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legislation, and thus my testimony addresses some of the background of the tahle copyright problem.

('able television is among those forms of communication which were not foreseen or provided for in the 1909 Act. For this reason a complex controversy a rose over the copyright liability of cable systems. I would like to trace brietly the evolution of this controversy and the Commission's involvement in it.

When the first cubie systems began to operate, most merely extended local television service to rural a reas where it had not been previously available. They did not import distant signals into markets where television service already eristed, nor did they originate programming or serve ma jor metropolitan areas. For these reasons, broadcast licensees did not anticipate that the new industry would pose the copyright problems that now exist. Similarly, copyright proprietors were generally unconcerned about the growth of cable because they ontinued to receive royalties from conventional broadcasters and did not anticipate that ('ATV would affect this revenue.

Initially the FTC expressed reluctance to assert jurisdiction over cable in the absence of specific legislative authorization. In 1959 (26 FOC 402), the Commission ruled that cable systems could retransmit programs without the express authority of the originating station. We reasoned that cable was merely a means of extending television service and did not pose an economic threat to the broadcast industry. Pursuant to this ruling cable operators were free to distribute programming without paying copyright royalties.

However, the attitude of the various parties changed abruptly when cable Srstems began to import distant signals, originate programming, and provide bervice in metropolitan markets which posed clear competitive threats to broadcusters. ('opyright questions then came into focus and broadcasters and copy. right proprietors sought protection from the FCC and the courts.

The Commission responded by abandoning its former laissez-faire posture on cable and in 19962 denied a cable system permission to import additional distant signals by microwave. [Carter Mountuin Transmission ('orp., 32 FTC 459, aff'd, 321 F. 2d 339 (D.C. Cir.), cert. denied, 375 U.S. 951 (1963)). The ('ommission was influenced in its decision by the fact that the proposed importation wond pose an economic threat to a television licensee which could deprive the public of his service.

In 19963, the Commission further asserted its jurisdiction over cable in its First Report and Order on (able Television (38 FCC (83) which contained the $called Son-Duplication Rule. This rule manifested the Commission's desire to protect the public interest in existing television service, and to encourage the developinent of local broadcast stations. It prevented duplication of the originating station's signal on a cable system for a certain period before and after carriage by that station. Under the rule, a copyright proprietor could limit the time and area in which a program was shown and a broadcaster could presont programming previously shown on a network on a delayed basis without running the risk of losing his exclusivity to a cablecaster.

The Commission's Second Report & Order [2 FCC 725 (1966)), required that all new cable wystems in the top 100 television markets (serving 90% of all telesirion viewers) obtain FCC' approval before importing new distant signals, Approval was conditioned upon a finding that the new service would be consistent with the establishment and healthy maintenance of television broadcast service in the area. The effect of the rule made it virtually impossible for cable systems to establish new service in urban markets.

Subsequently, a San Diego cable operator challenged the Commission's authorIts in har expansion of its system under the major-market-distant signal rule. However, the Supreme Court upheld the ('ommission's action as reasonably ancillary to its duty to regulate television broadeasting. [1.8. V. South restern ('able Co., 392 ('.S. 167 (19) 1

Because FCC regulation had not addressed many of the copyright questions Deerd by the advent of cable, broadcasters and cable proprietors sought relief in the courts. Ther argued for an expansive interpretation of the Copyright Act which would include a cable broadenet as a "publie performance" and the unhject cable operators to copyright liability. The Supreme Court confronted this issue in Portnightly Corp. v. United Artists Television, Inc., 392 U.S. 290 (1995), where United Artists sought to recover royalties from Fortnightly, a West Vir. ginia cable system which imported into its market signals which could not be received through ordinary over-the-air means. Fortnightly argued that it provided merely a reception service, did not "perform" and therefore escaped liability. In finding for the cable system, the Court employed a functional test under which it held that the cable system was a "viewer", not a “performer.” Since "viewing" fell short of infringement, no liability was incurred. Implicit in the Court's opinion was the view that Congress is better equipped than the judiciary to strike an appropriate balance among the various competing interests.

The Commission then issued proposed general rules for cable operation (15 FCC 20 417 (1968)]. This proceeding served as a catalyst for serious discussions concerning the manner in which the industry should be regulated. As this lengthy proceeding neared its close, the Commission forwarded a Letter of Intent on August 5, 1971, to Congress which outlined its plans for the near-term regulation of cable. In our letter, we acknowledged the argument raised by several parties that we should defer promulgating rules governing cable until new cops. right legislation was enacted. In response we expressed the view that cable regulation and copyright could be separately considered. Accordingly, we urged the Congress to promptly enact a copyright statute and stated our intent to proceed with rulemaking. Among the rules outlined in our letter was a solution to the distant signal problem which would permit limited importation of such signals based upon a formula geared to market size, and a provision allowing program exclusivity in the top 100 markets.

In our letter, we encouraged industry principals to agree upon a schedule of royalty fees in negotiations then in progress. The result of these negotiations was the so-called "Consensus Agreement” which suggested certain revisions to the proposal advanced in our Letter of Intent and pledged the parties to support separate cable copyright legislation. The legislation was to establish a system of copyright liability for cable carriage of broadcast signals with compulsory licensing of signals authorized by the Commission. A schedule of royalty fees or other payment mechanism was to be agreed upon by copyright proprietors and cable operators. In the absence of agreement, the parties agreed to submit to compulsory arbitration,

The Commission found the provisions of the Consensus Agreement to be reasonable. Consequently, those aspects of the Agreement subject to our jurisdiction were implemented in our first comprehensive cable rules issued in 1972. (36 FCC 20 143). We took this action believing that it would open the door to cable development and that copyright legislation would be enacted shortly thereafter. Unfortunately, the negotiations concerning fee schedules proved inconclusive, and compulsory arbitration has not been forthcoming. Thus, legislative efforts in this area have been stymied.

The importance of a prompt resolution of the copyright problem was heightened by a second ruling of the Supreme Court on the cable copyright issue. In CBS v. Teleprompter, 415 U.S. 394 (1974), a Teleprompter cable system imported fignals from as far as 600 miles from its service area (as opposed to Fortnightly's 82 miles). It had also engaged in advertising not confined to program origination channels and had interconnected with other systems for specialized programming. Despite the disparity of distance and the presence of services characteristic of broadcasting, the Court held that Teleprompter retained its "viewer” status and had not "performed" under the Fortnightly rationale. Thus it was not liable under the Copyright Act.

Seemingly announcing the end of its resilience to construe the Act to accommodate changing conditions, the Court called upon Congress to enact remedial legislation. Speaking through Mr. Justice Stewart, it said:

These shifts in current business and commercial relationships. simply cannot be controlled by means of litigation based on copyright legislation enacted more than half a century ago, when neither broadcast television nor CATV was yet conceived. Detailed regulation of these relationships, and any ultimate resolution of the many sensitive and impor.

tant problems in this field must be left to Congress. (415 U.S. at 414) In view of the preceding analysis, it is clear that if a solution to the cable copyright dilemma is to be reached, it will only be through Congressional action. I will not rehash the details of the various attempts made in Congress to enact legislation, for I am confident that they are better known to your Subcommittee, Mr. Chairman, than they are to the Commission. Suffice it to say that legislation has been considered by at least one house of Congress every year for the last ten. Furthermore, I do not wish to offer detailed comments with respect to the specifics of Sec. 111(c) and (d) of the legislation now before you. Enactment of substantive copyright law is an area in which the Commission has no jurisdiction and in which we must defer to Congressional judgment.

However, the Commission has expressed some general views on the subject whicb perhaps bear repeating in this forum. First of all, we wish to express the importance of prompt Congressional action. Mr. Chairman, this controversy bas troubled the communications industry for nearly a decade. It continues to be a source of great conflict between the industries we regulate. We believe that it is time that the Congress place the interests of these parties in balance and resolve their differences through legislation. In this connection, we believe that it is essential and altogether just that cable operators pay reasonable copy. right royalties. However, we express no judgment as to what precise form this legislation should take.

In our comment on previous legislation, we have on several occasions called attention to matters which we believed could be more effectively handled through the flexible approach afforded by the administrative process. In those comments we suggested that these matters not be written into substantive law but left to agency discretion. We made these remarks in connection with provisions which would have codified distant signal, minimum signal carriage, exclusivity and sports blackout policies. We continue to feel strongly that matters of this nature are more appropriately left to the Commission where they can evolve as the cable industry matures. For these reasons we were pleased that the Senate deleted provisions of this nature from S. 1361 of the 93d Congress, and that the legislation now before your Suboommittee either omits reference to such regulatory matters or expresses them in broad general terms within which we can exercise considerable discretion. We are hopeful that any legislation which you report out will conform to these guidelines.

Mr. KASTENMEIER. Sext, the Chair would like to call Mr. Thomas J. Keller who is the Acting General Counsel for the Office of Telecommunications Policy in the Executive Office of the President,

We have your statement, Mr. Keller, and if you like you may proceed from it or proceed as you wish. TESTIMONY OF THOMAS J. KELLER, ACTING GENERAL COUNSEL,

OFFICE OF TELECOMMUNICATIONS POLICY, EXECUTIVE OFFICE OF THE PRESIDENT

Mr. KELLER. Mr. Chairman, members of the subcommittee, I am pleased to respond to your invitation to discuss the views of the Office of Telecommunications Policy on H.R. 2223, the copyright revision bill.

My remarks today are limited to those sections of the bill which address the question of copyright payments by cable television systems. At the outset, I wish to say that OTP fully endorses the principle of copyright payment for the cable retransmission of broadcast originated programming. Before discussing the rationale behind this position, it may be helpful to place the cable-copyright question in an historical context.

The cable television industry began in the late 1940's as a means of bringing improved television reception to isolated communities in the mountainous regions of Pennsylvania and Oregon. Although this service spread rapidly in many small towns throughout the Nation, cable's telecommunications capacity was quite limited in its early days.

With the development of new technology increasing the potential capacity of a cable system to 20 television channels or more, cable enjoved increased growth during the 1960's. Many new systems provided not only improved reception of nearby broadcast stations, but also began to originate television programming and to import additional broadcast signals by means of microwave links from distant cities. Today, there are over 3,000 cable systems serving approximately 10 million cable subscribers.

As cable's capacity to increase signal availability in local markets became apparent, the broadcast industry, fearing shifts in established viewing patterns, began to sit up and take notice. Similarly, the program production industry became concerned that cable's importation of programs from distant markets could diminish the value of those programs when they were subsequently offered for sale to broadcast outlets in the market served by a cable system.

By 1966, the Federal Communications Commission had asserted jurisdiction over cable systems, primarily with respect to the retransmission of broadcast signals. Unable to resolve the issues of potential competition between cable and broadcasting, the FCC imposed a virtual freeze on cable expansion in the top 100 markets. In so doing, the Commission noted that cable's use of broadcast signals without reimbursement to program owners had a direct bearing on the cable-broadcast controversy. Thus, the copyright question became intertwined with communications policy issues regarding the competitive relationship between cable and broadcasting.

During this same period, the program production industry instituted law suits against cable operators for copyright infringement. Although the Supreme Court ultimately ruled that cable was not liable for copyright payments under a narrow reading of the Copyright Act of 1909, the Court also stated that Congress should take a fresh look at conforming the copyright law to new technological developments that were not envisioned 60 years ago. In this regard, the Court noted this issue had already become a subject for congressional consideration as part of the overall copyright revision that had been underway for several years.

The Office of Telecommunications Policy first confronted the cable. copyright issue soon after its creation. The Office was created in 1970. In June 1971, the President appointed a special committee to develop proposals for a comprehensive national policy on cable communications. The committee, chaired by the Director of OTP, recognized at the outset that cable technology offered a major solution to the problem of channel scarcity that is inherent in our present system of television broadcasting

Unlike over-the-air broadcast technology which, because of spectrum limitations, permits only a limited number of channels in a given community, cable technology permits an abundance of channels. The Cabinet committee viewed cable as something far more than a mere vehicle for retransmitting broadcast signals; rather it saw cable as a technology with the potential to evolve into a medium of communication in its own right, offering new opportunities for access by the public to the electronic media, and new outlets of expression for program producers, advertisers, and virtually anyone who wished to convey a message.

In essence, cable's traditional retransmission service was seen as an adjunct to the provision of a multiplicity of channels that could be leased for a broad range of uses. It was apparent, however, that the public would receive the full benefits of cable's potential only if the medium were afforded a fair opportunity to develop and compete with existing media, free of unwarranted governmental restrictions. To this end, OTP is preparing cable legislation which will establish a national plan and regulatory framework for cable communications based on the recommendations of the Cabinet committee.

Similarly, it was evident that the unresolved copyright question had been a factor in inhibiting the growth and development of cable, and had made the integration of cable into the television program distribution market most difficult. Accordingly, the report of the Cabinet committee, published in January 1974, included a recommendation that cable be subject to copyright liability. The committee felt that program retailers leasing cable channels should negotiate and pay for the right to use programs and other copyrighted information just as entrepreneurs in other media are required to do. The committee also recomInended that cable system operators which retransmit broadcast sig. nals should be subject to copyright payments in the form of a statutory compulsory license.

These recommendations were grounded on principles of equity, as well as general copyright theory and communications policy considerations. The purpose of copyright protection, under the Constitution, is to ensure that authors receive the encouragement they need to create, as well as the remuneration which they fairly deserve for their creations. Cable systems, in their retransmission of broadcast signals, make profitable use of copyrighted works and should therefore be subject to some form of payment. Moreover, only when calle is obligated to the payment of copyright can the argument of cable's "unfair competition" with broadcasters be put finally to rest.

As you know, Mr. Chairman, the question of the form that cable's copyright payment ought to take has been a subject of continuing controversy for many years. Numerous proposals have been put forward attempting to distinguish among various types of signals. But these previous proposals have failed for lack of agreement between the principal industries, and it now appears that a blanket compulsory license has gained the widest acceptance among the parties.

In 1971, faced with the cable freeze" and the fact that the cablecopyright issue was an integral part of the competitive disputes be. tween the cable and broadcast media. OTP encouraged representatives of the principal industries-namely, cable, program producers and broadcasters to reach some form of agreement on copyright payment. The resulting “consensus agreement," providing for elimination of the freeze, and the promulgation of the FCC's present cable rules had, as a central provision, the agreement of all parties to support copyright legislation in the form of a compulsory license for cable's carriage of local and distant signals. The bill before you today incorporates such a provision and, although not a perfect answer to all aspects of the issue, we believe it provides a reasonable and workable solution to the problem.

Beyond our belief that payment of copyright fees by cable systems is in accord with traditional copyright principles of incentive and fairness for program producers, OTP also looks to copyright legislation to afford stability and certainty where previously there has been none. In this regard, we are concerned that the affected industries not be forced to revisit the uncertainties and disputes which now preoccupy them. While OTP takes no position on the particular fee schedule that

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