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the exemption we would have no objection to its deletion. I do not know whether this is a real issue or whether it is somebody's idea that commercial cable systems should not be put in a disadvantageous competitive situation with nonprofit systems doing the same thing.
There were proposals with respect to technical changes in subsections (a) (3) and (b) to insure against unwarranted liability of cable systems in cases where carriage is mandatory under the FCC rules. These were to insure that cable is not subjected to complete liability, uninsulated copyright liability for infringement for things the FCC requires it to do. I do not think anyone can argue against this in principle, but I do have some questions about the language that has been used.
The Won Pat amendment, upon which you heard testimony from Representative Won Pat and others, has a long history. It is a very complicated matter. Essentially, as Father Drinan said, the question of nonsimultaneous secondary transmissions in noncontiguous areas can now be referred to as a nonproblem. We now have a letter from Senator Stevens, who is the original author of the amendment in the Senate, and it is apparently near settlement. The gist of the amendment, as it now exists and has apparently been agreed to, would be to allow taping and retransmission from tape in areas like Guam and Alaska but under rather restricted circumstances that bar against abuse of the tape. One of the circumstances is the shopping of a tape around among various cable systems in a noncontiguous area. Senator Stevens points out in his letter to you, Mr. Kastenmeier, that this will not work in Alaska because they have to do what they call bicycling. The visual image that bicycling video tape around in Alaska conjures up is an interesting one, but be that as it may, the point is essentially technical.
I think that the essence of an agreement is there, and I do not think that anyone can really argue with the principle, but I would certainly hope that some way could be found to reduce three very complicated pages of prose that are proposed to be added to an already extremely long and complicated section, that the way could be found to shorten them somehow. I would hope that counsel and the interested parties could get together and find a way.
Now the question of local signals. The Justice Department did testify on the second dav of your hearings that a distinction should be drawn between local and distant signals. The Copyright Office agrees with this in principle, but we recognize-I am reading now from page 29—the practical difficulties in finding an equitable way to draw the line, and we have no trouble in accepting the graduated scale approach of the bill.
I believe you heard testimony from the representative of the National Cable Television Association that efforts had been made in their board to try to find a formula to make a distinction between local and distant signals, and that they have been unsuccessful in finding a formula that satisfied the various kinds of cable systems that were represented. This apparently has been the experience in the Senate, and I do not argue with it.
I will, at the end of this prepared statement, make some comments about the Teleprompter proposal of which I am sure you have heard
in the last week which does attempt to draw that line, but I am saying, at this point, that if a line can be drawn, fine, but I have no trouble with the formula in the bill either.
We take no position on the fee schedule. I do not think anyone has any economic data that can support this on a practical basis, and lacking any basis for an opinion, we cannot comment on the fairness of these amounts.
As to the Royalty Tribunal, the idea for a Royalty Tribunal did not originate with the Copyright Office, and we do have some questions about the details of its operation. I will try to cover these in a separate chapter of this report dealing exclusively with chapter 8 of the bill which deals with the Royalty Tribunal and which contains some things which I think need your attention.
The Royalty Tribunal was the child of the cable problem. It was devised to meet the cable problem. It has now expanded its purpose. But we do think that, in principle, it is a welcome effort to help settle controversies over the distribution of royalties paid under the various compulsory licensing systems in the bill. In fact, it has been embraced enthusiastically by some of the payors and payees under some other compulsory licensing systems.
With respect to the rather powerful role assigned to the Tribunal in connection with various rate adjustments, we can see arguments on both sides. We recognize that the Tribunal could be more effective than congressional committees in marshaling and evaluating masses of economic data necessary for certain purposes and that safeguards are provided in the form of a congressional veto power.
With respect specifically to the cable television royalty schedule, we do not favor giving the Tribunal power to change the base on which these fees are computed. In our opinion, this is a legislative function that should not be delegated. I would stick with that statement, Mr. Chairman, but I think I should add something to my report because those who have read it have discussed this position with me.
The argument in favor of allowing the Tribunal to adjust the basis for the rate as well as the rate itself is that the future of cable is unpredictable and that it might be possible for a system to make its primary profits or income from functions completely unrelated to its subscription service, and that by one device or another, it might be able to reduce the amount, the gross amount received from subscribers for the reception of retransmitted signals, to a point that would be uninst to the copyright owner. This is the argument.
The opposing argument is that the Tribunal, under this provision, which is in chapter 8, could have the power, in effect, to charge twice for the same performance, the old argument. We have some reservations about giving the Tribunal this power in as raw a form as this. On the other hand, I think this is something you should consider carefully, and you will, I am quite sure, receive additional letters on this subject because it has now become an issue.
I would add that the Senate Judiciary Committee did not change the bill on this point.
The next paragraph deals with the so-called stretchout which has become a focal point of this whole dispute. I would first say that the bill contains specific dates like January 1, 1977, as the date of coming into effect, and July 1, 1977, as the date—this is the bill you have in front of you—as the date when the Royalty Tribunal is supposed to begin its review of the rates. These dates, of course, are unrealistic. If you pass the bill this year, they might not be, but you are not likely to pass the bill this year so that I think it can be a little confusing.
As I read the bill, as it stands in front of you, it would probably be amended to come into effect on January 1, 1978, and the bill would require that 6 months later, the Royalty Tribunal begin its review of tho rate. In the Senate Judiciary Committee, the date for Tribunal review was changed to January 1, 1980, which I assume was intended to be 3 years from January 1, 1977, the effective date in the bill. This was what I was told, that the initial review would start, under the Thurmond amendment, 3 years from the effective date of the bill.
Then there would be a new review begun 10 years following that, and at 10-year intervals thereafter. These dates are the beginning of the review, not the completion of the review.
We ake no position as to whether the Tribunal should have the power, as provided in the bill, to adjust the amounts of the fees every 5 years. We are particularly troubled about the uncertain procedural situation that might result if the Tribunal's determination were, in fact, rejected by Congress. We believe that the initial review period is much too short, and we question whether 5-year intervals are long enough to do the thorough exploration of long-range economic trends and changes in industry, communications, and business practices. We are also aware that, unlike the flat amount of the royalty in section 115—that is, the 3-cent royalty-the graduated scale in section 111 includes a built-in adjustment for inflation because it is a percentage and also sliding
At the same time, we can understand Congress' unwillingness to assume the sole duty of making a de novo review of copyright royalty rates. We also recognize that the amounts now in section 111 were decided upon without a thorough economic analysis, and may prove unfair to one side or the other. If Congress should wish to change the present bill without taking cable out from under the Tribunal altogether, it would consider several alternatives, including: (1) A onetime review by the Tribunal, after a long-enough period for the study to be meaningful, a one-shot approach; (2) a specific percentage limit on the amount the fees could be increased by the Tribunal on a particular occasion; or (3) a provision requiring the Tribunal to make the studies contemplated in the bill, but mandating it to report its findings and recommendations to Congress rather than making the determination itself.
To summarize up to this point, we are in favor of some stretchout, and while we recognize the advantage of Tribunal review and certainly have no objection if this is Congress' will, there might be other possibilities of dealing with the cable problem. I have laid out three here. The stretchout that was provided in the Senate, which is three and ten, has to be viewed in terms of a little history which has not been referred to here. There was, I think, some agreement, unrecorded and unwritten perhaps. At the time that these fees were cut in half in 1974, there was, I believe, an understanding that the fees would be immedi
ately reviewed as soon as the bill came into effect because of the fact they were considered so low and unfair by the copyright owners.
The position I am taking with respect to the initial review has nothing to do with that. It is simply that I do not think that that quick a review could be sustained administratively. This is a bureaucratic reason, but it is a very real one. I think that to start up an undertaking of this magnitude from scratch in a 6-month period is asking more than should be asked and would probably not produce a very effective result.
I am in favor of allowing the system to operate long enough for the Tribunal to have something to study. In other words I am not at all sure it would be able to come up with anything more meaningful than the results in the bill, unless it had time to do it. For that reason, I am not at all adverse to having the 3 years that are provided in the Senate version. The 10 years may be rather long. They are now talking about 7.
There has been some mention of the probability that some of the members who voted for that amendment were not fully aware that this was forever, 10-year intervals forever.
In other words, as we have seen, this is a very fluid situation, and if the FCC, for example, changed its rules, which is entirely possible, there might rery well be something that needed studying sooner than 10 years.
As far as the Tribunal itself is concerned, I think I will leave it at the positions that are expressed here, although I would say on the whole that I think some sort of Tribunal review in this area is probably desirable.
The National Cable Television Association has proposed that, instead of exempting local signals, the bill exempt the first $25,000 in subscription system fees collected by a system from computation of copyright royalties. Variations of this proposal have been put forward from time to time in the past. We have no objection if Congress chooses to accept this proposal, nor do we affirmatively favor it.
I believe that there have been and continue to be proposals to let little systems out somehow, and this is probably as good a way as any. The other possibility that has been discussed over the years is to exempt systems up to a certain number of subscribers, and I do not see any opposition to this in principle. On the other hand, it is true that the fact that the scale of fees in the bill is a sliding one and is a half percent up to $40,000
Mr. KASTENMEIER. On that point, some questions have been raised. If one exempted the first $25,000, the first $40,000, how that might apply; that is, would it apply to a large system such as Teleprompter, which operates in a number of so-called local systems, that is, each being exempted-it would be $25,000 or whatever number of thousand dollars it is or whether it would apply to the prior conglomerate system rather than each single operating system within the system.
Ms. RixGER. I think it would clearly have to apply to the entire system, and it would require a formula to accomplish this, but it would be very hard to defend a large system that had a number of different branches being completely exempted because each of the branches were small. I am not sure anyone is arguing that. They are arguing other things, but not necessarily that.
I take your point, Mr. Chairman; I agree with you. .
An important element of the cable issue is section 501(c), which in my opinion, is not really necessary. It was part of the consensus agreement, and it spells out that for a secondary transmission by a cable system, a television broadcast station holding a copyright or other license to transmit or perform the same version of that work, shall for purposes of subsection (d) of this section, be treated as a legal or beneficial owner if such secondary transmission occurs within the local service area of that television station.
I do not disagree with the principle of this, but I do not really think it is necessary because copyright under this bill is made completely divisible, and if you are the holder of an exclusive license for a particular geographic area, as a local broadcaster, you have the copyrightfor the purpose of maintaining suit. I believe that the reason this was included in the consensus agreement and the reason it has been a controversial issue is perhaps based in part on the experience with the old retransmission consent FCC regulation, which, under the present copyright law, produced the argument that a local broadcaster did not have a copyright and so could not give consent as to rights it did not have.
I think this would probably be different under the present bill.
Broadcasters are extremely anxious to preserve this condition. There was an amendment, not in 501, but in 111 in the Senate, which I am not sure accomplishes the desired result. It is in subsection (c), clause 2, which says that the willful or repeated secondary transmission to the public by a cable system is actionable as an act of infringement, and so forth.
The feeling was that this irould insulate a cable system from liabil. ity, as against a local broadcaster. I think they are talking about harassment if there was a one-shot negligent or mistaken carriage of a signal that was not authorized by the FCC. But if they could prove it was willful or repeated, then this would be fully actionable as a copyright infringement by the local broadcaster.
I think this is probably acceptable as a principle. But I have technical questions about whether this is the way to accomplish it. I think that you as a committee should consider both the policy involved and the technical method of accomplishing it.
With your permission, I am going to skip quickly over what was a rather major issue before you-organized sports. This has been with us since 1965.
The sport entrepreneurs that have come forward have differed from time to time. But essentially, they are still trying to preserve exclu-' sivity and gate receipts. It was striking, at one point in a Senate version of the bill, to see all copyright material subject to compulsory licensing, except organized sporting events, which were subject to complete exclusivity. I am not sure this can be defended on policy grounds, although I think the practical problems of sports are undoubtedly real. They are certainly real to them. A compulsory license does not help their cate receipts.
And vet, if you are going to have a compulsory license as the basis for section 111, it does look peculiar and discriminatory to single sports