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COPYRIGHT LAW REVISION

THURSDAY, JUNE 5, 1975

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON COURTS, CIVIL LIBERTIES,

AND THE ADMINISTRATION OF JUSTICE

OF THE COMMITTEE ON THE JUDICIARY,

Washington, D.C. The subcommittee met, pursuant to call, at 10:15 a.m., in room 2226, Rayburn House Office Building, the Honorable Robert W. Kastenmeier [chairman of the subcommittee] presiding.

Present: Representatives Kastenmeier, Danielson, Drinan, Pattison, and Railsback.

Also present: Herbert Fuchs, counsel, and Thomas E. Mooney, associate counsel.

Mr. KASTENMEIER. The committee will come to order.

The committee is meeting this morning for the purpose of continuing hearings on the copyright revision bill, H.R. 2223, and other bills relating to the subject. This morning we have a series of witnesses, the first two representing the Federal Government.

I would first like to call Mr. Ashton Hardy, the General Counsel, Federal Communications Commission. Mr. Hardy.

Mr. HARDY. Thank you, sir.

Mr. KASTENMEIER. You are most welcome. We would appreciate it if you would proceed.

TESTIMONY OF ASHTON R. HARDY, GENERAL COUNSEL,

FEDERAL COMMUNICATIONS COMMISSION

Mr. HARDY. Thank you, Mr. Chairman.

Mr. Chairman, I am pleased to have the opportunity to present the views of the Federal Communications Commission with respect to H.R. 2223, a bill for the general revision of the copyright law.

The committee is to be commended for addressing the very serious need for comprehensive reform of our Federal copyright laws. As you know, the statute governing this subject was enacted in 1909 and was drafted in terms of the problems of that era. Motion pictures and sound recordings as we now know them were not envisioned at that time, nor were radio and television.

Mr. Chairman, I realize that the scope of this legislation is broad and that your subcommittee is concerned with such diverse subjects as library photocopying, bootlegging of film and sound recordings, and the ownership of presidential documents. The Commission has no jurisdiction over matters such as these and consequently I will not comment on them. However, the Commission has asserted juris

diction and promulgated comprehensive rules governing the cable television industry, the subject of section 111 (c) and (d) of the proposed legislation, and thus my testimony addresses some of the background of the cable copyright problem.

Cable television is among those forms of communication which were not foreseen or provided for in the 1909 act. For this reason a complex controversy arose over the copyright liability of cable systems. I would like to trace briefly the evolution of this controversy and the Commission's involvement in it.

When the first cable systems began to operate, most merely extended local television service to rural areas where it had not been previously available. They did not import distant signals into markets where television service already existed, nor did they originate programing or serve major metropolitan areas. For these reasons, broadcast licensees did not anticipate that the new industry would pose the copyright problems that now exist. Similarly, copyright proprietors were generally unconcerned about the growth of cable because they continued to receive royalties from conventional broadcasters and did not anticipate that ČATV would affect this revenue. Initially the FCC expressed reluctance to assert jurisdiction over cable in the absence of specific legislative authorization. In 1959, 26 FCC 402, the Commission ruled that cable systems could retransmit programs without the express authority of the originating station. We reasoned that cable was merely a means of extending television service and did not pose an economic threat to the broadcast industry. Pursuant to this ruling, cable operators were free to distribute programing without paying copyright royalties.

However, the attitude of the various parties changed abruptly when cable systems began to import distant signals, originate programing, and provide service in metropolitan markets which posed clear competitive threats to broadcasters. Copyright questions then came into focus and broadcasters and copyright proprietors sought protection from the FCC and the courts.

The Commission responded by abandoning its former laissez-faire posture on cable and in 1962 denied a cable system permission to import additional distant signals by microwave. I refer, of course, to the Commission's ruling in the Carter Mountain Transmission Corp. case, which was first affirmed by the District of Columbia Circuit Court of Appeals and certiorari was denied by the Supreme Court. [32 FCC 459, aff'd 321 F. 2d 359 (D.C. Cir.), cert. denied, 375 U.S. 951 (1963).] The Commission was influenced in its decision by the fact that the proposed importation would pose an economic threat to a television licensee which could deprive the public of his service.

In 1965 the Commission further asserted its jurisdiction over cable in its first report and order on cable television-38 FCC 683—which contained the so-called nonduplication rule. This rule manifested the Commission's desire to protect the public interest in existing television service, and to encourage the development of local broadcast stations. It prevented duplication of the originating station's signal on a cable system for a certain period before and after carriage by that station. Under the rule, a copyright proprietor could limit the time and area in which a program was shown and a broadcaster could present

programing previously shown on a network on a delayed basis without running the risk of losing his exclusivity to a cablecaster.

The Commission's second report and order, 2 FCC 2d 725, adopted in 1966, required that all new cable systems in the top 100 television markets, which parenthetically serve 90 percent of all television viewers, obtain FCC approval before importing new distant signals. Approval was conditioned upon a finding that the new service would be consistent with the establishment and healthy maintenance of television broadcast service in the area. The effect of the rule made it virtually impossible for cable systems to establish new service in urban markets.

Subsequently, a San Diego cable operator challenged the Commission's authority to bar expansion of its system under the majormarket-distant signal rule. However, the Supreme Court upheld the Commission's action as reasonably ancillary to its duty to regulate television broadcasting. I refer, of course, to the Southwestern Cable case decided by the Supreme Court [392 U.S. 157, (1968)].

Because FCC regulation had not addressed many of the copyright questions posed by the advent of cable, broadcasters and cable proprietors sought relief in the courts. They argued for an expansive interpretation of the Copyright Act which would include a cable broadcast as a public performance and thus subject cable operators to copyright liability.

The Supreme Court confronted this issue in the now famous Fortnightly Corp. v. United Artists Television, Inc. case, 392 U.S. 290— 1968-where United Artists sought to recover royalties from Fortnightly, a West Virginia cable system which imported into its market signals which could not be received through ordinary over-the-air means. Fortnightly argued that it provided merely a reception service, did not "perform", and therefore escaped liability.

In finding for the cable system, the Court employed a functional test under which it held that the cable system was a "viewer", not a "performer." Since "viewing" fell short of infringement, no liability was incurred. Implicit in the Court's opinion was the view that Congress is better equipped than the judiciary to strike an appropriate balance among the various competing interests.

The Commission then issued proposed general rules for cable operation [15 FCC 2d 417 (1968)]. This proceeding served as a catalyst for serious discussions concerning the manner in which the industry should be regulated. As this lengthy proceeding neared its close, the Commission forwarded a letter of intent on August 5, 1971, to Congress which outlined its plans for the near-term regulation of cable. In our letter, we acknowledged the argument raised by several parties that we should defer promulgating rules governing cable until new copyright legislation was enacted. In response we expressed the view that cable regulation and copyright could be separately considered. Accordingly, we urged the Congress to promptly enact a copyright statute and stated our intent to proceed with rulemaking. Among the rules outlined in our letter was a solution to the distant signal problem which would permit limited importation of such signals based upon a formula geared to market size, and a provision allowing program exclusivity in the top 100 markets.

In our letter, we encouraged industry principals to agree upon a schedule of royalty fees in negotiations then in progress. The result of these negotiations was the so-called "consensus agreement" which suggested certain revisions to the proposal advanced in our letter of intent and pledged the parties to support separate cable copyright legislation. The legislation was to establish a system of copyright liability for cable carriage of broadcast signals with compulsory licensing of signals authorized by the Commission. A schedule of royalty fees or other payment mechanism was to be agreed upon by copyright proprietors and cable operators. In the absence of agreement, the parties agreed to submit to compulsory arbitration.

The Commission found the provisions of the consensus agreement to be reasonable. Consequently, those aspects of the agreement subject to our jurisdiction were implemented in our first comprehensive cable rules issued in 1972. [36 FCC 2d 143.] We took this action believing that it would open the door to cable development and that copyright legislation would be enacted shortly thereafter. Unfortunately, the negotiations concerning fee schedules proved inconclusive, and compulsory arbitration has not been forthcoming. Thus, legislative efforts in this area have been stymied.

The importance of a prompt resolution of the copyright problem was heightened by a second ruling of the Supreme Court on the cable copyright issue. In CBS v. Teleprompter, 415 U.S. 394 (1974), a Teleprompter cable system imported signals from as far as 600 miles from its service area, as opposed to Fortnightly's 82 miles. It had also engaged in advertising not confined to program origination channels and had interconnected with other systems for specialized programing. Despite the disparity of distance and the presence of services characteristic of broadcasting, the court held that Teleprompter retained its "viewer" status and had not "performed" under the Fortnightly rationale. Thus, it was not liable under the Copyright Act.

Seemingly announcing the end of its resilience to construe the act to accommodate changing conditions, the Court called upon Congress to enact remedial legislation. Speaking through Mr. Justice Stewart, it said:

These shifts in current business and commercial relationships *** simply cannot be controlled by means of litigation based on copyright legislation enacted more than half a century ago, when neither broadcast television nor CATV was yet conceived. Detailed regulation of these relationships, and any ultimate resolution of the many sensitive and important problems in this field must be left to Congress. (415 U.S. at 414.)

In view of the preceding analysis, it is clear that if a solution to the cable copyright dilemma is to be reached, it will only be through congressional action. I will not rehash the details of the various attempts made in Congress to enact legislation, for I am confident that they are better known to your subcommittee, Mr. Chairman, than they are to the Commission. Suffice it to say that legislation has been considered by at least one house of Congress every year for the last 10. Furthermore, I do not wish to offer detailed comments with respect to the specifics of section 111 (c) and (d) of the legislation now before you. Enactment of substantive copyright law is an area in which the Commission has no jurisdiction and in which we defer to congressional judgment and expertise.

However, the Commission has expressed some general views on the subject which perhaps bear repeating in this forum. First of all, we wish to express the importance of prompt congressional action. Mr. Chairman, this controversy has troubled the communications industry for nearly a decade. It continues to be a source of great conflict between the industries we regulate. We believe that it is time that the Congress place the interests of these parties in balance and resolve their differences through legislation. In this connection, we believe that it is essential and altogether just that cable operators pay reasonable copyright royalties. However, we express no judgment as to what precise form this legislation should take.

In our comments on previous legislation, we have on several occasions called attention to matters which we believed could be more effectively handled through the flexible approach afforded by the administrative process. In those comments we suggested that these matters not be written into substantive law but left to agency discretion. We made those remarks in connection with provisions which would have codified distant signal, minimum signal carriage, exclusivity, and sports blackout policies.

We continue to feel strongly that matters of this nature are more appropriately left to the Commission where they can evolve as the cable industry matures. For these reasons we were pleased that the Senate deleted provisions of this nature from S. 1361 of the 93d Congress, and that the legislation now before your subcommittee either omits reference to such regulatory matters or expresses them in broad general terms within which we can exercise considerable discretion. We are hopeful that any legislation which you report out will conform to these guidelines.

Mr. Chairman, this concludes my remarks. I would be pleased to respond to questions.

Mr. KASTENMEIER. Thank you, Mr. Hardy. I wish to compliment you on a very concise, coherent, and highly useful statement. We need to be aware of the history of what has transpired as seen through the eyes of the Commission.

Does the Commission, the Federal Communications Commission authorize-it does authorize or give licenses for cable television?

Mr. HARDY. Yes, sir. We issue certificates of compliance to cable. television systems once they are initially franchised by a local franchising authority in the community in which the cable system is to operate.

Mr. KASTEN MEIER. The first reference you make is to 1959. At that time did you authorize or license them in any sense?

Mr. HARDY. In 1959, no, sir. We did not at that time issue certificates of compliance.

Mr. KASTENMEIER. Did the Commission participate in any respect whatsoever in either the United Artists-Fortnightly case, or the CBS-Teleprompter case as amicus curiae or otherwise?

Mr. HARDY. No, sir, we did not participate in those proceedings before the courts.

Mr. KASTENMEIER. However, the Commission, I take it, it is the view of the Commission that it differs with those decisions insofar as they do not cause cable operators to pay reasonable copyright royalties?

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