to the services the industry hopes to offer to the public. Let me explain. This Tribunal carries with it the potential for substantial escalation of copyright fees in a very short period of time. The Office of Telecommunications Policy has already pointed out the damaging effect this uncertainty and lack of stability can have. You will hear further about the impact of uncertainty on cable's growth by a representative of the financial community following my presentation. I do not think I exaggerate when I say that virtually any significant copyright payment by this industry represents a financial burden. An unknown periodic review as mandated in this bill presents, in my opinion, not potential, but actual grave economic problems to a growing industry, one that is voraciously capital intensive in its formative stages. You are aware of the difficulties that all high risk businesses are now facing in obtaining short term financing. I do not wish to plead economic hardship to this subcommittee, but plead I must. We in this industry know too well the economic realities.

Further, Chapter 8 contains no criteria to guide Tribunal review of rates; it contains no provision for judicial review of the Tribunal's decision other than for fraud; and in our opinion it provides for no effective Congressional review. In short, we find this section of the bill fraught with uncertainty, an uncertainty that I submit this industry can ill afford.

I would like to suggest a more reasonable approach to the issue of insuring fair rates in the future. Such an approach is already contained in the bill.

Section 111(d) provides for the establishment of a compulsory license for secondary transmissions by cable systems. Royalty fees are computed on the basis of specified percentages of gross receipts from subscriber revenues from basic cable service. The applicable percentages increase according to the revenues or size of a cable system. We believe that a progressive fee schedule based on percentages represents an eminently logical and reasonable approach to increasing fees. It substitutes marketplace economics for arbitrary decisions. It has the logic of a graduated income tax without the loopholes. The revenues derived by copyright owners from cable will increase, as the cable system revenues increase. Such an approach takes both the industry's growth and inflation into account. If cable television is to grow and prosper, so will the owners of copyrighted product share in that growth and prosperity.

In summary then, we strongly urge this subcommittee to retain the approach of a progressive fee schedule based on a percentage of revenues, and discard the concept of periodic review. Such an approach avoids the need to establish yet another bureaucratic procedure and substitutes a logical and simple approach for an arbitrary and complicated one.

Section 501 of HR 2223 deals with infringement of copyright. Subsection (b) thereof entitles the copyright owner to initiate action for infringement of copyright. We have no objection to that provision. However, subsection (a) grants a television broadcast station rights as legal or beneficial owner of a copyright for purposes of instituting action for infringement. We very strongly object to this provision.

As you know, the rights to most television programs are held, not by the broadcaster, but the copyright owner. In those cases, where the television station does hold the copyright he is fully protected for infringement under subsection (b). However subsection (c) would grant to hundreds of broadcasters across the country the right to institute harassing suits against cable operators for very minor or even inadvertent violations of FCC regulations. Such a provision is, we think, an aberration and one unprecedented in copyright law. It should be stricken from the bill. Adequate remedies for violations of FCC regulations are available under the Communications Act.

In any event we believe that this subcommittee's report should make clear that inadvertent violations of FCC rules do not constitute infringement of copyright.

Mr. Chairman, in earlier testimony before this subcommittee Deputy Assistant Attorney General Irwin Goldbloom of the Justice Department stated:

"We strongly urge, with respect to (b) [where the CATV system is, in whole or in part, within the local service area of the primary transmitter] that the secondary transmittal should be completely free of liability; hence, royalty free or no licensing would be in order. The secondary transmission in such a situation where the CATV system is, in whole or in part, within the local service area of the primary transmitter, finds the cable system only filling gaps or improving recep tion in the service area of the primary transmitter, supplementing the primary tranmission. Such transmission does not impair the primary transmitter's mar

ket; in fact, it enhances it. The copyright holder is helped and not hurt by such activity." [Emphasis added.]

In short the Justice Department has recommended that there be an area of "free use" with respect to CATV distribution of local broadcast signals. NOTA fully supports this line of thinking We note also that Thomas Keller, Acting General Counsel of OTP, stated to the subcommittee last week that local signals should not be liable for copyright.

While Mr. Goldbloom did not suggest to this subcommittee a method or mechanism for imposing liability only on signals outside that area of "free use", the logic of his recommendation is undeniably sound. NCTA has internally addressed this question in great detail. We have researched and studied a variety of possible approaches to the Justice Department's concept of an area of free use.

We have, however, determined that it is impossible to arrive at a free formula embodying this concept applied on a system-by-system basis, which does not discriminate unfairly against one portion of the cable television industry, and consequently against the public receiving service from such systems.

We believe that the concept advanced by the Justice Department can and should be embraced in the following manner. Copyright Hiability for CATV distribution of broadcast signals should be imposed without respect to carriage of signals. There appears to be no fair way to impose liability for carriage of certain signals and not others.

By retaining the present fee schedule in HR 2223 and exempting from liability the first $25,000 in gross quarterly subscriber receipts for all cable television systems, copy right legislation can fairly take into consideration that portion of cable service which fills gaps or improves reception in the service areas of broadcast stations.

We point out that such an exemption involves a reasonably small dollar amount in relationship to the total copyright revenues to be derived from cable now and in the future. It also has the benefit of providing some degree of relief to the smaller traditional community antenna systems. The owners of copyrighted product themselves have frequently stated that they are not primarily concerned with this type of cable system. Indeed the 1971 Consensus Agreement envisioned a total exemption from liability for many cable systems serving fewer than 3500 subscribers. The blanket exemption we propose would have the practical effect of exempting nearly all systems with fewer than 1500 subscribers, The reduction in revenues derived from larger cable systems, particularly in the larger television markets which the copyright owners have targeted as the primary source of future revenues, would be quite small as a percentage and of course, new revenues generated by cable system growth would be fully assessable. We believe this kind of exemption to be an equitable and fair approach to the problem of copyright liability for local signals. We submit for your serious consideration an amendment to achieve this.

Mr. Chairman, I will now turn to the third matter NCTA would like to comment on in relationship to HR 2223. Several times in my testimony I have alluded to the FCC's cable television regulations and to the close historical interrelationship between copyright and regulation as applied to cable I would again urge the members of this subcommittee to read those regulations, For your convenience the most pertinent of those regulations are printed below.

SYNDICATED EXCLUSIVITY

$76.151 Syndicated program exclusivity; extent of protection.

Upon receiving notification pursuant to § 76.155:

(a) No cable television system, operating in a community in whole or in part within one of the first fifty major television markets, shall carry a syndicated program, pursuant to § 76.61 (b), (e), (d), or (e), for a period of one year from the date that program is first licensed or sold as a syndicated program to a television station in the United States for television broadcast exhibition;

(b) No cable television system, operating in a community in whole or in part within a major television market, shall carry a syndicated program, pursuant to §§ 76.61 (b), (c), (d), or (e), or 76.63(a) (as it refers to § 76-61 (b), (e), (d), or (e)), while a commercial television station licensed to a designated community in that market has exclusive broadcast exhibition rights (both over-the-air and by cable) to that program: Provided, however, That if a commercial station licensed to a designated community in one of the second fifty major television markets has such exclusive rights, a cable television system located in whole or in part

57-7860) 76 - pt. 1 - 39

within the market of such station may carry such syndicated programs in the following circumstances:

(1) If the program is carried by the cable television system in prime time and will not also be broadcast by a commercial market station in prime time during the period for which there is exclusivity for the program;

(2) For off-network series programs:

(i) Prior to the first non-network broadcast in the market of an episode in the series;

(ii) After a non-network first-run of the series in the market or after one year from the date of the first non-network broadcast in the market of an episode in the series, whichever occurs first;

(3) For first-run series programs:

(i) Prior to the first broadcast in the market of an episode in the series;

(ii) After two (2) years from the first broadcast in the market of an episode in the series;

(4) For first-run, non-series programs:

(i) Prior to the date the program is available for broadcast in the market under the provision of any contract or license of a television broadcast station in the market;

(ii) After two (2) years from the date of such first availability;

(5) For feature films:

(i) Prior to the date such film is available for non-network broadcast in the market under the provisions of any contract or license of a television broadcast station in the market;

(ii) Two (2) years after the date of such first availability;

(6) For other programs: one day after the first non-network broadcast in the market or one year from the date of purchase of the program for non-network broadcast in the market, whichever occurs first.

Note 1: For purposes of § 76.151, a series will be treated as a unit, that is:

(i) No episode of a series (including an episode in a different package of programs in the same series) may be carried by a cable television system, pursuant to §§ 76.61 (b), (c), (d), or (e) or 76.63 (a) (as it refers to § 76.61 (b), (c), (d), or (e)) while any episodes of the series are subject to exclusivity protection.

(ii) In the second fifty major television markets, no exclusivity will be afforded a different package of programs in the same series after the initial exclusivity period has terminated

Note 2: As used in this section, the phrase "broadcast in the market" or "broadcast by a market station" refers to a broadcast by a television station licensed to a designated community in the market.

NETWORK EXCLUSIVITY

§ 76.92 Stations entitled to network program nonduplication protection.

(a) Any cable television system which operates in a community located in whole or in part within the 35-mile specified zone of any commercial television broadcast station or within the secondary zone which extends 20 miles beyond the specified zone of a smaller market television broadcast station (55 miles altogether), and which carries the signal of such station shall, except as provided in paragraphs (e) and (f) of this section, delete, upon request of the station licensee or permittee, the duplicating network programming of lower priority sig. nals in the manner and to the extent specified in §§ 76.94 and 76.95.

(b) For purposes of this section, the order of nonduplication priority of television signals carried by a cable television system is as follows:

(1) First, all television broadcast stations within whose specified zone the community of the system is located, in whole or in part;

(2) Second, all smaller market television broadcast stations within whose secondary zone the community of the system is located, in whole or in part.

(c) For purposes of this section, all noncommercial educational television broadcast stations licensed to a community located in whole or in part within a major television market as specified in § 76.51 shall be treated in the same manner as a major market commercial television broadcast station, and all noncommercial educational television broadcast stations not licensed to a community located in whole or in part within a major television market shall be treated in the same manner as a small market television broadcast station.

(d) Any cable television system operating in a community to which a 100-watt or higher power translator station is licensed, which translator is located within

the predicted Grade B signal contour of the television broadcast station that the translator station retransmits, shall upon request of such translator station licensee or permittee, delete the duplicating network programming of any televi sion broadcast station whose reference point (See § 76.53) is more than 55 miles from the community of the system.

(e) Any cable television system which operates in a community located in whole or in part within the specified zone of any television broadcast station or within the secondary zone of a smaller market television broadcast station is not required to delete the duplicating network programming of any 100-watt or higher power television translator station which is licensed to the community of the system.

(f) Any cable television system which operates in a community located in whole or in part within the secondary zone of a smaller market television broadcast station is not required to delete the duplicating network programming of any major market television broadcast station whose reference point (See § 76.53) is also within 55 miles of the community of the system.

It has been remarked, and I think not too facetiously, that while the Congress has been laboring to develop copyright provisions applicable to cable, the FCC has for some time now been guarding the copyright gate by promulgating copyright regulations of its own.

Earlier this year, in an address to the NCTA Convention, Barbara Ringer, Register of Copyrights, stated that the FCC rules "contained the most elaborate copyright provisions I have ever seen anywhere." She continued:

"I don't know much about communications law, but I know copyright law when I see it, and the exclusivity provisions of the FCC regulations are copyright regulations; in effect, the enactment of a copyright law through the regulatory process. And they are unquestionably the most complex and difficult to understand of anything I've ever read in this field:"

Absent legislation, or specific Congressional direction, and in spite of Supreme Court decisions, the Federal Communications Commission has consistently invoked copyright principles to protect broadcasting from competition. The pervasive nature of the Commission's forays in a variety of regulatory matters into exclusivity of all types is in and of itself a subject for broad independent investigation.

For the purposes of these hearings, however, one thing ought to be indisputably clear. While the FCC's 1972 rules have granted cable systems the right to carry a limited number of broadcast signals, that right- and the value and marketability of those signals for cable operators has in very large part been negated by the Commission's syndicated and network program exclusivity provisions. Stated in the simplest of terms, a cable operator has the right to carry signals, but the obligation to black out most of the programming on those signals. And this is achieved through the Commission's "copyright regulations."

For example, the cable system under construction in Wauwatosa, Wis. must under the FCC's syndicated exclusivity regulation black out 62 percent of the programming on one channel it imports, and 58% on the other channel. What, the operator can fairly ask, is the value of carrying the signal? Appendix C contains a more detailed explanation of this problem.

It ought to be beyond any logical dispute that if cable systems are to incur liability for the distribution of these signals, then they should have the right to show what has been paid for. Yet if copyright legislation with provisions for cable television were enacted today, that would not be the case. We believe it is imperative that the Congress address this matter. This should be done in this legislation, and we are submitting language to accomplish this aim.

Before concluding, Mr. Chairman, I would like to draw the subcommittee's attention to several additional recommendations for perfecting changes in section 111 of the bill.

Section 111(b) of HR 2223 appears to make the secondary transmission of over-the-air pay-television (STV) signals an act of infringement and one subject to civil and criminal penalties. This subcommittee should be aware that Federal Communications Commission regulations require CATV systems to carry the signals of all television broadcast stations in specified geographical areas regardless of whether those signals are originated by commercial broadcast stations or STV stations. Therefore, under Section 111(b) the cable system would be faced with either violating FCC rules and regulations or the copyright law. Consequently we urge that Section 111(b) be amended so as not to apply to the required carriage of an STV signal.

Next, section 111 (a) (4) exempts government-owned and non-profit translators from the requirement to pay fees. As a matter of law, we believe that no rational distinction can be made between CATV systems whose purpose is to improve reception of television signals and translators which serve the same purpose. Additionally, of course, HR 2223 does not exempt non-profit and governmentowned CATV systems. Should not such translators be placed on an even competitive footing with commercial translators and cable systems?

Third, section 111 (a) (3), as currently drafted, raises the possibility that cable operators providing leased channels to the public or others could incur copyright liability for the material programmed on those channels by the lessees. Federal Communications Commission regulations require that certain cable systems make available channels for lease on a non-discriminatory basis and that the cable operator may exercise no control over the program content on those channels. We respectfully suggest that the language of section 111(a)(3) be changed to insure that the cable operator does not incur copyright liability on leased channels. The lessee, of course, would remain liable for the payment of copyright. Finally, portions of section 111 and the language of section 801(b) raise the possibility that copyright fees in the future could be based on cable revenues from sources other than basic CATV distribution of broadcast signals.

I believe it is not the intent of Congress to impose copyright liability on cable operations beyond the basic reception service, and indeed there would be no logic to such an approach. The liability contemplated in this legislation has no relationship to revenues derived from local origination, pay cable operations or any other such service initiated by a cable operator. In those specific cases copyright will have already been paid. Revenues derived from other potential services, meter reading, for example, have no connection with copyright. Again, Mr. Chairman, there would clearly seem to be no equity or logic in such an approach. We are submitting suggested clarifying language to deal with this issue. In conclusion, Mr. Chairman, I would like to state that NCTA has for eight years now worked hard under trying circumstances to assist in achieving fair and reasonable copyright legislation for CATV. We will continue those efforts, and we stand ready to assist this subcommittee in every way possible. I will be happy to respond to questions.

APPENDIX A.-SUMMARY OF FCC CABLE TELEVISION RULES

In United States v. Southwestern Cable Co., 392 U.S. 157 (1968), the United States Supreme Court established that CATV systems were interstate operations, properly to be regulated by the Federal Communications Commission. The Court stated, at pages 168–169:

"Nor can we doubt that CATV systems are engaged in interstate communications, even where, as here, the intercepted signals emanate from stations located within the same State in which the CATV system operates. We may take notice that television broadcasting consists in very large part of programming devised for, and distributed to, national audiences; respondents thus are ordinarily employed in the simultaneous retransmission of communications that have very often originated in other States. The stream of communication is essentially uninterrupted and properly indivisible. To categorize respondents' activities as intra-state would disregard the character of the television industry, and serve merely to prevent the national regulation that 'is not only appropriate but essential to the efficient use of radio facilities.'" (Citation and footnote omitted.) Subsequently, detailed regulations of the FCC were upheld in Black Hills Video Corp. v. United States, 399 F.2d 65 (8 Cir., 1968).

CATV systems are governed by comprehensive regulations of the Federal Communications Commission (See, 47 C.F.R. 76.1 et seq.). The Commission's regulatory scheme varies, depending on the location of a community within which a CATV system operates, as that community is related to communities designated by the Commission as a "television market." The regulations further distinguish between "major" television markets (which are divided into "Top-50" and "Second-50" markets) and "smaller" television markets.

The major television markets in the country, defined by 35 mile circles around a central point in each market, contain about 85 percent of the population of the United States. This large area has only recently been opened to development by cable television.

Early federal regulations attempted to estabilsh some kind of a formative direction for cable television as it existed then. In the more than seven years that have followed, the Federal Communications Commission has adjusted its regulatory