DirecTV, Lifetime Dispute Heads to Court

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DirecTV Inc., which has withheld license fees from Lifetime Television for nearly nine months as part of a breach-of-contract lawsuit, is expected to be in court with the programmer later this month.

A scheduling conference has been set for U.S. District Court in Los Angeles on Aug. 28 in DirecTV Inc.’s suit against the women’s programmer.

The giant satellite provider has withheld millions of dollars in license fees from Lifetime as a result of the dispute, which centers around a marketing program intended to switch subscribers from EchoStar Communications Inc.’s Dish Network to DirecTV.

U.S. District Court Judge Dean Pregerson is slated to set cutoff dates for discovery of evidence, motions and to schedule a trial date for the five-month-old litigation, in which DirecTV alleges that Lifetime reneged on an offer to pay $200 to customers of EchoStar’s Dish Network if they would switch over to DirecTV early this year. At the time, Lifetime was negotiating a new carriage contract with EchoStar.

Lifetime and Lifetime Movie Network were dropped from Dish’s program lineup Jan. 1, when the companies could not come to terms on a new deal.

DirecTV has not paid monthly affiliate fees, which add up to millions of dollars, for either channel since last December.

According to court documents, DirecTV and the women’s programmer scheduled a session with a mediator in late July to try to settle their litigation. But at press time last week, the case hadn’t been resolved.

TWO ISSUES

DirecTV, which now claims about $12 million in damages from Lifetime, raised two issues in its lawsuit.

In its complaint, DirecTV alleged that Lifetime had violated a “most-favored nations” clause in their carriage deal.

DirecTV asserts that rival EchoStar got what amounts to a lower license fee for Lifetime programming than it does when the women’s network finally hammered out its contract renewal.

DirecTV claimed the bulk of its alleged damages, $11 million, stem from this issue.

DirecTV also charged that the programmer had broken its agreement to pay $200 a head to Dish customers who switched out to DirecTV when Lifetime and EchoStar were at war.

In answer to DirecTV’s suit, Lifetime admitted it retracted its $200 offer.

But Lifetime argued in its response that a “letter of indemnification” regarding that offer that both sides signed was not enforceable as a binding contract.

Lifetime denied that DirecTV is entitled to damages, and is itself seeking compensatory damages “in an amount equal to the per-subscriber fees due and owing.”

Lifetime’s counterclaim, filed in April, alleged — among other things — that DirecTV was withholding license fees for the programmer’s women’s networks.

In a May filing with the court, DirecTV said it was in fact withholding payment of monthly license fees to Lifetime, for the months of December 2005 and January. The satellite provider said it planned to continue to withhold payment as long as the programmer remained “in material breach” of the affiliation deal.

Last week, DirecTV spokesman Robert Mercer confirmed that the distributor was still holding back license fees “as an offset to damages we have incurred because of Lifetime’s breach of the two agreements.”

Lifetime and Lifetime Movie Network are carried on DirecTV’s most widely distributed package, “Total Choice,” which reaches most of the distributor’s more than 15 million subscribers.

Kagan Research estimates average monthly per-subscriber license fees of 23 cents for Lifetime, and 9 cents for its movie network. In ballpark figures, that would mean DirecTV is withholding about $4.8 million a month in licensing fees; or about $43 million, to date.

Lifetime Real Women is offered on DirecTV’s “Total Choice Plus” package, which isn’t as widely carried as Total Choice.

Lifetime declined to comment on the pending litigation.

“We regret that this commercial dispute is being played out in the press,” Lifetime director of trade and business publicity Gary Morgenstein said. “We think the proper forum is the courts, where we continue to aggressively litigate this matter.”

OFFERING PROOF

In June, the court asked both sides to offer proof why DirecTV’s lawsuit shouldn’t be dismissed, because the distributor had failed to specify the damages to which it claimed to be entitled.

At that point, DirecTV argued that its lawsuit should stand, alleging that Lifetime’s actions would wind up costing it more than $12 million. In July, the judge decided not to dismiss the case, because the alleged damages exceeded the $75,000 threshold that gives his court jurisdiction in the matter.

According to DirecTV’s suit, Lifetime had approached it with the idea of offering a group of Dish Network subscribers a $200 check each if they switched to DirecTV by March 31. On Jan. 30, Lifetime and DirecTV signed a letter in which the programmer agreed to e-mail the Dish customers — 30,000 of them — the $200 offer.

The next day, Jan. 31, Lifetime reached a contract agreement with Dish Network, which promptly restored both the flagship channel and its spinoff, LMN. That same day, a Lifetime official e-mailed DirecTV to assure it that the network would still honor its $200 offer.

But on Feb. 3, Lifetime e-mailed DirecTV again to say it was “rescinding” its $200 offer to Dish subscribers who had not switched out by that same day, Feb. 3.

In a court filing, Lifetime said it did retract its $200 offer, but “denies that the terms, conditions and covenants of the letter of indemnification created an enforceable contract that would give rise to the claims made by DirecTV.”

Lifetime asserts that “the alleged contract, if any, between DirecTV and [Lifetime Entertainment Services] is vague, uncertain and ambiguous’’ and, as a result, unenforceable.

“In Contracts 101, you do not have a contract unless you have a meeting of the minds,” Denver telecommunications attorney Ken Fellman said. “It sounds like here, for 48 hours, there was a meeting of the minds.”

But Lifetime’s signed letter with DirecTV “could be too vague because the terms weren’t clearly set out,” said Philadelphia attorney Sunah Park. “The courts are brought in when there’s ambiguity.”

Park and Fellman said proving damages could be hard.

“If they can’t prove damages they might get a verdict that says, 'Yep, they breached the contract, but you haven’t proven any damages so you get a buck,’ ” Fellman said. “It might be a hollow victory.”

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