B. The plan is administratively sound. The cost of collection would be at a minimum. Note in this connection the precedent of Article 53 of the German Copyright Act of 1965 which places a flat fee of five per cent on the sale of visual or sound recorders.

There are several objections which have been raised to the imposition of an arbitrary flat fee tax. It is, of course, obvious that many photocopy machines are not used to reproduce copyrighted materials. One might illustrate this by examining the photocopy equipment in a teaching hospital. The machine in the hospital administrative office, for example, reproduces hospital records, clerical accounts, etc., almost exclusively. On the other hand, the photocopy machine in a medical library is always a major user of copyrighted material. The answer is partly that it "evens out." And the administrative costs involved preclude making distinctions between where machines are located-using this as a basis for determining royalty rates.

What of the counter-suggestion that the tax be based solely on the extent of use-rather than sales price or monthly rental. This is certainly possible in imposing a royalty surcharge on sound equipment. Rather than tax the sale of the tape recorder, there could be a tax on the sale of tape. In that manner, the user who merely records a favorite song for home consumption would pay only a negligible sum for royalties. On the other hand, the large commercial user of copyrighted music would buy tapes in quantity and thus pay a much higher royalty. Such a scheme is impossible with photocopy machines since they are increasingly able to use ordinary rather than specially treated paper. Note, however, that the factor of use is already considered and built into current rental charges. Most of the large producers of photocopy equipment charge a base fee of $35.00–$50.00 a month, plus a figure based solely upon the number of copies made.

A third objection is raised by educators who argue that any tax, regardless of how small, is an interference with the free dissemination of necessary educational material. Theoretically, this position is indefensible. As a practical matter, it should not preclude a minimum royalty charge. The key is access to information. And access is always thwarted by a series of variables involving cost. The educator may be barred from the utilization of educational materials by the fact that the school system does not have adequate secretarial help, or because the school library did not buy the books which contained the desired works of scholarship, or because the school board vetoed the purchase of sufficient photocopying equipment. And where such equipment is acquired, the bulk of the cost is for rental, paper and chemicals. Measured against all of these factors, a royalty tax, in the form discussed here, really does not preclude the use and dissemination of educational materials.

Caveat: With the payment of the ten percent tax, users would be free to photocopy all copyrighted materials, with one notable exception. Consumables (meaning workbooks, standardized test forms meant to be used only once, etc. must be excluded from the photocopy grant.

ADMINISTRATION OF ROYALTIES

For the administration of any royalty plan, it is essential to set up a central copyright clearing house to supervise the collection and distribution of the ten percent surtax on sales and monthly rentals.

It is recommended that this clearing house have a quasi-governmental status provided for in the copyright statute. This would have the following advantages: (1) Enforcement of payment would be facilitated. Failure to pay royalties would constitute a criminal rather than a civil offense.

(2) As a quasi-governmental entity created by statute, the anti-trust problem would be avoided.

(3) As a quasi-governmental agency operating under statute, it would be more difficult for any particular combination of selected publishing houses to gain control.

(4) An agency under governmental sponsorship would discourage the formation of splinter groups or alternative clearing houses set up to give special protection to special interests.

The membership of the clearing house would consist of all participating publishers. Royalties would be paid to the copyright proprietors only via these member-publishers.

(In addition to its administrative arm, the clearing house would also have an agency (or agencies) to perform as quasi-judicial tribunals. It would be the

responsibility of one such tribunal to determine who would be a bona fide publisher. Another tribunal responsibility would be to hear arguments on royalty distribution.)

DISTRIBUTION OF ROYALTIES

The greatest percentage of the moneys received and administered by the clearing house would be paid over to the member-publishers. The relative distribution as between the publishers and their authors (as copyright proprietors) would be allocated in accordance with their author-publisher contracts.

The most difficult administrative problem is the allocation of royalties among the various publishing houses. This must be based, as far as possible, upon the frequency with which certain materials are photocopied. At the same time, the plan must be kept as simple as possible.

It is recommended that all copyrighted books, periodicals and other publications be divided into five categories, depending upon the extent to which they are usually photocopied. Each publisher would have so many "units" in each category. (A monthly issue of a given oft-copied scientific journal might be a unit to the same extent as a given textbook.)

Category A units (those most frequently copied) would receive fifty per cent of the total royalties. Category E, containing those units copied the least, would include all novels, for example, and might be limited to as little as two per cent of all royalties. Initial category assignments would be based on a preliminary sampling and updated by subsequent samplings.

It would be the responsibility of an administrative arm of the clearing house to decide what book, annual or magazine issue constitutes a "unit" and to determine the proper category for each. Appeals would be made by the publishers to one of the clearing house tribunals.

As noted above, the bulk of all moneys received by the clearing house (after administrative costs are deducted) would be distributed to the publishers. However, it is proposed that twenty per cent of the net total be allocated (and administered by the clearing house) for the benefit of authors as a whole. Part of this sum could be designated for awards, scholarships, loans, pension arrangements, group. medical services, insurance, etc. And other funds could be used to maintain and operate authors' associations and other agencies working for the benefit of those who produce intellectual property.

My thanks to the Committee for giving me the opportunity to express my position on this important issue now before the Congress.

CADCO,

OKLAHOMA CITY, OKLA., July 24, 1973.

Hon. JOHN L. MCCLELLAN,
U.S. Senate,

Washington, D.C.

DEAR SENATOR MCCLELLAN: I am writing this letter in regard to hearings scheduled before the Senate Judiciary Committee, sub-committee on Patents, Trade-Marks and Copyrights, this coming July 31 and August 1.

The purpose of these hearings is to take testimony on pending Senate Bill S. 1361, and more particularly on section 111 of that bill; as it relates to CATV systems.

Section 111 of this proposed bill contains an "exemption from copyright liability" and "program exclusivity (for) CATV systems with fewer than 3,500 subscribers".

My company, CADCO, INC., is a manufacturer of CATV equipment. My company specializes in the manufacture and installation of CATV equipment for CATV systems in towns of 10,000 people and down. This happens to work out to CATV systems with 3,500 or fewer homes.

My company publishes a more-or-less monthly publication for our customers in this area of CATV; a copy of the most recent issue of which is enclosed. Our TECH TALK publication reflects the operating and technical problems of this segment of the CATV industry; and it does so because other publications and companies in this industry do, for the most part, ignore this portion of the market place.

CADCO is known within the CATV industry as "the small town specialists". And this extends much further than merely supplying equipment to these smaller communities; it includes providing know how and a rallying point for the operators of these CATV systems.

Now it is proposed, in Section 111 of this bill, that "CATV systems with fewer than 3,500 subscribers, now in existence, and independently owned, be exempted from the copyright" payment schedule that this bill provides for.

I would like to draw your attention to the enclosed issue of TECH TALK. On pages one through three of this issue is a synopsis of a Technical Report issued by the Office of the Chief Engineer of the Federal Communications Commission (Report Number T-7301). This report shows that based upon an FCC study of the CATV industry, that approximately 91% of all operating CATV systems have fewer than 3,500 subscribers. And in fact, that the smallest 50% of all CATV systems (i.e. half of the actual systems) average 345 subscribers each.

This bill, then, would exempt 91% of all existing cable system from the payment of copyright liabilities. The key word is existing.

Please refer to page 19 of the same enclosed issue of TECH TALK. This article ("Isn't It About Time-Again?") relates to the very distinct difference within the CATV industry between "cable television" and "Community Antenna Television." Briefly, cable television is any system with more than 3,500 subscribers; Community Antenna Television is any system with fewer than 3,500 subscribers.

And yet, both "Community Antenna" and "Cable" are being regulated, by the FCC, and through this proposed Copyright Bill, as if they were of the same. They are not. "Community Antenna" television service is a simple service that allows people in distant communities to receive better broadcast television. "Cable" television is much more than that. "Cable" television is pay-for-a-movie television (via the cable); it is reading electric meters via the cable; it is subscriber-response polling via the cable, and much more.

The point that I would like to try to make is simply this:

(1) The National Cable Television Association has represented to this Committee that they represent "the industry." The truth is that they represent the "cable television" industry; not the "Community Antenna" industry.

(A) The President of the NCTA, Mr. David Foster, is scheduled to appear before this Committee to "speak for the industry". Our contention is that he may speak for 9% of the CATV systems in the industry, and that these 9% of the systems may represent a large number of cable subscribers; but they do not represent a large number of systems-certainly not Community Antenna systems.

(2) There are spokesmen within the "Community Antenna" industry who could and should be allowed to present the views of the other 91% of the CATV industry. I would like to urge that some way be made to allow such a presentation before this Committee.

We are dealing with small communities, and normal, un-sophisticated community antenna reception. And we are dealing with a proposal which would allow the existing small systems to operate without copyright liability, while any new small "Community Antenna" systems will (under the terms of this bill) be required to pay copyright fees. We believe this is wrong.

Please give our proposal some consideration. The 91% of the CATV communities we speak on behalf of total nearly 5,000 in all. I believe they have a right to be heard . . . and David Foster of the NCTA does not speak for them. Sincerely,

ROBERT B. COOPER, Jr.,

President.

COLUMBIA BROADCASTING SYSTEM, INC.,
New York, N.Y., August 7, 1973.

Hon. JOHN L. MCCLELLAN,

Chairman, Subcommittee on Patents, Trademarks and Copyrights, Committee on the Judiciary, U.S. Senate, Washington, D.C.

DEAR MR. CHAIRMAN: On July 31 and August 1 the Subcommittee on Patents, Trademarks and Copyrights held Hearings on several Copyright Revision Bill subjects, including cable television, but that subject was specifically limited to the royalty schedule contained in § 111 of S. 1361 for the compulsory licensing of cable television systems.

CBS was not invited to appear at the Hearings nor did we desire to do so in view of the fact that the cable television part of the Hearings was limited to the specific subject of the royalty schedule. Our concern is more general-the proper place of cable television in the copyright context. Therefore, we take this opportunity to set forth the CBS position on that. We respectfully request that this letter be made a part of the record of the Hearings.

Preliminarily, it is useful to note what are the functions that a cable television system performs when it retransmits broadcast signals to its subscribers. Only one week before its decision in Fortnightly v. United Artists, 392 U.S. 390 (1968), the United States Supreme Court in United States v. Southwestern Cable Co., 392 U.S. 157 (1968) said that:

"CATV systems perform either or both of two functions. First, they may supplement broadcasting by facilitating satisfactory reception of local stations in adjacent areas in which such reception would not otherwise be possible; and second, they may transmit to subscribers the signals of distant stations entirely beyond the range of local antennae." 392 U.S. at 163.

When the Court decided Fortnightly a week later the function of distant signal importation was not before it; the function of the use of advanced antenna technology and equipment to overcome adverse topographical conditions to permit subscribers to receive signals already in the community, and that function only, was.

The United States Court of Appeals for the Second Circuit decided CBS v. Teleprompter, F. 2d-177, USPQ 225, on March 8, 1973. In its decision it held that: "When a CATV system is performing this second function of distributing signals that are beyond the range of local antennas, we believe that, to this extent, it is functionally equivalent to a broadcaster and thus should be deemed to 'perform' the programming distributed to subscribers on these imported signals. . . The system's function in this regard is no longer merely to enhance the subscriber's ability to receive signals that are in the area; it is now acting to bring signals into the community antenna, erected in that area." 177 USPQ at 231. Consequently, the Court of Appeals went on:

"We hold that when a CATV system imports distant signals, it is no longer within the ambit of the Fortnightly doctrine, and there is then no reason to treat it differently from any other person who, without license, displays a copyrighted work to an audience who would not otherwise receive it. For this reason, we conclude that the CATV system is a 'performer' of whatever programs from these distant signals that it distributes to its subscribers." 177 USPQ at 231.

CBS believes that the Court of Appeals is right in concluding that there is no reason to treat a cable television system, which brings a copyrighted work to a distant audience who would not otherwise receive it, differently from any other person who performs the same function. Moreover, we see no reason for the law to be changed so as to grant cable systems discriminatorily preferential treatment. Treating them in the same way as other users of copyrighted works are treated would only require that cable television systems secure licenses from copyright proprietors just as do the broadcasters with whom they compete. Not treating the cable systems to complusory licensing, as S. 1361 proposes to do, would eliminate the necessity of:

The recording by capable systems of notices in the Copyright Office and the prescription of regulations for them by the Register of Copyrights (§ 111 (d) (1)).

The deposit by cable systems with the Register of Copyrights of statements of account every three months and the prescription of regulations by the Register of Copyrights for the deposit (§ 111 (d) (2) (A)).

The deposit by cable systems with the Register of Copyrights of the prescribed graduated royalty fees and the prescription of regulations for the deposit by the Register of Copyrights (§ 111 (d) (2) (B)).

The annual filing of claims by persons (who have a sufficient financial stake as well as the means and energy to do so) entitled to fees with the Register of Copyrights and the prescription of regulations for such filing by the Register of Copyrights (§ 111 (d) (3) (A)).

The annual determination by the Register of Copyrights about whether a controversy exists concerning the distribution of royalty fees (§ 111 (d) (3) (B)).

The determination and deduction of his administrative costs by the Register of Copyrights, the distribution of royalty fees to those entitled to them, and, if the Register has found a controversy to exist, a certification to that effect and the constituting of a panel of the Copyright Royalty Tribunal (§ 111 (d) (3) (B)).

The maintenance of 15% of the royalty fees collected in a special fund and their distribution according to regulations prescribed by the Register of Copyrights to the copyright owners of musical works (§ 111 (d) (3) (C)).

The withholding from distribution by the Register of Copyrights or the Copyright Royalty Tribunal of an amount either one deems sufficient

to satisfy all claims with respect to which a controversy exists (§ 111 (d) (3) (D)).

Nor would the Copyright Royalty Tribunal created by Chapter 8 of the Bill be required to exercise the functions of making determinations concerning the adjustment of the copyright royalty rates or the distribution of the royalty fees provided for in the cable television compulsory license.

Nor would the Houses of Congress have the burden of deciding whether to exercise a right of veto against a time deadline, reflecting their judgments about royalty adjustments recommended by the Copyright Royalty Tribunal, as provided for in § 807 of the Revision Bill.

Nor would be courts be burdened by the necessity of reviewing determinations of the Tribunal concerning the distribution of cable television royalty fees, as provided for by § 809 of the Revision Bill.

CBS believes that it is not possible for any official or any Copyright Royalty Tribunal, or any other such body, to set royalty rates that are "reasonable". By what criteria of reasonableness could the determination be made? Moreover, by what criteria would the Register of Copyrights be guided in distributing the royalty fees to copyright proprietors who file claims for them? What weight. if any, would be given to the quality of the copyrighted works? How would the Register of Copyrights attempt to measure quality when no guidelines are provided by the Revision Bill? Nor does the Revision Bill provide guidelines for the Copyright Royalty Tribunal to make judgments about the distribution of the royalty fees in the controversies certified to it by the Register of Copyrights. The fact is that there is no adequate substitute for the operations of a normal marketplace in which prices are determined by supply and demand. If such a marketplace were permitted to function, consistently with other marketplaces in our free enterprise economic system, the problems which are insolvable by officials and tribunals would be solved by bargaining in the marketplace. The expenses of the operation would be borne by those who deal in the marketplace as contrasted with the expenses of the labyrinthical, top-heavy, governmental structure contemplated by S. 1361, part of the expenses for which would be taken out of the royalty fee fund and part of which would be taken out of the American taxpayer. A normal marketplace does not now exist for cable television, but copyright proprietors would certainly find a way of selling their rights if cable were paying for them. All other copyright users have managed to find a way of dealing with copyright proprietors. The present lack of a market is due to the uncertainty, which is only now being resolved in the courts, over whether cable television systems are liable to the normal application of copyright law and the consequent unwillingness of cable television systems to bargain and pay for what they retransmit.

As noted above, on March 8 of this year the Court of Appeals for the Second Circuit unanimously held in CBS v. Teleprompter that cable television systems are liable under the present law for the carriage of copyrighted programs contained in distant signals which they import. Petitions for review by the United States Supreme Court were filed in early June; we expect the Court to act on the petitions in the fall of this year; thus, it is probable that the Court's decision will finally determine the copyright question in the near future.

This being so, CBS suggests the wisdom of awaiting the outcome of the copyright test case rather than acting on Section 111 of S. 1361, which the Congress may find unnecessary in light of whatever action is taken by our highest court. After all, we are not without a Copyright Law; the only questions are what it means and whether that is unjust. We shall have the answers presently. Only if it is unjust should it be changed.

We believe you are aware of the fact that CBS has consistently taken the position that cable television systems should have a copyright exemption for retransmission of television broadcasts to their subscribers who are within the normal coverage area of the station originating such broadcasts, subject to certain conditions to assure fairness. We reaffirm that position because we believe that such an exemption is justified by the need for simplicity and by the expectation of the broadcaster, and those who license his use of their program material, that the broadcast station's signal will reach the entire public in its normal broadcast area. The Circuit Court's decision, review of which is now sought, accomplishes that result.

There is one incongruity in Section 111 of S. 1361 we should like to call to your attention. Section 111 makes it a copyright infringement for a cable television system to carry a professional sporting event into the local service area of one or more television stations-when none of the stations has been authorized to broad