The present system may also result in the misallocation of resources among alternative television distribution

technologies. Cable television is the only technology governed by Section 111. Programmers of such other technologies as multipoint distribution systems ("MDS"), subscription television ("STV"), videodiscs and videocassettes, all must negotiate in an open marketplace with program suppliers. the copyright law's special treatment of cable may artificially reduce its relative program operating costs, thereby artificially skewing prospective users toward cable and away from other, substitute services.

Thus,

In addition, cable systems may elect to import distant television broadcast signals that are available at artificially low prices, even though their subscribers would prefer and be willing to pay more for alternate programming. 27/ Finally, program producers may opt for distribution technologies that provide more control over use than broadcasting. For example, a program supplier might prefer a cable network (e.g., Entertainment and Sports Programming Network), rather than a "superstation" (e.g., WTBS, Atlanta) solely because the former mode offers greater copyright protection.

In summary, the market for television programming appears to be competitive and capable of functioning effectively without the imposition of government regulation. We believe that determinations of costs and benefits are best left to the sellers (copyright holders) and buyers (cable systems), and ultimately to consumers through their private transactions. rather than through administrative price arbitration.

C.

Reimposition of Syndicated Exclusivity Rules is an
Inadequate Solution to the Problem

The 1976 Copyright Act is being reconsidered at this time largely as a result of the FCC's recent decision to eliminate its distant signal importation rules 28/ and syndicated program

27/ See NTIA Report, at 63.

28/ These rules limited the number of distant broadcast signals that cable systems could import. In the top 50 markets cable systems could import 3 network and 3 independent stations; in the second 50 markets, 3 network and 2 independents; in the smaller markets, 3 network and 1

independent. These rules were eliminated in 1980. Report and Order in Dockets 20988 and 21284, 79 F.C.c.2d 663 (1980), aff'd, Malrite T.V. of New York v. FCC, supra.

exclusivity rules. The Commission's decision allows cable systems to import an unlimited number of signals. As signal importation increases, so will audience diversion from broadcasters to cable systems, thereby increasing the misallocative effects and inefficiencies caused by the compulsory license. 29/

The Department believes, however, that reinposition of syndicated exclusivity requirements, as proposed by H.R. 3560, is an inadequate solution to the severe problems caused by the compulsory license scheme. Although syndicated exclusivity could allow copyright holders to capture more of the economic value of their product than is now possible, it is neither an adequate nor, indeed, a workable substitute for full copyright liability. It would not cover all television programming, nor would it allow copyright holders to capture full market value of their product. 30/

Moreover, syndicated exclusivity rules would impose

substantial regulatory burdens on broadcasters and the FCC. For example, the provisions proposed in H. R. 3560 would require the FCC to (1) rule on waiver petitions for exemptions from the exclusivity rules; (2) issue rules governing notification of cable systems by broadcasters seeking exclusivity; and (3) rule within 90 days of submission by a broadcaster bringing a copyright infringement action on whether an alleged violation of the rules was due to technical error or other factors beyond the cable system's control. Broadcasters would be required to bear the expense of complying with the FCC's requirements for notifying cable systems of protected programming.

In summary, the Department does not believe that the statutory imposition of regulations such as syndicated exclusivity would provide a solution. While we recognize there may be a need for some period of transition, the only practical remedy is full copyright liability.

Conclusion

For the reasons discussed above, the Department of Justice recommends against enactment of H.R. 3560.

The Office of Management and Budget has advised that there is no objection to the submission of this report from the standpoint of the Administration's program.

29/ Indeed, the FCC specifically stated that it was unable to determine the long-term effects on total payments to copyright holders from eliminating the syndicated exclusivity rules. Cable Television Syndicated Exclusivity Rules, Report, 71 F.C.C.2d 951, 981-85 (1979).

30/ For example, in certain cases a program supplier might be able to maximize revenues by selling non-exclusive rights to both a cable system and broadcast station in the same market. Through open negotiation the supplier might be able to capture more from the cable system for the right to import a distant signal than under compulsory license compensation.

Mr. WIRTH. Our first panel this morning will consist of three members of the Judiciary Committee who have played a key role in this legislation thus far.

Joining us at the witness table are Congressman Kastenmeier, chairman of the Subcommittee on Courts and Civil Liberties and the original sponsor of the bill; Congressman Railsback, a cosponsor of the bill and the chief proponent of a proposed amendment dealing with the concerns of professional sports; and Congressman Sawyer, who has proposed an alternative approach to the one envisioned by this bill.

STATEMENTS OF HON. ROBERT W. KASTENMEIER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN; HON. TOM RAILSBACK, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS; AND HON. HAROLD S. SAWYER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF

MICHIGAN

Mr. KASTENMEIER. Thank you, Mr. Chairman.

I am very pleased to be here before your committee this morning. I am pleased also to be here with my two colleagues, Mr. Railsback and Mr. Sawyer, who contributed a great deal to this bill.

I think in the case of Mr. Sawyer, he has reservations which he will express about the bill, but as members of the subcommittee, their contribution to the subject has been considerable.

This is one of the most difficult copyright law controversies that the Congress has faced, I might add, Mr. Chairman. That, of course, is the copyright liability of cable television systems.

I would like in these opening remarks to provide your subcommittee with a brief history of the matter and review of the Judiciary Committee's efforts and a synopsis of the bill before you today, H.R. 5949.

In the period before 1976 the copyright law revision, the period itself was marked by great uncertainty as to how best to fit cable television into existing communications policies and law and also the copyright marketplace.

Until 1972 it was generally believed by the FCC that the continued expansion of cable television would seriously interfere with over-the-air television broadcast stations.

In 1972, the FCC reconsidered and relaxed its protective regulations to allow greater cable carriage of distant television signals. Such carriage, however, was subject to FCC rules providing exclusivity protection for certain copyrighted network and nonnetwork programing.

The function of these FCC rules was to provide a copyright-like protection for copyrighted programing. That was necessary because of the ambiguity and uncertainty in the then in effect 1909 copyright law, a law which has not obviously in modern times reflected the new technologies.

The legal relationship between coypright and cable television essentially derives from two Supreme Court cases: The Fortnightly and the Teleprompter cases of 1968 and 1972. In both of these cases, simply put, the court held cable retransmission of local and distant broadcast signals was not an infringement of copyright.

Although the court took pains to note the inability of the 1909 copyright law to accommodate these developments, it urged Congress to resolve the issue of copyright liability for retransmission to cable systems in the copyright revision bills pending before Congress.

So, in 1976, with the support of two of the industry groups you referred to, we were able in the 1976 Copyright Act-to agree to a new section, section 111, which provided a compulsory license for the use of copyrighted material by cable television systems.

Now, the broadcast industry was largely neutral in 1976. It was not a major factor. There were some in the industry who had reservations about the agreement reached between the motion picture industry and cable, but nonetheless their objections were outweighed by the generally beneficial aspects of the new 1976 law. So the broadcast industry, I would say as a generality, went along with the agreement.

As the members know, under the Federal copyright statute, authors generally enjoy certain exclusive rights to control the market and reap the financial rewards from their creations.

However, in rare and special circumstances the copyright law has created compulsory licenses, giving certain users guaranteed access in exchange for assuring the author some remuneration for the use of their work. The author then relinquishes control of the work. This is a motion picture studio, or whatever, in return for a guaranteed payment each time the work is exploited in a manner permitted by the statutory license.

In the case of cable retransmission, the Congress determined that compulsory license was warranted. So, under the 1976 Copyright Act, cable systems do not negotiate for retransmission rights and do not pay royalties directly to any copyright owners. Instead, they are paid to the copyright office and distributed to the copyright owners by the Copyright Royalty Tribunal.

Since the passage of the 1976 Copyright Act, cable television compulsory license has come under increasing criticism, I believe

largely as a result of three developments: the enormous growth of the cable industry and the entry of large, well-financed corporations into the market; second, the development of satellite retransmission technology and the superstation; and third, the deregulation of the cable industry by the FCC.

As early as 1979 the subcommittee which I chair began to feel the pressure to reopen the 1976 act. Several days of hearings were held in 1979, but no legislation was forthcoming.

However, in 1981 the real catalyst for change in the compulsory license occurred: The FCC repealed the syndicated exclusivity and distant signal rules which have for many years restricted the use of over-the-air broadcast signals by cable television systems. Repeal of these rules was challenged and subsequently upheld in the Court of Appeals for the Second Circuit.

So, in 1981 the subcommittee held extensive hearings on the compulsory license and FCC deregulation. Representatives of the motion picture, professional sports and broadcasting industries testified in favor of the abolition of the compulsory license, citing these three developments I referred to, in support of their view that the cable industry is now able and should be required to purchase copyright programing in the free market, just as their competitors do in the broadcasting industry.

So, the cable industry testified that it would be impracticable and unduly burdensome to require every cable system to negotiate for use of each copyrighted program. However, following the hearings and with the encouragement of my subcommittee and three major interest groups involved in this controversy, the discussions eventually led to the compromise legislation, approved by the Judiciary Committee.

It was not an easy negotiation, and I must publicly compliment these industry leaders on their perseverence, creativity and willingness to compromise. It was extraordinarily important.

The committee made several modifications in the compromise to reflect the concerns of those who were not party to the compromise, including public television and public radio. I had hoped that we could have reached an agreement on the concerns of professional sports, but no such agreement was possible. I remain hopeful that some solution to that problem can be found.

But the bill before you today can best be described as a genuine compromise between and among the interested parties. I believe that it is also a compromise, Mr. Chairman, which is in the public interest.

The features of the bill, briefly, are as follows: