COPYRIGHT LAW REVISION-CATV

THURSDAY, AUGUST 25, 1966

U.S. SENATE,

SUBCOMMITTEE ON PATENTS,

TRADEMARKS, AND COPYRIGHTS

OF THE COMMITTEE ON THE JUDICIARY,

Washington, D.C. The subcommittee met, pursuant to call, at 9:57 a.m., in room 1318, New Senate Office Building, Senator Quentin N. Burdick presiding. Present: Senator Burdick.

Also present: Thomas C. Brennan, chief counsel; Stephen G. Haaser, chief clerk, Subcommittee on Patents, Trademarks, and Copyrights; and George S. Green, professional staff member, full com

mittee.

Senator BURDICK. The first witness this morning will be Mr. Edwin M. Zimmerman, Acting Assistant Attorney General. Will you identify your assistants for the record, please.

STATEMENT OF EDWIN M. ZIMMERMAN, ACTING ASSISTANT ATTORNEY GENERAL; ACCOMPANIED BY STEPHEN G. BREYER AND LIONEL KESTENBAUM OF THE DEPARTMENT OF JUSTICE ANTITRUST DIVISION

Mr. ZIMMERMAN. Thank you, Senator. On my right is Lionel Kestenbaum of the Department of Justice Antitrust Division and on my left is Stephen Breyer of the Antitrust Division.

I am pleased to have the opportunity to discuss with you a proposal contained in a bill now being considered by this committee, S. 1006, which comprehensively revises existing copyright law.

I might interject that this is my second attempt to testify and, in the intervening period, we have received a number of presentations from the different interests involved.

We have attempted to educate ourselves to the extent that it was possible for us to do so and we have incorporated that education into this testimony, although I might add that we come out the same way. The proposal would subject CATV systems to copyright liability. As a result of enactment of the proposal, CATV systems would have to secure the permission of copyright owners in order to transmit copyrighted material.

The Department of Justice believes that enactment of this proposal would be unwise. It believes that this explicit and blanket extension 1

1 Whether or not CATV systems are subject to copyright liability under present law is, in our view, an open question. A Federal district court in New York has held that CATV systems must pay copyright royalties, but the Court of Appeals for the Second Circuit has agreed to review the decision.

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of copyright liability to CATV systems raises possibilities of harmful anticompetitive consequences and that this extension is not justified by valid considerations of the right to copyright protection. The Department has reached these conclusions after considering the probable effects of the proposal upon competition and upon broadcasting regulation, and the extent to which it furthers interests protected by the copyright law.

I

I wish first to indicate the anticompetitive possibilities that may follow from this provision. I shall then explain why I believe that the interests of copyright protection do not appear to warrant running the risk of these anticompetitive consequences.

Enactment of the provision may harm competition in at least three significant respects. First, the nature and composition of the CATV industry may be transformed should the provision be enacted. Ownership and control of copyrights is highly concentrated in the networks, movie studios, and other television producers.2 The CATV industry by contrast has been growing rapidly and has a large number of new entrants, mostly composed of firms not otherwise in the broadcast field.3

Given the power to subject CATV systems to copyright liability, the networks or the other large copyright holders might withhold permission to rebroadcast their programs and thereby seek to reserve the CATV market for themselves. We recognize that no individual copyright holder could operate an effective CATV system without obtaining licenses from other copyright holders, and that efforts of copyright holders to monopolize CATV or to eliminate desirable CATV services may be countered by FCC rule or antitrust enforcement. Nonetheless, the temptation to use the copyright as a lever to assure entry must be high and the advantages over the propective CATV operator who is without copyright interests may be considerable. Moreover, were the copyright owners to achieve control of a substantial portion of the CATV business, they could impede entry of other independent operators into the field by refusing to allow such potential competitors to carry their programs.

A second possible anticompetitive development could arise if Congress or the Federal Communications Commission should decide to allow CATV systems to originate their own programs. CATV then could compete with existing networks, providing an additional market for program producers and an important channel for reaching the viewing public apart from the existing major networks. Assuming the potential development of such competition, it would be clearly undesirable to allow networks to use their ownership or control of

2 Statistics derived from the FCC rulemaking proceeding on network programing, docket No. 12782, indicate that the networks own copyrights on the programs developed by them in-house, which comprise about 10 percent of network prime time entertainment, about 20 percent of all network prime time programs (including news, public service, etc.) and they have an exclusive license for the first run of all programs which they transmit over the network, including particularly the evening prime time hours. The networks also own a substantial share of the programs available for syndication, which are licensed to stations for nonnetwork showing.

3 Though the first commercial CATV system was established in 1950, by 1964 more than 1.200 such systems were serving 1,200,000 homes. Seiden, An Economic Analysis of Community Antenna Television Systems, 50. New subscribers are buying CATV service at the rate of 15,000 per month. ABC-TV Research Department Marketing Services of the CATV Industry, 10 (1964).

program copyrights to extend their power into ownership of CATV facilities, or to limit the independence of CATV operators. Yet the present proposal may allow them to do so. I do not mean to express any view on the question whether CATV systems should be allowed to compete with networks, but that question should be decided by a public agency, not by copyright owners.

Finally, CATV systems run a second communications cable into each house that they serve. This cable may in the future also provide access to many new electronic service industries. If the present bill does have the effect we fear and causes a few large copyright holders directly or indirectly to control this second wire, it may discourage the development of competition in these prospective industries.

II

I now wish to explain why the Department does not believe that this proposal is so essential to the legitimate interests protected by the copyright law that the possible anticompetitive consequences I have just described can be disregarded.

Copyright protection imposes a toll upon the use of the copyrighted material. The toll is not designed to compensate the copyright owner for the costs associated with the particular use of the material, which may be small, or as in the case of CATV use, nonexistent. Nor is it the purpose of the copyright to insure that the creator automatically participates in every profit derived from his creation. Our economic life is filled with instances in which the creator of a good idea watches others profit from it. The man who invents an efficient method of organizing his business cannot prevent others from imitating that method to their profit. And I might add that this has a great deal to do with our strong economic development. Moreover, even as basic a property right as that possessed by a homeowner does not extend indefinitely. For example, I doubt the owner of a historic house can require the passing sightseeing bus that points it out to pay him a portion of the fees received from tourists.

Rather, the primary consideration behind the copyright toll is to provide incentive to authors to write. A second major consideration is that the costs of providing that incentive be fairly assessed.

To turn to the issue here, the argument is made that since CATV's profit from the transmission of television programs, it is only fair that they should have to share the profit with the holders of the program's copyrights. But, stated another way, the question really is that of how far a copyright monoply should extend. There is a great range of persons and enterprises who can be said to benefit in one way or another from the copyrighted materials-beginning with the producer of the program, and extending through the television set manufacturers, whose ability to sell sets is contingent on the existence of programs, and others. The copyright law always has had to distinguish among beneficiaries. This has been done through the definition of "publication" or "performance" and through assessing the "performer" with copyright costs. But here these criteria lead only to extended controversy, with conflicting descriptions of the CATV as a "nonperforming" antenna service for the subscribing viewer or as a "performing" broadcasting business. In our judgment, the question

is sufficiently close so that the CATV liability provided by this bill cannot be said to be required by traditional principles of copyright law. There is room for legislative judgment, to which the competitive implications I have discussed are relevant.

In a more practical vein, it is argued that copyright liability for CATV's is needed to provide a basis for compensating the copyright holders, and thus to encourage them to create programs. We note, however, that up to now the television broadcasting industry has had no difficulty in obtaining programing material, and paying for it through the sale of advertising-and this despite the growth of a CATV industry which has not paid copyright royalties and has not been otherwise restricted by copyright holders. Indeed, there is little reason to think that injury to copyright holders should have resulted from CATV expansion. A CATV system increases the number of viewers of a station. Since the advertising sponsors who bear the cost of television programing pay the station a fee which usually increases as the size of the audience grows, the existence of CATV transmission should increase the amount paid by sponsors and this should increase the royalties paid for the programs even though the CATV system itself pays no royalty.

It has been urged that while this may be a fair description of what occurs when the CATV system serves persons within or near the normal marketing area of the station, it is not applicable when CATV transmits to a distant market already served by other stations. It is argued that such transmission spoils an essential part of the market for copyright holders and, as a consequence, the nonnetwork producers of television programs will be driven out of business. It is also argued that as a result of such transmission local stations will decline and that local advertisers will find themselves without outlets. These asserted consequences of this extension of CATV, however, do not necessarily provide support for the blanket liability sought to be imposed by this legislation on all aspects of CATV. Moreover, in our view, effective FCC regulation would be a more appropriate device to deal with such developments than broad extension of the copyright monopoly. Finally, while we believe that the factual questions involved in estimating the possibility of disincentive effects on copyright holders are difficult and merit the careful examination and evaluation of the committee, we also believe it probable that in the long run the stations transmitted over CATV should be able to adjust advertising rates, and pay more for programs, according to their new widespread audience. For this reason, allowing CATV systems to retrainsmit television programs royalty free may not decrease significantly the amount of money paid to copyright holders.

Finally, the CATV liability here proposed would in fact be a departure from the system by which copyright holders are now compensated. Generally speaking, the television viewer in effect now pays for the television programing indirectly, by buying the products of the sponsors, since the sponsors' payments for advertising include royalties for the copyright holders. We do not believe that the television viewer via CATV should in addition, make direct royalty payments to the copyright holder through his CATV subscription and, indeed, think it may be inequitable to require him to do so. To summarize, it is far from clear that the case for the blanket copyright

liability has been made in terms of its necessity as an incentive to creation, and some inequitable treatment of CATV viewers may well result. For these reasons, we do not believe that copyright policy necessitates the proposal here made.

III

I wish to make it clear that we are not arguing that CATV creates no problem. On the contrary, we believe that sound regulation of CATV is necessary. Regardless of the resolution of the copyright issue, there will be important roles to be played by FCC policy, and perhaps by antitrust enforcement. Our concern, however, is that a blanket provision subjecting all CATV systems to copyright liability may unjustifiably interfere with sound regulatory policies. Such a law would apply to all CATV systems, whether they bring local programs to persons without adequate reception, or distant programs into areas with no stations, areas with only one or two stations, or into major cities served by a substantial number of stations. The complexity of the problem would seem to call for discriminating rules finely tailored to meet particular situations. A law requiring all CATV operators to secure the permission of the networks or other copyright owners may stand in the way of needed regulation, either now or in the future. It would seem preferable to leave the FCC free to regulate CATV in terms of the public interest than to require it to regulate within the framework of a statute that may allow the networks or other copyright holders to control CATV.

IV

In conclusion, we believe that this copyright proposal may have harmful anticompetitive consequences. Moreover, we do not believe that it is compelled by any important interest underlying the copyright law. Finally, we believe that the problems with which it attempts to deal may be better handled through flexible regulation by the FCC uninhibited by a blanket copyright liability. For these reasons, the Department of Justice opposes the proposed provision in S. 1006 which would subject CATV systems to blanket copyright liability. If, however, there is to be legislation which relies on copyright liability to resolve problems that we believe belong basically to the realm of communications policy, the copyright revision should at the least take account of communications policy and distinguish between different CATV operations for the purpose of copyright liability. Senator BURDICK. Thank you, Mr. Zimmerman.

Your testimony raises some questions in my mind. On page 1 you say you "believe that this explicit and blanket extension of copyright liability to CATV systems raises possibilities of harmful anticompetitive consequences."

On the top of page 2 you say "I wish first to indicate the anticompetitive possibilities that may follow from this provision."

I would like to have you direct your answer to the general proposition, does not the copyright itself, being a right, give some advantage to copyright holders that are noncompetitive in general?

Mr. ZIMMERMAN. Certainly, Senator, and the problem, I take it, that we are dealing with is whether to give, by law, this right to a monopoly, and whether to extend, by law, this right to a monopoly to this new situation.