without the consent of the copyright owner, provided that certain conditions in the law are met and prescribed statutory royalties are paid by the user. Programming originating from a cable system and not received from a television or radio broadcast station is not subject to compulsory licensing; licensing for program originations must be negotiated directly between cable system operators and copyright

owners.

Briefly stated, in order for a cable system to be eligible to exercise a compulsory license, it must comply with certain requirements set forth in section 111 of the copyright statute:

"1. The compulsory license is limited to simultaneous (that is, non-taped) retransmission, with exceptions for certain cable systems located outside of the continental United States;

**2. Cable systems are prohibited from intentionally altering the content of, or the commercial advertising or station announcements accompanying, a retransmitted program, except in specific limited situations pertaining to television commercial advertising research;

"3. Cable systems may retransmit only those signals that they are authorized to carry under the signal carriage and program exclusively rules of the Federal Communications Commissions;

"4. Cable systems are prohibited from importing foreign television and radio signals pursuant to the compulsory license, with some exceptions for cable systems located within limited zones of the United States bordering Canada and Mexico and "grandfathered" cable systems; and

"5. Cable systems must file their notices of identity and signal carriage complement and Statements of Account with, and their statutory royalty fees to, and the Copyright Office."

Failure to comply with any of these conditions could invalidate the compulsory license and render a cable system's retransmission activity subject to full copyright liability.

Under the compulsory license, cable systems do not pay royalties directly to any copyright owner. Instead, the statutory royalties are paid to the Copyright Office. The statute authorizes the Copyright Office to deduct reasonable administrative expenses under section 111 from the collected royalties. These royalties are then deposited with the U.S. Treasury for investment in interest bearing U.S. securities. The collected royalties and accumulated interest are to be distributed at annual intervals among those eligible copyright owners who have filed claims with the Copyright Royalty Tribunal (CRT), a new legal entity created by the copyright law to oversee distribution of royalties and, under statutory standards, to review the prescribed royalty rates at periodic intervals.

The Copyright Royalty Tribunal is called upon to play two pivotal roles in the operation of this compulsory licensing system:

1 Distribution.-Under section 111(d)(5), copyright owners claiming royalties from secondary transmissions by cable systems are required to file annual claims with the CRT. The CRT then determines whether "there exists a controversy concerning the distribution of royalty fees." If there is no controversy, it proceeds to make distribution. If a controversy does exist, however, the CRT initiates proceedings "to determine the distribution of royalty fees"; under section 804, these proceedings must be concluded within one year.

2 Rate adjustment.-The CRT is given authority to adjust the cable royalty rates provied in section 111 in three situations:

(a) Five-year review.-Section 801 provides for a regular cyclical review of rates, beginning in 1980 and taking place every fifth year thereafter. Adjustments resulting from this review can be made only to reflect monetary changes from inflation or deflation, or changes in average rates charged by cable systems, and are subject to other constraints.

b Increase by FCC in number of distant signals permitted.—If the FCC changes it rules to permit the importation of more distant signals than those allowed on April 15. 1976, any party can petition the CRT requesting a rate adjustment proceeding and, subject to certain constraints, the CRT can adjust the rates applicable to those additional signals.

(e) Change in FCC exclusivity rules. Similarly, if the FCC rules concerning syndicated and sports program exclusivity are changed after April 15, 1976, a rate adjustment proceeding can be triggered. The statute provides that "any such adjustment shall apply only to the affected broadcast signals carried on those systems affected by the change."

Experience of the Copyright Office and the Copyright Royalty Tribunal under the new law

In the months following January 1, 1978, the date when the CATV compulsory licensing provisions of the new Act went into effect, the Copyright Office issued final regulations relating to the procedures for the submission of notices of identify and signal carriage complement and Statements of Account by cable systems. In addition, we issued Statement of Account forms to assist cable system operators in submitting the required information and calculating their royalty fee payments. In the Copyright Office, a Licensing Division was formed to review the documents and royalty fees submitted by the cable systems.

We have now been through three semiannual accounting periods since the new law came into effect. The following table is a generalized summary of our experience through September 30, 1979:

These figures take account of (1) interest income paid through August 31, 1979; (2) deduction of operation costs, (3) refunds for overpayments; (4) face value of securities purchased; and (5) balance on hand

These figures indicate that there is very nearly complete statutory compliance by the CATV industry, and that more royalty fees are being generated than were originally estimated. Based on figures provided at the time the law was enacted, Congress estimated annual receipts of $8,700,000; the total figure of royalty fees deposited in 1978-$12,700,000-is roughly 46 percent more than the estimate.

The Copyright Royalty Tribunal has issued regulations governing the filing of claims to cable royalty fees. Following a public meeting at which claimants were given the opportunity to present arguments, the CRT determined that a controversy exists with respect to the distribution of cable royalty fees for both of the 1978 semiannual periods. The effective date of this determination was September 12, 1979, and the distribution proceedings (which must be completed by September 12, 1980), are now underway. The CRT has asked for briefs on several threshold legal questions which are crucial to settlement of the distribution dispute. These include: (1) The extent to which broadcasters are entitled to claim royalties on the basis of authorship involved in bringing together a "compilation” in the form of a "broadcast day";

(2) The extent to which broadcasters are entitled to claim royalties as exclusive licensees of programs; and

(3) The standing of "certain or all sports claimants" to claim cable royalties. On January 1, 1980, the CRT will begin its first cyclical review of compulsory licensing rates, including those for cable. If, as seems likely, the FCC should alter its distant signal or exclusivity rules, a broader CRT review of cable rates could also take place within the near future. All proceedings for rate adjustments must be completed within one year from the date they are announced.

Proposals for amendment of Communications Act to establish a “retransmission consent" requirement

Earlier this year the Subcommittee on Communications of the House Committee on Interstate and Foreign Commerce held hearings on H.R. 3333, a Bill to Establish Certain Requirements Relating to Interstate and Foreign Telecommunications (sometimes known as the "Communications Act rewrite"). Section 453(a)(2) of that bill would have made it illegal for any person within the jurisdiction of the United States to "rebroadcast or otherwise retransmit any program or portion of a program originated by a broadcast station without the express authority of such station or of the person who owns or controls the exclusive rights to the program involved." To the Copyright Office this sweeping provision seemed wholly inconsistent with the Congressional intentions and goals incorporated in the 1976 Copyright Act. I therefore testified in opposition to the provision on June 28, 1979, taking the view that the provision would not work as intended, that the need for it had not been shown, and that in any case it would go too far and would, as proposed, undermine the existing copyright law. As I said in my prepared statement:

"The testimony. . . on this provision makes clear that its purpose is to substitute complete copyright exclusivity for the compulsory licensing provisions of the Copyright Act. The proponents of the provision argue that this would permit competitive market forces to operate, that there would be one-on-one negotiations between cable operators and rights holders in programs, that free competition would produce fair compensation to copyright owners and would protect broadcasters' markets without freezing cable operators out of their retransmission activities.

"Had it been possible to enact legislation in the early or mid-1960's establishing complete copyright liability, or had the Supreme Court decisions gone the other way, the arguments by the proponents of section 453(a)(2) could well have been valid. But the growth of the cable industry, the responses to it by broadcasters and copyright owners, and the impact of FCC regulations and copyright legislation in the last ten years make the optimistic predictions of the proponents hard to accept. The Copyright Office has never been opposed to the principle of exclusivity as a starting point in any context; but at this stage in the game, its substitution for compulsory licensing of cable retransmissions would, we think, produce massive retransmission denials rather than consents."

FCC rulemaking on cable television

At about the same time the "Communications Act Rewrite" was being considered in Congressional Subcommittees, the Federal Communications Commission undertook a formal reexamination of its cable television rules. For the past two years, the FCC has conducted an economic inquiry into the relationship between television broadcasting and cable television. This inquiry, which is now complete, suggests that the elimination of the FCC's distant signal rules would have little significant impact on television service, and would provide an opportunity for greater diversity and competition both in the economic marketplace and in the marketplace of ideas. Similarly, the Commission's study found little evidence that elimination of its syndicated program exclusivity rules would threaten the supply of television programming.

Based on these conclusions, the FCC instituted a rulemaking proceedings to consider the elimination of both the distant signal and exclusivity rules. In its Notice of Proposed Rulemaking in the Matter of Syndicated Program Exclusivity Rules and Inquiry Into the Economic Relationship Between Television Broadcasting and Cable Television,' the FCC also asked for comments on a proposal by the National Telecommunications and Information Administration of the U.S. Department of Commerce (the NTIA) that the FCC adopt "retransmission consent' quirements in its amended rules.

re

The Copyright Office has taken essentially the same position before the FCC with respect to the retransmission consent regulations as it took with respect to the equivalent legislative proposal in H.R. 3333. While we have not challenged the fundamental constitutional and statutory authority of the FCC to promulgate regulations of the sort proposed, we have expressed serious doubts as to the appropriateness and wisdom of doing so-especially in the face of recent Congressional action that appears inconsistent, if not directly in conflict, with the proposal.

In its recent comments before the FCC, the NTIA has substantially clarified and qualified its earlier proposal. As we understand it, the NTIA is now suggesting that the "retransmission consent" regulations be superimposed upon, instead of superseding, the compulsory licensing provisions of the Copyright Act. All existing cable operations would continue to be subject to the copyright law, and the retransmission consent requirement would apply only to new operations and only to carriage of distant, non-work signals. For the future, cable systems would have to obtain retransmission consent form broadcasters, who could grant consent only if they had obtained the right to do so from the copyright owner; copyright owners could charge broadcasters for the retransmission right, and broadcasters could in turn charge cable operators for "consent." As a fall-back position, the NTIA comments suggest that "at the least, the Commission should afford non-network duplication protection in the top 100 markets":

"Retransmission consent with grandfathering is NTIA's preferred position. If this approach is not adopted, we request the Commission, to retain most of the top 50 market exclusivity provisions, those requiring cable to respect exclusive broadcast exhibition rights for non-network programs and to afford one year preclearance exclusivity for first run syndicated programs, and extend these provisions to the rest of the top 100 markets. . . .'

⚫ FCC 79-243 (released May 7, 1979).

Conclusions with respect to copyright law

From the viewpoint of the Copyright Office, the present rather confused situation leads to several conclusions:

1. Retransmission consent should not be adopted in any form. -For the reasons already suggested, we do not believe that a "retransmission consent" requirementwhether in the form of communications legislation, copyright legislation, or FCC regulations should be adopted. We do not believe that the scheme would work fairly and effectively in any form. In enactng the CATV compulsory licensing provisions of the Copyright Act, Congress feared that the marketplace would not be able to function adequately in this area, and concluded "that it would be impractical and unduly burdensome to require every cable system to negotiate with every copyright owner whose work was retransmitted by a cable system." 2 Based on previous experience and present contractual agreements, it is hard to imagine what has changed to justify qualifying or reversing this considered judgment on an industrywide basis. Even if it were possible to reconcile a retransmission consent requirement with compulsory licensing provisions of the copyright law, we doubt that the need for such a radical change in the legal framework of the cable industry can be shown at the present time.

2. Changes in FCC Rules should be carefully considered.-The 1972 cable rules were adopted by the FCC as part of a broad scheme that presupposed coordinated copyright provisions. The Commission's rules were intended to operate in conjunction with the cable television provisions of the copyright legislation then under consideration by Congress. Under this bifurcation of responsibilities, it was understood that the Commission would control signal distribution by cable systems as part of a national allocations policy and would protect some "exclusive rights" (i.e., copyrights), while the copyright law would prescribe the degree and nature of cable operators' liability for the use of copyrighted programming that the FCC rules permitted them to retransmit.

Although the details of the copyright law adopted in 1976 were changed considerably form those envisioned in 1972, this fundamental division of responsiblities still underlies the provisions of section 111 of the Copyright Act. These provisions recognized the need for flexibility in FCC regulation of cable, but they did not anticipate that the Commission would eliminate entirely either the distant signal or the syndicated exclusivity rules. Piecemeal revision of the regulations, rather than outright repeal, was clearly what Congress had in mind.

Congress entrusted to the Copyright Royalty Tribunal the task of adjusting royalty rates if the FCC rules were changed, but it did not expect the CRT to have to cope with the rates in a completely deregulated situation. On this assumption, it placed certain constraints on the authority of the Tribunal to adjust rates to meet a changed regulatory environment. Had Congress anticipated complete deregulation, it is doubtful whether those constraints would have been imposed.

3. Changing industry practices and technology should be carefully studied.-One of the strongest arguments put forward in favor of a retransmission consent requirement involves the changes now taking place in mass communications patterns and technology; the emergence of the so-called "superstations," the growth of pay-cable, the expanding use of satellites, the increasing concentration of cable systems in large urban areas, etc. There is no question that television broadcasting and cable services are undergoing vast changes, and that communications in the 1980's and 1990's is going to be substantially different from what have been accustomed to in the 1960's and 1970's. Eventually--and perhaps sooner than some might expect— these changes will necessitate fundamental revisions in the compulsory licensing provisions of the 1976 Copyright Act.

The Copyright Office does not believe that it is yet possible to make an accurate enough evaluation of these changes and their impact on copyright owner's rights to propose any broad revisions in section 111. We do believe, however, that studies should be undertaken without delay to evaluate these changes and report upon their implications to our Subcommittee. In our testimony before the Communications Subcommittee, we recommended that Congress expressly mandate the Copyright Royalty Tribunal to undertake an inquiry into "all aspects of the operation of section 111 and chapter 8 title 17 with respect to secondary transmissions made to, by means of, or from communications satellite systems." We repeat this recommendation here.

4. The authority of the Copyright Royalty Tribunal should be broadened and strengthened.-The Copyright Royalty Tribunal was the mechanism invented and directed by Congress to make the compulsory licensing provisions of the copyright statute work. The text of the Tribunal's effectiveness will come next year, and we

2 H. Rept. No. 94-1476, p. 89.

believe it is unfair to make any negative judgments until that testing period has passed and the Tribunal's accomplishments can be evaluated.

The difficulties of the task that Congress has given to the Tribunal cannot be overestimated. We believe that Congress should recognize the importance of a strong and effective CRT in the over-all scheme of compulsory licensing underlying the 1976 Copyright Act, and should do everything it can to support the Tribunal as an institution. Specifically:

(a) A modest but important step would be to enact legislation giving the CRT subpoena powers in both its royalty distribution and rate adjusting functions. The failure to provide this authority was probably an oversight in the final legislation adopted in 1976.

(b) The Subcommittee also should consider whether to remove the constraints now imposed on the CRT's authority to adjust rates in response to changes in FCC rules. The Copyright Office would favor broader rate-making authority than that now provided in section 801(b)(2) (B) and (C).

5. The copyright status of satellite relays.-When the new copyright law was enacted, most cable systems received their distant signals through over-the-air reception by means of a large central antenna or via microwave relay. Because of the natural limitations inherent in over-the-air reception and the high transmission costs accompanying the use of microwave, distant signal carriage was limited to those distant stations within close proximity to the cable system. These factors assured against the oversaturation of any particular signal's programming on a nationwide basis.

Recent technological developments and a relaxation of FCC common carrier rules have resulted in the greater use of space satellites in the transmission to cable systems of distant signals. By this method, television and radio broadcast signals are intercepted near their point of origination and then transmitted via common carrier to a space satellite. These signals are beamed back to Earth and are then available to those cable systems that operate earth stations.

Because of the nationwide dissemination potential of space satellite transmissions, a cable system's transmission expenses are the same whether the signal originates from a nearby distant community or from across the nation. This economic fact underlies the growth of superstations. These superstations are generally independent stations serving one of the major U.S. markets; a superstation's program schedule generally is comprised of syndicated programs, sporting events, and movies. These superstations are particularly attractive to cable system subscribers and have resulted in the centralization of distant signal carriage. Although some superstations are unwilling participants, others welcome their new status and have sought advertising revenue on a nationwide basis in response to their expanded audience. Section 111(a)(3) of the copyright statute exempts from copyright liability secondary transmissions "by any carrier who has no direct or indirect control over the content or selection of the primary transmission or over the particular recipients of the secondary transmission, and whose activities with respect to the secondary transmission consist solely of providing wires, cables, or other communications channels for the use of others. . .

In enacting section 111(a)(3), Congress certainly did not consider the then unanticipated activities of superstations and satellite relay services when it exempted traditional common carriers from copyright liability. In fact, the underlying policy reasons for compulsory licensing may well be inapplicable here, since the carrier may be in the position to act as a central agent in obtaining retransmission rights in the relayed programming. For this reason, your Subcommittee may wish to consider an amendment limiting the scope of section 111(a)(3) to exclude transmissions made to, by means of, or from a communications satellite system.

6. The adequacy of the fee schedule. -No one can argue that the fee structure of section 111 was based on any scientific analysis of market value, comparable rates, or potential damage. It was the result of a series of compromises and nothing more. The copyright owners now complain bitterly that their revenue is too low, to which the cable systems reply that a deal is a deal. Neither argument quite answers the problem.

The Copyright Office believes that your Subcommittee should appropriately consider the adequacy of the rates in section 111, but that any revisions in the schedule now would be premature. We are convinced that the real answer to this problem lies with a strong, experienced, well-informed Copyright Royalty Tribunal. We beheve that the CRT should be free to set the rates on the basis of an objective determination of what is a fair return to the copyright owner without placing an undue burden on the cable system.