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flexibility as possible for future change. I really do not know how to respond to your question, Mr. Pattison, and I am not trying to evade it. Mr. PATTISON. No. I understand.

Mr. HARDY. But I really do not know how to answer that. I can only say to you that all that Congress can do is adopt legislation based upon the present statute, and I know of no plans, I know of no pending rulemakings which would change the statute from the Commission standpoint, from its regulatory standpoint, so I don't know how to respond to that, how you can leave that flexibility.

Mr. PATTISON. I guess the problem is we are dealing in an area that is so rapidly changing, the technology is so rapidly changing that we cannot really foresee what kind of changes in technology will occur and, therefore, what rules you are going to adopt in response to that technology.

Mr. HARDY. I suspect that we have that same problem at the Commission.

Mr. PATTISON. So it would seem to me, knowing that there are probably going to be changes, that maybe we ought to think in terms of building in some sort of a mechanism so that those changes can be coordinated. I do not know how you do that.

Mr. HARDY. I am afraid that I cannot offer you any help because I do not know how you would do it either, sir.

Mr. PATTISON. Well, we will both think about it.

Mr. HARDY. All right.

Mr. PATTISON. I have no further questions.

Mr. KASTENMEIER. The gentleman from Illinois has another question.

Mr. RAILSBACK. Mr. Hardy, I wonder if you could make available to us the Commission's previous rules and orders concerning cable television? Could you do that for the record?

Mr. HARDY. The rules they have presently?

Mr. RAILSBACK. Yes.

Mr. HARDY. Certainly. I am sure we can do that.

Mr. RAILSBACK. I think that some have probably been superseded or preempted. Have there not been a whole series of orders and rules? Mr. HARDY. Yes.

Mr. RAILSBACK. I think that it would be helpful to me personally to see all of them and the sequence.

Let me ask you this

Mr. HARDY. We will make those available to the committee, sir.
[The material referred to is in the files of the subcommittee.]

Mr. RAILSBACK. Thank you. Was there ever an embargo of sports transmissions that involved minor league franchise areas, or can you give us a little bit of the background of that?

Mr. HARDY. I am afraid I do not know. Are you referring to sports blackouts?

Mr. RAILSBACK. Yes.

Mr. HARDY. That is presently pending before the Commission. It is considering sports blackout rules at the present. The Commission is attempting to make those rules consistent with the intent spelled out by Congress in the sports blackout legislation. We are trying to be consistent with those, or at least that is what the Commission is discussing at present. As to the outcome of those blackout rules, I do not know what those will be. They are presently being studied by the

Commission, and I understand they will come before the Commission for discussion late this month or in early July.

Mr. RAILSBACK. At one time I was led to believe that you were considering, the FCC was considering blacking out transmissions from a distance where there was a minor league franchise. Is that correct? Or do you recall?

Mr. HARDY. Yes, it could have applied to minor leagues.

Mr. RAILSBACK. Is that still under active consideration or what? Mr. HARDY. The overall policy of sports blackout rules is under consideration and being discussed, yes.

Mr. RAILSBACK. Have there been any orders or rules as yet promulgated?

Mr. HARDY. Those are being studied, and the rules will be adopted hopefully this year.

Mr. RAILSBACK. Are you saying that you are looking for direction from the Congress as to what a blackout policy should be, how much it could encompass and whether it should affect minor league cities as well as major league areas or what?

Mr. HARDY. I am sure that the Commission would welcome any direction that Congress may wish to offer on that. We, at present, are operating off the statute that was adopted by Congress. We report annually on the effects in professional sports. But of course, we do not know what the effects, we have no data which we could study on the effect on minor league sports.

Mr. RAILSBACK. Let me ask you one other question. I think maybe you referred to the people that are involved, but I am not sure, I am not sure that that is going to be very helpful to us, and maybe your testimony might be more helpful. Do you personally believe, based on your experience or the Commission's experience, that this should be a different fee schedule depending upon, or that there should be some flexibility in a fee schedule taking into account the different. distances and the different problems that may be involved in cable television.

Mr. HARDY. I am not sure that the Commission has taken a distinct position on that. We support the present bill which applies the same fee schedule regardless of the distance from which the signal is imported, be it a local signal or a distant signal which is imported. The Commission supports at the present time the present bill that was presented to us in its general form.

Mr. RAILSBACK. Thank you.

Mr. HARDY. And would apply it equally.

Mr. KASTEN MEIER. Mr. Hardy, on behalf of the committee

Mr. DANIELSON. Mr. Chairman, I have two questions if I may. Mr. KASTEN MEIER. The gentleman from California, Mr. Danielson. Mr. DANIELSON. I am interested in the theory under which your Commission asserts jurisdiction for the regulation of cable. As I understand it, you feel that you have that right in order to protect television licensees from the economic threat of competition which might impair their ability to render their public service under their license; and conversely, in order to protect, to promote the development and health, economic health of local television stations. Aside from that, what basis of jurisdiction does FCC feel that it has regarding cable?

Mr. HARDY. The basis for the jurisdiction, as you stated, and as found by the Supreme Court, is based upon the responsibility that the Commission has to insure that this Nation has an efficient and widespread radio and television system.

Mr. DANIELSON. Well, on cable-we are not really worried about radio really, are we, particularly?

Mr. HARDY. Well, when I say radio, radio as defined includes television, because the Commission is a

Mr. DANIELSON. But I am only speaking about television here, and can we agree on that? Now, proceed.

Mr. HARDY. Now, I was trying to answer your question insofar as it relates to the theory upon which the Commission asserted jurisdiction, and that was the theory as you stated, and that was approved by the Supreme Court. The theory is that if you lose the local service from a television broadcaster, then you have undermined the congressional intent to insure a nationwide, efficient, widespread radio system. And I use radio again in the sense that it includes television. And that was the theory approved by the Supreme Court.

Mr. DANIELSON. And of which I can understand the rationale and the logic, and I have no problem. Do you have any other basis? Mr. HARDY. And I think the words used were "reasonably ancillary." Mr. DANIELSON. Do you have any other basis?

Mr. HARDY. Any other basis for your legislation?

Mr. DANIELSON. For asserting jurisdiction to regulate cable?

Mr. HARDY. That is the extent. That is the extent of the rationale. supporting our assertion of jurisdiction.

Mr. DANIELSON. Then I guess your answer is no, you have no other basis?

Mr. HARDY. That is correct.

Mr. DANIELSON. What does copyright have to do with either protecting existing television from an economic competitive threat, or the promotion of local television broadcasting?

Mr. HARDY. I am not sure that I know the answer to that.

Mr. DANIELSON. I did not think you did. Thank you very much That is all of my questions.

Mr. KASTENMEIER. Thank you, Mr. Hardy, for your appearance this morning. And we appreciate the help you have given us.

[The prepared statement of Ashton R. Hardy follows:]

STATEMENT OF ASHTON R. HARDY, GENERAL COUNSEL, FEDERAL COMMUNICATIONS

COMMISSION

Mr. Chairman, I am pleased to have the opportunity to present the views of the Federal Communications Commission with respect to H.R. 2223, a bill for the general revision of the copyright law.

The Committee is to be commended for addressing the very serious need for comprehensive reform of our federal copyright laws. As you know, the statute governing this subject was enacted in 1909 and was drafted in terms of the problems of that era. Motion pictures and sound recordings as we now know them were not envisioned at that time, nor were radio and television.

Mr. Chairman, I realize that the scope of this legislation is broad and that your Subcommittee is concerned with such diverse subjects as library photocopying, bootlegging of film and sound recordings, and the ownership of presidential documents. The Commission has no jurisdiction over matters such as these and consequently I will not comment on them. However, the Commission has asserted jurisdiction and promulgated comprehensive rules governing the cable television industry, the subject of Section 111 (c) and (d) of the proposed

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

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

When the first cable systems began to operate, most merely extended local television service to rural areas where it had not been previously available. They did not import distant signals into markets where television service already existed, nor did they originate programming or serve major 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 continued to receive royalties from conventional broadcasters and did not anticipate that CATV would affect this revenue.

Initially the FCC expressed reluctance to assert jurisdiction over cable in the absence of specific legislative authorization. In 1959 (26 FCC 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 systems began to import distant signals, originate programming, and provide service in metropolitan markets which posed clear competitive threats to broadcasters. Copyright questions then came into focus and broadcasters and copyright proprietors sought protection from the FCC and the courts.

The Commission responded by abandoning its former laissez-faire posture on cable and in 1962 denied a cable system permission to import additional distant signals by microwave. [Carter Mountain Transmission Corp., 32 FCC 459, aff'd, 321 F. 2d 359 (D.C. Cir.), cert. denied, 375 U.S. 951 (1963)]. The Commission was influenced in its decision by the fact that the proposed importation would pose an economic threat to a television licensee which could deprive the public of his service.

In 1965, the Commission further asserted its jurisdiction over cable in its First Report and Order on Cable Television (38 FCC 683) which contained the so-called Non-Duplication Rule. This rule manifested the Commission's desire to protect the public interest in existing television service, and to encouragethe development 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 present 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 systems in the top 100 television markets (serving 90% of all television 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 authority to bar expansion of its system under the major-market-distant signal rule. However, the Supreme Court upheld the Commission's action as reasonably ancillary to its duty to regulate television broadcasting. [U.S. v. Southwestern Cable Co., 392 U.S. 157 (1968)]

Because FCC regulation had not addressed many of the copyright questions posed by the advent of cable, broadcasters and cable proprietors sought relief in the courts. They argued for an expansive interpretation of the Copyright Act which would include a cable broadcast as a “publie performance" and thus subject cable operators to copyright liability. The Supreme Court confronted this issue in Fortnightly Corp. v. United Artists Television, Inc., 392 U.S. 290 (1968), where United Artists sought to recover royalties from Fortnightly, a West Virginia 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 lia

bility. 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 2d 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 copyright 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 2d 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 signals 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 important 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.

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