This is the position that Teleprompter has urged in its testimony before the Subcommittee on Courts, Civil Liberties and the Administration of Justice and in various meetings with individual members of the Subcommittee. We believe this position is logically sound and deserves support. However, we fear that, for whatever reason, our position may not be adopted by the Subcommittee. We therefore are submitting a compromise proposal which we believe corrects the most glaring deficiencies of H.R. 2223.

Basically, what we have done is to build on the distinction between local and distant signals referred to above. As many others have done before us, we have proposed elemination of copyright liability for the retransmission of local signals. We have gone somewhat further, however, in also proposing that there be no copyright liability for the retransmission of network programming. The rea-son for this is that the entire nation is really "local" to the network. That is, a. copyright owner who sells his product to a network anticipates that it will be viewed throughout the entire country and is compensated accordingly. Thus, there is no need for the cable system to pay the copyright owner a second fee when it enables his programming to reach certain isolated communities which, because of terrain problems or gaps in the placing of affiliated stations, would not other-wise have received such programming.1

Having decided that, if there should be any copyright liability at all, such liability should be only with respect to the non-network programming of distant stations, we then confronted the following two questions:

1. What percentage of total cable revenues should be available for copyright payments?

2. How much is each distant signal worth for copyright purposes?

As to the first question-how much of the cable industry's revenue should be available for copyright payments-we propose, in the interest of compromise, to use the same percentage as applies to television stations. In other words, if in a given year all television stations paid 28% of their total revenues for programming costs then, under our proposal, 28% of each cable television system's total revenues would also be potentially subject to copyright liability.

In passing, we wish to state that adopting the same percentage for program-ming costs as is applicable to the broadcasting stations seems to us extremely generous for two reasons. First, capital costs of the cable industry are much greater than those of the broadcasters who, at no cost to them, are able to utilize immensely valuable and scarce spectrum space. Therefore, the cable industry has less money available than do the broadcasters to pay for programming. Second, using the same percentage as the broadcasters completely ignores the benefit to the originating station (and thus to the copyright owner) of cable's carriage of distant signals. However, in order to come up with a formula which both sides can agree upon we have decided to adopt without change the model of the broadcasters.

We now turn to the second question-namely, how much is a distant signal worth for copyright purposes. In our opinion, earlier attempts to answer this question have been hindered by the assumption that all imported signals are of the same value to the cable system. Clearly this is not true and once we recognize that it is not true the solution to the problem becomes much simpler. What we suggest, therefore, is that copyright payments be made for the non-network programming on each imported signal on the basis of the popularity of that programming in the market in which the cable system is located.*

Thus, under our formula, the non-network programming on each signal which is distant to a particular cable system would be entitled to receive a percentage of that cable system's revenues in accordance with the following computation: Cable system's revenues for retransmission of broadcasting signals times a percentage which is equal to the percentage of total broadcasting station revenues

1 In the vast majority of cases, the FCC's non-duplication rules require that the network programming of imported network channels be "blacked out" when the signal is re transmitted by the cable system. In these cases, therefore, the question of copyright payment for the network programming of imported network affiliates does not even arise. 2 The percentage of total revenues which the broadcasters pay for programming is easily ascertainable by the FCC on a yearly basis.

Even though copyright owners contend that the benefit to them of distant signal carriage is outweighed by the detriment, they cannot claim that this carriage is without any benefit to them.

4 Most of this information is even now being collected by the two national rating services and the balance of the information can be easily obtained. Thus, there is no dif ficulty in getting the data needed for application of our formula.

which are spent on programming costs times the popularity of the non-network programming of the distant signal in the county in which the cable system is located, expressed as a market share percentage.

The working of this formula is illustrated by the following example. Imagine a cable system with quarterly revenues for the basic service of retransmitting broadcast signals of $500,000 which imports two distant non-network affiliated signals (stations A and B). If station A has a 5% share of the market in which the cable system is located and station B has a 3% share, and if the most recent available information indicates that all broadcast stations pay 28% of their revenues for programming costs, then the quarterly copyright liability of the cable system with respect to the programming on each of stations A and B would be determined as follows:

This works out to a $7,000 quarterly fee for the programming on Station A and a $4,200 quarterly fee for the programming on Station B. Overall the quarterly fee is $11,200 or 2.24% of the cable system's basic subscriber revenues.

We believe that this proposal is far more equitable than the one now contained in H.R. 2223 because it is directed at what is conceded by all concerned to be the crux of the problem—namely cable's importation of distant signals.

An additional, but by no means incidental, virtue of our approach is that, since it is entirely based on actual relationships in the real world, it is automatically self-adjusting. There is thus no need to resort to the ill-conceived Copyright Royalty Tribunal to make periodic adjustments which, because they are unrelated to any clearly expressed Congressional purpose or to any known set of criteria, are bound to be arbitrary. In this connection, it is worth considering. carefully Professor Gellhorn's memorandum concerning the dubious constitutionality of the proposed statutory provisions establishing the Tribunal. TELEPROMPTER CORPORATION. [October 1975].

(d) COMPULSORY LICENSE FOR SECONDARY TRANSMISSIONS BY CABLE SYSTEMS.(1) For any secondary transmission to be subject to compulsory licensing under subsection (c), the cable system shall at least one month before the date of the secondary transmission or within 30 days after the enactment of this Act, whichever date is later, record in the Copyright Office, a notice including a statement of the identity and address of the person who owns or operates the secondary transmission service or has power to exercise primary control over it together with the name and location of the primary transmitter, or primary transmitters and thereafter, from time to time, such further information as the Register of Copyrights shall prescribe by regulation to carry out the purposes of this clause.

(2) A cable system whose secondary transmissions have been subject to compulsory licensing under subsection (c) shall, during the months of January, April, July, and October, deposit with the Register of Copyrights, in accordance with requirements that the Register shall prescribe by regulation

(A) A statement of account, covering the three months next preceding, specifying the number of channels on which the cable system made secondary transmissions to its subscribers, the names and locations of all primary transmitters whose transmissions were further transmitted by the cable system, the total number of subscribers to the cable system, and the gross amounts paid to the cable system [irrespective of source and separate statements of the gross revenues paid to the cable system for advertising leased channels, and cable casting for which a per program or per channel chargeis made and by subscribers] for the basic service of providing secondary transmissions of primary broadcast transmitters; and

(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) 2 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.

*

(e) DEFINITIONS.

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.

1. 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."