9. The representatives of the copyright owners and the cable industry have had many meetings in which both sides labored long and hard, but in spite of these repeated efforts, no schedule of fees has been agreed upon for joint recommendation to the Congress. 10. The reason for the failure of the parties to agree on a fee schedule is the complexity of determining the value to a cable system of the various types of programs used by CATV and of the losses which the owners of these programs will suffer from the expected diversion of their income from TV to CATV. Moreover, the assessment of these losses and values with respect to the owners of each type of program and each type of cable system requires complex economic data-gathering involving many thousands of variables. 11. As of December 1972, the cable industry rejected out of hand a proposal from the copyright owners to support in the legislation-as agreed upon in the Consensus Agreement-an Arbitration Panel to fix fees. In short, the cable industry refused to do what it agreed to do. THE MECHANICS OF ARBITRATION Chapter 8 of the Copyright Law Revision Bill establishes a Copyright Royalty Tribunal. This Tribunal could serve as the mechanism for the arbitration provided for in the Consensus Agreement. Such a Tribunal would be an objective body and not beholden to either the cable industry or the copyright owners. It would be able to deal equitably and without bias, on the fixing of fees. An Independent Tribunal such as that to be organized pursuant to S. 801 of the Copyright Revision Bill (S. 1361) would seem to fit the definition of fair better than an arbitrary fixing of fees by legislation. Congress usually has believed that it has neither the time nor the expertise to deal with complex ratesetting procedures. An Independent Tribunal is favoring to neither side. Indeed, it is possible the Tribunal may well, after its deliberations, determine that the cable operators ought to pay less fees than what the copyright owners so passionately feel is reasonable. But that is the principal and perhaps winning reason for the Tribunal-it is eminently fair, neither side has an advantage. The Tribunal will hand down its decision after full, complete and possibly mountainous piles of evidence will have been submitted. In that event, neither side can claim it was short-changed. The fairness of the Tribunal is its most valuable asset. This is the compromise proposal that the film industry representatives made to the cable television representatives. They rejected it. The new copyright bill shall contain the following provisions : 1. The Tribunal for compulsory arbitration shall be constituted and begin work no later than 2 months after enactment of the bill. 2. The Tribunal shall be mandated to make its award on the fee schedule within 12 months after enactment of the bill. 3. If the Tribunal should fail to make its award until sometime later than 12 months after enactment, the fees ultimately determined shall be payable from the cut-off date of 12 months after enactment. 4. The charge to the Tribunal shall be to determine "just and reasonable fees" with no limitations on what factors they decide to include in their determination. 5. There shall be no legislative review of any award made at any time by the Tribunal. Judicial reviews shall be limited to those customarily allowed in arbitration awards-fraud, bribery, malfeasance-but not on the merits of the award itself. 6. If the Senate has not passed such a copyright bill by January 1, 1974, both CCO1 and NCTA2 agree to support separate copyright legislation embodying these provisions for cable television. COPYRIGHT REVISION AND CABLE TELEVISION BACKGROUND On March 26, 1973, Senator McClellan introduced a bill for the general revision of the 1909 Copyright Act. S. 1361 is identical, but for certain changes in dates, to a bill reported out of the Senate Subcommittee on Patents. Trademarks, and Copyrights in December, 1969, but which never was reported out by the full 1 Committee of Copyright Owners. 2 National Cable Television Association. Committee on the Judiciary. General revision of the copyright law has been pending in the Congress for over six years. Senator McClellan and others have attributed the delay in passage of a general revision of the copyright law to the controversy over how cable television should be treated under that law. In introducing S. 1361, Senator McClellan indicated that its cable television provisions would in any case have to be revised in light of the events since December, 1969, including, in particular, the adoption of new cable television rules by the Federal Communications Commission in February, 1972. Attached in draft form are proposed changes in Section 111 (the cable television provision) and related Sections of S. 1361. These changes are the most appropriate way of taking care of the cable television issue, thereby clearing the way for the long-delayed general revision of the copyright law. EXISTING LAW Under the existing law, CATV systems that simply retransmit readily available signals from fairly nearby broadcast stations are not liable for copyright. Fortnightly Corp. v. United States, 392 U.S. 390 (1968). Recently it was held that when CATV systems retransmit "distant" stations, the signals of which are not readily available off the air to the cable system, they are subject to normal copyrighted works broadcast by the distant stations. Columbia Broadcasting System, Inc. v. TelePrompTer Corp., — F. 2d (2d Cir., Docket No. 721800, March 8, 1973). Under this decision, many existing cable systems would have to bargain and pay for the right to retransmit many of the programs broadcast by some of the stations whose signals the cable systems have been retransmitting in the past. PROPOSED CHANGES IN S. 1361 The significant features of the attached changes to S. 1361 are as follows: 1. The Consensus Agreement would and ought to be implemented. In November, 1971, the leading associations representing the cable TV, broadcasting, and the major program producers (copyright owners) agreed to accept a compromise proposal for cable television regulatory and copyright treatment which has come to be known as the "Consensus Agreement" or more simply, the "Consensus." This Consensus was found to be in the public interest both by the FCC and by Senator McClellan. It calls for changes in the FCC regulatory policies, which were duly made and implemented over a year ago, and for copyright legislation consistent with that regulatory policy. In adopting its new rules, the FCC said: "We believe that adoption of the consensus agreement will markedly serve the public interest: "(i) First the agreement will facilitate the passage of copyright legislation. It is essential that cable be brought within the television programming distribution market. There have been several attempts to do so, but all have foundered on the opposition of one or more of the three industries involved. . . . "(ii) Passage of copyright legislation will in turn erase an uncertainty that now impairs cable's ability to attract the capital investment needed for substantial growth. . . . "It is important to emphasize that for full effectiveness the consensus agreement requires Congressional approval, not just that of the Commission. The rules will, of course, be put into effect promptly. Without Congressional validation, however, we would have to re-examine some aspects of the program." In a letter to the FCC incorporated as part of its report on the new rules, Senator McClellan said: "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." 2. CATV would receive a favorable compulsory license covering retransmissions of all local broadcast stations and certain distant broadcast stations. Consistent with the Consensus, the attached changes would accord cable television systems a compulsory license to retransmit all signals lawfully being transmitted prior to March 31, 1972 (i.e., all "grandfathered" signals), all "local" signals as defined by the FCC and such other additional or "distant" signals as would be consistent with the rules adopted by the FCC in February, 1972. A compulsory license is a tremendous benefit for cable and gives it a competitive advantage over broadcasters because it eliminates the need for bargaining for every program. In the interests of reaching a compromise, however, the broadcast industry and the major program producers were willing to accept such a compulsory license for cable provided that it expressly would not include any more signal retransmission than was contemplated by the Consensus. 3. No CATV system would have to stop retransmitting broadcast stations that were lawfully being retransmitted in the past. The "grandfather" feature of the attached changes means that all existing cable TV systems can continue retransmitting whatever stations they were lawfully retransmitting on March 31, 1972, even though this means in many cases that cable TV systems would have more signals than the FCC's new rules would allow. This is very beneficial to cable TV systems and their subscribers, particularly in light of the recent judicial interpretation of the existing copyright law. 4. Smaller, independently owned CATVs would not have to pay any copyright fees at all. Under the attached changes, and again consistent with the Consensus, existing independently owned CATVs having fewer than 3,500 subscribers would get both the compulsory license described above and be free of any obligation to make payments for that compulsory license. This is a substantial plus for the smaller independent CATV, a plus which is not found in the present provisions of S. 1361. 5. The scope of the compulsory license with respect to distant stations is and ought to be limited. The Consensus provides that the compulsory license shall be limited to "those distant signals defined and authorized under the FCC's initial package" (in addition to local and "grandfathered" signals). In general terms, the FCC's initial rules contemplate importation of usually two distant signals into the 35-mile zones of larger markets, subject to certain exclusivity requirements, enough distant signals to provide adequate program service within the 35-mile zones of smaller markets, and virtually unlimited distant signal carriage beyond the 35-mile zones of all markets. By incorporating by reference the pertinent provisions of the FCC's rules, the attached changes would adopt corresponding limitations on the scope of the preferential compulsory license otherwise being given to cable systems. Without these limitations on the compulsory license no consensus would have been reached among the affected parties. While additional distant signals could be authorized by the FCC, subject to normal copyright liability, otherwise valid exclusivity agreements would be enforceable against any such additional retransmissions. 6. The question of the amount of the compulsory license fee would be resolved in an impartial and fair manner. Cable systems which do not come within the small system exemption noted above would have to pay a fee for their compulsory license. The sum of all such fees would in turn be apportioned among the various copyright owners. The Consensus provides that in the event the parties are unable to agree on a fee schedule, the legislation should provide that the fee schedule will be set by compulsory arbitration. Despite many meetings and negotiations since November, 1971, the parties have not been able to resolve their differences over the fee schedule. The compulsory arbitration approach set forth in the attached changes is not only consistent with the Consensus but also is a desirable means of freeing the Congress from having to resolve a complex and controversial dispute over the fee schedule. 7. Judicial enforcement is authorized. As expressly contemplated by the Consensus, both copyright owners and broadcasters would have the right to enforce valid exclusivity agreements through court actions. 8. Treatment of sports events is unchanged. The Consensus did not address the problem of retransmission of distant station broadcasts of professional team sports events, Thus the attached changes carry forward the special treatment of such events provided for in the present version of S. 1361. OTHER POSSIBLE REVISIONS IN S. 1361 SHOULD BE REJECTED 1. Approaches at variance with the Consensus should be rejected. The new FCC rules adopted in 1972 benefit cable TV entreprenuers at the expense of broadcasters and program suppliers. Those rules were adopted on the assumption by the FCC and the affected parties that NCTA, the association representing cable TV. would actively support, and that the Congress would adopt, copyright legislation implementing the same Consensus as resulted in the new FCC rules. It would be grossly unfair either to allow NCTA to renege on its November, 1971, commitment or to adopt copyright legislation still more favorable to cable TV than that which is contemplated by the Consensus. Moreover, rejection of the Consensus would only lead to the reopening of a controversy which has for too long delayed the general revision of the copyright law. 2. A statutory fee schedule should not be included in the legislation. At present S. 1361 includes a statutory fee schedule which some cable TV interests claim is either too high or at best the maximum that cable can afford to pay. The major program suppliers believe that the fee schedule in S. 1361 is unconscionably low, completely arbitrary and wholly unrelated to any economic or other data: the schedule has never been the subject of Congressional hearings. Both sides claim to have expert economic studies backing their respective positions. Resolution of such complex economic details as the precise amount of the fee is traditionally delegated by the Congress to independent agencies or arbitration. That approach should be followed here, and was specifically agreed to by the affected parties in a Consensus which the FCC, Senator McClellan, and others have found to be in the public interest. 3. The compulsory license must not be left open-ended so that still more broadcast signals could be brought within its ambit. With the attached changes, S. 1361 would subject CATV systems to normal copyright liability for retransmissions of copyrighted works broadcast by non-local stations when those transmissions are inconsistent with the 1972 FCC rules. This limitation on the ambit of the compulsory license is called for by the Consensus and was vital to reaching any consensus. Since a compulsory license constitutes preferential treatment of CATV at the expense of the program suppliers and broadcasters, it would be completely unfair to allow a four member majority of the FCC to expand the scope of that compulsory license by simple administrative fiat as would be the case if the compulsory license were open-ended. The limitation on the scope of the compulsory license is not a regulatory measure, nor is it a measure that unwisely ties the hands of the FCC. The FCC would retain full power to change its rules as it sees fit consistent with the public interest standards of the Communications Act. But the FCC would not be given, just as the FCC does not now have and should not have, the power to change the copyright law and thereby the power to take private property from one party and give it to another party simply through administrative dictates. COPYRIGHT REVISION BILL PROPOSED TEXT ON CABLE TELEVISION SUBMITTED BY COMMITTEE SEC. 111. Limitations on exclusive rights: Secondary transmissions (a) Certain secondary transmissions exempted. The secondary transmission of a primary transmission embodying a performance or display of a work is not an infringement of copyright if: (1) the secondary transmission is not made by a cable system, and consists entirely of the relaying, by the management of a hotel, apartment house, or similar establishment, of signals transmitted by a broadcast station licensed by the Federal Communications Commission, within the local service area of such station, to the private lodgings of guests or residents of such establishment, and no direct charge is made to see or hear the secondary transmission; or (2) the secondary transmission is made solely for the purpose and under the conditions specified by clause (2) of section 110; or (3) the secondary transmission is made by a common, contract, or special carrier who has no direct or indirect control over the content or selection of the primary transmission or over the particular recipients of the secondary transmission, and whose activities with respect to the secondary transmission consist solely of providing wires, cables, or other communications channels for the use of others: Provided, That the provisions of this clause extend only to the activities of said carrier with respect to secondary transmissions and do not exempt from liability the activities of others with respect to their own primary or secondary transmission; or (4) the secondary transmission is not made by a cable system and is made by a governmental body, or other nonprofit organization, without any purpose of direct or indirect commercial advantage, and without charge to the recip ients of the secondary transmission other than assessments necessary to defray the actual and reasonable costs of maintaining and operating the secondary transmission service. (b) Secondary transmission of primary transmission to controlled group.Notwithstanding the provisions of subsections (a) and (c), the secondary transmission to the public of a primary transmission embodying a performance or display of a work is actionable as an act of infringement under section 501, and is fully subject to the remedies provided by sections 502 through 506, if the primary transmission is not made for reception by the public at large but is controlled and limited to reception by particular members of the public. (c) Secondary transmissions by cable systems.-(1) Subject to the provisions of clause (2) of this subsection (c), secondary transmissions to the public by a cable system of a primary transmission made by a broadcast station licensed by the Federal Communications Commission and embodying a performance or display work shall be subject to compulsory licensing upon compliance with the requirements of subsection (d) in the following cases: (A) Where the signals comprising the primary transmission are exclusively aural and the secondary transmission is permissible under the rules and regulations of the Federal Communications Commission; or (B) Where the community of the cable system is in whole or in part within the local service area of the primary transmitter; or (C) Where the signals comprising the secondary transmission are contemplated by and consistent with section 76.5(a), (f), (g), (h), (i), and (0) through (u) and Subparts D and F of the rules and regulations of the Federal Communications Commission as published in Volume 37, Federal Register, page 3252 et seq., on February 12, 1972. (2) Notwithstanding the provisions of clause (1) of this subsection (c), the secondary transmission to the public by a cable system of a primary transmission made by a broadcast station licensed by the Federal Communications Commission and embodying a performance or display of a work is actionable as an act of infringement under section 501, and is fully subject to the remedies provided by sections 502 through 506, in the following cases: (A) Where the signals comprising the secondary transmission, whether or not authorized by the Federal Communications Commission, are inconsistent with, or in excess of those contemplated by, the rules and regulations of the Federal Communications Commission referred to in subclause (C) of clause (1) of this subsection (c); or (B) Where the community of the cable system is in whole or in part within the local service area of one or more television broadcasting stations licensed by the Federal Communications Commission, and— (i) the content of the particular transmission program consists primarily of an organized professional team sporting event occurring simultaneously with the initial fixation and primary transmission of the program; and (ii) the secondary transmission is made for reception wholly or partly outside the local service area of the primary transmitter; and (iii) the secondary transmission is made for reception wholly or partly within the local service area of one or more television broadcasting stations licensed by the Federal Communications Commission, none of which has received authorization to transmit said program within such area. (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 (1). (2) A cable system whose secondary transmissions have been subject to compulsory licensing under subsection (c) shall during the months of January, April, and July and October, deposit with the Register of Copyrights, in accordance with requirements that the Register shall prescribe by regulation and furnish such further information as the Register of Copyrights may require to carry out the purposes of this clause (2)— |