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[Federal Register: October 4, 2010 (Volume 75, Number 191)]
[Proposed Rules]               
[Page 61116-61118]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04oc10-11]                         

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LIBRARY OF CONGRESS

Copyright Office

37 CFR Part 201

[Docket No. RM 2010-3]

 
Refunds Under the Cable Statutory License

AGENCY: Copyright Office, Library of Congress.

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: The Office seeks comment on whether a cable operator may 
receive refunds in situations where it has failed to pay for the 
carriage of distant signals on a system-wide basis under the Copyright 
Act, before it was amended to allow a cable system to calculate its 
royalty fees on a community-by-community basis.

DATES: Written comments must be received in the Office of the General 
Counsel of the Copyright Office no later than November 3, 2010. Reply 
comments must be received in the Office of the General Counsel of the 
Copyright Office no later than November 3, 2010.

ADDRESSES: If hand delivered by a private party, an original and five 
copies of a comment or reply comment should be brought to the Library 
of Congress, U.S. Copyright Office, Room 401, 101 Independence Avenue, 
SE, Washington, DC 20559, between 8:30 a.m. and 5 p.m. E.D.T. The 
envelope should be addressed as follows: Office of the General Counsel, 
U.S. Copyright Office. If delivered by a commercial courier, an 
original and five copies of a comment or reply comment must be 
delivered to the Congressional Courier Acceptance Site (``CCAS'') 
located at 2nd and D Streets, NE, Washington, DC between 8:30 a.m. and 
4 p.m. The envelope should be addressed as follows: Office of the 
General Counsel, U.S. Copyright Office, LM 403, James Madison Building, 
101 Independence Avenue, SE, Washington, DC 20559. Please note that 
CCAS will not accept delivery by means of overnight delivery services 
such as Federal Express, United Parcel Service or DHL. If sent by mail 
(including overnight delivery using U.S. Postal Service Express Mail), 
an original and five copies of a comment or reply comment should be 
addressed to U.S. Copyright Office, Copyright GC/I&R, P.O. Box 70400, 
Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: Ben Golant, Assistant General Counsel, 
and Tanya M. Sandros, Deputy General Counsel, Copyright GC/I&R, P.O. 
Box 70400, Washington, DC 20024. Telephone: (202) 707-8380. Telefax: 
(202) 707-8366.

SUPPLEMENTARY INFORMATION: Section 111 of the Copyright Act (``Act''), 
title 17 of the United States Code (``Section 111''), provides cable 
operators with a statutory license to retransmit to the public a 
performance or display of a work embodied in a primary transmission 
made by a television station licensed by the Federal Communications 
Commission (``FCC''). Cable systems that retransmit broadcast signals 
in accordance with the provisions governing the statutory license set 
forth in Section 111 are required to pay royalty fees to the Copyright 
Office (``Office''). Payments made under the cable statutory license 
are remitted semi-annually to the Office which invests the royalties in 
United States Treasury securities pending distribution of these funds 
to those copyright owners who are entitled to receive a share of the 
fees. Section 111 was recently amended by the Satellite Television 
Extension and Localism Act of 2010 (``STELA''), Pub. L. No. 111-175,

[[Page 61117]]

which made some changes to the design of the royalty payment structure, 
as noted below.
    Cable operators have long paid royalties for the retransmission of 
non-network programming carried by distant broadcast television signals 
under the Section 111 statutory license. The royalties are based on a 
percentage of gross receipts generated by a cable system. Under the 
licensing framework established by Congress in 1976, cable operators 
had to pay for the number of distant signals carried, even though some 
such signals were not received or made available to every subscriber of 
a particular cable system. Distant broadcast signals that were not made 
available on a system-wide basis, but on which operators were required 
to pay royalties, have been called ``phantom signals.'' The Copyright 
Office has been aware of the phantom signal situation since at least 
1983, see NCTA Petition for Issuance of Notice of Proposed Rulemaking 
(filed August 22, 1983), but the matter has only recently received 
legislative attention.
    Section 104 of STELA, entitled ``Modifications to Cable System 
Secondary Transmission Rights Under Section 111,'' directly addresses 
phantom signals. Specifically, it amends Section 111(d)(1) of the 
Copyright Act which sets forth the methodology for a cable operator to 
calculate royalty fees. Cable operators now pay royalty fees based on 
the communities where the distant broadcast signal is actually offered 
rather than on a broader cable system basis as had been the case since 
1978.
    Specifically, STELA amends subparagraph (C) of Section 111(d)(1) to 
state that if a cable system provides secondary transmissions of 
primary transmitters to some, but not all, communities served by the 
cable system, the gross receipts and distant signal equivalent values 
for each secondary transmission may be derived on the basis of the 
subscribers in those communities where the cable system actually 
provides such secondary transmission. Where a cable system calculates 
its royalties on a community-specific (``subscriber group'') basis, the 
operator applies the methodology in Section 111(d)(1)(B)(ii)-(iv) to 
calculate a separate royalty for each subscriber group.
    The legislation also amends subparagraph (D) of Section 111(d)(1) 
to state that:
     A cable system that, on a statement submitted before the date 
of the enactment of the Satellite Television Extension and Localism 
Act of 2010, computed its royalty fee consistent with the 
methodology under subparagraph (C)(iii), or that amends a statement 
filed before such date of enactment to compute the royalty fee due 
using such methodology, shall not be subject to an action for 
infringement, or eligible for any royalty refund or offset, arising 
out of its use of such methodology on such statement.
In other words, operators who have heretofore based royalty payments 
on subscriber group calculations will not face liability for having 
done so. The amendments also make clear that cable operators who 
have paid for phantom signals in the past are not entitled to now 
seek refunds or offsets for those payments in any Statement of 
Account period from 2010/1 onward. With regard to offsets, cable 
operators cannot deduct the amount they paid for a phantom signal 
prior to STELA (e.g., 2009/1) from the royalties they must pay in 
future Statement of Account periods.
    While STELA eliminates the possibility of an action for 
infringement against those cable systems that did not pay for the 
carriage of phantom signals historically, it did not alter how a cable 
system was to calculate its royalty fee obligation for carriage of 
these signals under Section 111 prior to the passage of this 
legislation. Nevertheless, certain cable systems have concluded that 
the language which prevents a copyright owner from bringing an 
infringement suit against a cable system which had computed its past 
royalty fee obligation in a manner consistent with the methodology in 
new Section 111(d)(1)(D) also nullifies their obligation to have paid 
for carriage of all signals on a system-wide basis for the accounting 
periods ending prior to January 1, 2010. This approach represents one 
interpretation of the effect of the new provision, but it is not the 
only one. A more literal reading of the new statutory language is that 
it only shields a cable system from an infringement action and that it 
does not erase a cable system's obligation to have paid for the 
carriage of each distant signal on a system-wide basis prior to the 
2010/1 accounting period. Under the latter interpretation, any 
underpayment for carriage of a phantom signal still remains even though 
the operator cannot be sued for infringement under Section 111.
    We raise this issue because some cable systems which, prior to the 
2010/1 accounting period, did not pay for carriage of phantom signals 
are now requesting refunds in cases where there are other non-related 
issues. In these cases, the cable system is just now replying to a 
pending Licensing Division initiated letter and is requesting a refund 
for a reporting mistake, e.g., identifying a local signal as a distant 
signal for the 2009/2 accounting period (or an earlier accounting 
period), even though, according to the Copyright Office's examination 
of the statement of account, the cable system still has an outstanding 
royalty fee obligation for the retransmission of a phantom signal 
during the same period.
    At this time, the Office is not inclined to refund any fees for a 
non-phantom reporting error in the case where the operator has an 
outstanding balance owed for the carriage of a phantom signal without 
accounting for that obligation too because, prior to STELA, section 111 
required that royalty fees be calculated on a system-wide basis. 
Moreover, the language in STELA protecting a cable system from an 
infringement suit for failure to make these payments prior to the 2010/
1 accounting period does not address a cable system's past obligation 
to have paid the royalty fees owed by the cable system at the time it 
filed the statement of accounts. Historically, cable operators have 
been expected to pay for each distant signal on a system-wide basis and 
when that did not occur, the Office would write to the cable system 
noting the underpayment and record it as an outstanding obligation. 
Moreover, the Office would not provide a refund for an overpayment for 
misreporting a local signal as a distant signal or similar reporting 
error until the outstanding obligation for carriage of the phantom 
signal had been satisfied. Nothing in the legislation appears to have 
altered this approach. Nevertheless, in light of the requests from 
certain cable operators, we seek comment on whether to offset the 
outstanding balance owed for carriage of phantom signals before 
providing a refund for an error unrelated to phantom signals that 
occurred in an accounting period prior to 2010/1.

List of Subjects in 37 CFR 201

    Copyright

Proposed Regulation

    For the reasons set forth in the preamble, the Copyright Office 
proposes to amend part 201 of title 37 of the Code of Federal 
Regulations as follows:

PART 201 - GENERAL PROVISIONS

    1. The authority citation for part 201 continues to read as 
follows:

    Authority: 17 U.S.C. 702
    2. Amend section 201.17 by redesignating paragraphs (m)(1) through 
(4) as paragraphs (m)(2) through (5) and adding a new paragraph (m)(1) 
to read as follows:

[[Page 61118]]

Sec.  201.17 Statements of Account covering compulsory licenses for 
secondary transmissions by cable systems.

* * * * *
    (m) Corrections, supplemental payments and refunds.
    (1) Royalty fee obligations under 17 U.S.C. 111 prior to the 
effective date of the Satellite Television Extension and Localism Act 
of 2010, Pub.L. No. 111-175 are determined based on carriage of each 
distant signal on a system-wide basis. Refunds for an overpayment of 
royalty fees for an accounting period prior to January 1, 2010, shall 
be made only when all outstanding royalty fee obligations have been 
met, including those for carriage of each distant signal on a system-
wide basis.
* * * * *

    Dated: September 28, 2010
Tanya Sandros,
Deputy General Counsel,
U.S. Copyright Office.
[FR Doc. 2010-24779 Filed 10-1-10; 8:45 am]
BILLING CODE 1410-30-S
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