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). B. Markets 51-100. For syndicated programming which has had no previous non-network broadcast showing in the market, the following contractual exclusivity will be allowed: (1) For off-network series commencing with first showing until first run completed, but no longer than one year. (2) For first-run syndicated series, commencing with first showing and for two years thereafter. (3) For feature films and first-run, non-series syndicated programs, commencing with availability date and for two years thereafter. (4) For other programming, commencing with purchase and until day after first run, but no longer than one year. Provided, however, that no exclusivity protection would be afforded against a program imported by a cable system during prime time unless the local station is running or will run that program during prime time. Existing contracts will be presumed to be exclusive. No preclearance in these markets. C. Smaller Markets. No change in the FCC proposals. Exclusivity for Network Programming: The same-day exclusivity now provided for network programming would be reduced to simultaneous exclusivity (with special relief for time-zone problems) to be provided in all markets. Leapfrogging: A. For each of the first two signals imported, no restriction on point of origin, except that if it is taken from the top 25 markets it must be from one of the two closest such markets. Whenever a CATV system must black out programming from a distant top-25 market station whose signals it normally carries, it may substitute any distant signals without restriction. B. For the third signal, the UHF priority, as set forth in the FCC's letter of August 5, 1971, p. 16. Copyright Legislation: A. All parties would agree to support separate CATV copyright legislation as described below, and to seek its early passage. B. Liability to copyright, including the obligation to respect valid exclusivity agreements, will be established for all CATV carriage of all radio and television broadcast signals except carriage by independently owned systems now in existence with fewer than 3500 subscribers. As against distant signals importable under the FCC's initial package, no greater exclusivity may be contracted for than the Commission may allow. C. Compulsory licenses would be granted for all local signals as defined by the FCC, and additionally for those distant signals defined and authorized under the FCC's initial package and those signals grandfathered when the initial package goes into effect. The FCC would retain the power to authorize additional distant signals for CATV carriage; there would, however, be no compulsory license granted with respect to such signals, nor would the FCC be able to limit the scope of exclusivity agreements as applied to such signals beyond the limits applicable to over-the-air showings. D. 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. E. Broadcasters, as well as copyright owners, would have the right to enforce exclusivity rules through court actions for injunction and monetary relief. Radio Coverage: When a CATV system carries a signal from an AM or FM radio station licensed to a community beyond a 35-mile radius of the system, it must, on request, carry the signals of all local AM or FM stations, respectively. Grandfathering: The new requirements as to signals which may be carried are applicable only to new systems. Existing CATV systems are "grandfathered." They can thus freely expand currently offered service throughout their presently franchised areas with one exception: In the top 100 markets, if the system expands beyond discrete areas specified in FCC order (e.g., the San Diego situation), operations in the new portions must comply with the new requirements. Grandfathering exempts from future obligation to respect copyright exclusivity agreements, but does not exempt from future liability for copyright payments. Hon. JOHN L. MCCLELLAN, FEDERAL COMMUNICATIONS COMMISSION, Chairman, Subcommittee on Patents, Trademarks and Copyrights, DEAR MR. CHAIRMAN: This letter is directed to an important policy aspect of our present deliberations on a new regulatory program to facilitate the evolution of cable television. That is the matter of copyright legislation, to bring cable into the competitive television programming market in a fair and orderly way-a matter with which you as Chairman of the Subcommittee on Patents, Trademarks and Copyrights have been so deeply concerned in this and the last Congress. You will recall that we informed the Congress, in a letter of March 11, 1970 to Chairman Magnuson, of our view that a revised copyright law should establish the pertinent broad framework and leave detailed regulation of cable television signal carriage to this administrative forum. In line with that guiding principle and a statement in our August 5, 1971 Letter of Intent that we would consider altering existing rules to afford effective non-network program protection, we are now shaping a detailed program dealing with such matters as distant signal carriage, the definition of local signals, leapfrogging, and exclusivity (both network and non-network). That program is now approaching final action. As of course you know, representatives of the three principal industries involved-cable, broadcasters, and copyright owners-have reached a consensus agreement that deals with most of the matters mentioned above. On the basis of experience and a massive record accumulated over the past several years, we regard the provisions of the agreement to be reasonable, although we doubtless would not, in its absence, opt in its precise terms for the changes it contemplates in our August 5 proposals. But the nature of consensus is that it must hold together in its entirety or not at all-and, in my own view, this agreement on balance strongly serves the public interest because of the promise it holds for resolving the basic issue at controversy. This brings me directly to a key policy consideration where your counsel would be most valuable. That is the effect of the consensus agreement, if incorporated in our rules, on the passage of cable copyright legislation. The Commission has long believed that the key to cable's future is the resolution of its status vis-a-vis the television programming distribution market. It has held to this view from the time of the First Report (1965) to the present. We remain convinced that cable will not be able to bring its full benefits to the American people unless and until this fundamental issue is fairly laid to rest. An industry with cable's potential simply cannot be built on so critical an area of uncertainty. It has also been the Commission's view, particularly in light of legislative history, that the enactment of cable copyright legislation requires the consensus of the interested parties. I note that you have often stressed this very point and called for good faith bargaining to achieve such consensus. Thus, a primary factor in our judgment as to the course of action that would best serve the public interest is the probability that Commission implementation of the consensus agreement will, in fact, facilitate the passage of cable copyright legislation. The parties themselves pledge to work for this result. Your advice on this issue, Mr. Chairman, would be invaluable to us as we near the end of our deliberations. With warm personal regards. Sincerely, DEAN BURCH, Chairman. |