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CORPORATE MEMBERS

ABC/CLIO, Inc., Santa Barbara, Calif., Richard Abel and Co., Portland, Oreg.; Academic Press, Inc., New York, N.Y.; Aspen Systems Corp., Rockville, Md.; Auerbach Publications Inc., Philadelphia, Pa., Bell & Howell, Wooster, Ohio; Chase Manhattan Corp., New York, N.Y.; Cordura, Los Angeles, Calif.; Congressional Information Service, Washington, D.C.; Data Courier, Inc., Louisville, Ky.; Data Flow Systems, Inc., Bethesda, Md.; Data Search Co., Des Plains, Ill. ; Dun & Bradstreet, New York, N.Y.; Encyclopedia Britannica Education Corp., Washington, D.C.; Environment Information Center, Inc., and Frost & Sullivan, New York, N.Y.;

Greenwood Press, a Division of Williamhouse-Regency, Inc., Westport, Conn.; Herner & Co., Washington, D.C. ; Information Clearing House, New York, N.Y.; Information Design, Inc., Menlo Park, Calif.; Information Handling Services, Englewood, Colo.; International Data Corp., Newtonville, Mass.; International Development Center, Kensington, Md.; Institute for Scientific Information, Philadelphia, Pa.; Leasco Information Co., Silver Spring, Md. ; Leasco Systems & Research Co., Bethesda, Md.; Lockheed Missiles & Space Co., Palo Alto, Calif.; McGraw Hill, Inc., and Macmillan Information Corp., New York, N.Y.; Microforms Intern'l Marketing Corp., Elmsford, N.Y.; Monitor, Inc./Congressional Monitor, and National Congressional Analysis Corp., Washington, D.C.

Jeffrey Norton Publishers, Inc., and New York Times, New York, N.Y.; Pharmaco-Medical Documentation, Inc., Chatham, N.J.; Plenum Publishing Corp., New York, N.Y.; Predicasts, Inc., Cleveland, Ohio; Readex Microprint Corp., New York, N.Y.; Reesarch Publications, Inc., New Haven, Conn.; Time, Inc., New York, N.Y.; U.S. Historical Documents Inst., Inc., Washington, D.C.; John Wiley & Sons, Inc., and Garwood R. Wolff & Co., New York, N.Y.; World Meeting Information Center, Inc., Chestnut Hill, Mass. ; and Xerox Corporation, Stanford, Conn.

FOREIGN ASSOCIATE MEMBERS (NON-VOTING) Almqvist & Wiksell, Uppsala, Sweden; Arrow International, and Fuji Corporation, Tokyo, Japan; Information Retrieval, Ltd., London, England; Opidan Sciences, Inc., Toronto, Canada; Orba Information, Ltd., Montreal Canada; Overseas Data Service, Tokyo, Japan; Thomson Data, Ltd., London, England, and U.S. Asiatic Company, Ltd., Tokyo, Japan.

ASSOCIATE MEMBERS (NON-VOTING)

Composition Technology, Inc., Cambridge, Mass. ; Inforonics, Inc., Maynard, Mass. ; IBM, Armonk, N.Y.; Multiprint, Inc., New York, N.Y.; Publicate, Inc., Washington, D.C.; Publishers Development Corp., New York, N.Y.; and Rocappi, Inc., Pennsauken, N.J.

Senator BURDICK. Thank you. We are recessed until 10 tomorrow.

[Whereupon, at 4:30 p.m., the subcommittee recessed to reconvene at 10 o'clock a.m. Wednesday, August 1, 1973.]

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COPYRIGHT LAW REVISION

WEDNESDAY, AUGUST 1, 1973

U.S. SENATE,
SUBCOMMITTEE ON PATENTS, TRADEMARKS, AND COPYRIGHTS
OF THE COMMITTEE ON THE JUDICIARY

Washington, D.C. The committee met, pursuant to recess, at 10 a.m., in room 1114, Dirksen Senate Office Building, Senator John L. McClellan, presiding.

Present: Senators McClellan (presiding], Burdick, and Fong.
Also present: Thomas C. Brennan, chief counsel.

Senator McCLELLAN. The committee will resume hearings this morning under the same general guidelines and procedures that we observed yesterday. I think everyone is familiar with them.

Who is our first witness this morning?

Mr. BRENNAN. Mr. Chairman, the committee this morning will consider the cable television royalty schedule, and the first witnesses appear on behalf of the Motion Picture Association.

Mr. Valenti, will you identify yourself and your associates for the record ?

Mr. VALENTI. Mr. Chairman, I am Jack Valenti. I am president of the Motion Picture Association, and with me is Mr. Gerald Meyer of the Nizer law firm of New York who is counsel for the committee; to my left is Herbert Stern, of MCA, vice president, who is a member of our committee; Mr. Gerald Meyer, counsel and to my far left is Mr. Chester Migdin, who will speak briefly later.

I also have members of our committee in the rear, including Mr. Arthur Schiner, who is associate to Mr. Hadl, attorneys here in Washington, as well as member of our committee and Dr. Robert Crandall, associate professor of economics at MIT and Mr. Lionel Fray, our consultant of the economic consultants, Temple, Barker & Sloane, Inc.

Senator McCLELLAN. Very well, Jack. Do you have a prepared stateinent?

Mr. VALENTI. Mr. Chairman, we have a statement; I have some notes that I'm going to speak from.

Senator MCCLELLAN. Do you wish to have this printed in the record ?
Mr. VALENTI. Yes, sir.
Senator McCLELLAN. All of it printed in the record ?
Mr. VALENTI. Yes, sir.

Senator McCLELLAN. Very well, it will be received and it may be printed in the record in full. You may proceed.

STATEMENT OF JACK VALENTI, PRESIDENT, MOTION PICTURE

ASSOCIATION OF AMERICA, INC., AND CHESTER MIGDEN, ON BEHALF OF FILM UNIONS AND GUILDS ACCOMPANIED BY; GERALD MEYER, COUNSEL; LIONEL FRAY; CONSULTANT: ROBERT W. CRANDALL; AND DAVID HOROWITZ

Mr. VALENTI. Mr. Chairman, my time is obviously very brief. We have a total of 20 minutes, and that's only a fragment of time, and I am going to get on with this. I will begin at the very beginning.

As you know, in 1971, in order to hasten the passage of the copyright legislation, negotiations were begun at that time between the broadcasters, copyright owners and cable systems. Those meetings, as you know, were sponsored by Chairman Burch of the FCC and Dr. Whitehead of the Office of Telecommunications Policy at the White House.

In November of 1971, the now famous consensus agreement was signed by all three groups. There were compromises made in those three positions, Mr. Chairman; each side gave up something in order to reach an agreement in what we thought was an absolutely essential agreement before copyright legislation could speedily pass the Congress.

As a result of this agreement, most distant signal carriage restrictions were lifted. Cable systems were permitted to import programs from distant cities. The freeze was off and expansion of cable had Legun.

Now, all parties to this agreement pledged themselves to support the concept of a speedy passage of the legislation, and also the concept of an arbitration tribunal that would be put in the bill if the parties could not agree on a private schedule of fees.

Now let me read to you the specific paragraph in the consensus agreement which nails down and fastens down this kind of support that all three parties gave. "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 fces.”

Shortly after the consensus agreement was signed, Chairman Burch wrote Senator McClellan and said: “We believe that the adoption of the consensus agreement will markedly serve the public interests."

On the 31st of January, Senator McClellan replied to Chairman Burch, and I would like to quote from that letter, because I think it is important in this aspect of the arbitration tribunal. Senator McClellan to Chairman Burch; “As I have stated in several reports to the Senate in recent years, the CATV question is the only significant obstacle to final action by the Congress on a copyright bill. I urged the parties to negotiate in good faith to determine if they could reach agreement on both the communications and copyright aspects of the CATV question. I commend the parties for the efforts they have made, and believe that the agreement that has been reached is in the public

interest and reflects a reasonable compromise of the positions of the various parties."*

Now, shortly thereafter, John Gwin who was the Chairman of the Board of NCTA communicated with the Committee of Copyright Owners and asked our support in implementation of all the provisions of the consensus agreement and particularly the support of copyright owners in opposing any reconsideration of the FCC's report and order's unfreezing the carriage of distant signals.

Now, we agreed to that and we agreed to it for a very special reason which we reported to Chairman Burch. We told Chairman Burch, we told the Chairman that since all parties had agreed to support the consensus agreement, and in view of the exchange of letters between Chairman McClellan and Chairman Burch, the copyright owners were satisfied that the legislation implementing the consensus agreement would go forward and that all parties would support the consensus agreement and redeem their pledges of support for that provision which calls for the arbitration tribunal.

Therefore, the copyright owners said, we have no objection and we will not oppose the unfreezing order put out by the FCC.

Now these rules went into effect, as you well know, on March 31, 1972.

Thus the copyright owners received no benefits in the consensus agreement and the cable systems received all that they had bargained for. Negotiations began immediately, Mr. Chairman, as the consensus agreement ordered, if we could find a private agreement on a fee schedule that we could present to you for inclusion in the bill.

Now, the consensus agreement ordered this, and both sides sat down to talk, but it became very clear that once the unfreezing systems

*[Editor's note : A letter from Chairman John L. McClellan to Chairman Dean Burch, dated May 5, 1972 follows:]

MAY 5, 1972. Hon. DEAN BURCH, Chairman, Federal Communications Commission, Washington, D.C.

DEAR MR. CHAIRMAN: I have been informed of the decision rendered on May 2nd by the United States District Court for the Southern District of New York in the copyright infringement case of Columbia Broadcasting Systems, Inc. v. TelePrompTer Corp. holding that the retransmission of broadcast signals by cable systems does not constitute a performance of a copyrighted work and consequently does not violate the copyright statutes.

In view of this development, it may be useful for me to restate my viewand I believe that of all the members of the Senate Subcommittee on Patents, Trademarks and Copyrights-that cable television systems should be subject to the copyright law and that generally such systems should pay reasonable copyright royalties. It remains my intention to seek the enactment of the legis. lation for general revision of the copyright law at the earliest feasible date.

The Subcommittee after careful review and study over an extended period of time, approved what is now Section 111 of S. 644 which contains an initial schedule of royalty rates, provides for the creation of a Copyright Royalty Tribunal to review and adjust royalty rates at periodic intervals, and establishes procedures for the collection and distribution of the royalty payments. It is my considered judgment that these provisions of Section 111 are eminently fair and reasonable and must be a part of any new copyright law. With kind personal regards, I am Sincerely,

JOHN L. MOCLELLAN,

Chairman,

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noticeably changed and noticeably stiffened. In more than 60 hours of exhausting and tormenting negotiations, it became very clear there would be no agreement reached. Deadlines were continually lengthened and it finally became very plain to us that cable systems had no intention of budging off the fee schedule which was put in the bill. They had determined that that was where they were going to make a stand, and they did.

Now, we find ourselves, Mr. Chairman, in a difficult position. We pledged our support to the consensus agreement, we gave our word, and we redeemed it. Cable systems got everything that was in that consensus agreement, but the key element, the key element that the copyright owners believed that would be honored was, in fact, not honored at all.

Now I could spend more time, but in the interest of time, I want to go on to what I consider to be another key point, Mr. Chairman, which is the inadequacy

Senator MCCLELLAN. The what?

Mr. VALENTI. The inadequacy of the fee schedule. I want to cite to you two crucial points—at least to perhaps our biased eyes—but I

that an unbiased observer would feel the same way. We believe this fee schedule is neither adequate nor appropriate, now let me tell you why.

Point No. 1, we are not aware of any economic evidence of any kind that corroborates the fee schedule which is in S. 1361. To our knowledge, there has been no factfinding efforts of any find which preceded the insertion of that fee schedule in S. 1361. There is no kinship in these fees, in our judgment, sir, to the reasonable value of the copyrighted programs that we produce and go out on the air and whether or not these fees would reasonably compensate copyright owners for the expected loss of value in their programs. That is point No. 1.

Point No. 2, the complexity, the elaborate material, the tormenting detail that exists in setting a fee schedule, is enormous. It has been our conviction—in 20 minutes, I cannot even begin to make a comprehensive statement to you; I am not even sure it could be done in 20 hours. But the examination of a fair and reasonable fee schedule simply demands the full-time scrutiny of a body of experts.

That has been our contention, sir, and even if the fee schedules were higher, they would still be artificially based, without a solid base of facts or without a sturdy rostrum of research, and that is also our contention.

Now what we are advocating, Mr. Chairman, are fees that are just and reasonable; that is all. We believe that you cannot have just and reasonable fees unless you have a careful examination of all the undergirding facts on which you build your edifice of a fee schedule.

Now, there are many areas, sir, that we have not even begun to talk about. I want to bring to this subcommittee some of these variables; the location of the system; the number of signals it carries; the value of programs carried by the system; the size of the system; the penetration of its franchised areas; saturation of the television market in which it operates; the age and stage of development of the system; investments necessary to construct the facility; amortization of its capital investment; allocation of the investment in its plant to retransmission of broadcasts as contrasted and distinguished from other activi

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