Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 25627 

N; 083°3.3′ W, and northwest to the 

point of origin at position 42°19.4′ N; 

083°3.3′ W. (DATUM: NAD 83). 

(b) Effective Period. This regulation is 

effective from 9 a.m. on May 29, 2008 

through 6 p.m. on June 1, 2008. The 

safety zone will be enforced daily from 

9 a.m. to 5 p.m. on May 29, 2008 

through May 31, 2008, and from 9 a.m. 

to 6 p.m. on June 1, 2008. 

(c) Regulations. (1) In accordance with 

the general regulations in § 165.23 of 

this part, entry into, transiting, or 

anchoring within this safety zone is 

prohibited unless authorized by the 

Captain of the Port Detroit, or his 

designated on-scene representative. 

(2) This safety zone is closed to all 

vessel traffic, except as may be 

permitted by the Captain of the Port 

Detroit or his designated on-scene 

representative. 

(3) The ‘‘on-scene representative’’ of 

the Captain of the Port is any Coast 

Guard commissioned, warrant, or petty 

officer who has been designated by the 

Captain of the Port to act on his behalf. 

The on-scene representative of the 

Captain of the Port will be aboard either 

a Coast Guard or Coast Guard Auxiliary 

vessel. The Captain of the Port or his 

designated on scene representative may 

be contacted via VHF Channel 16. 

(4) Vessel operators desiring to enter 

or operate within the safety zone shall 

contact the Captain of the Port Detroit 

or his on-scene representative to obtain 

permission to do so. 

Vessel operators given permission to 

enter or operate in the safety zone must 

comply with all directions given to 

them by the Captain of the Port or his 

on-scene representative. 

Dated: April 23, 2008. 

P.W. Brennan, 

Captain, U.S. Coast Guard, Captain of the 

Port Detroit. 

[FR Doc. E8–10238 Filed 5–6–08; 8:45 am] 

BILLING CODE 4910–15–P 

LIBRARY OF CONGRESS 

Copyright Office 

37 CFR Part 201 

[Docket No. RM 2007–11] 

Definition of Cable System 

AGENCY: Copyright Office, Library of 

Congress. 

ACTION: Termination of rulemaking 

proceeding. 

SUMMARY: The Copyright Office 

previously sought comment on issues 

associated with the definition of the 

term ‘‘cable system’’ under the 

Copyright Act as well as on the National 

Cable and Telecommunications 

Association’s request for the creation of 

subscriber groups for the purposes of 

eliminating the ‘‘phantom signal’’

phenomenon. After reviewing the 

record in this proceeding, the Copyright 

Office finds that it lacks the statutory 

authority to adopt rules sought by the 

cable industry. The Copyright Office, 

however, clarifies regulatory policy 

regarding the application of the 3.75% 

fee to phantom signals. This proceeding 

is terminated. 

FOR FURTHER INFORMATION CONTACT: Ben 

Golant, Assistant General Counsel, and 

Tanya M. Sandros, 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 systems with a 

statutory license to retransmit a 

performance or display of a work 

embodied in a primary transmission 

made by a television or radio 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. Payments made under 

the cable statutory license are remitted 

semi–annually to the Copyright 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. 

I. Introduction 

In 2007, the Copyright Office 

published a Notice of Inquiry (‘‘NOI’’) 

seeking comment on issues associated 

with the definition of the term ‘‘cable 

system’’ under the Copyright Act and 

the Copyright Office’s implementing 

rules. The Copyright Office also sought 

comment on the National Cable and 

Telecommunications Association’s 

(‘‘NCTA’’) request for the creation of 

subscriber groups for the purposes of 

eliminating the ‘‘phantom signal’’

phenomenon. 72 FR 70529 (Dec. 12, 

2007). The purpose of the NOI was to 

solicit input on, and address possible 

solutions to, the complex issues 

presented when only a subset of a cable 

system’s subscriber base receive a 

particular distant signal. 

II. Background 

Section 111(f) of the Copyright Act 

defines a ‘‘cable system’’ as: 

‘‘a facility, located in any State, Territory, 

Trust Territory, or Possession, that in whole 

or in part receives signals transmitted or 

programs broadcast by one or more television 

broadcast stations licensed by the Federal 

Communications Commission, and makes 

secondary transmissions of such signals or 

programs by wires, cables, microwave, or 

other communications channels to 

subscribing members of the public who pay 

for such service. For purposes of determining 

the royalty fee under subsection (d)(1)[of 

Section 111], two or more cable systems in 

contiguous communities under common 

ownership or control or operating from one 

headend shall be considered one system.’’ 17 

U.S.C. 111(f). 

In implementing the cable statutory 

license provisions of the Copyright Act, 

the Copyright Office adopted a 

definition of the term ‘‘cable system’’

that replicated the statutory provision. 

The Copyright Office, however, 

separated the text of the provision into 

two parts in order to clarify that a cable 

system can be defined in either of two 

ways for the purpose of calculating 

royalty fees. Thus, the regulatory 

definition provides that ‘‘two or more 

facilities are considered as one 

individual cable system if the facilities 

are either: (1) in contiguous 

communities under common ownership 

or control or (2) operating from one 

headend.’’ 37 CFR 201.17(b)(2). The 

Copyright Office stated that its 

interpretation of the statutory ‘‘cable 

system’’ definition was consistent with 

Congress’s goal of avoiding the 

‘‘artificial fragmentation’’ of systems (a 

large system purposefully broken up 

into smaller systems) and the 

consequent reduction in royalty 

payments to copyright owners. See 

Compulsory License for Cable Systems, 

43 FR 958 (Jan. 5, 1978). 

The Copyright Office has, in the past, 

recognized certain practical problems 

associated with the definition when 

cable systems merge. For example, in 

1997, the Copyright Office stated that 

‘‘[s]o long as there is a subsidy in the 

rates for the smaller cable systems, there 

will be an incentive for cable systems to 

structure themselves to qualify as a 

small system.’’ See A Review of the 

Copyright Licensing Regimes Covering 

Retransmission of Broadcast Signals 

(‘‘1997 Report’’) (Aug. 1, 1997) at 45. 

The Copyright Office further stated that 

although Section 111(f) has worked well 

to avoid artificial fragmentation, ‘‘it has 

had the result of raising the royalty rates 

some cable systems pay when they 

merge. This happens because, if the two 

systems have different distant signal 


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25628 Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 

offerings, then all the signals are being 

paid for based on the total number of 

subscribers of the two systems, even if 

some of those signals are not reaching 

all the subscribers.’’ Id. at 46. The 

Copyright Office, echoing the NCTA’s 

nomenclature, called this phenomenon 

the ‘‘phantom signal’’ problem. Id. In 

the 1997 Report, the Copyright Office 

recommended to Congress, as part of a 

broader effort to reform Section 111, 

that cable statutory royalties be based on 

‘‘subscriber groups’’ that actually 

receive the signal. The Copyright Office 

also recommended that systems under 

common ownership and control be 

considered as one system only when 

they are either in contiguous 

communities or use the same headend 

(i.e., two unrelated operators sharing a 

single headend would not be treated as 

one system). Id. at 47. Believing that it 

lacked the authority to alter the 

definition of cable system as established 

in Section 111, the Copyright Office 

suggested that Congress amend the 

Copyright Act in accordance with its 

recommendations. Id at 46. 

NCTA has proposed a three part 

remedy to rectify the phantom signal 

problem as it sees it. First, it urged the 

Copyright Office to change its cable 

system regulatory definition. Second, it 

requested that the Copyright Office 

adopt a new rule permitting cable 

operators that operate a cable system 

serving multiple communities with 

varying complements of distant 

broadcast signals to use a community–

by–community approach when 

determining the royalties due from that 

system, seemingly without regard to 

whether a phantom signal problem 

exists. NCTA, in short, advocated the 

creation of ‘‘subscriber groups’’ for cable 

royalty purposes where the operator 

pays royalties only where distant signals 

are actually received by a particular 

household. Finally, NCTA urged the 

Copyright Office to announce that it 

would not challenge Statements of 

Account on which the cable operator 

has used a community–by–community 

approach for determining Section 111 

royalties. 

Specifically, NCTA proposed that 

Section 201.17(b)(2) of the Copyright 

Office’s rules be amended so that the 

last sentence reads as follows: ‘‘For 

these purposes, two or more cable 

facilities are considered as one 

individual cable system if the facilities 

are in contiguous communities, under 

common ownership or control, and 

operating from one headend.’’ Stated 

another way, under NCTA’s proposed 

rule change, cable facilities serving 

multiple communities would be treated 

as a single system for statutory license 

purposes only when three distinct 

conditions are satisfied: (1) the facilities 

are in contiguous communities; (2) the 

facilities are under common ownership 

or control; and (3) the facilities are 

operating from the same headend. The 

significant change NCTA suggests is that 

the word ‘‘or’’ be replaced by the word 

‘‘and’’ before the clause ‘‘operating from 

one headend.’’ NCTA asserted that this 

regulatory change would help resolve 

the phantom signal issue because it 

would base royalty payments on signals 

that are carried throughout the cable 

system and made available to all 

subscribers. According to NCTA, a cable 

operator would still be deterred from 

‘‘artificially fragmenting’’ its facility 

under this approach because any 

operator who attempts to do so would 

lose the operational efficiencies 

concomitant with a single headend. 

NCTA also stated that while its 

proposed definition is narrower than the 

existing definition, it would ensure that 

facilities, which were truly technically 

and managerially distinct from one 

another, would not be artificially joined 

together for purposes of the statutory 

license. In the NOI, we noted that 

NCTA’s proposed rule change raises 

significant statutory interpretation 

issues and sought comment on this 

possibility. 73 FR at 70532. 

In addition to arguing for a change in 

the Copyright Office’s cable system 

definition, NCTA also advocated the 

adoption of a new paragraph (g) in 

Section 201.17 of the Copyright Office’s 

rules. NCTA’s proposed rule 

amendment would create subscriber 

groups, based on cable communities and 

partial carriage, for the purpose of 

calculating royalties in a manner that 

would eliminate phantom signals. 

Specifically, the NCTA proposed that: 

(1) ‘‘A cable system serving multiple 

communities shall use the system’s total 

gross receipts from the basic service of 

providing secondary transmissions of 

primary broadcast transmitters to 

determine which of the Statement of 

Account forms identified in paragraph 

(d)(2) is applicable to the system;’’ and 

(2) ‘‘Where the complement of distant 

stations actually available for viewing 

by subscribers to a cable system is not 

identical in all of the communities 

served, the royalties due for the system 

may be computed on a community–by–

community basis by multiplying the 

total distant signal equivalents derived 

from signals actually available for 

viewing by subscribers in a community 

by the gross receipts from secondary 

transmissions from subscribers in that 

community.’’ NCTA adds that the total 

copyright royalty fee for a system to 

which this rule would apply must be 

equal to the larger of (1) the sum of the 

royalties computed for the system on a 

community–by–community basis or (2) 

1.013 percent of the systems’ gross 

receipts from all subscribers (which is 

the current minimum royalty fee 

payment for SA–3 systems beginning 

with the July 1–December 31, 2005, 

accounting period). We sought comment 

on the overall structure and formulation 

of NCTA’s ‘‘combined revenues/ 

community–specific royalty 

determination’’ proposal. We also 

sought comment on several examples 

comparing royalties calculated under 

the current regulatory structure and how 

they might be calculated if we were to 

adopt NCTA’s proposed rule changes. 

72 FR at 70533, 70537–40. 

In the NOI, we questioned whether 

NCTA’s proposals were limited only to 

those situations where two or more 

systems have recently merged. It 

appeared that NCTA’s expansive 

proposals likely covered any situation 

where a cable operator provides a 

different set of distant signals to 

different subscriber groups served by 

the same cable system. We noted that its 

regulatory proposal was much different 

from the matter the Copyright Office 

raised and addressed in its 1989 and 

1997 rulemaking proceedings on cable 

system mergers and acquisitions. We 

therefore sought comment on whether 

our interpretation of NCTA’s proposals 

were correct. 72 FR at 70531. 

III. Comments 

Section 111 Royalty Structure and 

Phantom Signals. NCTA admits that the 

‘‘phantom signal’’ problem is not 

confined to circumstances such as 

where System A and System B, each 

carrying a unique set of distant signals, 

merge and are not yet technically 

integrated. It notes that, in this 

situation, the Copyright Office suggests 

that the phantom signal issue is 

temporary, until the systems can 

become technically integrated. It states, 

however, the phantom signal problem 

can arise in other contexts. It notes that 

in some cases it may not be possible to 

technically integrate multiple systems 

with identical line–ups system–wide. In 

other cases, it comments that phantom 

signals can arise when cable operators 

pursue a regional strategy of clustering 

systems, or where commonly–owned 

System A and System B become 

contiguous with each other through 

system expansion. NCTA asserts that 

where there are legitimate reasons for 

maintaining separate headends, the 

rules unfairly require the operator to 

artificially ‘‘merge’’ these systems and 

inflate royalty payments. In addition to 


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1Copyright Owners are comprised of the Joint 

Sports Claimants, the Music Claimants, Program 

Suppliers, National Association of Broadcasters, 

Devotional Claimants, Public Television Claimants, 

and National Public Radio. 

technical reasons, NCTA remarks that 

channel lineups may be different 

because customers of two different 

systems may have different settled 

viewing expectations based on historical 

distant signal carriage. It states that this 

circumstance cannot be solved simply 

by adding a distant signal to a particular 

channel line–up because of the scarcity 

of available channels on a basic service 

tier. 

NCTA asserts that the Office’s 

phantom signal policy affords copyright 

owners a ‘‘bonanza based upon non–

performance of their works.’’ NCTA also 

asserts that the current ‘‘phantom signal 

policy’’ presents operators with a series 

of choices, none of them good for 

consumers or competition. It states that, 

on the one hand, application of the 

phantom signal policy may result in an 

increase in royalty payments that the 

operator either must pass through to 

subscribers (who receive nothing of 

value in return) or must absorb itself 

(reducing the resources available to 

provide other services). NCTA states, on 

the other hand, that the operator may 

simply be deterred from carrying 

stations that might trigger phantom 

signal payments, depriving consumers 

of programming that they desire. It 

concludes that neither of these results is 

good for consumers or good for 

competition. 

The American Cable Association 

(‘‘ACA’’) asserts that the phantom signal 

problem requires cable operators to pay 

for a license for the non–use of 

copyrighted works and posits that no 

theory of intellectual property rights 

supports an obligation to pay for a 

license for works not used. ACA asserts 

that the current royalty scheme requires 

a cable operator to pay more royalties 

for distant signals that are not carried 

than for distant signals actually carried. 

It provides the following example: two 

cable systems in Missouri serving 

equal–sized subscriber groups. System 

A carries only WGN, system B carries 

both WGN and KVTJ. If the owner of 

system B purchases system A, connects 

the systems with fiber optics, and 

eliminates system A’s headend, the 

nonexistent KVTJ signal broadcast to 

subscriber group A becomes a ‘‘phantom 

signal’’ and accounts for 58% of all 

royalties payable by the combined cable 

system. It argues that this is irrational 

and unfair. 

At the outset, Copyright Owners1

comment that the ‘‘phantom signal’’

problem is one of the industry’s own 

creation; that is, a cable operator 

purposefully chooses to make certain 

distant signals available to only some of 

its customers. They comment that 

NCTA’s proposals are not limited to 

situations where mergers result in the 

combined system offering phantom 

signals, but also cover any situation 

where a cable operator provides a 

different set of distant signals to 

different subscriber groups. Copyright 

Owners then assert that the formula for 

calculating Section 111 royalties 

represents a statutory compromise 

where the cable operator pays 

‘‘miniscule royalty rates’’ that are 

derived from a broad revenue base. 

Copyright Owners believe that the rates 

in the statutory formula are inequitable, 

and favor the cable operator, even when 

applied to the broad revenue base. They 

state that if the Copyright Office adopts 

NCTA’s suggestions, then merging Form 

3 systems would pay even less royalties 

after a merger. They remark that 

Congress adopted a ‘‘convenient 

revenue base,’’ not one that was 

congruent to programming actually 

received by subscribers. They request 

that the Copyright Office act 

expeditiously to reject NCTA’s proposal 

and end the controversy so that all 

participants in the Section 111 royalty 

scheme have a degree of certainty to 

move forward. 

Copyright Owners state that aside 

from the statutory minimum fee, the 

Office’s interpretation of Section 111 

does not require cable operators to pay 

for any distant signals they do not ‘‘use’’

or works they do not ‘‘perform.’’ They 

assert that cable systems pay for only 

those distant signals that they actually 

carry and therefore ‘‘use;’’ once they 

carry a station in any portion of their 

system, they engage in a public 

performance of each work broadcast by 

the station, regardless of the total 

number of subscribers who actually 

receive that work. 17 U.S.C. 101 

(definition of ‘‘to perform publicly’’). 

They add that if a cable system does not 

carry a distant signal in any portion of 

its system (and thus does not perform 

any work included in that signal), the 

system does not ascribe any DSE value 

to that signal in its Section 111 royalty 

calculation. They assert that nothing in 

the Office’s existing rules governing 

phantom signals requires payment for 

‘‘non–use’’ or affords copyright owners 

a ‘‘bonanza for non–performance,’’ as 

NCTA and ACA contend. 

Copyright Owners take issue with 

NCTA’s complaint that the law ‘‘makes 

no sense’’ because it requires payment 

of royalties for works that ‘‘are not being 

seen by the operator’s customers.’’ They 

comment that ‘‘It is more than strange’’

that the principal representative of the 

cable television industry would 

complain about requiring payments for 

programming ‘‘not being seen’’ by cable 

subscribers. Copyright Owners remark 

that the cable business model is 

premised on requiring each subscriber 

to pay for packages of programming, the 

majority of which programming is never 

‘‘seen’’ by that subscriber. In defense of 

that business model, they note that 

NCTA itself has been a vocal opponent 

of any ‘‘a la carte’’ requirement that 

would allow consumers to pay for only 

programming they want to see. See A La 

Carte – Fewer Choices, Less. Diversity, 

Higher Prices, http://www.ncta.com/ 

IssueBrief. aspx?contentId=15 (last 

visited March 25, 2008). Copyright 

Owners note that, in any event, there is 

nothing in Section 111 that restricts 

royalty payment to copyrighted works 

actually ‘‘seen’’ by cable subscribers. 

They conclude by stating that ‘‘the fact 

that NCTA’s proposals are based upon 

the notion that only programming 

actually seen should be compensated 

under Section 111 provides further 

confirmation of the impropriety of those 

proposals.’’

Program Suppliers comment that 

NCTA does not provide any real–life 

examples of where the phantom signal 

problem has had any adverse effect. 

They state that NCTA’s proposal would 

rewrite the royalty payment system for 

all cable systems, not just those with a 

supposed phantom signal problem. 

They also reply that ACA’s effort to 

eliminate the phantom signal problem is 

based on a pre–determined hypothetical 

with no real–world counterpart. 

NCTA, in reply, states that the 

Copyright Owners that have attempted 

to defend phantom signal payments do 

not, and cannot, demonstrate that there 

is anything rational about requiring a 

cable operator to pay more for the 

retransmission of a distant signal simply 

because the operator happens to serve 

subscribers in a neighboring community 

where it does not retransmit that signal. 

It states that, instead, they try to justify 

phantom signal payments based on the 

false notion that an obligation to 

compensate copyright owners for the 

fictional use of their works is somehow 

embedded in the structure of the Act 

and the Office is powerless to change it. 

Section 111(f) and the Cable System 

Definition. Copyright Owners state that 

NCTA has asked the Office to substitute 

the word ‘‘and’’ for the word ‘‘or’’

above, so that cable systems would be 

considered a single system only if they 

were in contiguous communities under 

common ownership and control, and 

operated from one headend. They argue 

that this proposal is inconsistent with 


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2Copyright Owners argue that the Copyright 

Office needs to create an audit right so that royalty 

claimants may investigate SOAs and also request 

that the Office post on its website a list of cable 

Statements of Account that do not calculate 

royalties in accordance with Office regulations. 

the canons of statutory interpretation as 

well as the legislative purpose behind 

Section 111. 

Copyright Owners note that NCTA 

claims, as justification for the rule 

change, that the existing cable system 

definition inhibits the practice of 

clustering. They point out, however, 

that the number and size of clusters 

have risen, and no cable system would 

make a decision to cluster solely based 

on its Section 111 royalty obligations. In 

any event, they remark that Congress 

intended that two merging systems 

should pay more in royalties than if 

they remained as two smaller systems. 

They state that this position is 

consistent with Section 111, which 

establishes a royalty schedule based on 

a cable operator’s ability to pay. 

Program Suppliers also note that system 

clustering has not been inhibited by 

Section 111’s definitions or its royalty 

structure. They note that the number of 

cable subscribers served by clusters has 

more than doubled from 1994 to 2003 

and the proportion of subscribers in 

clusters has risen from 34% to 81% of 

all basic cable subscribers. They further 

note, at the same time, total annual 

cable royalty fees paid fell from $161 

million to $132 million. 

NCTA recognizes that Congress’s 

purpose in enacting the cable system 

definition was to prevent artificial 

fragmentation in order to reduce royalty 

fees owed. It asserts that while the 

Office cannot change the ‘‘cable system’’

definition, it can protect against 

artificial fragmentation without 

requiring irrational fee calculations. 

NCTA comments that its proposal 

would still require operators to continue 

to combine revenues from separate–but 

commonly–owned and contiguous–

cable systems to determine their filing 

status as a Form 1, 2 or 3 system. 

Statutory Authority. Program 

Suppliers assert that the Copyright 

Office does not have the authority to 

interpret the statutory term ‘‘or’’ in the 

Section 111(f) definition of cable system 

to mean ‘‘and.’’ They comment that the 

Office must follow the explicit language 

of the statute in formulating its 

regulations. Copyright Owners add that 

Section 111 specifies only one situation 

where a cable system may ‘‘prorate’’ its 

‘‘gross receipts;’’ that is, where the 

system carries a ‘‘partially distant’’

signal. They state that NCTA is asking 

the Office to permit proration of ‘‘gross 

receipts’’ and the creation of subscriber 

groups in many additional 

circumstances. They argue that Congress 

did not give the Copyright Office the 

authority to expand the language of the 

Act in the manner proposed by the 

NCTA. In any event, Copyright Owners 

submit that the Copyright Office has 

already articulated that it has no 

authority to adopt NCTA proposals, yet, 

NCTA keeps claiming this issue is 

unresolved. 

NCTA replies that the Copyright 

Owners’ comments ignore that the 

Office has adopted a similar method of 

calculating royalties, permitting 

community–specific calculations in 

cases of partially permitted, 

partiallynon–permitted distant signal 

carriage. NCTA asserts that the Act does 

not expressly require this exception 

either, but no one is suggesting that the 

Office exceeded its authority by 

adopting a rational solution to that 

administrative problem. Rather, the 

Office has an obligation to make 

‘‘common sense’’ responses to problems 

that arise during implementation, so 

long as those responses are not 

inconsistent with congressional intent. 

Subscriber Group Proposal. NCTA 

argues that its subscriber group proposal 

does not require a statutory amendment 

to Section 111. It notes that Program 

Suppliers, at one time, supported a very 

similar method for calculating royalties. 

It comments that even though Section 

111 is silent on whether subscriber 

groups can be created, it certainly does 

not expressly mandate phantom signal 

treatment. It notes, for example, that the 

Copyright Office’s rules already 

authorize operators to create subscriber 

groups to calculate royalties for 

‘‘partially–permitted, partially non–

permitted’’ distant signals. It concludes 

that the Copyright Office is able to 

remedy the phantom signal problem 

even if the definition of ‘‘cable system’’

is not changed. 

NCTA states that calculating royalties 

based on actual carriage is entirely 

consistent with the Act’s structure. It 

argues that the requirement that 

operators pay a minimum fee, regardless 

of whether any distant signals are 

carried at all, is the one narrow 

exception to the general principle of 

paying only for what is carried. NCTA 

notes that the legislative history 

explains the minimum payment for the 

privilege of retransmitting distant 

signals served a particular purpose: ‘‘the 

purpose of this initial rate, applicable to 

all cable systems in this class, is to 

establish a basic payment, whether or 

not a particular cable system elects to 

transmit distant non–network 

programming.’’ Beyond this basic 

payment required of all operators 

retransmitting broadcast signals, NCTA 

asserts that the Act and its legislative 

history show no intent to inflate the 

amount of other payments through some 

artificial levy for non–use. 

According to Copyright Owners, 

NCTA states that the Office’s current 

regulations prohibiting the creation of 

subscriber groups are inconsistent with 

the ‘‘fundamental principle’’ that a cable 

system should be required to pay 

royalties only for ‘‘actual signal 

carriage’’ and thus ‘‘use’’ of copyrighted 

works. Copyright Owners argue that the 

Act’s legislative history does not 

support this assertion. Copyright 

Owners also suggest that NCTA’s 

proposal introduces methodological 

wrangles and monitoring expenses. 

They assert that current statement of 

account forms do not provide all the 

necessary information needed to ensure 

compliance.2 They conclude that 

adopting NCTA’s proposal would not 

only increase uncertainty and disputes, 

but upset the entire regulatory scheme 

set up by the Copyright Office. 

In Reply, Program Suppliers assert 

that NCTA’s proposed rewrite of Section 

201.17(b)(2) appears as nothing more 

than a new effort to legitimize artificial 

fragmentation designed to reduce 

royalty fees. They further assert that 

NCTA’s proposal would allow cable 

operators to choose what is a ‘‘separate’’

system on the basis of whatever makes 

sense from a business standpoint. 

Program Suppliers conclude that 

NCTA’s plan would bestow on operators 

both the motive and the means to 

fragment their systems so as to reduce 

the applicable royalty fees, exactly the 

situation that the current Section 111(f) 

definition was intended to prevent. 

They state that such a result would 

unfairly penalize copyright owners, 

allowing cable operators to contort the 

statutory license scheme to reduce for 

their benefit the already limited 

compensation copyright owners receive. 

Program Suppliers comment that 

NCTA’s contention that no statutory 

amendment is required to adopt a ‘‘not 

carried’’ subscriber group category is 

belied by its own discussion of the 

existing subscriber groups allowed by 

the current regulations: one each for a 

non–permitted distant signal, a 

permitted distant signal, or a local 

signal. Program Suppliers state that each 

of those regulations is anchored on an 

explicit statutory provision: the 

permitted, non–permitted subscriber 

groups rely on Section 801(b)(2)(B) that 

applies the 3.75% rate only to 

nonpermitted signals, while Section 

111(d)(1)(B) allows subscriber groups 

for partially distant and partially local 


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signals. They argue that there is no 

comparable statutory provision for 

NCTA’s proposed fourth designation 

‘‘not carried’’’ signals that explicitly 

allows the use of ‘‘not carried’’

subscriber groups. Program Suppliers 

conclude that because Section 111 does 

not exempt ‘‘not carried’’ distant signals 

from royalty fee payments, no valid 

basis exists on which to promulgate 

such a subscriber group methodology 

for calculating royalties. 

In Reply, NCTA notes that its 

proposal would simply require 

contiguous communities to combine 

revenues, and calculate royalties based 

on distant signals actually retransmitted 

in that community. It asserts that 

Program Suppliers and Copyright 

Owners have not provided a sufficient 

policy reason why its subscriber group 

proposal should not be adopted. 

ACA argues that if the Copyright 

Office concludes that it lacks the 

statutory authority to adopt NCTA’s 

proposal, then it should recommend 

that Congress amend Section 111 to 

clarify that a cable operator is only 

obligated to pay royalties on revenues 

derived from the actual retransmission 

of a signal to subscribers. 

NOI examples. In the NOI, we sought 

comment on several royalty scenarios, 

based on actual Statement of Account 

filings, to illustrate NCTA’s proposals in 

action. 72 FR at 70537–40. To provide 

context, we reiterate that there are two 

types of cable system SOAs currently in 

use. The SA1–2 Short Form is used for 

cable systems whose semi–annual gross 

receipts are less than $527,600.00. There 

are three levels of royalty fees for cable 

operators using the SA1–2 Short Form: 

(1) a system with gross receipts of 

$137,000 or less pays a flat fee of $52.00 

for the retransmission of all broadcast 

station signals; (2) a system with gross 

receipts greater than $137,000.00 and 

equal to or less than $263,800.00, pays 

between $52.00 to $1,319.00; and (3) a 

system grossing more than $263,800.00, 

but less than $527,600.00 pays between 

$1,319.00 to $3,957.00. Cable systems 

falling under the latter two categories 

pay royalties based upon a fixed 

percentage of gross receipts. The SA–3 

Long Form is used by larger cable 

systems grossing $527,600.00 or more 

semi–annually. We used the terms 

‘‘Form 1,’’ ‘‘Form 2,’’ and ‘‘Form 3’’ to 

describe the SOA–type systems that 

were being merged in the scenarios. We 

used the terms ‘‘System 1’’ and ‘‘System 

2’’ as the generic names of the systems 

in each of the examples; these terms do 

not reflect the type of SOA that such a 

system would file with the Copyright 

Office.’’

With regard to the royalty scenarios, 

NCTA comments that the Office 

‘‘strangely’’ focuses on the size of the 

royalty pool and ignores everything else. 

It notes that the examples in Set 1 show 

a 900% increase in royalties paid by 

System 2 users under the current 

approach, but only a 70% increase 

under its proposal. In Set 2, it notes that 

while its proposal does not result in an 

increase, there should still be no 

concern with artificial fragmentation 

because two Form 3 systems are being 

merged. In Set 3, it notes that total 

royalty payments would be the same 

post–merger as they are pre–merger 

under its proposal where the line–ups 

are the same, but under the current 

approach rates would go up 55% – from 

$41,401 to $64,447. With regard to the 

latter result, NCTA comments that 

‘‘Only an Alice in Wonderland ‘through 

the looking glass’ perspective could lead 

one to conclude that its proposal results 

in a ‘‘reduction’’ in an operator’s royalty 

payments.’’ NCTA comments that its 

proposal merely prevents the large, and 

unjustified, increases in royalty 

payments that can be produced by the 

irrational phantom signal policy. 

NCTA comments that other 

hypothetical examples are unlikely to 

occur in the real world and do not 

justify inaction on its petition. It notes, 

for example, the comment on 

application of the syndicated 

exclusivity surcharge to subscriber 

groups. It states that only seven systems 

paid syndex surcharge royalties last 

accounting period, and the amount paid 

($25,000) is de minimis when compared 

to the total semi–annual royalty 

payments of more than $70 million. 

Similarly, it notes that the Office 

suggests that there could be scenarios 

where a Form 1 system merging with a 

Form 3 system might pay less than the 

$52 minimum fee if it carries no distant 

signals and has gross revenues less than 

$5,133. It argues that concerns about 

these relatively farfetched scenarios, 

though, do not justify inaction here. 

NCTA admits that anomalous situations 

might occasionally arise if subscriber 

groups are used for calculating royalties, 

but remarks that the Office could tweak 

NCTA’s proposed regulations to address 

these issues. It emphasizes that these 

unusual situations do not provide a 

legitimate reason to avoid remedying 

this situation altogether. 

Program Suppliers state that the 

disconnect between NCTA’s claim that 

actual carriage should control the 

royalty plan and should be the basis for 

calculation of royalty payments is 

demonstrated by the hypothetical in Set 

1, Scenario 1, which NCTA mistakenly 

asserts shows a phantom signal 

problem. According to Program 

Suppliers, NCTA uses this hypothetical, 

involving merger of a Form 2 with no 

distant carriage and a Form 3 system 

with distant carriage, for the proposition 

that ‘‘the mere fact that these two 

systems are combined for filing 

purposes results in a 900 percent 

increase in copyright costs for 

subscribers to System 2 [the Form 2 

system].’’ Program Suppliers note that 

they have previously demonstrated in 

their Section 109 comments that royalty 

payment obligations of cable operators 

do not correlate to subscriber fees. See 

Program Suppliers’ Section 109 

Comments, Docket No. 2007–1, at 8–10. 

Second, They state that NCTA assumes 

the 900% increase is due solely to 

phantom signals, but the same increase 

would apply post–merger if System 2 

carried exactly the same complement of 

distant signals as System 1 pre– and 

post–merger. They assert that no 

phantom signal claim could be made 

based on that hypothetical. To the 

contrary, they argue that the 900% 

increase would occur due to the 

extremely low Form 2 flat fee, $1,931, 

postulated for pre–merger System 2. 

They state that the flat fee does not 

change even if pre–merger System 2 

carried the same signals as did System 

1. They conclude that the royalty 

payment increases contained in the Set 

1 Scenarios follow exactly the statutory 

plan intended by Congress, viz., 

royalties for Form 3 systems are 

substantially higher than the de minimis 

payments made by smaller systems. 

Copyright Owners add that the 

Copyright Office did not misapply 

NCTA’s subscriber group proposals; 

rather, the Office has applied it in the 

way some of NCTA’s members have 

done. They note that, according to 

NCTA, cable operators using the 

subscriber group proposal must 

calculate a minimum fee for each 

subscriber group with less than one DSE 

–– and then add those minimum fees to 

the royalties calculated for each 

subscriber group with one or more 

DSEs. See NCTA Comments at 12 n.31 

(stating that Copyright Office 

‘‘miscalculates’’ the royalty owed by one 

of its hypothetical cable systems 

because it ‘‘mistakenly failed to 

compute the minimum fee due from 

subscribers in Group 1’’). Copyright 

Owners assert that cable operators have 

not been following NCTA’s own 

approach; rather, they have been 

routinely ascribing a zero royalty ––

rather than the minimum fee –– to any 

subscriber group with no DSEs. 

Copyright Owners add that NCTA has 

been using fractional DSE values (rather 


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25632 Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 

3Several parties commented on phantom signals 

in response to the Section 109NOI. See, e.g., ACA 

comments at 10-13, NCTA comments at 18-19, Joint 

Sports reply comments at 11, NAB comments at 11, 

and Program Suppliers comments at 6. 

than a minimum fee) to calculate the 

royalty for any subscriber group with 

less than one, but more than zero, DSEs. 

Copyright Owners conclude that ‘‘there 

are multiple methods for implementing 

a subscriber group policy for phantom 

signals. The one trait they all share in 

common is that none is consistent with 

Section 111.’’

IV. Discussion 

We published the NOI to gather 

comments on the long–debated issue of 

phantom signals. The responses to the 

NOI have substantially aided our effort 

to understand the issues surrounding 

the cable industry’s proposals. Based on 

the record evidence, we find that NCTA 

has not adequately demonstrated that its 

proposed changes are permissible under 

Section 111. We cannot read the statute 

or its legislative history to permit the 

creation of subscriber groups as 

suggested. NCTA argues about public 

policy and the inherent unfairness of 

the current system, but it ignores the 

underlying legal construct that binds the 

Office. We believe Section 111 is clear. 

As long as a cable operator subjects 

itself to the statutory license, and 

publicly performs the non–network 

programming carried by a distant signal, 

it must pay royalties for such use no 

matter if some subscribers are unable to 

receive it. 

Further, as we have stated in the past, 

we do not believe we have the statutory 

authority to change the royalty fee 

structure in the manner suggested by the 

cable industry. While the NCTA argues 

that the Office has the authority to adopt 

its proposed rule change, it ignores our 

limited role under Section 111, which 

allows the Office to administer a 

statutory rate structure, but gives us no 

discretion to alter that scheme. The 

cable industry has long been aware of 

our perspective on this issue and our 

policy of requesting additional payment 

when a cable operator does not submit 

the appropriate amount of royalties for 

a partially carried distant signal, yet it 

has maintained that it has been an 

unresolved issue. The cable industry 

can no longer cite to any inaction on our 

part for not paying royalties that are due 

for the use of the Section 111 license. 

In any event, we believe that NCTA 

has made cogent policy arguments 

concerning the inadequacies of the 

current statute. However, Congress is 

the proper forum to address its 

concerns. In 1997, the Copyright Office 

recommended to Congress, as part of a 

broader effort to reform Section 111, 

that cable statutory royalties should be 

paid on a flat per subscriber–per system 

basis just as satellite carriers are 

required to do under Section 119 of the 

Copyright Act. See A Review of the 

Copyright Licensing Regimes Covering 

Retransmission of Broadcast Signals 

(Aug. 1, 1997) at 60. This approach 

would eliminate the phantom signal 

problem. In lieu of this proposal, and 

assuming that operators would continue 

to pay royalties based on gross receipts, 

the Office recommended that the 

Section 111 royalty fee structure be 

based on ‘‘subscriber groups’’ that 

actually receive the signal. Id. at 59. The 

Copyright Office also recommended that 

systems under common ownership and 

control be considered as one system 

only when they are either in contiguous 

communities or use the same headend 

(i.e., two unrelated operators sharing a 

single headend would not be treated as 

one system). Id. at 47. 

On this point, we note that Section 

109 of the Satellite Home Viewer 

Extension and Reauthorization Act of 

2004 (‘‘SHVERA’’) requires the Office to 

examine and compare the statutory 

licensing systems for the cable and 

satellite television industries under 

Sections 111, 119, and 122 of the 

Copyright Act and recommend any 

necessary legislative changes no later 

that June 30, 2008. In the NOI in this 

proceeding, we stated that we 

understood our responsibilities under 

SHVERA to closely examine the 

continued relevancy of Section 111 and 

its many provisions.3 We also noted that 

the matters raised by the parties on the 

phantom signals issue deserved 

consideration, sooner rather than later. 

72 FR at 70536–37. Consequently, we 

proceeded with the current rulemaking 

and, with the publication of today’s 

notice, conclude that the proposed 

regulatory changes cannot solve the 

problem. Nevertheless, we continue to 

consider the issues raised in this 

proceeding in the context of the pending 

Section 109 Report and possible 

legislative solutions. 

We are nevertheless compelled to 

resolve one issue before terminating this 

docket. In the NOI, we noted that we 

have historically accepted the 

retransmission of phantom signals at the 

permitted rate (‘‘base rate fee’’). We 

stated, however, that some cable 

operators have raised concern that the 

Office might find, at some point in the 

future, that the retransmission of a 

phantom signal should be treated as if 

it were actually carried and thus subject 

to the 3.75% fee as a non–permitted 

signal. In the absence of a clear policy 

statement on this matter, the Office has 

not stipulated payment of the 3.75% fee 

and has left the decision as to which 

rate applies to the operator’s discretion. 

72 FR at 70535. In response to questions 

raised about the 3.75% fee in the NOI, 

NCTA stated that there is no rationale 

for applying the fee simply because two 

systems merge. It stated that the 3.75% 

fee was only meant to apply to newly 

added signals carried for the first time, 

not for phantom signals. Neither 

Copyright Owners nor Program 

Suppliers commented on the 

relationship between the 3.75% fee and 

phantom signals. 

We find it is necessary to resolve the 

application of the 3.75% fee to phantom 

signals to provide closure on the matter. 

In the NOI, we noted that on one hand, 

the 3.75% fee could be applied to non–

permitted phantom signals because 

there is no specific statutory provision 

or Office regulation exempting such 

payment. We also commented that, on 

the other hand, the cable industry 

generally has, for nearly three decades, 

reported and paid royalties under the 

assumption that the 3.75% fee would 

not be applied to non–permitted 

phantom signals. Further, our review of 

the Statements of Account indicate that 

most cable systems have paid either the 

Base Rate Fee or no fee for phantom 

signals while very few cable systems 

have paid the 3.75% fee for these 

signals. In the NOI, we sought comment 

on the appropriate policy in this 

context. 

We believe that cable operators, under 

the law, do not have to pay the 3.75% 

fee for the retransmission of distant 

broadcast signals that a subset of the 

subscriber population served by a cable 

system is unable to receive. Under 

Section 801 of the Copyright Act, the 

3.75% fee royalty adjustment was 

intended to address carriage by cable 

systems of additional television 

broadcast signals beyond the local 

service area of the primary transmitters 

of such signals. 17 U.S.C. 801(b)(2)(B). 

The United States Court of Appeals for 

the District of Columbia Circuit 

explained that the 3.75% fee was to 

apply only to ‘‘newly added signals, i.e., 

those carried for the first time after the 

change in the FCC’s distant signal 

rules.’’ See National Cable Television 

Association, Inc. v. Copyright Royalty 

Tribunal, 724 F.2d 176, 180 (D.C. Cir. 

1983). Based upon the language of the 

statute and relevant legal precedent, it is 

reasonable to conclude that the 3.75% 

fee is intended to only apply to ‘‘newly’’

carried distant broadcast signals and not 

to other situations such as those where 

signals are not available on a system–

wide basis. As NCTA argues, 

‘‘[i]mposing the 3.75% rate on a signal 


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Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 25633 

not carried in a particular community 

would be completely unmoored from 

any justification for the penalty rate in 

the first place.’’ NCTA comments at 14. 

In any event, we note that if two cable 

systems merge, and the operator then 

carries a non–permitted distant signal 

above its market quota, under the 

analysis stated herein, this ‘‘newly 

added’’ signal would be subject to the 

3.75% fee. 

V. Conclusion 

Based on the preceding, we hereby 

terminate this proceeding. The Office 

will not consider the issues raised by 

NCTA in any further proceeding unless 

Congress so requires by statute. This 

constitutes a final action by the 

Copyright Office. 

Dated: May 2, 2008. 

Marybeth Peters, 

Register of Copyrights. 

[FR Doc. E8–10088 Filed 5–6–08; 8:45 am] 

BILLING CODE 1410–30–S 

DEPARTMENT OF HOMELAND 

SECURITY 

Federal Emergency Management 

Agency 

44 CFR Part 67 

[Docket No. FEMA–B–7778] 

Proposed Flood Elevation 

Determinations 

AGENCY: Federal Emergency 

Management Agency, DHS. 

ACTION: Proposed rule. 

SUMMARY: Comments are requested on 

the proposed Base (1 percent annualchance) Flood Elevations (BFEs) and 

proposed BFE modifications for the 

communities listed in the table below. 

The purpose of this notice is to seek 

general information and comment 

regarding the proposed regulatory flood 

elevations for the reach described by the 

downstream and upstream locations in 

the table below. The BFEs and modified 

BFEs are a part of the floodplain 

management measures that the 

community is required either to adopt 

or show evidence of having in effect in 

order to qualify or remain qualified for 

participation in the National Flood 

Insurance Program (NFIP). In addition, 

these elevations, once finalized, will be 

used by insurance agents, and others to 

calculate appropriate flood insurance 

premium rates for new buildings and 

the contents in those buildings. 

DATES: Comments are to be submitted 

on or before August 5, 2008. 

ADDRESSES: The corresponding 

preliminary Flood Insurance Rate Map 

(FIRM) for the proposed BFEs for each 

community are available for inspection 

at the community’s map repository. The 

respective addresses are listed in the 

table below. 

You may submit comments, identified 

by Docket No. FEMA–B–7778, to 

William R. Blanton, Jr., Chief, 

Engineering Management Branch, 

Mitigation Directorate, Federal 

Emergency Management Agency, 500 C 

Street, SW., Washington, DC 20472, 

(202) 646–3151, or (e-mail) 

bill.blanton@dhs.gov. 

FOR FURTHER INFORMATION CONTACT: 

William R. Blanton, Jr., Chief, 

Engineering Management Branch, 

Mitigation Directorate, Federal 

Emergency Management Agency, 500 C 

Street, SW., Washington, DC 20472, 

(202) 646–3151 or.(e-mail) 

bill.blanton@dhs.gov. 

SUPPLEMENTARY INFORMATION: The 

Federal Emergency Management Agency 

(FEMA) proposes to make 

determinations of BFEs and modified 

BFEs for each community listed below, 

in accordance with section 110 of the 

Flood Disaster Protection Act of 1973, 

42 U.S.C. 4104, and 44 CFR 67.4(a). 

These proposed BFEs and modified 

BFEs, together with the floodplain 

management criteria required by 44 CFR 

60.3, are the minimum that are required. 

They should not be construed to mean 

that the community must change any 

existing ordinances that are more 

stringent in their floodplain 

management requirements. The 

community may at any time enact 

stricter requirements of its own, or 

pursuant to policies established by other 

Federal, State, or regional entities. 

These proposed elevations are used to 

meet the floodplain management 

requirements of the NFIP and are also 

used to calculate the appropriate flood 

insurance premium rates for new 

buildings built after these elevations are 

made final, and for the contents in these 

buildings. 

Comments on any aspect of the Flood 

Insurance Study and FIRM, other than 

the proposed BFEs, will be considered. 

A letter acknowledging receipt of any 

comments will not be sent. 

Administrative Procedure Act 

Statement. This matter is not a 

rulemaking governed by the 

Administrative Procedure Act (APA), 5 

U.S.C. 553. FEMA publishes flood 

elevation determinations for notice and 

comment; however, they are governed 

by the Flood Disaster Protection Act of 

1973, 42 U.S.C. 4105, and the National 

Flood Insurance Act of 1968, 42 U.S.C. 

4001 et seq., and do not fall under the 

APA. 

National Environmental Policy Act. 

This proposed rule is categorically 

excluded from the requirements of 44 

CFR part 10, Environmental 

Consideration. An environmental 

impact assessment has not been 

prepared. 

Regulatory Flexibility Act. As flood 

elevation determinations are not within 

the scope of the Regulatory Flexibility 

Act, 5 U.S.C. 601–612, a regulatory 

flexibility analysis is not required. 

Executive Order 12866, Regulatory 

Planning and Review. This proposed 

rule is not a significant regulatory action 

under the criteria of section 3(f) of 

Executive Order 12866, as amended. 

Executive Order 13132, Federalism. 

This proposed rule involves no policies 

that have federalism implications under 

Executive Order 13132. 

Executive Order 12988, Civil Justice 

Reform. This proposed rule meets the 

applicable standards of Executive Order 

12988. 

List of Subjects in 44 CFR Part 67 

Administrative practice and 

procedure, Flood insurance, Reporting 

and recordkeeping requirements. 

Accordingly, 44 CFR part 67 is 

proposed to be amended as follows: 

PART 67—[AMENDED] 

1. The authority citation for part 67 

continues to read as follows: 

Authority: 42 U.S.C. 4001 et seq.; 

Reorganization Plan No. 3 of 1978, 3 CFR, 

1978 Comp., p. 329; E.O. 12127, 44 FR 19367, 

3 CFR, 1979 Comp., p. 376. 

§ 67.4 [Amended] 

2. The tables published under the 

authority of § 67.4 are proposed to be 

amended as follows: 


rwilkins on PROD1PC63 with PROPOSALS