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The section normaly does not cover situations where someone tapes a program off the air, and the program is later retransmitted by tape. However, as we know, there is a complicated exception involving cable Systems outside the continental United States, some of which are allowed to use tape because they cannot pick signals out of the air. There have been some further changes on that in recent weeks, which I will get into.
Second, exceptions : some types of secondary transmissions are completely exempted from liability. These include rooftop antennas on apartments and hotels, wired instructional systems, common carriers who do nothing but send a signal on, and nonprofit boosters and translators. These are systems like an operation at an Army base where the installation has an antenna and sends signals on to special equipment in quarters and so forth. Ordinary commercial cable systems are not exeinpted.
There is full copyright liability when a system is transmitting to a controlled group, such as pay-TV, closed-circuit telecasts to theaters, and music services such as Muzak.
Now, we come to the compulsory license for cable systems, which is the guts of the section. As long as a CATV operator is authorized by his FCC license to carry a particular signal, he is entitled to rely on a "compulsory license" with respect to the copyrighted material carried by the signal. In other words, if he registers his system with the Copyright Office and pays a blanket fee based on a percentage of his gross, he is automatically licensed to carry copyrighted material as long as he complies with the FCC rules.
As I have tried to show, the FCC rules do restrict him as to what he can carry and restrict him for reasons that are basically copyright reasons.
The fee schedule is a quarterly one. This can sometimes be misleading because the figures in the bill are quarterly and not annual. They are half of what they were before 1974. The Senate full committee in 1974 simply cut the fees in half. They represent a sliding scale running from a half percent of gross up ot $10,000 or running up to 21,, percent of a gross over $160,000.
i procedure is established for distributing compulsory licensing fees to copyright owners through the Copyright Office, and a tribunal is set up to settle disputes over fees and to readjust the royalty rates periodically. A readjustinent can be vetoed by either llouse of Congress. On page 28 I try to epitomize this section as follows: a cable system does not have to worry about copyright liability for a particular program if all the signals he is carrying comply with the FCC regulations and he pays a set fee into the Copyright Office every 3 months. I think that is the gist of the section.
I have tried to single out from the testimony that was given to you on the 2 days of hearings that you had on this subject the issues that are presented. Without running over all the arguments, which change with the shifting issues, I have tried to present them in the form of issues and make comments and recommendations on them. Because this is so fluid, some things have changed since I wrote this chapter. I will have to augment what I have actually written.
The first issue, as I see it, is whether or not there should be any copyright liability or obligation to pay royalties for secondary transmissions, mainly cable systems that is what we are talking about here. The Office's position on this is the same as it has been. We remain convinced in general that when it imports distant signals, the cable system is adversely affecting the market for and value of copyrighted works and should pay a reasonable royalty. We consider the present bill in its overall approach as a satisfactory solution to the problem.
The arguments that were made here to the effect that a copyright owner is actually benefited by the importation of distant signals into a market that he has not licensed may have a little more validity than some people are willing to concede. Because this has been dragging on so long. I believe that some advertising agencies have begun, on a modest scale, to change their manner of doing business.
Formerly, a lot of advertising campaigns were based on very strict geographic planning. If distant signals took your advertising into another market, even if you had a nationwide product, it was not going to do you a bit of good because you were not interested in advertising in that market.
Because of what has been happening there may be some feeling on the part of program suppliers that, if they are not going to get any copyright royalties out of cable retransmissions, they might as well sell their programs in a way that they get paid for the importation of distant signals by the advertiser.
This may have been happening a little bit, but I honestly cannot see the validity in principle of an argument that says something that is being based on a division of geographic markets is not hurt when those geographic markets are interfered with. It just does not make any sense to me, and it does not make any sense at all when you have got local products or clearly confined local advertising situations. And obviously it does not make any sense at all if you are not advertising or where the payment is based on something other than advertising.
I do believe that there is a validity to the distinction between local signals and distant signals. I will come to this point later in the recommendations on issues.
The question of boosters and translators was expected to be raised in the Senate Judiciary Committee, and I am not sure whether it was mentioned or not. In any case, no amendment was accepted, and apparently none was voted on.
At the time when we were first drafting on this bill, there was pressure both from the Government because of cable installations at some Army bases, and from some western booster and translator operators who had actually set up systems as a service to their community and were not getting any commercial advantage out of it. They were arguing for an ontright exemption because they are not in the same league as the CATV. You heard testimony to the effect that these should not be put in the competitive situation with commercial CATV.
The Copyright Office was apparently responsible for putting this in the bill originally as a result of proposals that we received. They have been in the bill since 1965 and have not been the subject of any debate since then. We can see a rationale for them being exempted. We could then, and we can now, but in the absence of additional support for
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 wav 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 day 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 2-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 hoard 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 ques. tions 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 alle to reduce the amount, the gross amount received from subscribers for the reception of retransmitted signals, to a point that would be umjust 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 the 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 take 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 vears. 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 sertion 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, un recorrled 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