The following is the text of a letter sent to one of our advertisers, Discount Satellite, from the Law firm Crawford, McKenzie, McLean & Wilford. From Orillia Ontario. July 22 1997
Discount Satellite & Equipment Sales
Edmonton, Alberta
403-448-1787
Dear Sir or Madam
Re: Grey Market Satellite Systems in Canada

Please be advised We are the solicitors for ExpressVu Inc., Allarcom Pay Television Limited, The Family Channel Inc, Star Choice Television Network Inc., Canadian Satellite Communications Inc., (Cancom), and TMN Networks Inc.

We are writing to you, and other consumer electronics retailers, with respect to recent developments concerning Canadian broadcasting law, and particularly the broad-cast of direct-to-home (DTH) satellite television program-ming.

The past few years have seen North America come closer to the "500 channel universe", through the growth of a large American DTH industry, lead by companies such as DirecTV and USSB. This programming is almost exclusively American in content, and contains no regional or local content. Canada's DTH Industry was recently launched by Star Choice Television Network; and ExpressVu is expected to launch their service this summer. Canadian DTH services will make a wide variety of Canadian and American television program-ming available to all Canadians.

American DTH broadcasters cannot legally make their programming available in Canada. An industry of "grey marketers" has developed which make this programming available in Canada. Grey marketers sell the necessary satellite signal receiving systems, or distribute it through a network of consumer electronics retailers. In addition, by means of subterfuge, grey marketers deceive American DTH services into thinking Canadian residents are resident in the United States, and can lawfully receive American services.

The grey market runs contrary to Canadian broadcasting policy, which is committed to ensuring that Canadians have an opportunity to speak to each other in the exchange of ideas, news, information, and culture. Furthermore the grey market deprives Canadian artists, producers and writers of a medium in which their work can readily be available to Canadians. Canadian broadcasting policy has fostered the growth of a strong domestic broadcasting industry, employing thousands of Canadians, and contributing billions of dollars annually to the Canadian economy.

In our view, the grey market is in violation of Federal law, and is an intentional interference in the contractual relations of our clients by offering grey market systems for sale knowing that they have no use except to do so in Canada, and who do not hold the Canadian program right required to authorize the exhibition of this programming in Canada. VIOLATION OF THE RADIOCOMMUNICATIONS ACT

I refer to you the following sections of the Radiocommunications Act, R.S.C. 1985 c. R-2, as amended, which state;

9.(1) No person shall (c) decode an encrypted subscription programming signal or encrypted network feed, otherwise than under accordance with authorization from the lawful distributor of the signal or feed (d) operate a radio apparatus so as to receive an encrypted subscription programming signal... that has been decoded in contravention of paragraph (c)

10.(1) Every person who (b) without lawful excuse, manufacturers, imports, distributes, leases, offers for sale, sells, installs, modifies, operates, or possesses any equipment or device, or any component thereof, under circumstances that give rise to a reasonable inference that the equipment, device, or component has been used, or is or was intended to be used, for the purpose of contravening section 9 is guilty of an offence punishable on summary conviction and is liable... in the case of a corporation, to a fine not exceeding twenty five thousand dollars.

"lawful distributor", in relation to an encrypted subscription programming signal or encrypted network feed, means a person who has the lawful right in Canada to transmit it an authorize its decoding.

"subscription programming signal", means radiocom-munication that is intended for reception, either directly or indirectly by the public in Canada or elswhere on payment of subscription fee or other charge.

Section 18 of the Act creates a civil cause of action in favor of a person who suffers loss or damage as a result of conduct that is contrary to the above sections, and entitles that person to an injunction to prevent the activity. Although section 10.(2.3) may create a temporary exemption from a quasi-criminal prosecution under the Act, there is no corresponding exemption from a civil remedy under section 18.

The grey market satellite systems presently being sold in Canada are systems of hardware which permit consumers in Canada to decode and view encrypted subscription programming signal transmitted via satellite by distribution undertakings in the United States of America, such as DirecTV, USSB, and Echostar. These American distribution undertakings are not lawful distributors in Canada, of encrypted subscription programming signals because they do not hold licences to broadcast in Canada under the broadcasting act or a certificate under the Radiocommunication Act. Further-more, many American distribution undertakings may carry programming which Canadian undertakings have the exclusive broadcast rights in Canada.

Grey marketers solicit customers in Canada for American subscription programming. By relaying payments to the American distribution undertakings through false American addresses, the grey marketer subscribes Canadian consumers to the American distribution undertakings as though they are American residents. One the Canadian consumer is fraudulently registered, the consumer is then able to activate his grey market satellite system and receive unauthorized American programming services. The grey marketer thereby offers the service of decoding an encrypted subscription programming signal, contrary to section 9 of the Act

The only reasonable inference for the distribution, offering for sale and sale in Canada of the grey market satellite system is that it will be used to permit decoding of encrypted subscription programming signals, contrary to sections 9 and 10 of the Radiocommunications Act. VIOLATION OF BROADCASTING ACT

Carrying on a broadcasting undertaking in Canada requires a licence issued by the CRTC, pursuant to section 32 of the Broadcasting Act. Grey marketers are in an arrangement with American broadcast undertakings so that encrypted American signals are broadcasted into Canada, then received and decoded in Canada. In this manner they are committing an offence under section 21 of the Criminal Code of aiding and abetting American distribution undertakings in carrying on a broadcast undertaking in Canada with out a licence. By distributing, offering for sale and selling in Canada hardware which has the sole purpose of permitting the reception of signals transmitted without a licence, the grey marketer is aiding and abetting in the commission of an offence. INTENTIONAL INTERFERENCE IN CONTRAC-TUAL RIGHTS

Our clients Allarcom Pay Television Limited, The Family Channel Inc., and TMN Networks Inc. hold contractual agreements with numerous American Television and movie producers including Disney Channel, MCA Inc., Paramount Inc., Warner Brothers, and Foxm, wherein they have the exclusive rights to direct-to-home broadcasting within Canada of certain American and other productions. The grey marketers permit the reception in Canada of American direct-to-home programming which is identical to programming over which Family Channel, Allarcom, and the TMN Networks Inc. have exclusive Canadian rights. In addition, the packages offered by DirecTV and USSB, the predominate American distribution undertakings, that are available using grey market satellite systems, cannot be provided to Canadian residents without interfering with the contractual rights of at least some of our clients. by offering for sale and selling hardware that grey marketer sellers knows will be used to receive programming that breaches our clients exclusive rights, grey marketers are interfering with and participating in the intentional breach of those contractual rights. As a result of these actions, our clients lose subscribers to the grey market.

ExpressVu Inc. and Star Choice Television Network Inc. are licenced by the CRTC to offer direct-to-home satellite television programming services. The electronic configuration of the grey market satellite systems sold for grey market viewing may not be compatible with the electronic configuration that will be used to launch these services. Moreover by expanding the grey market, grey marketers erode the market for licenced Canadian DTH providers therefore causing irreparable damage to our clients.

These parties will therefore be directly damaged by persons participating or aiding and abetting in the commission of an offence in Canada.

Recently, two Canadian courts made rulings which support our clients position. In the Provincial court of Alberta, the Honourable Judge J.N. LeGrandeur said the policies in the Broadcasting Act, and the intent of section 9(1)(c) and 9(1)(d) of the Radiocommunication Act are " directed at regulating more completely the broadcasting industry for the benefit of Canada and Canadian culture". Judge LeGrandeur found these sections of the Radiocommunication act are "part of the mechanism by which this regulation" is to take place. Judge LeGrandeur concluded that only services authorized by the CRTC to broadcast in Canada are licenced to distribute and decode their signals in Canada. Any other interpretation of the law that allows "unfettered access to encrypted signals from outside Canada would fly in the face of the broadcast regulatory policy that the Canadian system operates under. It would be an interpretation that authorizes completely unregulated broadcasting in Canada." Our clients have also obtained a favorable ruling in the Federal Court Of Canada, in their much publicized suit against grey market equipment distributors/sellers NII Norsat International Inc. (Aurora Dist.) ACE Imports International ( now known as DSI Canada), and Price Costco. On June 27, 1997 the Honourable Mr. Justice Frederick Gibson, in referring to the activities of Norsat, found Norsat to be in breach of section 10(1)(b) of the Radiocommunication Act, in that they import, distribute, and sell equipment under circumstances giving rise to a reasonable inference that the equipment is intended to be used to contravene section 9(1)(c) of the Radiocommunication Act. In August, the Federal Court will determine whether an interim injunction should be imposed against Norsat and the other two defendants, to prevent the further sale of grey market equipment in Canada. In giving his verbal ruling, the Honourable Mr. Justice Gibson found the reasons of Justice LeGrandeur to be compelling. Our clients are hopeful that other responsible retailers and distributors will immediately stop selling this equipment, since the Federal Court of Canada has determined sales to be illegal. Retailers who continue to sell this equipment also put their customers at great risk of not being able to obtain programming. If the Federal Court grants an injunction, our clients will also seek to have an injunction applied to any other retailer who continues distributing or selling grey market satellite equipment or sells programming. In light of these findings, we insist that retailers CEASE AND DESIST from the distribution, offering for sale , or sale in Canada of RCA, GE, and all similar grey market satellite systems which permit the reception of unauthorized American broadcast undertakings in Canada. You should be aware that other companies have already agreed to stop marketing the equipment at our request. Our clients do not wish to have more defendants in an expanded civil action to terminate the unlawful interference in their freely negotiated and binding franchise agreements with their program suppliers. To assist you in arriving at a good business decision in this matter, we attach , for your reference a recent letter and package of information sent by one of our clients to International Stereo, A Canadian retailer of unauthorized foreign DTH Services. The following is an unsolicited response to the above by a Canadian attorney, not associated with Disount Satellite: "Crawford, McKenzie, McLean & Wilford Dear colleagues,

I was reading a transcription of a letter you recently sent to Discount Satellite, of Alberta. The least I can say is that I'm not very impressed by most of the legal arguments you set forth in that letter.

You seem to imply that an offence is committed by one who would decode any encrypted signal in Canada. This is NOT what section 9 of the Radiocommunications Act prohibits. Section 9 (1) (c) stipulates that "No person shall? decode an encrypted subscription programming signal or encrypted network feed, otherwise than under accordance with authorization from the lawful distributor of the signal or feed."

The expression "lawful distributor, as you point out in your letter, is defined by the law as being someone who has the lawful right in to transmit it and authorize its decoding; It ensues that while decoding encrypted programming broadcast by a lawful distributor (for instance, Star Choice) without that lawful distributor's authorization constitutes an offence under the law, decoding encrypted programming emanating from someone who is NOT a lawful distributor in Canada (for instance, DirecTV) DOES NOT, in my opinion constitute an offence under the Radiocommunications Act.

The fact of the matter is that what your clients offer to the Canadian public constitutes nothing more than inferior choice and programming at premium, non-competitive and definitely non-attractive prices. As for the hardware offered, it costs about 2.3 to 3 times more than the US system. It's then small wonder that your clients would consider the grey market a threat. I sure would if I had to stand in their collective corporate shoes.

The best thing your clients can do under the circumstances is to offer quality systems, programming and choices at prices equivalent to those one can find in the US market. Given the choice, any Canadian consumer will opt for a Canadian distributor any day of the week if the prices, choice and quality are equivalent to what he/she can get in the US. Canadians will however never tolerate to be gouged under the (false) pretence of saving Canadian cultural identity. Your clients themselves don't give a damn about Canadian culture. Looking at their sad offerings and the price tags attached, it is abundantly clear that what really matters to them is the Great Canadian Buck, and not much else.

Crying foul to the Courts won't cut the mustard here. Only good programming, good choice, good equipment, all at competitive prices will. Unless your clients put that into their heads, they will very rapidly find that they're left alone to hang. Yours truly, Jean-Pierre Nadeau, notary"