(B) A total royalty fee for the period covered by the statement, computed [on the basis of specified percentages of the gross receipts from subscribers to the cable service during said period for the basic service of providing secondary transmissions of primary broadcast transmitters, as follows:

(i) 1⁄2 percent of any gross receipts up to $10,000;

(ii) 1 percent of any gross receipts totalling more than $40,000 but not more than $80,000;

(iii) 11⁄2 percent of any gross receipts totalling more that $80,000, but not more than $120,000;

(iv) percent of any gross recipts totalling more than $120,000, but not more than $160,000; and

(v) 21⁄2 percent of any gross receipts totalling more than $160,000.] by multiplying the cable system's gross receipts from subscribers for the basic service of providing secondary transmissions of primary broadcast transmitters during said period by a percentage which is the product obtained by multiplying the copyright owners' percentage share by the aggregate of the markets shares of each copyright qualifying broadcast station whose signal is retransmitted by the cable system.

As used in this section, the following terms and their variant forms mean the the following:

A "primary transmission" is a transmission made to the public by the transmitting facility whose signals are being received and further transmitted by the secondary transmission service, regardless of where or when the performance or display was first transmitted.

A "secondary transmission" is the further transmitting of a primary transmission simultaneously with the primary transmission or nonsimultaneously with the primary transmission if by a "cable system" not located in whole or in part within the boundary of the forty-eight contiguous States, Hawaii, or Puerto Rico: Provided, however, That a nonsimultaneous further transmission by a cable system located in a television market in Hawaii of a primary transmission shall be deemed to be a secondary transmission if such further transmission is necessary to enable the cable system to carry the full complement of signals allowed it under the rules and regulations of the Federal Communications Commission.

A "cable system" is a facility, located in any State, Territory, Trust Territory or Possession that in whole or in part receives signals transmitted or programs broadcast by one or more television broadcast stations licensed by the Federal Communications Commission and makes secondary transmissions of such signals or programs by wires, cables, or other communications channels to subscribing members of the public who pay for such service. For purposes of determining the royalty fee under subsection (d) (2) (B), two or more cable systems in contiguous communities under common ownership or control or operating from one headend shall be considered as one system. The "local service area of a primary transmitter" comprises the area in which a television broadcast station is entitled to insist upon its signal being retransmitted by a cable system pursuant to the rules and regulations of the Federal Communications Commission.

The "copyright owners' percentage share" shall be that percentage which is derived from dividing (A) total annual gross revenues of all broadcast stations in to the total program expenses for all broadcast stations and (B) multiplying the resulting quotient by 100. The copyright owners' percentage share shall be certified on a quarterly basis by the Federal Communications Commission to the Register of Copyrights in accordance with the most recently available broadcast financial data collected by such Commission. The "market share" of each “copyright qualifying broadcast station” not affiliated with a national television network (commercial or non-commercial) shall be derived by (A)dividing the total number of viewer hours credited to the copyright qualifying broadcast station with respect to the county or counties in which the cable system is located by the total number of viewer hours credited to all stations (whether carried over-the-air or by cable) in such county or counties and (B) multiplying the resulting quotient by 100. The market share of each copyright qualifying broadcast -station which is affiliated with a national television network (commercial

or non-commercial) shall be derived by (A) dividing the total number of viewer hours credited to the non-network programming of the copyright qualifying broadcast station with respect to the county or counties in which the cable system is located by the total number of viewer hours credited to all stations (whether carried over-the-air or by cable) in such county or counties and (B) multiplying the resulting quotient by 100. The market shares of each copyright qualifying broadcast station shall be certified on a quarterly basis by the Federal Communictions Commission to the Register of Copyrights on the basis of the most recent data available to such Commission.

A "copyright qualifying broadcast station" shall be any broadcast station whose signal is not required to be retransmitted by the cable system pursuant to the rules and regulations of the Federal Communications Commission in effect at the time of enactment of this bill, provided, however, that a broadcast station which is thereafter required by the rules and regulations of said Commission to be retransmitted by said cable system shall not thereafter be deemed to be a copyright qualifying broadcast station. MEMORANDUM CONSIDERING THE CONSTITUTIONALITY OF PROPOSED COPYRIGHT LEGISLATION (H.R. 2223)

INTRODUCTION

A bill to revise the copyright laws is now pending before the Judiciary Committee of the House of Representatives. This bill, H.R. 2223, would impose for the first time a general requirement of royalty payments for secondary transmission of broadcast signals by cable television systems. It would establish a statutory royalty rate and also create a Copyright Royalty Tribunal with extensive authority to regulate this royalty structure. Specifically, the Tribunal would have power to review and reset the statutory royalty rates paid by cable television operators to copyright holders, and to resolve disputes concerning distribution of royalty proceeds among copyright holders.

This memorandum considers the constitutionality of these primary provisions of H.R. 2223 dealing with the Copyright Royalty Tribunal. It concludes that H.R. 2223 is seriously defective for three reasons:

First, the expansive grant of power to the Tribunal to reset the statutory royalty rates is not accompanied by meaningful guidelines for the exercise of that power.

Second, this absence of legislative criteria for agency decision-making would not be cured by subsequent agency definition of its own standards. The Structure of the Copyright Royalty Tribunal is such that it would not be capable of transforming its vague statutory mandate into intelligible public policy. Nor is the opportunity for veto by either House of the Congress of Tribunal decisions an effective substitute for defined congressional or administrative policy.

Third, H.R. 2223 would sharply and unwisely curtail judicial review of Tribunal decisions.

These three aspects of the proposed legislation-the absence of statutory standards for exercise of the Tribunal's authority, the structural constraints against specification of standards by the Tribunal itself, and the curtailment of judicial review-are not unrelated. Each contributes to a disturbing potential for arbitrary decision-making. Each undercuts any expectation that the Copyright Royalty Tribunal could be held politically or legally accountable for the proper discharge of its responsibilities. Consideration of the cumulative effect of these three defects reveals the unwisdom of H.R. 2223 as presently drafted. And legal analysis of these defects suggests that the bill. if passed in its present form, would be subject to serious attack on constitutional grounds.

I. THE ABSENCE OF STATUTORY STANDARDS

Section 111 of H.R. 2223 would require operators of cable television systems to file a "notice" with the Register of Copyrights within 30 days of passage of the bill and thereafter to file quarterly statements of account. Royalties would be assessed on the basis of these statements. Copyright owners would be given an annual opportunity to file their claims with the Register. If there were no inconsistency among the statements and claims filed, the Register would be entitled to distribute the royalty fees deposited with him to the copyright owners or their designated agents.

Sections 801-09 of the bill define the role of the Copyright Royalty Tribunal. As stated in § 801 (b), the Tribunal has two functions. First, it exercises the allimportant power to make adjustments (beginning in 1977) in the royalty rates and even the rate base specified in § 111 of the bill. Second, the Tribunal is authorized to resolve controversies concerning distribution of royalty fees deposited with the Register of Copyrights.

These grants of power are not accompanied by legislative directives to guide the Tribunal in exercising that power. Section 801(b) only states that the Tribunal should adjust copyright royalty rates "so as to assure that such rates are reasonable. . . ." The section provides no criteria for determining reasonableness. The bill treats the word "reasonable" as if it were, standing alone, an intelligible guide to decision-making. In fact, the word describes only a quality of judgment, not its content. The word says nothing whatever about the factors to be considered in reaching a decision nor about the policies or objectives that the decision should further. Nor is it apparent from other provisions in the bill what a "reasonable" royalty figure or rate would be or how that determination should be made.1

What is eminently "reasonable" for one purpose may be quite "unreasonable" for another, yet H.R. 2223 specifies no statutory purpose to guide the Copyright Royalty Tribunal. There is no enumeration of factors, no indication of the relative importance to the public of one consideration or another, and no specification of the ultimate objective or objectives in light of which reasonableness may be ascertained.

In short, the word "reasonable," when used without explication as the sole standard for agency action, is no standard at all. The Copyright Royalty Tribunal would be left to set royalty rates without any meaningful guidance from the legislature, and both Congress and the public would therefore lack any sound basis for evaluating the Tribunal's performance of its tasks.

At one time not long ago this delegation of legislative authority without meaningful criteria for its exercise would have rendered the statute unconstitutional under the delegation doctrine. The vesting of all legislative authority in the Congress by the Constitution was construed first to prevent the legislature from delegating law-making power and, when this proved impractical, then to require that every delegation at least be accompanied by a policy statement for measuring the lawfulness of its administration. Thus, in the 1930's the Supreme Court on two occasions invalidated congressional action on this basis. See Panama Refining Co. v. Ryan, 293 U.S. 388 (1935); Schechter Poultry Corp. v. United States, 295 U.S. 495 (1936). However, the delegation doctrine has not been to overturn any public regulatory scheme since then.

In the ensuing years, the Court has upheld broad and ill-defined delegations of legislative authority, albeit not without misgivings and limitations. As judicial hostility to broad delegations of legislative power has subsided, the courts no longer rely on the "delegation doctrine" as an explanatory label in constitutional adjudication. See K. Davis, Administrative Law Text § 2.04 (3d ed. 1972).

This is not to say that the judicial concerns underlying the early delegation decisions have been abandoned. They have not been. They have been recharacterized as components of due process, a constitutional standard to which the courts continue to require strict adherence.

These underlying judicial concerns are essentially two: promotion of agency accountability and prevention of agency arbitrariness. Invalidation of legislation that delegates power to administrative agencies without specific standards for the exercise of that power is one way of promoting accountability for administrative agencies. Modern courts are fully cognizant to the intimate relation between the delegation inquiry and the concept of accountability:

"Concepts of control and accountability define the constitutional requirement. The principle permitting a delegation of legislative power, if there has been a sufficient demarcation of the field to permit a judgment whether the agency has kept within the legislative will, establishes a principle of accountability under which compatibility with the legislative design may be ascertained not

1 Should the Tribunal, for example, favor adequate rewards for those producing creative material, focus on protecting existing distribution mechanisms, or stimulate wider public access to ideas and information? These goals are not mutually consistent in all situations and some may not reflect the unstated congressional purpose.

2 But see National Cable Television Ass'n v. United States, 415 U.S. 336. 342 (1974) reading the Independent Offices Appropriation Act of 1952 "narrowly to avoid [these delegation] problems."

only by Congress but by the courts and the public." Amalgamated Meat Cutters, Etc. v. Connally, 337 F. Supp. 737, 746 (D.D.C. 1971) (Leventhal, J.).

Recent decisions indicate that accountability may be obtained by requiring that the agency itself articulate and adhere to substantive criteria in the discharge of its administrative responsibilities. Thus, the judicial focus has shifted from demanding specificity of congressional authorization to requiring ascertainable standards for agency action. The result is that agency performance rather than legislative delegation is increasingly the critical standard.

The other value that finds constitutional expression in the due process guarantee is the prevention of arbitrariness in decision-making. This too was part of the delegation inquiry. The early decisions invalidating legislation in the name of that doctrine suggest that the fatal defects in those statutes were the combinations of indefinite delegations of legislative power with inadequate procedural safeguards for those likely to be affected by the statutes. Recent decisions seek the same end but take a somewhat different (more practical) approach. They dispense with reliance on the delegation doctrine and focus directly on procedural protections surrounding agency power and the availability of judicial review to ensure that those procedural safeguards are following in a particular case. See, e.g., Leventhal, Principled Fairness and Regulatory Urgency, 25 Case W. Res. L. Rev. 66, 70 (1974) ("The contemporary approach is one not of invalidating even the broadest statutory delegations of power, but of assuring that they are accompanied by adequate controls on subsequent administrative behavior.").

Thus, the historic judicial concern with standardless delegations of legislative power has not vanished. It has developed into two modern notions that may fairly be termed successors to the delegation doctrine: first, that agencies should articulate and follow intelligible standards for exercising the powers delegated to them; and, second, that the exercise of such powers should be confined by procedural safeguards and policed by judicial review. Both of these notions find constitutional basis in the guarantee of due process of law.

With this understanding, it becomes evident that the constitutional defects of H.R. 2223 are not erased by the shift of focus from delegation to due process. Not only does this bill propose a virtually standardless delegation of authority to the Copyright Royalty Tribunal; it also offends modern notions relied upon in promoting agency accountability and preventing arbitrariness.

II. THE COPYRIGHT ROYALTY TRIBUNAL AND THE CONCEPT OF ACCOUNTABILITY Where the Congress has not supplied specific directions for agency action, courts increasingly look to the agencies themselves for definition of rules and standards that confine agency power and guide its discretionary exercise. See, e.g., United States v. Bryant, 439 F.2d 642, 652 (D.C. Cir. 1971); Environmental Defense Fund v. Ruckelshaus, 439 F.2d 584, 597 (D.C. Cir. 1971).3

But the Copyright Royalty Tribunal is singularly ill-suited to that task. Under § 801 the Tribunal would be established in the Library of Congress. Unlike most administrative bodies, the Tribunal would not have a stable membership of persons appointed for fixed terms. Instead, the Tribunal would consist of shifting panels of three members, selected on an ad hoc basis by the Register of Copyrights from a list provided by the American Arbitration Association. § 803. These panels would be constituted as needed to consider petitions to adjust royalty rates and disputes concerning distribution of proceeds. There would be no continuity of personnel and hence no opportunity for individual Tribunal members to develop expertise in the field. The perpetually amateur status of individual members and the continual changes in Tribunal membership would preclude development by the Tribunal of consistent principles and policies to guide its decisions. The structure of the Tribunal is fundamentally at odds with the expectation that legislative delegation of power without standards can be cured by agency articulation of standards to guide itself."

Leading commentators have applauded this development. See, e.g., K. Davis, Adminis trative Law Text §§ 2.02-.10 (3d ed. 1972).

Cf. State v. Traffic Telephone Workers' Federation, 66 A. 2d 616, 626 (N.J. Sup. Ct. 1949):

"The personnel of the board of arbitration under the statute will vary with each strike. There is no permanence in the various boards of arbitration which may be constituted in successive cases. There is. thus, an even greater need of specific standards than there would be in the case of a continuous administrative body which might gather experience as it went along."

This defect is exacerbated by selection of members of the Copyright Royalty Tribunal from membership of the American Arbitration Association. These persons are experienced arbitrators and are undoubtedly well qualified to act as such. But arbitration is by nature an exceedingly ad hoc method of dispute resolution. As a mechanism for decision-making, it values expediency over predictability and sacrifices long-term policies to immediate resolution of disputes. Arbitration involves no tradition of adherence to precedent or to some consistent principle of decision. It treats each case on its own bottom and therefore evolves no reliable way to handle future cases.

In short, the Copyright Royalty Tribunal as constituted under H.R. 2223 is institutionally incapable of converting its vague legislative mandate into a set of meaningful standards to guide its own decisions. To discharge an undefined policy, H.R. 2223 designates an administrative body incapable of defining a policy for itself. The inevitable result would be an endless series of ad hoc decisions made without identifiable objectives and therefore not susceptible of informed evaluation by Congress, courts, or the public. The goal of agency accountability is lost, and the statutory scheme is rendered unnecessarily vulnerable to constitutional attack.

Nor is the absence of public and legal accountability remedied by § 807 (a) which provides the Tribunal adjustment of statutory royalty rates may be denied effect by adoption of an unfavorable resolution in either House of the Congress. This procedure for congressional veto supplies no standards for guidance of the Tribunal.

Congressional disapproval would provide no basis for ascertaining whether other rate adjustments were reasonable. At most the availability of such a veto would be a theoretical political check on arbitrary adjustments; as a practical matter, it seems unlikely that Congress would be in a position to exercise continuous and careful oversight of Tribunal decisions. Moreover, such congressional action could be objectionable as an unconstitutional effort to legislate without Presidential approval. However viewed, this negative congressional control of Tribunal royalty rates would provide no assurance that any adjustments were reasonable and not arbitrary and capricious.

III. JUDICIAL REVIEW UNDER H.R. 2223 AND AGENCY ARBITRARINESS

The central meaning of the constitutional guarantee of due process of law is the provision of adequate procedural safeguards against arbitrary or capricious government action. In the content of administrative law, due process requires not only that the agency itself follow certain regular procedures designed to ensure fairness to interested parties, but also that the agency's decisions be subject to judicial review for procedural error and abuse of discretion. See, e.g., L. Jaffe, Judicial Control of Administrative Action 381-89 (1965). Thus, the notorious judicial reluctance to construe a statute so as to preclude entirely judicial review can best be explained as a desire to avoid confronting a constitutional defect in congressional action.

Ultimately, both the specification of substantive standards for agency decision-making and the provision of procedural safeguards and judicial review are interlocked barriers against government arbitrariness. Without ascertainable criteria for the exercise of agency discretion, there is no reference by which to identify abuse of discretion. See, e.g., Yakus v. United States, 321 U.S. 414. 425-26 (1944). In other words, without some articulated objectives for agency action, it is impossible to determine whether a given decision is an arbitrary imposition of government power against a particular party or an official policy of general applicabilty.

Thus, it has long been recognized that an important aspect of the delegation doctrine is to ensure that procedural safeguards, including judicial review of agency action, do not become empty formalities. As a recent and leading case stated:

"The safeguarding of meaningful judicial review is one of the primary funetions of the doctrine prohibiting undue delegation of legislative powers. That this element of the doctrine . . . has current vitality is brought out by the observation of Justice Harlan in Arizona v. California, 373 U.S. 546, 626 (1963); '[The doctrine] prevents judicial review from becoming merely an exercise at large by providing the Courts with some measure against which to judge the official action that has been challenged.'" Amalgamated Meat Cutters, Etc. v. Connally, 337 F. Supp. 737, 759-60 (D.D.C. 1971).

The pending bill allows the use of fair procedures by the Copyright Royalty Tribunal, but it makes grossly inadequate provision for judicial review. In fact,