In a setback for the broadcast networks and their affiliates, a federal appeals court yesterday ruled that Echostar is not in violation of an injunction barring it from distributing distant broadcast signals to its satellite TV subscribers.

"Put simply, Echostar is out of the distant network programming business," the opinion of the U.S. Court of Appeals for the 11th Circuit (Alabama, Georgia and Florida) says.

Two years ago, the same court enjoined Echostar from the distant signal business after finding that the satellite carrier had repeatedly violated rules against offering distant network affiliates in areas where subscribers could receive local affiliates off air.

But just before the injunction when into effect, Echostar leased a satellite transponder to a third party, NPS, that would continue to provide a distant signal service to Echostar subscribers.

The broadcasters charged in a federal district court that Echostar was using the NPS arrangement to circumvent the injunction. But the court disagreed, saying the networks failed to show the arrangement was "anything but an arms-length business transaction."

And, in yesterday's ruling, the appeals court seconded the district court.

"Our sense from the lease agreement [between Echostar and NPS] ... is that Echostar's role is marginal and can only be viewed as ensuring the proper technical functioning of the transponder and the satellite as a whole," the court's ruling says.

The court also says it is unpersuaded by the networks' argument the NPS arrangement permits Echostar to avoid "the severe penalty" for the violations that led up to the injunction.

"It is undisputed that Echostar has lost all revenue previously earned through distant network programming at a cost of $25 million per year," the court says.

"Likewise, there is no contention of foul play relating to the rent payments, i.e., no one contends that NPS's rent payment of $150,000 per month fails to represent the fair market value of leasing a transponder," the court says.

"Echostar no longer has any control over the pricing, billing or collection of payments for distant network programming, and does not receive, or share in, any revenues or profits received by NPS's provision of distant network programming."