has so strenuously tried to eliminate. In addition, it might also encourage cable systems in foreign countries (e.g., Canada) to engage in similar practices on the theory that they should be subject to no greater limitations than apply to cable systems outside the 48 contiguous states.

The Stevens Amendment and H.R. 4965 are in direct contradiction to the philosophy of copyright protection. This view is emphasized by the Register of Copyrights in a recent general review of and comments on the copyright revision bill requested last year by your Committee's Chairman, the Honorable Peter Rodino. The Register wrote:

The definition of "secondary transmission" has been revised to include nonsimultaneous carriage by a cable system located outside the boundary of the 48 continguous states. This change is related to a new definition of "cable system," which is broadened to permit cable operators located outside the contiguous 48 states to be regarded as one system, even though the secondary transmissions are nonsimultaneous with the primary transmissions. Recognizing the concerns that led to these changes, we have serious reservations about their advisability.

Adoption of the Stevens Amendment for the benefit of Alaska was asserted to be justified on the grounds that some cable systems were located in communities too remote from any television station for reception of their signals off-the-air and for the further reason that, unlike in the continental United States, no microwave service existed which could have transmitted these signals.

This potential problem, however, was solved subsequent to the adoption of the Stevens Amendment in the Senate when copyright owners issued special blanket licenses to cable systems located in these remote areas enabling them to serve their Alaskan viewers. The agreement, formally approved by the Federal District Court, is entirely satisfactory to the involved Alaskan operators, who have so informed Senator Stevens, and to our members who represent about 80 percent of copyright programming used by television and cable.

Clearly, therefore, the Stevens Amendment has lost its usefulness for Alaska and serves no purpose.

A similar license arrangement can and would be made for the Guam cable system, if it so desires. Consequently, there is also no need for special statutory language for Guam, and no case has been presented for adopting special statutory language for other American territories and possessions.

It is neither necessary nor desirable for such an offshore location as Hawaii to be covered by this Amendment. It simply has no rational base. There is a full complement of television stations in Hawaii to provide more than enough programming for the island cable systems to pick up for their subscribers. Indeed, the situation in Hawaii is the same as it is in the continental United States where the taping of programs by cable systems is prohibited for good and sufficient reason. So long as there are an adequate number of television stations whose signals can be picked up by cable systems and retransmitted simultaneously, there are no economic, social, or legal reasons why cable systems in Hawaii should be treated any differently than cable systems in the continental United States.

It is clear, we believe, that the Stevens Amendment and H.R. 4965 are unnecessary, unwarranted by the facts, and legally imprudent. We ask that the Amendment be deleted from H.R. 2223 and that H.R. 4965 not be considered. The specific language to delete the Stevens Amendment is included in part VI of this statement.

B. Increasing the Initial Fee Schedule

I believe the record gives ample support why the original McClellan rate schedule should be included in H.R. 2223. We therefore recommend that the initial rate schedule require cable systems to pay from 1 percent to 5 percent of their subscriber revenues as copyright royalty.

C. Administrative Provisions Relating to the Royalty Tribunal

As a result of the need for prompt Tribunal action, the first public notice for reviewing the section 111 royalty schedule should be changed from July 1, 1977, to January 1, 1977. The Tribunal staff will have been previously appointed shortly after the enactment of the bill and will have had a year to assemble data and information. Succeeding staffs and panels of the Tribunal will have available this background. No reason exists why one year is needed for the Tribunal to reach an initial decision. We therefore recommend that the Tribunal

be required to reach a decision within 90 days, except that upon certification by the panel that it needs additional time, the panel will have a maximum of an additional 90 days to reach a decision.

As a result of the change in time for convening a panel of the Tribunal to review the first cable rate schedule and the change for timely periodic review, the dates of the subsequent reviews should likewise be changed. We recommend that subsequent rate review be commenced in 1982 and every fifth year thereafter. The bill does not specify when the facilities and staffing of the Tribunal should first be provided. Due to the importance of reviewing as quickly as possible the arbitrary section 111 statutory rate schedule, we recommend that the Library of Congress be directed to provide staff and facilities within 60 days of enactment of H.R. 2223.

Because members serving on panels of the Tribunal are not permanent, fulltime employees of the United States, a clarifying provision should be adopted that members of a panel are to be paid compensation only for each day (including travel time) they are performing their duties as members of the Tribunal.

H.R. 2223 presently provides that facilities and incidental services are to be provided by the Library of Congress, while temporary and intermittent employees are to be appointed by the Tribunal. Since the Tribunal is in fact a series of three-member panels, administratively it would be beneficial to provide that the Library should provide all facilities, services, and personnel.

D. Clarification of Cable Ownership Notice Requirement

Section 111(d)(1) of H.R. 2223 provides that each cable system must file with the Copyright Office within 30 days of enactment of the bill or before commencing transmissions (whichever is later), a notice of ownership or control. It is logical that this section should also require such a notice whenever the ownership or control of a cable system changes. We recommend that such a clarifying amendment be adopted.

E. Criminal Penalties for Piracy and False Labeling

The bill provides that a first offender who pirates certain copyrighted material for profit (section 506, page 49), or who knowingly transports in commerce copyrighted material with a forged or counterfeited label (section 2318, page 64), may be imprisoned for not more than one year. A second or subsequent offender may be sentenced for up to two years imprisonment. A first offender can be charged under either section only with a misdemeanor-even though that offender has pirated thousands or hundreds of thousands of dollars of copyrighted material. These types of offenses are serious and are felonious in nature, and should thus be accorded the stature and consideration of other felony statutes.

We agree fully with the Department of Justice in its testimony to this committee that pirating of copyrighted works has become a major and serious problem. Consequently, convicted offenders should be subject to appropriate terms of imprisonment.

We also agree with this Judiciary Committee's statement in its Report last year on the copyright extension and piracy bill. Film piracy and counterfeit labeling are "economic" offenses, as the Report declared. But the Committee must also recognize that the statutes protect a constitutionally recognized right. Such "economic" crimes as embezzlement are subject to greater imprisonment penalties in federal statutes. Similarly, while antitrust violations are "economic" offenses, only last year Congress increased the antitrust imprisonment penalty to three years.

The piracy and counterfeit labeling penalties for imprisonment should be increased so that such offenses are classified as felonies and treated on an equal footing with similar "economic" offenses. We therefore urge that a first offender under either section 506 or section 2318 be subject to a maximum of three years imprisonment and a second or subsequent offender be subject to a seven year sentence.

V. BACKGROUND

A. Copyright Liability of Cable Systems Under the 1909 Act

Television is perhaps the largest user of copyrighted film programs. To use such programs. the television station must first secure a license from the program's owner. But cable television, on the other hand, picks up programs broadcast by television stations both local and distant and, for a monthly charge, retransmits them to individual set owners through wire or cable. Thus cable

systems which are privately owned, for-profit enterprises use program material free of cost that belongs to the owner of the copyrighted program material.

The 1909 Copyright Act did not of course anticipate the tremendous change that has taken place in methods of communication, the modern technological revolution in all modes of communication. Thus in Fortnightly Corp. v. United Artists, Inc. 392 U.S. 390 (1968), the Supreme Court of the United States held that the unlicensed use of essentially local broadcasting signals by cable systems which neither originated programs nor used microwaves, and which were merely "well located" antennas enhancing the viewer's capacity to receive the broadcaster's signals, did not constitute a copyright infringement within the terms of the Copyright Act of 1909. In Columbia Broadcasting System, Inc. v. Teleprompter Corp., 415 U.S. 394 (1974), the Court held that the retransmission of programs from distant stations also did not constitute a copyright infringement. The Court made clear that it had no choice but to rule as it did under the 1909 Act. It called attention to the shifts in business relationships that cannot be controlled by litigation based on a period when neither broadcast television nor cable was yet conceived. It said explicitly that the resolution of these matters must be left to Congress and to a new copyright law.

B. The Consensus Agreement

We come now to the much talked about, the much misunderstood and the significantly important Consensus Agreement. In my testimony before the Senate Judiciary Committee on August 1, 1973, I dealt in great detail with the genesis of the Consensus Agreement, its provisions and their pertinence to the then pending copyright bill. Since that Senate hearing record is available to the Members of this Subcommittee, I do not intend to burden this record with repetitious details.

The cable operators now claim that the Consensus Agreement is dead. Yet, as we see it, the Agreement is very much alive. It has never been declared dead by the copyright owners or by the broadcasters, two of the three signatories to the Agreement. It has not been considered dead by the Federal Communications Commission or the Office of Telecommunications Policy, both of which agencies helped bring it to fruition and endorsed its provisions.

Insofar as the OTP is concerned, it has as recently as December, 1974, strongly reminded NCTA that OTP has supported the Consensus Agreement in the past and that it "consistently viewed the consensus agreement as operative and binding on all parties." (In a letter of OTP to David Foster, Chairman of NCTA, December 3, 1974). OTP said:

Finally, in our recommendations to the FCC, the Department of Justice, the Congress, and the President on the issue of cable's copyright liability and the Administration's position on S. 1361, we proceeded in reliance on the good faith of the parties involved in the consensus agreement to adhere fully to that agreement.

In our view, nothing has occurred since November 1971 to cause any party to the agreement to abandon its commitment of three years ago. None of the premises underlying the agreement have changed; the same equities which favor cable paying a share of program supply costs exists now as existed in 1971.

The Consensus Agreement is dead only in the mind of one of the three parties to it, the NCTA, because it walked away from it, abandoned it, and now paradoxically asserts it is no longer binding. These, I suggest, are strange concepts advocated by those who pledged their bond to a unique agreement that had won the imprimatur of unbiased government agencies.

We may ask what gave birth to the Consensus Agreement. Primarily, it was the FCC distant signal cable freeze of 1965 and 1966. The freeze prohibited cable systems from importing programs from distant television stations into the top 100 television markets. Why did the FCC take such action?

It didn't mince words. It said that such distant program importation by cable would impair local television broadcasting, it would tend to blanket the entire country with signals from the superstations in New York, Chicago and Los Angeles, and, mark this point, the FCC said it would be unfair to program producers and broadcasters who are required to negotiate with each other for the payment of programs while cable systems deny copyright liability and get a free ride at the expense of the two other parties. Put another way, the Commission said that so long as cable refused to pay copyright, it was unfair competition with television.

By 1971, cable entrepreneurs felt that the expected expansion of the industry had been hampered and unduly limited by the FCC restriction on the importation of distant signals. The broadcasters, the television stations, felt that it was wrong to permit cable systems to carry the same programs as they did without having to bargain and pay for them. And we, the copyright owners, wanted to end the charade that permitted use of our copyrighted property without receiving royalty payment for it.

Through the direct intercession of then-FCC Chairman Dean Burch and thenDirector of the Office of Telecommunications Policy Clay Whitehead, the deadlock was broken. In November of 1971, the three parties accepted and signed the Consensus Agreement.

The copyright owners made substantial concessions and went along with the Consensus Agreement on the assumption that all parties in good faith would support the enactment of copyright legislation providing for the payment of royalties to be fixed by an impartial tribunal.

An important provision was the lifting of the ban on the importation of distant signals subject to certain limitations. This was the FCC's part of the Agreement. Senator McClellan commended the parties for the efforts they had made and expressed the belief "that the agreement that has been reached is in the public interest and reflects a reasonable compromise of the positions of the various parties." (Letter to then FCC Chairman Dean Burch, January 31, 1972)

With this assurance from Senator McClellan, the Commission implemented the regulatory provisions of the Consensus Agreement. Indeed, shortly after the signing of the Agreement, the cable industry received its major benefit from it, the "unfreezing" by the FCC of the restraints on the importation of distant signals. (see Cable Television Report and Order (37 Fed. Reg. 13848)) In lifting the freeze, the FCC made it crystal clear that it expected the Consensus Agreement to be implemented in its entirety and that only with prompt congressional passage of copyright legislation, could there be complete implementation.

Obviously this FCC action delighted the cable people; they had thus achieved their primary objective without having themselves carried out the other conditions of the Agreement.

As soon as the cable industry had received its benefits from the Consensus Agreement and while it enjoyed an explosive growth as the result of this newly gained freedom, the attitude of the leaders of the cable industry who had placed their signature on the Consensus Agreement, changed abruptly.

What were the important copyright provisions of the Agreement?

(1) The parties pledged themselves "to support separate CATV copyright Aegislation * **"

(2) The copyright legislation to be supported by the parties would include "liability to copyright" and a compulsory license to cable systems to retransmit copyrighted programs without negotiating with the owners of the programs. The .compulsory license was to cover all local signals as well as those distant signals the FCC permitted cable television to carry as of March 31, 1972.

(3) Because of the wide divergence of views between the parties on a fee schedule the Consensus Agreement specifically provided for an alternative method of setting these fees in the event that the parties should be unable to agree.

More specifically on this point the Consensus Agreement provided:

Unless a schedule of fees covering the compulsory licenses or some other payment mechanism can be agreed upon between the copyright owners and the CATV owners in time for inclusion in the new copyright statute, the legislation would simply provide for compulsory arbitration failing private agreement on copyright fees. (Italics supplied)

C. NCTA's Continued Repudiation of Subsequent Agreements

During the 93d Congress, the parties agreed to accept an initial royalty rate schedule graduated from 1 percent to 5 percent, depending on subscriber revenues of the cable system. Thereafter, rates were to be subject to adjustment by an impartial Royalty Tribunal authorized to review rates at periodic intervals. The Tribunal and the rate schedule were made a part of the then pending Senate copyright bill by Senator McClellan, and the rate schedule has come to be known as the McClellan rate schedule.

I would like to make it emphatically clear that the copyright owners were not overjoyed with these provisions of the McClellan bill. But in the interest of a hopefully speedy enactment of a new copyright law, our people swallowed their

indignation and accepted. The consoling fact was that while we felt that the McClellan rate schedule was arbitrarily put together and too low, the inclusion of a Royalty Tribunal could eventually meet that problem if the economic and marketing facts would later support our belief.

It is anticlimactic, I suppose, to tell this Subcommittee what happened. The same cable people who agreed with us and with Senator McClellan to support those provisions, once again as they did in the case of the Consensus Agreement, walked away from their agreement.

Instead, they actively lobbied for the adoption of the "Gurney Amendment" which arbitrarily without any basis in logic or fact-sliced the McClellan fee schedule in half. The Gurney amendment proposed royalty rates from 1⁄2 percent to 2-2 percent of subscriber revenues and was adopted by a one-vote margin in the Senate Judiciary Committee.

Yet, still hoping for enactment of a copyright bill in 1974, we supported Senate passage of what we considered a seriously deficient copyright bill. We did so because we believed that as bad as it was, its redeeming feature was the Royalty Tribunal, and I committed myself to Senator McClellan to go along. The cable people found the Senate-passed version acceptable. That bill was S. 1361 which, as H.R. 2223, is now before you, and as S. 22 is now pending in the Senate Judiciary Committee.

But once again we now find cable repudiating what a few short months ago they endorsed. For the third time in three years they are walking away from prior agreements. Do you wonder why we, as copyright owners, are frustrated. We are not accustomed to deal with such maneuvering although I confess that perhaps we should have learned our lesson by now.

Cable now comes forward with a "shopping list" of nine items that they inform the committee will help "perfect" the bill. If they said that it would help perfect the bill for cable interests, I could understand the "perfections" better.

Their "shopping list" demands a complete copyright liability exemption for great numbers of cable systems and a partial exemption for all other systems. Next they request that the Royalty Tribunal be abolished so that the initial rate schedule becomes the final, fixed, statutory rate not to be changed except by an amendatory act of Congress. Third, they require that the definition of a "cable system" be ingeniously changed so that the effect will be to materially lower the royalty rate for that smaller number of systems that would become liable for copyright payments.

These and similar "perfecting" amendments are not perfecting anything. They are excuses for gutting the bill by exempting most cable systems from paying copyright, or they are attempts to delay and prevent enactment of any copyright bill. Cable television operators who have consistently repudiated their promises should not be rewarded. A copyright revision bill should be passed now, with fair royalty rates and with a reasonable means to adjust those rates. Further promises and compromises offered by cable should be ignored. They are used as a means of preventing enactment of any just copyright revision bill.

Local Signals:

CONSENSUS AGREEMENT

Local signals defined as proposed by the FCC, except that the significant viewing standards to be applied to "out-of-market” independent stations in overlaping market situations would be a viewing hour share of at least 2% and a net weekly circulation of at least 5%.

Distant Signals:

No change from what the FCC has proposed.

Exclusivity for Non-Network Programming (against distant signals only):

A series shall be treated as a unit for all exclusivity purposes.

The burden will be upon the copyright owner or upon the broadcaster to notify cable systems of the right to protection in these circumstances.

A. Markets 1-50.

A 12-month pre-sale period running from the date when a program in syndication is first sold any place in the U.S., plus run-of-contract exclusivity where exclusivity is written into the contract between the station and the program supplier (existing contracts will be presumed to be exclusive).