonstein, who is based in Ellenville, New York, about 94 miles north of New York City.
Those that are filed usually end with settlements or default judgments, according to lawyers who work both sides of them.
U.S. District Judge Brian M. Cogan in Brooklyn, in awarding the maximum $10,000 in a default judgment, wrote that “to hold otherwise would encourage defendants caught red-handed to ignore legal process in the recognition that judicial discretion is the only defense they have.” He said the total $50,000 award, plus attorneys fees, “should be painful to defendants, but not so painful as to cause undue hardship.”
That case stemmed from the November 2010 Super Welterweight championship boxing match between Manny Pacquiao and Antonio Margarito.
Lonstein said her clients are obligated to sue. “Unless they go after the violators, and unless judges give awards that will have a deterrent effect, they will continue to do it,” she said. “The award at judgment should be high enough to deter future piracy.”
Lawyers who represent the bars and restaurants said the suits can be burdensome.
“In my experience they tend to be owners of really small establishments,” Paul B. Overhauser, an attorney in Indianapolis who has represented hundreds of restaurants in piracy cases, said in an interview. “If there is a default judgment, it’s probably because the bar owner couldn’t afford an attorney.”
Overhauser said the sports promoters use the amount of those default judgments in pressuring other owners to settle. “They’ll say, ‘You better settle with us right away for $10,000 because this other one paid $150,000,’” he said. “If you’re a business owner and you get a letter like that, it’s pretty compelling if you don’t have a lawyer.”
The satellite and cable laws allow the promoters to collect attorneys’ fees if they win. The bars and restaurants don’t get such fees if they prevail.
“A lot of attorneys think these statutes are onerously one-sided in favor of the plaintiffs,” Overhauser said.
Sayuri K. Sharper, who since late last year has taken on three proprietor clients with six cases, said that most of the suits she sees end in default judgments because “you can’t hire an attorney and litigate for less than $5,000.”
Sharper, a former patent litigator at Los Angeles-based Quinn Emanuel Urquhart & Sullivan LLP, takes the cases as part of her work for the San Jose, California-based Pro Bono Project.
“A lot of them are minority restaurant or bar owners,” Sharper said. “None of my clients speak very good English. Most of them don’t even know what to do so they don’t show up. My clients showed up but they don’t know how to defend them,” she said.
The owners often feel the amount “they have to incur to make the problem go away” is “disproportionate to any benefit they may have realized by displaying the game,” Overhauser said. That’s especially true because the sports promoters also sue the owners individually.
Matthew A. Pare, a lawyer in Chula Vista, California, who said he’s defended about 70 such cases, said that because there is strict liability under the law the suits come down to negotiating about damages. Factors that go into that can include the venue’s capacity, the number of violations, the number of TVs and whether a cover was charged. He said cases typically settle for $5,000.
Bars and restaurants often have an outside company set up the television system, Pare said. “It’s quite often that the owners of these bars don’t even realize that their television is set up with a residential account as opposed to a commercial account,” he said.
Promoters claim the piracy is intentional.
“There aren’t any defenses,” Epstein said. “It’s like getting caught shoplifting. What are you going to say?”
Some do fight the suits.
On March 1, U.S. District Judge Katherine B. Forrest in New York threw out a case against Old Castle Pub in Manhattan, ruling the bar didn’t intercept Premium Sports Inc.’s signal of a 2010 Scotland-Wales soccer match when it used streaming-media device Slingbox to receive the game from a home in Dublin.
Premium Sports has asked Forrest to reconsider that ruling. Shane O’Rourke, the San Francisco-based company’s chief executive officer, declined to comment because that motion is pending.
The cases mentioned are Joe Hand Promotions Inc. v. Noyola, 11-cv-126, U.S. District Court, Southern District of Texas (Laredo); Setanta Sports North America Ltd. v. Gimenez, 09-cv-2094, and J&J Sports Productions Inc. v. Gutierrez, 11-cv-2651, U.S. District Court, Eastern District of New York (Brooklyn); and Premium Sports Inc. v. Connell, 10-cv-3753, U.S. District Court, Southern District of New York (Manhattan).
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