55742 Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Rules and Regulations

by adding that the Office will process

requests granted expedited processing

status ‘‘as soon as is practicable.’’

EFOIA sec. 8(a) (codified as 5 U.S.C.

552(a)(6)(E)(iii)).

E. Electronic Reading Room

The FOIA requires agencies to make

available for inspection and copying

statements of policy and interpretations

not published in the Federal Register,

and administrative staff manuals and

instructions to staff that affect the

public. 5 U.S.C. 552(a)(2). The Office

maintains these materials in paper form

in its Public Information Office. See 37

CFR 203.4. The EFOIA requires agencies

to make available by ‘‘computer

telecommunications or * * * by other

electronic means’’ all reading room

materials that are created on or after

October 1, 1996. EFOIA sec. 4 (codified

at 5 U.S.C. 552(a)(2). The statute

envisions that agencies will develop

both a traditional reading room and an

electronic reading room. The Office

proposes an interim regulation stating

which materials are available on-line or

in an accessible electronic format.

List of Subjects in 37 CFR Part 203

Freedom of Information Act, Policies

and procedures.

Interim Regulations

In consideration of the foregoing, the

Copyright Office is amending part 203

of 37 CFR, chapter II, in the manner set

forth below:

PART 203—FREEDOM OF

INFORMATION ACT: POLICIES AND

PROCEDURES

1. The authority citation for part 203

is amended to read as follows:

Authority: 17 U.S.C. 702; and 5 U.S.C. 552,

as amended.

2. Section 203.3 is amended by

revising paragraph (i) to read as follows:

§ 203.3 Organization.

* * * * *

(i) The Copyright Office maintains an

‘‘electronic reading room’’ by making

available certain documents and records

on its World Wide Web page and by

providing access to documents that

affect the public in electronic format

pursuant to 5 USC 552(a)(2). Copyright

Office records in machine-readable form

cataloged from January 1, 1978, to the

present, including registration

information and recorded documents,

are available on the Internet. Frequently

requested Copyright Office circulars,

announcements, and recently proposed

as well as final regulations are available

on-line. The address for the Copyright

Office’s home page is: http://

www.loc.gov/copyright; information

may also be accessed by connecting to

the Library of Congress’ home page on

the World Wide Web. The address is:

http://www.loc.gov. Other Copyright

Office documents may be provided on

disk when so requested.

3. Section 203.4 is amended by

revising paragraph (f) and adding a new

paragraph (i) to read as follows:

§ 203.4 Methods of operation.

* * * * *

(f) The Office will respond to all

properly marked mailed requests and all

personally delivered written requests for

records within twenty (20) working days

of receipt by the Supervisory Copyright

Information Specialist. Inquiries should

be mailed to: Copyright Office, GC/I&R,

P.O. Box 70400 Southwest Station,

Washington, D.C. 20024. If hand

delivered, materials should go to:

Copyright Public Information Office, LM

401, James Madison Memorial Building,

Library of Congress, 101 Independence

Avenue, S.E., Washington, D.C. Office

hours are from 8:30 a.m. to 5:00 p.m.,

Monday through Friday, excluding

holidays. If it is determined that an

extension of time greater than ten (10)

working days is necessary to respond to

a request due to unusual circumstances,

as defined in paragraph (i) of this

section, the Supervisory Copyright

Information Specialist shall so notify

the requester and give the requester the

opportunity to:

(1) Limit the scope of the request so

that it may be processed within twenty

(20) working days, or

(2) Arrange with the Office an

alternative time frame for processing the

request or a modified request. If a

request is denied, the written

notification will include the basis for

the denial, names of all individuals who

participated in the determination, and

procedures available to appeal the

determination.

* * * * *

(i) The Supervisory Copyright

Information Specialist will consider

requests for expedited processing of

requests in cases where the requester

demonstrates a compelling need for

such processing. The term ‘‘compelling

need’’ means:

(1) That a failure to obtain requested

records on an expedited basis could

reasonably be expected to pose an

imminent threat to the life or physical

safety of an individual; or

(2) With respect to a request made by

a person primarily engaged in

disseminating information, urgency to

inform the public concerning actual or

alleged Federal Government activity.

Requesters for expedited processing

must include in their requests a

statement setting forth the basis for the

claim that a ‘‘compelling need’’ exists

for the requested information, certified

by the requester to be true and correct

to the best of his or her knowledge and

belief. The Office will determine

whether to grant a request for expedited

processing and will notify the requester

of such determination within ten (10)

days of receipt of the request. If a

request for expedited processing is

approved, documents responsive to the

request will be processed as soon as is

practicable. Denials of requests for

expedited processing may be appealed

to the Office of the General Counsel,

who will expeditiously determine any

such appeal.

§ 203.6 [Amended]

5. Section 203.6(b)(6) is amended by

revising the parenthetical at the end of

the sentence to read ‘‘(at no less than

$20.00 per hour or fraction thereof).’’

Dated: October 21, 1997.

Marybeth Peters,

Register of Copyrights.

[FR Doc. 97–28418 Filed 10–27–97; 8:45 am]

BILLING CODE 1410–30–P

LIBRARY OF CONGRESS

Copyright Office

37 CFR Part 258

[Docket No. 96–3 CARP SRA]

Rate Adjustment for the Satellite

Carrier Compulsory License

AGENCY: Copyright Office, Library of

Congress.

ACTION: Final rule and order.

SUMMARY: The Librarian of Congress,

upon recommendation of the Register of

Copyrights, is announcing the

adjustment of the royalty rates for

superstation and network signals under

the satellite carrier compulsory license,

17 U.S.C. 119.

EFFECTIVE DATE: January 1, 1998.

ADDRESSES: The full text of the CARP’s

report to the Librarian of Congress is

available for inspection and copying

during normal business hours in the

Office of the General Counsel, James

Madison Memorial Building, Room LM–

403, First and Independence Avenue,

S.E., Washington, D.C. 20540.

FOR FURTHER INFORMATION CONTACT:

David O. Carson, General Counsel,

William J. Roberts, Jr., Senior Attorney

for Compulsory Licenses, or Tanya M.

Sandros, Attorney Advisor, P.O. Box
Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Rules and Regulations 55743

1This is the definition of a network signal after

the 1994 amendments to section 119. The earlier

definition was the same one appearing in section

111 of the Copyright Act. 2No such voluntary agreements were reached.

70977, Southwest Station, Washington,

D.C. 20024. Telephone (202) 707–8380.

SUPPLEMENTARY INFORMATION:

Recommendation of the Register of

Copyrights

I. Background

Congress passed the Satellite Home

Viewer Act of 1988 to create a

compulsory copyright license, codified

at section 119 of the Copyright Act, for

the retransmission of over-the-air

television broadcast signals. 17 U.S.C.

119. Similar in many ways to the cable

compulsory license enacted by Congress

in 1976, the satellite carrier compulsory

license permits satellite carriers to

retransmit TV signals to their

subscribers upon semiannual

submission of royalty fees and

statements of account to the Copyright

Office. The royalty fees collected by the

Copyright Office are deposited with the

United States Treasury for subsequent

distribution to copyright owners of

programming retransmitted by the

satellite carriers.

Section 119 identifies two types of

television broadcast signals that are

subject to compulsory licensing:

superstations and network signals. A

superstation is the signal of any

commercial independent television

station licensed by the Federal

Communications Commission.

Examples of superstations retransmitted

by satellite carriers under section 119

are WTBS, Atlanta and WGN, Chicago.

A network station is defined as follows:

(A) A television broadcast station,

including any translator station or terrestrial

satellite station that rebroadcasts all or

substantially all of the programming

broadcast by a network station, that is owned

or operated by, or affiliated with, one or more

of the television networks in the United

States which offer an interconnected program

service on a regular basis for 15 or more

hours per week to at least 25 of its affiliated

television licensees in 10 or more States; or

(B) A noncommercial educational

broadcast station (as defined in section 397

of the Communications Act of 1934). 1

17 U.S.C. 119(d)(2). Examples of

network signals carried by satellite

carriers are ABC, CBS, and NBC. A

station of the Public Broadcasting

Service (PBS) would also be considered

a network signal under the statute.

Under the section 119 license,

satellite carriers can retransmit any

superstation they choose to any

subscriber located anywhere in the

United States. However, such is not the

case with the retransmission of network

signals. Satellite carriers may only make

use of the license to retransmit a

network signal to a subscriber who

resides in an ‘‘unserved household.’’ An

‘‘unserved household’’ is defined as a

household that:

(A) Cannot receive through the use of a

conventional outdoor rooftop receiving

antenna, an over-the-air signal of grade B

intensity (as defined by the Federal

Communications Commission) of a primary

network station affiliated with that network,

and

(B) Has not, within 90 days before the date

on which that household subscribes, either

initially or on renewal, to receive secondary

transmissions by a satellite carrier of a

network station affiliated with that network,

subscribed to a cable system that provides

the signal of a primary network station

affiliated with that network.

17 U.S.C. 119(d)(10). Service of network

signals to subscribers who do not reside

in unserved households is an act of

copyright infringement, subject to the

remedies of chapter 5 of the Copyright

Act, unless the carrier is able to

negotiate a private agreement with

copyright owners to license all the

copyrighted works on those network

signals.

In creating the section 119 license in

1988, Congress established different

royalty rates for superstation and

network signals, based upon

approximations of what cable paid for

such signals under the section 111 cable

compulsory license. 17 U.S.C. 111. The

original rate for a superstation was 12

cents per subscriber per month. The

original rate for a network was 3 cents

per subscriber per month. Congress,

however, authorized a rate adjustment

procedure to change these rates in 1992.

II. The 1992 Rate Adjustment

At the time of passage of section 119,

the Copyright Royalty Tribunal was still

in existence. However, rather than

invest the Tribunal with authority to

adjust the section 119 rates, as was the

case for all other compulsory licenses in

the Copyright Act, Congress instead

gave the task to an ad hoc arbitration

panel assembled solely for that purpose.

The Tribunal was given authority to

review the decision of the arbitration

panel, as is the Librarian in this

proceeding, but under a different

standard of review.

Congress also established a number of

factors for the arbitration panel to

consider in reaching its determination.

The statute provided:

In determining royalty fees under this

paragraph, the Arbitration Panel shall

consider the approximate average cost to a

cable system for the right to secondarily

transmit to the public a primary transmission

made by a broadcast station, the fee

established under any voluntary agreement

filed with the Copyright Office in accordance

with paragraph (2),2 and the last fee proposed

by the parties, before proceedings under this

paragraph, for the secondary transmission of

superstations or network stations for private

home viewing. The fee shall also be

calculated to achieve the following

objectives:

(i) To maximize the availability of creative

works to the public.

(ii) To afford the copyright owner a fair

return for his or her creative work and the

copyright user a fair income under existing

economic conditions.

(iii) To reflect the relative roles of the

copyright owner and the copyright user in

the product made available to the public with

respect to relative creative contribution,

technological contribution, capital

investment, cost, risk, and contribution to the

opening of new markets for creative

expression and media for their

communication.

(iv) To minimize any disruptive impact on

the structure of the industries involved and

on generally prevailing industry practices.

17 U.S.C. 119(c)(3)(B) (1988).

The arbitration panel was given 60

days to reach its determination; it

delivered its report to the Copyright

Royalty Tribunal on March 2, 1992. The

panel recommended that the royalty fee

for network signals be raised from 3

cents to 6 cents per subscriber. 57 FR

19061 (May 1, 1992). For superstations,

the panel recommended a two-tiered

rate structure. The panel was impressed

with Congress’ consideration of the

application of syndicated exclusivity

protection on the satellite industry.

With respect to cable retransmissions of

broadcast signals, broadcasters may

purchase exclusive rights to broadcast

programming within their local market,

and any cable operator importing the

same programming into the

broadcaster’s local market is required to

black it out. Congress directed the FCC

in 1988 to consider adopting syndicated

exclusivity rules for the satellite

industry, but the Commission ultimately

determined that it was not technically

feasible for satellite carriers to black-out

programming. See 6 FCC Rcd. 725

(1991). To make up for this

technological deficiency, the panel

imposed a higher royalty rate to

compensate for the loss of exclusivity

protection.

For superstations, if they had been

retransmitted by a cable system rather

than a satellite carrier and would have

been subject to the FCC’s syndicated

exclusivity rules, the panel adopted a

rate of 17.5 cents per subscriber per

month. 57 FR at 19061 (1992). For
55744 Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Rules and Regulations

3The voluntary negotiation period proved

unsuccessful as no agreements were reached.

signals that would not have been subject

to the syndicated exclusivity rules for

cable (known as ‘‘syndex proof’’

signals), the panel adopted a rate of 14

cents per subscriber per month. id.

The Copyright Royalty Tribunal,

reviewing the panel’s decision only

under a contrary to law standard,

adopted the rates recommended by the

arbitration panel. 57 FR 19052 (1992).

The Tribunal did, however, substitute a

new effective date for the rates, because

it determined that the panel misapplied

the statute. Id. at 19053 (rates effective

on date of issuance of Tribunal’s order,

May 1, 1992, not January 1, 1993 date

recommended by panel). No appeal of

the Tribunal’s order was taken.

III. Satellite Home Viewer Act of 1994

The rates adopted by the Tribunal in

1992 were to last only until the end of

1994, when the section 119 license was

slated to expire. However, in 1994,

Congress passed the Satellite Home

Viewer Act of 1994, which extended the

section 119 license another 5 years. In

reauthorizing the license, Congress

made several changes to its provisions.

Another rate adjustment—this

proceeding—was scheduled to take

place, and the duty of conducting the

proceeding was given to a copyright

arbitration royalty panel (CARP), with

review by the Librarian of Congress.

The most significant change to section

119 made by the 1994 amendments, for

purposes of this proceeding, was a

change in the factors to be applied by

the CARP to determine the new royalty

rates. Rather than focus on the price

paid by the cable industry for similar

retransmissions, Congress required that

the royalty fees for superstations and

network signals represent the fair

market value. 17 U.S.C. 119(c)(3)(D)

(1994).

Although Congress intended to

replace the statutory criteria for

adjusting the royalty rates from the 1988

Act with the new ‘‘fair market value’’

standard, a scrivener’s error was made

in the 1994 Act. The result was that the

original provisions of section

119(c)(3)(B) remained, and the new

provisions inadvertently replaced the

subparagraph determining those parties

subject to pay the section 119 royalty

fees. Certain copyright owners to this

proceeding requested clarification of the

statute, and the Library issued an order

prior to commencement of the CARP

instructing the CARP to apply only the

new fair market value provisions, and to

disregard the old criteria of section

119(c)(3)(B). Order in Docket No. 96–3

CARP SRA (January 6, 1997).

The royalty rates adopted in the 1992

rate adjustment were incorporated into

the 1994 Act, subject to adjustment in

this proceeding. The rates adopted in

this Order shall remain effective until

December 31, 1999, the current date for

the section 119 compulsory license.

IV. This Proceeding

Pursuant to section 119(c)(2), the

Librarian of Congress initiated this

proceeding with publication of a

Federal Register notice on June 11,

1996, establishing a voluntary

negotiation period and a precontroversy

discovery schedule.3 61 FR 29573 (June

11, 1996). The schedule was vacated on

September 19, 1996, at the request of

certain copyright owner parties, Order

in Docket No. 96–3 CARP SRA

(September 19, 1996), and rescheduled

on October 29, 1996. Order in Docket

No. 96–3 CARP SRA (October 29, 1996).

The CARP was convened on March 3,

1997.

The following parties submitted

written direct cases to the CARP: (1)

Joint Sports Claimants (‘‘JSC’’),

representing national sports associations

including Major League Baseball, the

National Basketball Association, the

National Hockey League, and the

National Collegiate Athletic

Association; (2) the Public Broadcasting

Service (‘‘PBS’’); (3) the Commercial

Network Claimants (‘‘Commercial

Networks’’), representing the National

Broadcasting Co., Inc., Capital Cities/

ABC, Inc. and CBS, Inc.; (4) the

Broadcaster Claimants Group

(‘‘Broadcaster Claimants Group’’),

representing certain commercial

television stations whose signals are

retransmitted by satellite carriers; (5) the

Program Supplier Claimants (‘‘Program

Suppliers’’), representing various

copyright owners of motion pictures,

television series and specials; (6) the

Music Claimants (‘‘Music Claimants’’),

representing the American Society of

Composers, Authors and Publishers,

Broadcast Music, Inc., and SESAC, Inc.;

(7) the Devotional Claimants

(‘‘Devotional Claimants’’), representing

various copyright owners of religious

programming; (8) the Satellite

Broadcasting & Communications

Association (‘‘SBCA’’), representing

AlphaStar Television, Inc., BosCom,

Inc., Consumer Satellite Systems,

DirecTV, Inc., EchoStar

Communications Corp., Netlink USA,

PrimeStar Partners L.P., Prime Time 24

Joint Venture, Southern Satellite

Systems, Inc., and Superstar Satellite

Entertainment; and (9) American Sky

Broadcasting L.L.C. (‘‘ASkyB’’).

The CARP held oral hearings on the

written cases and evidence, and oral

argument on the proposed findings of

fact and conclusions of law. The CARP

submitted its report to the Librarian on

August 29, 1997.

The CARP concluded that rates for

both networks signals and superstations

should be adjusted upwards to 27 cents

per subscriber per month. In addition,

the Panel determined that no royalty fee

should be paid for the retransmission of

superstations within the superstations’

local markets, and that it had no

authority to set a royalty rate for

retransmissions of network signals

within their local markets. The Panel

recommended July 1, 1997, as the

effective date for the new rates.

Section 802(f) of the Copyright Act

provides that [w]ithin 60 days after

receiving the report of a copyright

arbitration royalty panel * * *, the

Librarian of Congress, upon the

recommendation of the Register of

Copyrights shall adopt or reject the

determination of the panel.’’ 17 U.S.C.

802(f). Today’s order of the Librarian

fulfills this statutory obligation.

V. The Librarian’s Scope of Review

The Librarian of Congress has, in

previous proceedings, discussed his

narrow scope of review of CARP

determinations. See 52 FR 6558

(February 12, 1997) (DART distribution

order); 61 FR 55653 (October 26, 1996)

(cable distribution order). The salient

points regarding the scope of review,

however, merit repeating.

The Copyright Royalty Tribunal

Reform Act of 1993 created a unique

system of review of a CARP’s

determination. Typically, an arbitrator’s

decision is not reviewable, but the

Reform Act created two layers of review:

the Librarian and the Court of Appeals

for the District of Columbia Circuit.

Section 802(f) directs the Librarian to

either accept the decision of the CARP

or reject it. If the Librarian rejects it, he

must substitute his own determination

‘‘after full examination of the record

created in the arbitration proceeding.’’

Id. If the Librarian accepts it, then the

determination of the CARP has become

the determination of the Librarian. In

either case, through issuance of the

Librarian’s Order, it is his decision that

will be subject to review by the Court

of Appeals.

Section 802(f) of the Copyright Act

directs that the Librarian shall adopt the

report of the CARP ‘‘unless the Librarian

finds that the determination is arbitrary

or contrary to the provisions of this

title.’’ Neither the Reform Act nor its

legislative history indicates what is

meant specifically by ‘‘arbitrary,’’ but
Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Rules and Regulations 55745

there is no reason to conclude that the

use of the term is any different than the

‘‘arbitrary’’ standard described in the

Administrative Procedure Act (APA), 5

U.S.C. 706(2)(A).

Review of the caselaw applying the

APA ‘‘arbitrary’’ standard reveals six

factors or circumstances under which a

court is likely to find that an agency

acted arbitrarily. An agency is generally

considered to be arbitrary when it:

(1) Relies on factors that Congress did

not intend it to consider;

(2) Fails to consider entirely an

important aspect of the problem that it

was solving;

(3) Offers an explanation for its

decision that runs counter to the

evidence presented before it;

(4) Issues a decision that is so

implausible that it cannot be explained

as a product of agency expertise or a

difference of viewpoint;

(5) Fails to examine the data and

articulate a satisfactory explanation for

its action including a rational

connection between the facts found and

the choice made; and

(6) When the agency’s action entails

the unexplained discrimination or

disparate treatment of similarly situated

parties.

Motor Vehicle Manufacturers Ass’n v.

State Farm Mutual Insurance Co., 463

U.S. 29 (1983); Celcom Comm. Corp. v.

FCC, 789 F.2d 67 (D.C. Cir. 1986);

Airmark Corp v. FAA, 758 F2d 685 (D.C.

Cir. 1985).

Given these guidelines for

determining when a determination is

‘‘arbitrary,’’ prior decisions of the courts

reviewing the determinations of the

former Copyright Royalty Tribunal have

been consulted. The decisions of the

Tribunal were reviewed under the

‘‘arbitrary and capricious’’ standard of 5

U.S.C. 706(2)(A) which, as noted above,

appears to be applicable to the

Librarian’s review of the CARP’s

decision.

Review of judicial decisions regarding

Tribunal actions reveals a consistent

theme: provided that the Tribunal

adequately articulated the reasons for its

decision, specific determinations were

granted a relatively wide ‘‘zone of

reasonableness.’’ See National Ass’n of

Broadcasters v. CRT, 772 F.2d 922 (D.C.

Cir. 1985); Christian Broadcasting

Network v. CRT, 720 F.2d 1295 (D.C.

Cir. 1983); National Cable Television

Ass’n v. CRT, 689 F.2d 1077 (D.C. Cir.

1982); Recording Industry Ass’n of

America v. CRT, 662 F.2d 1 (D.C. Cir.

1981). As one panel of the D.C. Circuit

succinctly noted:

To the extent that the statutory objectives

determine a range of reasonable royalty rates

that would serve all these objectives

adequately but to differing degrees, the

Tribunal is free to choose among those rates,

and courts are without authority to set aside

the particular rate chosen by the Tribunal if

it lies within a ‘‘zone of reasonableness.’’

Recording Industry Ass’n of America v.

CRT, 662 F.2d 1, 9 (D.C. Cir. 1981).

Because the Librarian is reviewing the

CARP decision under the same

‘‘arbitrary’’ standard used by the courts

to review the Tribunal, he must be

presented with a detailed rational

analysis of the CARP’s decision, setting

forth specific findings of fact and

conclusions of law. This requirement of

every CARP report is confirmed by the

legislative history to the Reform Act

which notes that a ‘‘clear report setting

forth the panel’s reasoning and findings

will greatly assist the Librarian of

Congress.’’ H.R. Rep. No. 103–286, 103

Cong., 1st Sess. 13 (1993). Thus, to

engage in reasoned decisionmaking, the

CARP must ‘‘weigh all the relevant

considerations and * * * set out its

conclusions in a form that permits [a

determination of] whether it has

exercised its responsibilities lawfully.’’

National Cable Television Ass’n v. CRT,

689 F.2d 1077, 1091 (D.C. Cir. 1982).

This goal cannot be reached by

‘‘attempt[ing] to distinguished

apparently inconsistent awards with

simple, undifferentiated allusions to a

10,000 page record.’’ Christian

Broadcasting Network, Inc. v. CRT, 720

F.2d 1295, 1319 (D.C. Cir. 1983).

It is the task of the Register to review

the report and make her

recommendation to the Librarian as to

whether it is arbitrary or contrary to the

provisions of the Copyright Act and, if

so, whether, and in what manner, the

Librarian should substitute his own

determination.

VI. Review of the CARP Report

Section 251.55(a) of the rules provides

that ‘‘[a]ny party to the proceeding may

file with the Librarian of Congress a

petition to modify or set aside the

determination of a Copyright Arbitration

Royalty Panel within 14 days of the

Librarian’s receipt of the panel’s report

of its determination. 37 CFR 251.55(a).

Replies to petitions to modify are due 14

days after the filing of the petitions. 37

CFR 251.55(b).

The following parties filed petitions

to modify: SBCA, EchoStar

Communications Corp. (‘‘EchoStar’’),

and commercial Networks. Replies were

filed by JSC, Broadcaster Claimants

Group, PBS, Program Suppliers,

Commercial Networks, Music Claimants

and Devotional Claimants (collectively,

‘‘Copyright Owners’’), PBS, JSC and

Broadcaster Claimants Group

(collective, ‘‘Certain Copyright

Owners’’), and EchoStar.

Satellite carriers oppose the decision

of the CARP, while copyright owners

are generally supportive of it. SBCA

offers numerous reasons why, in its

view, the Panel’s decision is arbitrary

and contrary to law. EchoStar confines

its comments to the Panel’s decision not

to establish a royalty rate for the local

retransmission of network signals by

satellite carriers, and Commercial

Networks request a ‘‘clarification’’ of the

Panel’s ruling in order to construe it to

mean that the 27 cent fee for network

signals applies to any local

retransmission of network stations to

subscribers in unserved households.

Certain Copyright Owners challenge

EchoStar’s standing to file a § 251.55

petition to modify in this proceeding.

Section 251.55 of the rules assists the

Register of Copyrights in making her

recommendation to the Librarian, and

the Librarian in conducting his review

of the CARP’s decision by allowing the

parties to the proceeding to raise

specific objections to a CARP’s

determination. As required by section

802(f) of the Copyright Act, if the

Librarian determines that the Panel in

this proceeding has acted arbitrarily or

contrary to the provisions of the

Copyright Act, he must ‘‘after full

examination of the record created in the

arbitration proceeding, issue an order

setting the royalty fee * * *.’’ 17 U.S.C.

802(f).

VII. Review and Recommendation of

the Register

As discussed above, the parties to this

proceeding submitted petitions to the

Librarian to modify the Panel’s

determination based on their assertions

that the Panel acted arbitrarily or

contrary to the applicable provisions of

the Copyright Act. These petitions have

assisted the Register in identifying what

evidence and issues in this large

proceeding, in the eyes of the

petitioners, are areas where the Panel

may have acted improperly, thereby

requiring the Librarian to substitute his

own determination. The law gives the

Register the responsibility to make

recommendations to the Librarian

regarding the Panel’s determination, 17

U.S.C. 802(f), and in so doing she must

conduct a thorough review.

After reviewing the Panel’s report and

the record in this proceeding, the

Register has determined that there are 6

primary aspects of the Panel’s decision

that warrant detailed discussion and

analysis:

(1) Whether the Panel correctly interpreted

and applied the statutory standard for

determining royalty fees;
55746 Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Rules and Regulations

4As discussed above, section 119(c)(3)(D) is the

appropriate statutory provision governing the

adjustment of royalty rates. Section 119(c)(3)(B),

which also prescribes royalty adjustment factors,

was inadvertently left in the statute after the 1994

amendments.

(2) Whether the Panel acted arbitrarily in

adopting the license fees paid by cable

networks as the benchmark for determining

section 119 fees;

(3) Whether the Panel should have made

certain adjustments in the benchmark rates it

adopted;

(4) Whether it was permissible for the

Panel to adopt the same rate for superstations

and network signals;

(5) Whether the Panel correctly declined to

adopt a royalty rate for local retransmission

of network signals by satellite carriers; and

(6) Whether the Panel supplied the

appropriate effective date for the newly

established royalty fees.

SBCA has made additional arguments

in its petition to modify as to why the

Panel’s decision should be set aside.

These arguments, which primarily

involve evaluation of the evidence and

allege deficiencies in the discovery rules

for CARP proceedings, are addressed at

the end of this section.

A. Determination of Fair Market Value

1. Action of the Panel

A fundamental dispute between

satellite carriers and copyright owners

in this proceeding is the meaning of the

term ‘‘fair market value’’ as used in

section 119(c)(3)(D) of the Copyright

Act. That section provides: 4

In determining royalty fees under this

paragraph, the Copyright Arbitration Panel

shall establish fees for the retransmission of

network stations and superstations that most

clearly represent the fair market value of

secondary transmissions. In determining the

fair market value, the Panel shall base its

decision on economic, competitive, and

programming information presented by the

parties, including—

(i) The competitive environment in which

such programming is distributed, the cost for

similar signals in similar private and

compulsory license marketplaces, and any

special features and conditions of the

retransmission marketplace;

(ii) The economic impact of such fees on

copyright owners and satellite carriers; and

(iii) The impact on the continued

availability of secondary transmissions to the

public.

17 U.S.C. 119(c)(3)(D).

The Panel examined this provision,

and the legislative history, and

determined that fair market value meant

the prize that would be negotiated in a

free market setting as compensation for

the satellite carriers’ right to retransmit

network and superstation signals

containing the copyright owners’

copyrighted programming. The Panel

stated that:

[T]he language, structure, and legislative

history of the 1994 amendments to section

119 suggest the Panel is directed to

determine actual fair market value and ‘‘in

determining the fair market value * * * base

its decision * * *’’ upon the non-exhaustive

list of considerations. We interpret the phrase

‘‘base its decision’’ to require the Panel to

consider each enumerated type of

information but, the weight to be accorded

each consideration must necessarily depend

upon the quality and quantity of the evidence

adduced and its relative significance to a

determination of actual fair market value. All

evidence falling within the enumerated types

of information must be considered but the

evidence which is more probative of fair

market value must be accorded greater

weight than less probative evidence * * *.

The Panel agrees that the fair market value

rate is that which most closely approximates

the rate that would be negotiated in a free

market between a willing buyer and a willing

seller.

Panel Report at 17 (emphasis in

original).

2. Arguments of the Parties

SBCA asserts that the Panel

misapprehended the meaning of ‘‘fair

market value,’’ and that it should have

determined the section 119 fees in

accordance with what cable operators

pay for distant signals under the section

111 cable compulsory license. SBCA

Petition to Modify at 12. ‘‘Fair market

value is a Congressionally defined term,

and thus cannot be considered under

the ‘traditional’ sense, as urged by the

[Copyright] Owners.’’ Id. at 14. SBCA

cites certain 1994 floor statements at

length as evidence that Congress

intended that section 119 royalty rates

be set on a parity with cable rates.

DeConcini: Copyright license parity with

cable is the central feature of the fair market

standard articulated in this legislation. The

inclusion of specific guidance to the

arbitration panel to take into consideration

the competitive environment in which

satellite programming is distributed is

essential to ensure that satellite carriers are

not required to pay higher royalty fees than

cable operators * * * I am confident that the

arbitration panel will take steps to ensure

that the royalty fee paid by satellite carriers

are on par with those paid by cable operators.

The guiding criteria for the arbitration panel

to establish fair market value in this

legislation will accomplish that objective.

* * * The fact that the Senate agrees with

the House on this compromise language is

due to the criteria that defines fair market

value in the bill. I have long opposed the

imposition of royalty fees based simply on

the mechanical application of some

conceptual fair market value formula * * *

The arbitration panel will take steps to

ensure that the royalty fees paid by satellite

carriers are on par to those paid by cable

operators. The guiding criteria for the

arbitration panel to establish fair market

value will accomplish this objective.

140 Cong. Rec. S14105, 14106 (daily ed.

Oct. 4, 1994).

Brooks: In the hard-fought compromise

reached on this bill, the factors to be

considered under the bill’s ‘‘fair market

value’’ determination have been made more

specific. I would note that in determining fair

market value, we intend that the copyright

arbitration panel consider all the factors

raised by the parties, including cable rates.

140 Cong. Rec. H9270 (daily ed. Sept.

20, 1994).

Hughes: [L]egislation contemplates that the

panel will look to the competitive

environment in which section 119

retransmissions are distributed as well as the

costs of distribution of similar signals in

similar private and compulsory license

marketplaces, including the cable copyright

fees under section 111. This will help ensure

that there is vigorous competition and

diversity in the video programming

distribution industry.

140 Cong. Rec. H9271 (daily ed. Sept.

20, 1994).

Synar: I am also hopeful that any fee

resulting from the fair market value standard

does not disadvantage the delivery of satellite

transmissions vis-a-vis the delivery of cable

retransmission under the section 111

compulsory license * * * It is my hope that

the fees set for satellite retransmissions under

the fair market value standard will, among

other things, reflect the competitive

environment in which those retransmissions

are distributed. There is little question that

Congress would like to ensure that there is

vigorous competition and diversity in the

distribution of video programming and the

determination of fair market value fees

should reflect that intent.

140 Cong. Rec. H9272 (daily ed. Sept.

20, 1994).

According to SBCA, these floor

statements provide clear Congressional

direction that the royalty fees for section

119 are to be either identical or

substantially similar to those paid by

cable operators under section111. SBCA

provided testimony demonstrating that

cable operators pay 9.8 cents per

subscriber per month for superstations,

and 2.45 cents per subscriber per month

for network signals, and submits that

the Librarian should adopt these rates.

SBCA Petition to Modify at 18.

Copyright Owners contend that the

Panel acted correctly in attributing the

plain meaning to the term ‘‘fair market

value,’’ and properly rejected SBCA’s

position that the rates paid by cable

under section 111 is the governing

factor in determining fair market value.

Copyright Owners Reply at 12.

Copyright Owners’ note further that

even one of SBCA’s own expert

witnesses, Mr. Harry Shooshan,

conceded at the hearing that Congress

intended to accord the conventional

meaning to ‘‘fair market value.’’ Id.
Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Rules and Regulations 55747

Copyright Owners also submit that

portions of floor statements delivered at

the time of passage of the 1994 Satellite

Home Viewer Act are not proper

legislative history and must be given

little, if any, weight. Id. at 14–15 (citing

Overseas Educ. Ass’n, Inc. v. FLRA, 876

F.2d 960 (D.C. Cir. 1989); In the Matter

of Sinclair, 870 F.2d 1340 (7th Cir.

1989)). Rather, the text of the statute is

the principle source for determining its

meaning. Id. at 15 (citing West Virginia

Hosp. v. Casey, 499 U.S. 83 (1991).

3. Recommendation of the Register

The Panel determined that the term

‘‘fair market value’’ should be accorded

its plain meaning—i.e., the price a

willing buyer and a willing seller would

negotiate in a free marketplace—and

that the economic, competitive, and

programming information presented by

the parties provided the evidence to

determine what fair market value

royalty rates would be under the

satellite carrier compulsory license. The

Register concludes that this decision is

not arbitrary, nor is it contrary to law.

Both SBCA and Copyright Owners

contend that the meaning of ‘‘fair

market value’’ is a matter of statutory

interpretation. Moreover, it is a wellestablished principle that, in

interpreting the meaning of a statute, the

language of the law is the best evidence

of its meaning. Sutherland Stat. Const.

§ 46.01 (5th Ed.).

The express words of the statute

charge the Panel with determining the

fair market value of retransmitted

broadcast signals by satellite carriers. Id.

(plain meaning of the statute governs its

interpretation). The Panel determined

that ‘‘fair market value’’ meant the price

that would be negotiated between a

willing buyer and a willing seller in a

free marketplace. Panel Report at 17.

The Register determines that this is not

an arbitrary interpretation of the

meaning of ‘‘fair market value,’’ nor is

it contrary to law. See Black’s Law

Dictionary 537 (5th Ed. 1989) (definition

of ‘‘fair market value’’).

In the 1994 amendments Congress

stated that ‘‘[i]n determining the fair

market value, the Panel shall base its

decision on economic, competitive, and

programming information presented by

the parties * * *’’ 119 U.S.C.

119(c)(3)(d). Congress then included in

that amendment a nonexhaustive list of

the types of ‘‘economic, competitive,

and programming information’’ that the

Panel must consider in fashioning

royalty rates that represent fair market

value. That the list is nonexhaustive is

significant, for there may be other types

of information presented by the parties

that, while not falling within one of the

enumerated categories, is nevertheless

relevant to the issue of what the fair

market value royalty rates should be.

The Panel would be responsible for

considering this type of information as

well, if it were relevant to determining

fair market value.

The Register does not interpret the

enumerated categories of ‘‘economic,

competitive, and programming

information’’ (for example, costs in

similar private and compulsory license

marketplaces) as establishing criteria

that define the meaning of ‘‘fair market

value.’’ To do so would, in the Register’s

view, run contrary to the plain meaning

of the statute. Sutherland Stat. Const.

§ 47.07 (5th Ed.). Likewise, the Register

does not see any support for the

argument that one of the enumerated

categories of information, such as the

compulsory license fee paid by cable

under 17 U.S.C. 111, must be accorded

more weight than another. The House

Committee Report to the 1994

amendments makes it clear that this

should not be the case. See H.R. Rep.

No. 703, 103d Cong., 2d Sess. 10 (1994)

(‘‘In order to aid the panel, the

Committee adopted an amendment

offered by Mr. Hughes directing the

panel to consider economic,

competitive, and programming

information presented by the parties as

well as the competitive environment in

which such programming is distributed.

This would, of course, include cable

rates, but those rates are not to be a

benchmark for setting rates under

section 119; they are only one

potentially [sic] piece of evidence in

reaching the objective fair market

value.’’). The Register, therefore,

determines that the Panel did not act

arbitrarily or contrary to law in

determining the meaning of fair market

value.

Although the Panel determined that

its plain meaning of fair market value

controlled their interpretation, the Panel

nevertheless consulted the legislative

history to the 1994 amendments and

concluded that ‘‘[w]e find no support

for the proposition that Congress did not

mean what it said. The legislative

history reveals no intent to attach a

unique meaning to the commonly

understood and well-established ‘fair

market value’ term.’’ Panel Report at 16.

A review of all floor statements

offered at the time of passage of the

1994 amendments reveals considerable

differences between the views of the

two Chairmen and some of the

members. These differences are

accentuated by a later floor statement

offered by Chairman Hughes when he

introduced a bill that would make

technical corrections to the 1994

Satellite Home Viewer Act. 140 Cong.

Rec. E2290 (daily ed. November 29,

1994) (statement of Rep. Hughes).

The statement of Chairman DeConcini

offers the greatest support to the

argument that the rates established in

this proceeding should approximate

what cable pays under the cable

compulsory license. 140 Cong. Rec.

S14105 (daily ed. Oct. 4, 1994) (‘‘I am

confident that the arbitration panel will

take steps to ensure that the royalty fee

paid by satellite carriers are on par with

those paid by cable operators’’).

Representative Synar’s comments

suggest his desire that a satellite rate

adjustment produce rates comparable to

the cable compulsory license, but he

does not state that application of the fair

market value standard should or must

produce such comparability. The

statements of Representative Brooks and

Hughes provide that cable compulsory

license rates are one of the factors to be

considered by the Panel, but they do not

indicate that they are the only or

controlling factor.

The Register has consulted the

caselaw in determining the weight to be

accorded floor statements made by

Congressmen during the passage of

legislation. The caselaw provides that

floor statements of legislators are to be

given little weight Garcia v. U.S., 469

U.S. 70, 78, (1984); Zuber v. Allen, 396

U.S. 168, 186 (1969) (‘‘Floor debates

reflect at best the understanding of

individual Congressmen’’). The

reasoning behind this principle was

aptly described by the Federal Circuit

Court for the District of Columbia:

[I]t is necessary for judges to exercise

extreme caution before concluding that

statement made in floor debate, or at a

hearing, or printed in a committee document

may be taken as statutory gospel. Otherwise,

they run the risk of reading authentic insight

into remarks intended to serve quite different

purposes. Furthermore, to the degree that

judges are perceived as grasping any

fragment of legislative history for insights

into congressional intent, to that degree will

legislators be encouraged to salt the

legislative record with unilateral

interpretations of statutory provisions they

were unable to persuade their colleagues to

except * * *.

Int. Broth. of Elec. Wkrs. Loc. U. 474 v.

NLRB, 814 F.2d 697 (D.C. Cir. 1987)

(Buckley, concurring); see also Overseas

Educ. Ass’n. Inc. v. FLRA, 876 F.2d 960,

975 (D.C. Cir. 1989) (‘‘While a sponsor’s

statements may reveal his

understanding and intentions, they

hardly provide definitive insights into

Congress’ understanding of the meaning

of a particular provision’’) (emphasis in

original).

Of greater importance in discerning

the intent of Congress, as opposed to the
55748 Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Rules and Regulations

5There is no question that the principal factor for

determining rates under the 1988 legislation was

the rates paid by cable. 17 U.S.C. 119(c)(3)(B) (1988)

(the Panel ‘‘shall consider the approximate average

cost to a cable system for the right to secondarily

transmit to the public a primary transmission made

by a broadcast station * * *.’’).

6The data was supplied by Paul Kagan

Associates, a leading information and data company

in the video industry.

7Mr. Gerbrandt isolated the license fees paid for

two basic cable networks: TNT and USA. Tr. 2025–

2026.

8Mr. Owen used regression analysis in an attempt

to demonstrate that MVPDs are willing to pay

proportionally higher license fees for network

signals which contain more expensive

programming. Direct Testimony of Bruce Owen at

7–10.

statements of individual Members, is

the fact that Congress changed the

statute in 1994. When Congress decides

to change a statute, the decision to do

so signifies that it intended to change

the meaning. Brewster v. Gage, 280 U.S.

327, 338 (1932); United States v. NEC

Corp., 931 F.2d 1493, 1502 (11th Cir.

1991); In re Request for Assistance, 848

F.2d 1151, 1154 (11th Cir. 1988), cert.

denied sub. nom., Azar v. Minister of

Legal Affairs, 488 U.S. 1005 (1989). That

is what occurred here. If Congress had

truly intended cable compulsory license

rates to govern the adjustment of fees in

this proceeding, then it would not have

amended the statute in1994 to provide

for a fair market value determination.5

In sum, while floor statements by

some Members indicate an intent that

fair market value be determined in

various ways, by looking at the statute,

committee reports, floor statements and

colloquies the Register does not find any

special meaning or limitation attached

to the term ‘‘fair market value’’ and,

therefore, must rely on the plain

language of the statute and the plain

meaning of the term. The Panel, in the

view of the Register, therefore, did not

act arbitrarily, or contrary to law in its

interpretation of the meaning of ‘‘fair

market value.’’

B. The Cable Network Fee Benchmark

1. Action of the Panel

In order to determine fair market

value royalty rates as required by

section 119(c)(3)(D), the Panel

considered the voluminous testimony

and exhibits presented by the parties.

Witnesses for PBS, JSC, the Commercial

Networks, SBCA, and ASkyB sponsored

economic analyses and testified as to

their calculation of fair market value.

The copyright owners used empirical

data of license fees paid to certain cable

networks by multichannel video

programming distributors (principally

cable operators), while satellite carriers

focused primarily on the license fees

paid by cable operators under section

111.

The Panel specifically endorsed the

approach taken by PBS, and its

principal witness, Ms. Linda

McLaughlin. Using data supplied by an

industry survey group,6 Ms. McLaughlin

examined the license fees paid by

multichannel video programming

distributors (‘‘MVPDs’’) to license the

viewing rights to 12 popular basic cable

networks. These networks are A&E,

CNN, Headline News, Discovery, ESPN,

the Family Channel, Lifetime, MTV,

Nickelodeon, TNN, TNT, and USA. Ms.

McLaughlin testified that these basic

cable networks represented the closest

alternative programming to broadcast

programming for satellite homes, and

that studies indicated that consumers

value networks and superstations as

least as highly as popular basic cable

networks. Direct Testimony of Linda

McLaughlin at 2–5. She then calculated

a ‘‘benchmark’’ rate for these networks

to be used by the Panel as representative

of the fair market value of broadcast

signals retransmitted by satellite

carriers:

* * * I have calculated a basic cable network

benchmark price and used it to estimate a

minimum compulsory license fee for

satellite-retransmitted broadcast stations. The

average license fee of the 12 popular basic

cable networks was 18 cents in 1992—when

the maximum satellite compulsory rate was

17.5 cents—and has risen to 24 cents in 1995,

an annual increase of ten percent per year.

The license fees for these 12 basic cable

networks are forecast to increase to an

average of 26 cents in 1997, 27 cents in 1998

and 28 cents in 1999. This suggests that the

compulsory rate for satellite retransmitted

stations should increase at least

correspondingly with the average prices for

basic cable networks, to an average at least

27 cents for the 1997–99 period.

Id. at 7.

The Panel endorsed Ms. McLaughlin’s

approach because it determined that it

represented the closest model, of those

presented, to a free market negotiation

for satellite carriage of broadcast signals,

and because it was the most

conservative approach offered by the

copyright owners. Panel Report at 29–

30. The Panel rejected the analysis of

JSC (Testimony of Mr. Larry Gerbrandt)

as too narrow,7 and the analysis of the

Commercial Networks (testimony of Mr.

Bruce Owen) as too speculative.8 The

Panel also rejected the analyses of SBCA

and ASkyB because it determined that

their analyses did not comport with the

plain statutory meaning of the term ‘‘fair

market value.’’ Id. at 29–30.

2. Arguments of the Parties

SBCA contends that cable network

license fees are not an appropriate

benchmark because cable networks are

fundamentally different from

retransmission of broadcast signals. It

asserts that ‘‘[e]xtracting an accurate, or

even representative license fee per

subscriber is basically impossible

because multiple programming services

are included within contracts, there are

ceilings on aggregate license fees for

MVPDs in some cases, free

subscriptions in others, marketing and

launch support provided by the cable

networks, purchases of advertising time

by the cable networks from MVPDs, and

equity investments by each in the

other.’’ SBCA Petition to Modify at 20–

21.

In reply, Copyright Owners assert that

the Panel acted properly by utilizing

cable networks as the benchmark of fair

market value, and accepting the analysis

of Ms. McLaughlin. Copyright Owners

not that they wished to examine the

license fees paid by satellite carriers to

cable networks in particular, as opposed

to the fee paid by all MVPDs in general,

but SBCA refused to disclose through

discovery the amounts that satellite

carriers paid. Copyright Owners Reply

at 17. They further note that while

SBCA’s witness, Mr. Jerry L. Parker,

stated that a meaningful license fee

could not be determined from satellite/

cable network contracts, SBCA never

produced the documents to support that

assertion. Id. at 18. Copyright Owners

assert that Ms. McLaughlin testified that

the license fees presented by her

analysis demonstrated at least the

minimum amount that satellite carriers

would pay for cable networks, and that

her analysis offered the best evidence

that was properly accepted by the Panel.

Id.

3. Recommendation of the Register

In the Register’s view, the Panel’s

decision to use cable network license

fees as a benchmark for establishing the

fair market value of section 119 rates

was the product of rational

decisionmaking, and its decision to use

the PBS/McLaughlin approach was not

improper.

Having determined that ‘‘fair market

value’’ meant the price that would be

paid by a willing buyer and seller in a

free marketplace, it was not illogical for

the Panel to give careful consideration

to evidence of markets that most closely

resembled the licensing of signals under

section 119. In fact, section

119(c)(3)(D)(i) requires that the Panel

consider ‘‘the cost for similar signals in

similar private * * * marketplaces.’’ 17

U.S.C. 119(c)(3)(D).

All three of the evidentiary

presentations of the copyright owners—

PBS, JSC, and Commercial Networks—
Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Rules and Regulations 55749

9 ‘‘DBS’’ stands for Direct Broadcast Service, and

is associated with high powered, high frequency

direct broadcast satellite services. An example of a

DBS operator is DirecTV.

10 ‘‘HSD’’ stands for ‘‘Home Satellite Dish,’’ and

typically refers to satellite providers who operate at

lower frequencies than DBS providers.

focused upon the fees paid to cable

networks by MVPDs. SBCA’s evidence

of fair market value, the cable license

fees paid under section 111, was less

relevant to the Panel’s determination

because the Panel had rejected the

notion that cable fees equaled fair

market value. Panel Report at 29–30.

The Panel’s adoption of cable network

fees as the benchmark was not

unqualified, however, because it stated

that ‘‘we agree with the satellite carriers

that the economic model governing

cable networks varies markedly from the

economic model governing

broadcasters.’’ Id. at 29. Nevertheless,

the Panel ‘‘adopt[ed] the copyright

owners’ general approach using the

most similar free market we can

observe.’’ Id. at 30. After reviewing the

record, the Register has determined that

the Panel’s conclusion is not ‘‘arbitrary’’

within the meaning of 17 U.S.C. 802(f).

SBCA contends that cable network

fees are not a useful benchmark because

the economics of cable networks are

fundamentally different from those of

broadcast networks and superstations.

SBCA Petition to Modify at 20 (citing

testimony of Mr. Harry Shooshan, Mr.

John Haring and Mr. Edwin Desser). The

testimony of Mr. Shooshan and Mr.

Haring, in particular, suggest that there

are some marked differences between

the licensing of cable networks and

broadcast signals. The Panel, however,

took account of that. Panel Report at 29.

Nevertheless, there was ample

testimony that the two markets were

also quite similar. Tr. 1202–04 (Mr.

Robert Crandall); Tr. 1609 (Ms.

McLaughlin); Tr. 1284 (Mr. Owen). The

Panel weighed the evidence and

accepted the copyright owners’

approach using cable network fees

because it was ‘‘the most similar free

market we can observe.’’ Panel Report at

30 (emphasis in original). Because this

conclusion is grounded in the record, it

is not arbitrary. National Cable

Television Ass’n, Inc. v. CRT, 724 F.2d

176, 189 (D.C. Cir. 1983) (decisions

grounded in the record within the zone

of reasonableness).

Likewise, the Panel’s decision to rely

on the PBS/McLaughlin testimony to

establish the cable network benchmark

was adequately grounded in the record.

Panel Report at 18–20. Again, the Panel

stated that use of cable networks was by

no means flawless and, to account for

this, the Panel was adopting the

‘‘conservative’’ approach offered in Ms.

McLaughlin’s analysis. Id. at 31. The

Register determines that the Panel’s

decision to accord the PBS/McLaughlin

testimony controlling weight is

consistent with its determination to

utilize the plain meaning of ‘‘fair market

value’’ as the proper standard for setting

royalty fees. Further, it is well

established that using evidence of

analogous markets is the best evidence

in determining market price. See

National Cable Television, 724 F.2d at

187. For these reasons, the Register

determines that the Panel did not act

arbitrarily or contrary to the Copyright

Act.

C. Adjustments to the Cable Network

Fee Benchmark

1. Adjustment to the Benchmark for

Delivery Costs

a. Action of the Panel. After

establishing cable network license fees,

as presented by Ms. McLaughlin, as the

benchmark for determining the section

119 royalty rates, the Panel examined,

inter alia, the special features and

conditions of the retransmission

marketplace to determine if an upward,

or downward, adjustment in the

benchmark was appropriate. One of the

aspects of satellite retransmission of

broadcast signals that differ significantly

from the transmission of cable networks

involved the costs of delivering the

signals to the MVPDs. The Panel found

this issue, along with that of advertising

inserts (discussed infra), as being

‘‘among the most challenging issues for

the Panel to resolve.’’ Panel Report at

43.

The Panel found that the license fees

charged for cable networks included the

cost of delivering the cable network to

the MPVD—i.e., making the signal

readily available for reception by the

MVPD for subsequent distribution to

subscribers. Id. at 45. With satellite

retransmission of broadcast signals,

however, the satellite carriers absorb the

costs of getting the broadcast signal from

its geographic point of origin, and then

delivering it to its subscribers. Id. The

Panel considered whether the cost of

delivering the signals should, therefore,

be deducted from the benchmark.

The Panel declined to make such a

deduction. The Panel found that there

was no evidence presented to suggest

that if satellite carriers and copyright

owners negotiated in a free marketplace

for the retransmission of broadcast

signals, the copyright owners would

offer satellite carriers a discount on

license fees to accommodate delivery

costs. The Panel discussed the

testimony of Mr. Jerry L. Parker, an

SBCA witness who offered testimony as

to the history, nature and operation of

the satellite industry:

Mr. Parker was invited to demonstrate

whether carrier costs impacted the rates

negotiated between satellite carriers and

cable networks. He could not. Indeed, Mr.

Parker conceded, for example, that despite

additional costs incurred by DBS 9 carriers

(beyond those of HSD 10 carriers), DBS

operators were unable to negotiate lower

rates on that basis. Moreover, he declined to

urge the Panel to set a discounted rate for

DBS carriers to account for their higher costs

than HSD carriers. We must similarly decline

to discount the cable network benchmark to

account for higher delivery costs of broadcast

signals.

Panel Report at 45–46 (citations

omitted).

b. Arguments of the Parties. SBCA

vigorously contests the Panel’s

resistance to deducting delivery costs

from the 27 cent benchmark figure,

stating that ‘‘it must be recognized that

all cable networks that are charging and

receiving 27 cents have made the

necessary investment and expense in

distributing the signal * * *. None of

the [c]opyright [o]wners or broadcasters

in this proceeding incurred this

necessary expense for satellite

distribution of superstations or network

stations.’’ SBCA Petition to Modify at

22. SBCA cites the testimony of Ms.

McLaughlin, who acknowledged that

broadcast stations are not responsible,

and do not incur the cost of, delivering

their signal to satellite carriers for

subsequent retransmission. Id. at 22–23.

SBCA submits that ‘‘[t]he error in Ms.

McLaughlin’s analysis, implicitly

accepted by the Panel, is that these

expenses were basically the cost of the

[s]atellite [c]arriers in distributing their

own product.’’ Id. at 23. SBCA asserts

that the Panel understood that satellite

carriers bore the cost of delivery, but

then mistakenly categorized it as a

‘‘discount’’ to compensate carriers for

their costs, when in fact it is a cost that

must be borne by the copyright owners.

Id. at 25–26.

SBCA submits that it demonstrated

that the average delivery cost per signal,

per subscriber, per month is 10 cents,

and 6.5 cents for volume discounts.

SBCA, therefore, contends that the 27

cent benchmark rate must be adjusted

downward to between 17 and 21.5

cents. Id. at 23, f.n. 53.

In reply, Copyright Owners assert that

SBCA mischaracterizes the transmission

cost issue by suggesting that the major

focus should be the structural nature of

such costs, rather than whether they

would result in any marketplace price

adjustments. Copyright Owners Reply at

22. Copyright Owners cite Mr. Larry

Gerbrandt’s testimony that transmission
55750 Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Rules and Regulations

11SBCA alleges throughout its Petition to Modify

that the CARP discovery rules, and particularly the

Panel’s application of the rule, precluded it from

obtaining vital information from copyright owners

to support its case, which resulted in negative

inferences by the Panel as to the sufficiency of its

presentation. This argument is addressed, infra in

subsection G.

costs do not yield different cable

network license fees in the marketplace,

and note that Mr. Jerry Parker was

unable to demonstrate otherwise. Id. at

22–23.

c. Recommendation of the Register.

The Panel discussed the issue of

transmission costs quite extensively,

finding that the record was devoid of

credible evidence demonstrating that

transmission costs of satellite carriers

affected the rates negotiated between

satellite carriers and cable networks.

Panel Report at 45–46. The Panel

expressly found that SBCA’s witness.

Mr. Parker, could not offer evidence of

such an impact, and conceded that

despite additional costs incurred by

DBS carriers, DBS operators were

unable to negotiate lower rates on that

basis. Tr. 2528. The Panel grounded its

determination in the record evidence,

which is the hallmark of rational

decision making. National Cable

Television Ass’n. v. CRT, 724 F.2d 176

(D.C. Cir. 1983).

SBCA’s discussion of transmission

costs fails to focus on what impact, if

any, they would have on negotiated

license fees, and instead relates to

which party should bear the cost. Costs

can be shifted between parties in a

business relationship, and SBCA asserts

that their costs, when comparing

delivery of broadcast signals with

delivery of cable networks, must be

shifted to copyright owners to prevent a

windfall. However, costs can also be

absorbed by a party as part and parcel

of doing business, and must be when

one party cannot shift the costs (or a

portion thereof) to the other. Where

there is no credible evidence

demonstrating a party’s ability to shift a

cost, no change in the negotiated price

should occur. The Panel found that to

be the situation with transmission costs,

and the Register has no grounds on

which to reject that finding.

2. Adjustment to the Benchmark for

Advertising Inserts

a. Action of the Panel. In addition to

delivery costs, the Panel considered the

issue of advertising inserts very

significant. Cable networks typically

grant MVPD’s a certain number of time

slots during the programming

provided—known as advertising

inserts—for the MVPDs to sell to

advertisers. The monies raised from

these inserts are retained by the MVPD,

and can defray the cost of the license fee

for the cable network approximately 8

cents per subscriber per month. Panel

Report at 43–44. The Panel found,

however, that because section 119(a)(4)

requires satellite carriers to retransmit

the signals of broadcast stations intact,

they do not receive any advertising

inserts for the retransmission of

broadcast signals. Id. at 44. The Panel

considered whether this should result in

a downward adjustment of the

benchmark rate.

The Panel declined to make an

adjustment:

[T]he satellite carriers naturally argue that

because the benchmark is based upon the

rate paid by multichannel distributors to

cable networks, we must deduct $0.08 to

obtain the ‘real cost’ of cable networks. The

copyright owners counter that most satellite

carriers don’t insert advertising into cable

network signals anyway. Indeed, HSD

carriers don’t possess the technology to insert

advertising. Moreover, multichannel

distributors appear to pay the same cable

network license fee regardless of whether

they insert advertising.

If this last assertion is accurate, one would

expect that in a hypothetical free market

negotiation, broadcasters would similarly

decline to reduce their license fees to satellite

carriers for their lack of advertising

availabilities and no benchmark adjustment

would be appropriate. Both Ms. McLaughlin

and Mr. Gerbrandt opined that, based upon

their knowledge and experience, neither the

availability of advertising inserts, nor the

carriers [sic] ability to insert, affects the

prices that cable networks charge. They did

not support this opinion with any

documentary evidence or empirical data.

However, the satellite carriers allowed this

testimony to stand essentially unrefuted.

Indeed, Dr. Haring was explicitly invited to

render an opposing opinion but forthrightly

declined. In the final analysis, we accept the

copyright owners’ expert testimony and

decline to deduct $0.08 from the benchmark

as advocated by the satellite carriers.

Panel Report at 44–45 (citations

omitted).

b. Arguments of the Parties. SBCA

alleges that the Panel ‘‘completely

misconceived the adjustment necessary

to reflect the value for insertable

advertising.’’ SBCA Petition to Modify

at 26. They note that the arbitration

panel in the 1992 rate adjustment made

a downward adjustment for advertising

inserts. 57 FR 19058 (May 1, 1992).

SBCA asserts that the ‘‘value of

insertable advertising is significant,’’

and that its value is ‘‘no less than 7.5

cents’’ per subscriber per month. Id. at

27.

As a ‘‘variation’’ on the advertising

insert issue, SBCA offers that the

increased national exposure of

broadcast stations offered by satellite

retransmissions increases the amount of

revenue that copyright owners receive

for the advertising slots that they retain.

Id. at 28. SBCA submits that the Panel

should have further adjusted downward

for this value, and argues that it could

not quantify the value because the

necessary information was in the

possession of the copyright owners who

were not required to disclose it through

the CARP discovery rules.11

In reply, Copyright Owners assert that

the Panel fully considered the

arguments of SBCA, and correctly

rejected any downward adjustments for

advertising inserts. Copyright Owners

Reply at 23–24.

c. Recommendation of the Register.

The Panel fully discussed what effect, if

any, advertising inserts might have on

the negotiated fee for retransmission of

broadcast signals. Panel Report at 43–

45. The Panel cited the testimony of Ms.

McLaughlin and Mr. Gerbrandt that

‘‘based upon their knowledge and

experience, neither the availability of

advertising inserts, nor the carriers

ability [sic] to insert, affects the prices

that cable networks charge * * *. The

satellite carriers allowed this testimony

to stand essentially unrefuted. Indeed,

Dr. Haring was explicitly invited to

render an opposing opinion but

forthrightly declined.’’ Id. at 44. SBCA

did not offer any testimony which

incontrovertibly rebuts the testimony of

Ms. McLaughlin and Mr. Gerbrandt.

Consequently, the Panel’s determination

that no adjustment should be made is

not arbitrary because it is grounded in

the record.

D. Equality Between Superstation and

Network Signal Rates

1. Action of the Panel

As discussed above, Congress

established different royalty rates for

superstation and network signals when

it created the section 119 license. The

initial rate for superstations was 12

cents per subscriber per month, and 3

cents per subscriber per month for

network signals. This 4 to 1 ratio

reflected the payment of royalties under

the section 111 license. Under section

111, only copyright owners of

nonnetwork programming are allowed

to share in the royalty funds. Cable

operators pay full value for

retransmitting independent broadcast

stations (of which superstations are a

subset), and only one-quarter value for

retransmission of network signals. 17

U.S.C. 11(f). The one-quarter value

reflects Congress’ determination in 1976

that approximately 25 percent of the

programming on network signals is

compensable nonnetwork programming,

while the remainder is not. Congress
Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Rules and Regulations 55751

carried over this 4 to 1 ratio in the 1988

Satellite Home Viewer Act when it set

the 12 cent and 3 cent rates in the

statute.

The 1992 arbitration panel that

adjusted the section 119 rates took into

account the 4 to 1 ratio, but found that

the amount of network programming on

network stations had declined to

approximately 50 percent, down from

the 75 percent contemplated by section

111. That panel, however, set the

network station rate at 6 cents, which

represented roughly a 3 to 1 ratio to the

superstation rate it set, because it was

concerned with disruption in the

satellite industry of carriage of network

signals if it established a network signal

rate at half (a 2 to 1 ratio) that of the

superstation rate. 57 FR 19052, 19060

(May 1, 1992). The Copyright Royalty

Tribunal, in reviewing the panel’s

decision on this matter, stated that:

The Tribunal believes that the Panel was

not bound by either a 4:1 ratio or a 1:1 ratio.

When the Tribunal issued its declaratory

ruling concerning network copyright owners,

we did not intend to prejudge any future

ratesetting. We noted that in cable and

satellite, the pay-in may not necessarily

correlate to the pay-out. Therefore, a 1:1 ratio

is not required. However, we do believe the

Panel had the authority to take our

declaratory ruling into account, so that it was

entitled to adjust the 4:1 ratio downward to

reflect that network copyright owners are

entitled to receive satellite royalties.

Id. at 19052.

The Panel in this proceeding rejected

the notion that it was required to set

different royalty rates for superstations

and network signals, respectively,

because it was seeking the fair market

value of these signals. The Panel stated:

We find no credible evidence that

retransmitted network stations are worth less

than retransmitted superstations. Indeed,

even assuming arguendo, we were to

conclude that network programming is worth

less, or even wholly uncompensable, we find

no record support for any particular ratio—

no evidence was adduced as to the present

day average proportion of network to nonnetwork programming. And imposition of the

original 4 to 1 ratio by rote, merely to

replicate section 111 rates, would not be

consistent with a fair market value analysis.

Panel Report at 40.

2. Arguments of the Parties

SBCA challenges the Panel’s refusal to

apply the 4 to 1 ratio, asserting that such

ratio is binding precedent upon the

Panel. SBCA Petition to Modify at 38.

SBCA contends that Congress

determined, under section 111, that

network programming is not

compensable, and carried this rationale

into the rate structure of section 119.

The fact that networks are allowed to

share in the section 119 royalties, but

not the section 111 royalties, ‘‘does not

mean that the network signals are to be

paid for any differently under the

satellite license than under the cable

license * * * ’’ Id. at 39. Furthermore,

SBCA submits that satellite carriers give

added value to network signals by

carrying them to unserved households

who would not otherwise receive such

signals. Id. at 41. SBCA contends that,

if anything, there should be no fee for

network signals. Id. at 40.

Finally, SBCA argues that the Panel

erred by creating a 27 cent royalty rate

applicable to PBS (defined under the

statute as a network) because ‘‘PBS

signals are free on the satellite by law.’’

Id. at 41. These signals, SBCA contends,

cannot possibly have a market value,

and there should be no royalty fee for

PBS signals. Id.

Copyright Owners contend that the

Panel correctly rejected the 4 to 1 ratio

because the new law requires a

determination of fair market value.

Copyright Owners Reply at 32.

Copyright Owners note that the binding

precedent referred to by SBCA was an

interpretation of the 1988 Satellite

Home Viewer Act, not the 1994 Act, and

that nothing in the 1994 Act requires

assignment of different rates for

superstation and network signals. Id. at

33–34.

With regard to SBCA’s contention that

retransmission of PBS signals should

not be compensated at the 27 cent level,

Copyright Owners argue that such a

contention ‘‘flies in the face of the fair

market value evidence,’’ and that the

PBS signal available for free on the

satellite is not the signal of the member

stations that are at issue in this

proceeding. Id. at 35.

3. Recommendation of the Register

The Panel did not err by rejecting the

4 to 1 ratio and adopting a network

signal rate that was equal to the value

of the superstation rate. The Panel

correctly observed that while the 1992

arbitration panel generally followed the

ratio set by Congress in the 1988 Act,

the 1994 amendments changed any

reliance upon a pre-set ratio by directing

the Panel to determine only the fair

market value for network and

superstation signals. Panel Report at 40.

There is not evidence in the 1994 Act,

or its legislative history, that Congress

intended the Panel to set a rate for

network signals that is one-fourth of that

for superstations (or any other ratio, for

that matter) if that rate did not represent

the fair market value of network signals.

SBCA asserts that the 1994

amendments contemplate a CARP

establishing two rates—one for network

signals, and another for superstations—

thereby inferring that Congress

contemplated rate differentiation (i.e.

that one rate would be less than the

other). Such an inference is belied by

language in the House Report, however,

which states that the rates set by the

CARP in this proceeding ‘‘should reflect

the fair market value of satellite carriers’

secondary transmissions of

superstations and network stations.’’

H.R. Rep. No. 703, 102d Cong., 2d Sess.

7 (1994). The statute does not require or

suggest that the rate for network signals,

or superstations, be set at anything less

than fair market value.

There is no binding precedent that

required the Panel to apply a ratio in

value between network signals and

superstations, and set network signal

rates lower than superstation rates. The

1992 arbitration panel applied a

different criterion (rates paid by cable

under section 111) to determine section

119 rates, and its decision therefore

does not serve as precedent for this

proceeding. Furthermore, even if the

1992 arbitration were binding

precedent, the final order of the

Copyright Royalty Tribunal (which

constituted the final agency action in

that proceeding) clearly stated that no

differentiation between network and

superstation rates was required. 57 FR

19052 (May 1, 1992) (‘‘The Tribunal

believes the Panel was not bound by

either a 4:1 ratio or a 1:1 ratio.’’). The

Panel, therefore, did not act arbitrarily

by rejecting application of the 4 to 1

ratio.

The Register has also examined the

record to determine whether, under a

fair market value analysis and regardless

of application of a pre-set ratio, the

evidence required a differentiation in

network and superstation rates. The

Panel determined that there was ‘‘no

credible evidence that retransmitted

network stations are worth less than

retransmitted superstations.’’ Panel

Report at 40. It was wholly within the

Panel’s discretion to arrive at such a

determination. SBCA presented

evidence demonstrating that network

viewer ratings have declined, SBCA

Proposed Findings of Fact and

Conclusion of Law at 39, but it did not

offer evidence as to what impact such a

decline had relative to superstations,

nor did it quantify the difference in

value between network signals and

superstations under a fair market value

analysis, except to insist that all signals

should be free. See SBCA Reply

Findings of Fact and Conclusions of

Law at 7. The Panel, consequently, did

not act arbitrarily by adopting the same

royalty rate for both network signals and

superstations.
55752 Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Rules and Regulations

12PBS signals are defined as network stations

under section 119(d)(2).

Finally, SBCA argues that because the

Panel failed to take account of the fact

that PBS signals are free on the satellite

by law, it was error to accord them the

same royalty rate as other network

signals.12 Section 605(c) of the

Communications Act, 47 U.S.C.,

prohibits encryption of programs

included in the National Program

Service of the Public Broadcasting

Service, essentially making the National

Program Service free to all satellite

home dish owners. Member stations of

PBS, however, are not subject to 47

U.S.C. 605(c), and satellite carriers may

charge their subscribers for

retransmission of these stations.

Furthermore, the National Program

Service is not a network signal as

defined under section 119(d)(2).

Member stations of PBS are network

signals under section 119(d)(2).

Presumably, there are PBS programs

available on the National Program

Service that are the same programs

available from PBS stations, although no

such evidence was adduced in this

proceeding. There are also likely to be

different programs, particularly those

produced by member stations. SBCA

did not quantify by how much, under a

fair market value analysis, the same

programs on the National Program

Service and PBS stations should reduce

the royalty fee for PBS stations, beyond

a blanket assertion that all PBS stations

should be free. SBCA Reply Findings of

Fact and Conclusions of Law at 68–69.

The Panel concluded that there was ‘‘no

credible evidence’’ warranting a

conclusion that network signals were

worth less, which would include PBS

stations. The Register cannot find

credible evidence to the contrary, and

therefore the Panel’s determination

must be affirmed.

E. Local Retransmission of Network

Signals

1. Action of the Panel

In setting the satellite carrier

compulsory license royalty rates for

networks and superstations, the Panel

was asked to distinguish between

satellite retransmission of ‘‘distant’’

broadcast signals, and satellite

retransmissions of ‘‘local’’ broadcast

signals. The Panel did make this

distinction, setting a royalty rate of 27

cents for distant retransmission of

superstations, and zero cents for local

retransmission of superstations. Panel

Report at 54.

While the Panel adopted a 27 cent

rate for retransmission of distant

network signals, id., it declined to adopt

a rate for local retransmission of

network signals because it determined

that it lacked subject matter jurisdiction

to do so. Id. at 48. The Panel considered

section 119(a)(2)(B), which provides

that the satellite compulsory license is

‘‘limited to secondary transmissions to

persons who reside in unserved

households,’’ and examined the section

119(d)(10) definition of an unserved

household. The Panel concluded that:

[N]etwork signals generally may not

retransmitted to the local coverage area of

local network signals. The separate rate

request of ASkyB is explicitly intended to

apply to retransmission of network signals to

served households. Section 119 does not

provide a compulsory license for these

retransmissions. Hence, we lack subject

matter jurisdiction to set a rate for local

retransmissions of local network signals.

Panel Report at 48 (emphasis in

original).

The Panel did acknowledge in a

footnote that there may be ‘‘rare

instances’’ where a household located

within the local market of a network

signal was, indeed, an unserved

household within the meaning of

section 119(d)(10). Id. at 48, f.n. 62. The

Panel stated that ‘‘[t]hese households

qualify as unserved but, under section

119, ASkyB would pay the conventional

‘rate for non-local signals.’ ’’ Id.

2. Arguments of the Parties

EchoStar contends that the Panel

committed reversible error in

determining that it has no jurisdiction to

set a royalty rate for local retransmission

of network signals, and that the rate

should be zero. EchoStar Petition to

Modify at 1. According to EchoStar, the

language of section 119 regarding the

permissibility of local retransmission of

network signals is nuclear, and the

Panel should therefore have consulted

the legislative history, rather than

decide the matter on the basis of the

statutory language. Id. at 7–8. EchoStar

submits that the Congressional intent

behind the unserved household

restriction of section 119(a)(2)(B) was to

protect the network-affiliate relationship

from importation of distant signals of

the same network, citing the recent

Copyright Office Report on revision of

the cable and satellite carrier

compulsory licenses. Id. at 4. Because

local retransmissions do not harm the

network-affiliate relationship, EchoStar

asserts that ‘‘[i]n light of the intent

behind the compulsory license,

therefore, the ‘unserved household’

limitation should be read as not

precluding such local-into-local

retransmissions—a form of

retransmission which required

technologies not in existence at the time

of the legislation.’’ Id. at 5.

In addition, EchoStar submits that the

Panel should have interpreted section

119 flexibly enough to allow local

retransmission of network signals, citing

Sony Corp. of America v. Universal City

Studios, Inc., 464 U.S. 417 (1984) and

Twentieth Century Music Corp. v.

Aiken, 422 U.S. 151 (1975). Id. at 10.

Finally, EchoStar argues that, since the

section 119 license was modeled after

the section 111 license, and local

retransmission of network signals is

permitted under section 111, the two

statutes should be interpreted similarly.

Id. at 11 (citing Northcross v. Board of

Education, 412 U.S. 427 (1973).

Commercial Networks seek a

clarification of the Panel’s ruling on

local retransmission of network signals,

albeit from a completely different

perspective. Commercial Networks

request the Librarian to make clear that

where local retransmission of a network

signal does not violate the unserved

household restriction (a circumstance

acknowledged by the Panel likely to be

rare), the rate for such retransmission is

27 cents per subscriber per month.

Commercial Networks Petition to

Modify at 1.

In reply, EchoStar opposes

Commercial Networks position, and

argues that the same rationale that the

Panel used in adopting the zero rate for

superstations applies with equal force to

network stations that are locally

retransmitted to unserved households.

EchoStar Reply at 2.

Certain Copyright Owners object to

EchoStar’s position, and contend that

EchoStar does not have standing under

the rules to file a petition to modify the

Librarian’s decision when it was not an

active party in this proceeding. Certain

Copyright Owners Reply at 1. Certain

Copyright Owners contend that the

Panel correctly interpreted section 119

as preventing retransmission of local

network signals to served households,

and that the legislative history does not

warrant a different conclusion. Id. at 3–

6.

3. Recommendation of the Register

Two separate issues are presented by

the local retransmission of network

signals. First, there is the retransmission

of a network station within that station’s

local market. The Panel categorized this

as local retransmission to served

households, and concluded that section

119 did not permit such

retransmissions. Second, there is

retransmission of a network station

within that station’s local market to

subscribers who satisfy the definition of

an ‘‘unserved household’’ in section
Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Rules and Regulations 55753

13Because the Panel’s decision on this point is a

conclusion of law, the arbitrary standard is not

applicable.

14The Register agrees with Copyright Owners that

EchoStar lacks standing to file a petition to modify

the Panel’s determination, and recommends

dismissal of the petition. Section 251.55(a) of the

rules, 37 CFR provides that only parties to the

proceeding may file petitions to modify, and makes

no provision for nonparties. EchoStar, though a

member of, and represented by SBCA, was not a

party to this proceeding because it did not file a

Notice of Intent to Participate as required by the

rules. See 37 CFR 251.45(a).

Dismissal of EchoStar’s petition, however, does

not preclude consideration of the issues

surrounding local retransmissions of network

signals, and the Register has considered these as

required by section 802(g).

119(d)(10). The Panel acknowledged

that such retransmissions were

permissible under section 119, though

likely to occur in ‘‘rare instances,’’ but

was unclear as to what the proper

royalty rate should be.

Local retransmission of network

signals to served households presents a

challenging issue. The Copyright Office

declined to issue a declaratory ruling

that such retransmissions are

permissible, though it did not preclude

addressing such a matter through a

rulemaking procedure. Letter of the

Acting General Counsel to William

Reyner, August 15, 1996. Moreover, the

Office has, in its recent report to the

Senate on revision of the satellite and

cable compulsory licenses, expressly

endorsed the permissibility of such

retransmissions, and requested Congress

to ‘‘clarify’’ the statute on the matter. ‘‘A

Review of the Copyright Licensing

Regimes Covering Retransmission of

Broadcast Signals,’’ Report of the

Register of Copyrights at xx (1997)

(hereinafter ‘‘Register’s Report’’). As the

agency responsible for administering the

Copyright Act, the Office believes that it

retains the authority to conduct a

rulemaking proceeding to determine the

permissibility of local retransmission of

network signals to served households,

regardless of the Panel’s determination

in this proceeding.

Nevertheless, the Register must

determine whether the Panel’s decision

that such retransmissions are not

permitted under section 119 is contrary

to the provisions of the Copying Act.13

The Register reviewed the language of

section 119, and its legislative history,

both in the context of this proceeding,

and in her report to the Senate. Such

review confirmed the Register’s belief

that Congress simply did not consider

the issue of local retransmission of

network signals to served households at

the time of passage of section 119,

principally because the technology to

make such local retransmission did not

commercially exist. It is evident from

the history surrounding adoption of the

unserved household restriction in 1998

that adoption of the restriction was

motivated by concerns expressed by

network affiliate stations that

importation of distant network stations

affiliated with the same network would

erode their over-the-air viewership.

Register’s Report at 103–104. This

suggests that if Congress had considered

the issue, it might have condoned local

retransmissions to served households.

On the other hand, the section

119(d)(10)(A) portion of the definition

of an ‘‘unserved household’’ does not

specify receipt of what network signal

over-the-air triggers the prohibition in

making retransmissions of network

signals. The language of section

119(d)(10)(A) could easily be read to

prohibit retransmission by satellite

whenever the subscriber receives an

over-the-air signal of Grade B intensity

from any network affiliate, including the

local network affiliate that the satellite

carrier intends to retransmit to the

subscriber. This is the position that the

Panel took.

In sum, the Register determines that

the law is silent on this issue.

Consequently, the Register cannot

unequivocally say that the Panel’s

decision is arbitrary or contrary to law.

The second issue is the local

retransmission of network signals to

unserved households. The Panel

appears to have presumed that such

retransmissions are permissible. Panel

Report at 48. The Register determines

that they are permissible, as provided by

the express terms of section 119. The

Panel failed to articulate what royalty

rate would be applicable to such local

retransmissions. It mentioned, in a

footnote, that the number of unserved

households within a network station’s

local market were likely to be few, and

cited the testimony of ASkyB’s witness,

Preston Padden, that ASkyB would, in

those instances, ‘‘pay the conventional

‘rate for non-local signals.’ ’’ Id. at 48,

f.n. 62 (quoting written direct testimony

of Mr. Padden). The Panel did not

expressly state what the rate should be

for all carriers making local

retransmissions of network signals to

unserved households.

Commerical Networks urge that the

rate for such retransmissions should be

27 cents. EchoStar 14 argues that the rate

should be zero, consistent with the

Panel’s adopted rate for local

retransmissions of superstations. To the

extent that the Panel sought to impose

the 27 cent rate on local retransmissions

of network signals to unserved

households, the Register determines that

such action is arbitrary. The Register

cannot find testimony in the record that

supports the conclusion that local

retransimssion of network signals to

unserved households has a fair market

value rate of 27 cents, particularly

where the Panel determined that the fair

market value of local retransmissions of

superstations was zero. Panel Report at

52. Likewise, the record does not

support a conclusion that there is any

differentiation between the fair market

value of local retransimssions of

network signals vis-a-vis superstations.

Commercial Networks do not cite any

testimony to the contrary in their

petition to modify.

To the extent that the Panel failed to

adopt a rate for local retransmissions of

network signals to unserved

households, the Register determines that

such action is inconsistent with its task

in this proceeding, and recommends

that the Librarian substitute his own

determination. 17 U.S.C. 802(g). The

dearth of testimony on this issue and,

for that matter, the Panel’s cursory

discussion of it, is not surprising

because local retransmission of network

signals to unserved households, and

served households as well, is

undoubtedly an unattractive business

proposition to satellite carriers.

Nevertheless, the issue was before the

CARP, and requires a resolution.

The Register recommends that the

Librarian adopt a zero rate for local

retransmissions of network signals to

unserved households because the

Register is persuaded that the Panel’s

conclusions with respect to local

retransmissions of superstations are

equally applicable to local

retransmissions of network signals to

unserved households. Panel Report at

52-53. As noted above, there is no

conclusive evidence to suggest that

locally retransmitted network signals

are of greater fair market value than

locally retransmitted superstations.

Accordingly, the Register recommends

adoption of a zero rate for local

retransmission of network signals to

unserved households.

F. Effective Date of the New Rates

1. Action of the Panel

In announcing the royalty rate of 27

cents for distant retransmission of

network and superstation signals, and

zero cents for local retransmission of

superstations, the Panel stated that the

time period for payment of the rates

would be from July 1, 1997, through

December 31, 1999. Panel Report at 54.

2. Arguments of the Parties

SBCA contends that the Panel acted

contrary to law by setting an effective
55754 Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Rules and Regulations

15 Interestingly, the statute does not address the

situation, as in this proceeding, where the Panel’s

decision is accepted in part and rejected in part.

Subclause (ii) most likely applies to this proceeding

because the Librarian has established one of the

royalty rates (the rate for local retransmission of

network signals to unserved households).

date of July 1, 1997, for the new rates.

SBCA states that the Panel did not have

any authority to set an effective date

because section 119(c)(3)(C) states that

the rates become effective as set forth in

the Librarian’s order. SBCA Petition to

Modify at 46. Further, SBCA argues that

the effective date of the new rates must

be prospective only. Id. at 47. It notes

that section 119 contemplates

prospective application by discussing

the rates ‘‘to be paid.’’ Id. at 48–49

(citing section 119(c)(3)(A) and the 1988

House Report to the Satellite Home

Viewer Act). SBCA argues that the

caselaw prevents retroactive application

of agency rulemaking unless the

enabling statute expressly states

otherwise, and submits that the

Librarian’s order in this proceeding

effectively constitutes a rulemaking

because the Copyright Office’s rules are

being amended to reflect the new rates.

Id. at 50–51.

Additionally, SBCA argues that

applying the July 1, 1997, effective date

would cause substantial harm to the

satellite industry. Id. at 55. SBCA

submits affidavits of representatives of

the satellite industry discussing their

inability to adequately inform their

subscribers on a timely basis of the rate

increase, and the difficulty of adjusting

distribution contracts to accommodate

fee increases. Id. at attachment A.

Finally, SBCA takes the Librarian to

task for not complying precisely with

the procedural schedule established in

the statute for this proceeding.

Specifically, SBCA contests the

Library’s decision to temporarily

suspend the schedule to address issues

raised by ASkyB, so that the CARP was

initiated on March 3, 1997, as opposed

to January 1, 1997, as contemplated in

section 119(c)(3)(A). SBCA argues that

because the Library violated the time

requirement of section 119(c)(3)(A), and

such delay caused substantial harm to

satellite carriers, ‘‘the Panel’s report

should be invalidated on due process

grounds, particularly with respect to the

prejudicial effective date directly

resulting from the Librarian’s failure to

comply with a critically important

statutory requirement.’’ Id. at 55 (citing

Baumgardner v. Secretary, Dept. of

Housing and Urban Development, 960

F.2d 572 (6th Cir. 1992).

Copyright Owners assert that they

have interpreted section 119 from the

beginning of this proceeding as

requiring an effective date of July 1,

1997, for the new rates, and that SBCA

never challenged that position until

now, thereby estopping SBCA from

raising the issue. Copyright Owners

Reply at 42–43. Copyright Owners also

argue that the Librarian’s good cause

delay in commencing this proceeding

does not invalidate it, and that the cases

cited by SBCA are inapposite. Id. at 44–

45. Copyright Owners also attach an

accompanying motion to strike the

affidavits offered by SBCA to

corroborate its argument that the July 1

effective date will cause undue hardship

on satellite carriers. SBCA opposes this

motion.

3. Recommendation of the Register

Section 119(c)(3)(C) provides that:

The obligation to pay the royalty fee

established under a determination which—

(i) is made by a copyright arbitration

royalty panel in an arbitration proceeding

under this paragraph and is adopted by the

Librarian of Congress under section 802(f), or

(ii) is established by the Librarian of

Congress under section 802(f) shall become

effective as provided in section 802(g) or July

1, 1997, whichever is later. 17 U.S.C.

119(c)(3)(C). Clause (i) of section 119(c)(3)(C)

described the situation where the Librarian

adopts the decision of the CARP, while

clause (ii) describes the situation where the

Librarian has rejected the CARP’s decision

and substituted his own determination.15

The effective date of the established rates is

either July 1, 1997, or the date set pursuant

to section 802(g), whichever date is later.

Section 802(g) governs judicial review

of the Librarian’s decision in this

proceeding. The section gives ‘‘any

aggrieved party who would be bound by

the [Librarian’s] determination,’’ 30

days in which to notice an appeal with

the United States Court of Appeals for

the District of Columbia Circuit. The

section then provides that ‘‘[i]f no

appeal is brought within such 30-day

period, the decision of the Librarian is

final, and the royalty fee * * * shall

take effect as set forth in the decision.’’

(emphasis added). Section 802(g) then

provides that if an appeal is taken,

‘‘[t]he pendency of an appeal under this

paragraph shall not relieve persons

obligated to make royalty payments

under section ( ) * * * 119 * * *’’

Nothing else is said in section 802(g)

with regard to the possible effective date

of royalty rates.

SBCA and Copyright Owners strongly

disagree over the effective dates of the

royalty rates established in this

proceeding. SBCA believes that the

effective date can be no sooner than 30

days after the Librarian’s decision (i.e.

November 26, 1997) at which time it

will be known whether or not the

Librarian’s decision is final, while the

Copyright Owners maintain that July 1,

1997, is the proper effective date. The

Register has examined the governing

language of sections 119(c)(3)(C) and

802(f), and notes an incongruity with

respect to the July 1, 1997, date.

Section 119(c)(3)(A) provides that this

proceeding was supposed to have

started on January 1, 1997. Given the

180-day arbitration period, as provided

by section 802(e), the latest the Panel

could have delivered its report would

have been June 29, 1997. The Librarian

would then have the 60-day review

period in which to either accept or

reject the Panel’s decision, which would

place the date of final agency action at

no later than August 28, 1997. This is

almost two months after July 1, 1997.

While Congress could have

contemplated the Librarian completing

his review in less than 60 days, it is

hard to imagine that Congress could

have expected him to complete it in just

one day: the time period from delivery

of the Panel’s report on June 29 to the

issuance of the Librarian’s decision on

July 1, 1997. The more likely

explanation is that Congress envisioned

the CARP delivering its report well

before—at least two months—the 180-

day deadline. Only in this manner could

the Librarian have issued a decision that

was before July 1, 1997, thereby

justifying inclusion of the language

‘‘July 1, 1997,’’ and ‘‘whichever date is

later’’ in section 119(c)(3)(C).

Contrary to the assertions of the

Copyright Owners, July 1, 1997, is not

the statutorily prescribed effective date

for the new royalty rates announced in

today’s decision. July 1, 1997, is only a

contingency date in the event that this

proceeding had ended before July 1,

1997, which it clearly did not. Rather,

the Register must look to section 802(g),

which provides that the effective date of

the new rates is ‘‘as set forth in the

decision.’’ 17 U.S.C. 802(g). The Register

interprets ‘‘decision’’ to mean the

decision of the Librarian, and not the

decision of the CARP, since section

802(g) only refers to the decision of the

Librarian. Consequently, the Register

concludes that only the Librarian of

Congress has the authority to set the

effective dates of the royalty rates in this

proceeding, and it was contrary to law

for the Panel to announce an effective

date. See Panel Report at 54. The

Register recommends that the Librarian

reject the Panel’s determination of an

effective date.

The remaining issue is, if the Panel

had no authority to set the effective

date, what is the correct effective date

for the Librarian to establish? Neither

the statute, nor the legislative history,

offers any guidance on this point.
Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Rules and Regulations 55755

16Ms. McLaughlin’s testimony was based upon

her projection of what the average cable network

license fees would be for 1997 (26 cents), 1998 (27

cents) and 1999 (28 cents), not the actual figures.

Id. at 19.

Copyright Owners urge the July 1, 1997

date, and submit that SBCA is estopped

from arguing for a later date since SBCA

did not object to Copyright Owners’

request to the Panel for a July 1, 1997,

effective date. Copyright Owners Reply

at 43–44. The Register recommends

rejecting Copyright Owners’ estoppel

argument because the Panel did not

have authority to set the effective date,

and the matter is now being properly

raised before the Librarian for the first

time.

Copyright Owners also contend that

July 1, 1997, must be the date because

the evidence it presented to the Panel,

particularly the PBS/McLaughlin

testimony, was premised on a July 1,

1997, date. Id. at 42. According to

Copyright Owners, if the Librarian

adopts an effective date of January 1,

1998, he would have to increase the 27

cent fee to reflect the Panel’s

understanding of a thirty-month

effective period for the new rates. Id. at

42–43.

The Register recommends rejection of

Copyright Owner’s contention for two

reasons. First, the Panel accepts Ms.

McLaughlin’s testimony as a general

matter to establish a workable

benchmark. Panel Report at 31. The

Panel did not accept her testimony, and

its accompanying premises and

assumptions, as the precise analysis of

what the royalty rates should be. Id.

Furthermore, although the Panel stated

that ‘‘Ms. McLaughlin’s analysis yielded

a rate of $0.27 per subscriber per month

averaged over the three year statutory

period,’’ Panel Report at 30, a July 1

effective date accounts for only half of

the year, and Ms. McLaughlin did not so

limit her testimony. PBS Proposed

Findings of Fact and Conclusions of

Law at 18–19.16

In the Register’s view, an effective

date later than July 1, 1997, does not

significantly undermine the Panel’s use

of the 27 cent benchmark generally, or

its later decision to adopt that figure

specifically, nor does a later effective

date require an upward adjustment.

The second, and most significant,

reason for not setting the effective date

at July 1, 1997, involves the issue of

retroactive rulemaking. Although the

Librarian’s decision today involves

review of the Panel’s determination, it is

also a final rule with respect to setting

the rates. The Copyright Office has

previously determined that it lacks the

authority to engage in retroactive

rulemaking. 54 FR 14217 (1989). The

United States Court of Appeals for the

District of Columbia Circuit, the only

court with jurisdiction to consider an

appeal of today’s decision, has expressly

held that the Copyright Act does not

confer retroactive rulemaking authority.

Motion Picture Ass’n of America, Inc. v.

Oman, 696 F.2d 1154, 1156 (D.C. Cir.

1992). The Register does not believe that

the Librarian has the authority to set an

effective date for the new royalty rates

which is prior to the issuance of today’s

decision.

Given this limitation, the issue still

remains regarding the proper effective

date. Copyright owners obviously desire

an effective date as soon as possible, so

that they may reap the benefits of the

higher rates. There are, however,

significant administrative

considerations surrounding

implementation of the new rates.

Satellite royalty rates are calculated on

a monthly basis, so that an effective date

other than the first day of a month will

require application of two sets of royalty

rates (the old rates and the new rates) to

one monthly calculation. The Register

finds this not only burdensome to

satellite carriers calculating the rates,

but to the Copyright Office as well in

administering the section 119 license

and examining the statement of account.

The Register, therefore, counsels against

adopting an effective date that is other

than the first day of a month.

Also, there are significant costs to the

Copyright Office associated with

implementing the new rates. New

statement of account forms must be

created and sent to satellite carriers, and

staff must be trained to examine for

application of the new rates. The

Register notes that satellite statements of

account for the second accounting

period of 1997 are due to be filed no

later than January 30, 1998. 27 CFR

201.11(c). An effective date in the

second accounting period of 1997

would cause significant burden and

hardship to the Copyright Office to

prepare to collect royalties and issue

and process statements of account

generated by the new royalty fees by the

January 30, 1998, due date.

Consequently, the Register recommends

that the new royalty rates, adopted in

today’s decision, not be effective until

January 1, 1998.

In recommending a January 1, 1998,

effective date, the Register draws

support from section 119(c)(3)(C). As

discussed above, Congress apparently

contemplated the possibility of the

issuance of a final decision in this

proceeding before (perhaps even well

before) July 1, 1997. Congress could

have chosen simply to make the

decision effective on the date of

adoption, but instead chose July 1, 1997,

as the later effective date. July 1 is the

first day of an accounting period which,

has the final decision issued on or

before that date, would have allowed

the Copyright Office ample time to

prepare for implementation of the new

rates. Because today’s decision is

issuing only two months from the end

of the 1997/2 accounting period, a

January 1, 1998, effective date is

consistent with Congressional intent.

The parties have raised two other

issues, discussed above, which the

Register briefly addresses. First, SBCA

alleges that because initiation of the

CARP was delayed 2 months to enable

the Librarian to rule on the matter of

whether local retransmissions should be

a part of this proceeding, the entire

proceeding is invalid. The Register

agrees with Copyright Owners that the

cases cited by SBCA for this rather

remarkable contention are inapposite.

United States v. Amdahl Corp., 786 F.2d

387 (Fed. Cir. 1986) involved a contract

entered into by the Treasury Department

that was statutorily outside the scope of

its authority. Contracting outside the

scope of authority differs significantly

from postponing procedural dates for

good cause. Albenga v. Ward, 635 F.

Supp. 660 (S.D.N.Y. 1986) involved an

agency that created rules beyond its

authority. Again, this is significantly

different. Finally, Baumgardner v.

Secretary, Dept. of Housing and Urban

Development, 960 F.2d 572 (6th Cir.

1992) involved the failure of an agency

to timely deliver an accurate complaint.

As SBCA notes, the court in this case

did not find the agency action

invalidated because the delay was not

sufficiently prejudicial. The Register

cannot find any convincing evidence of

irreparable prejudice incurred by SBCA

as a result of the brief delay, particularly

where the Register is recommending a

January 1, 1998, effective date.

Furthermore, the Register notes that

the same claim of invalidity has been

raised in a Copyright Royalty Tribunal

proceeding, and expressly rejected by

the D.C. Circuit. The Court stated: ‘‘It

would be irrational and wholly

unprecedented for a court to direct an

agency to scrap a year’s hearings and

decisionmaking effort and start over

because its proceeding did not conclude

precisely on time.’’ National Cable

Television Ass’n, Inc. v. CRT, 724 F.2d

176, 189 n. 23 (D.C. Cir. 1983). The

Register agrees with this view, and

recommends rejection of SBCA’s

argument.

Second, in support of its position that

satellite carriers would be unduly

harmed by a July 1, 1997, effective date,

SBCA submitted affidavits of satellite
55756 Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Rules and Regulations

17 ‘‘DTH’’ stands for ‘‘direct to home.’’

representatives. Copyright Owners

moved to strike these affidavits, and

SBCA opposed. The Register’s

recommendation of a January 1, 1998,

effective date has mooted the issue. The

Register does recommend, however, that

the affidavits be stricken. The record is

closed in this proceeding by order of

August 14, 1997, section 251.55 does

not permit submission of additional

evidence. Although the matter of the

effective date is for the Librarian, and

not the CARP, to decide, such affidavits

could only be accepted if the Librarian

determined that the record needed to be

reopened to take additional testimony.

Since the matters discussed in SBCA’s

affidavits are moot, the Register

recommends that they be stricken.

G. Additional Issues Raised by SBCA

SBCA raises several additional issues

in its Petition to Modify. Because these

issues all relate to evidence not adduced

during the course of the proceeding, and

the weight to be accorded evidence that

was adduced, they are addressed

together.

1. The first issue involves the history

of retransmission consent negotiations

under the communications law. Under

retransmission consent, an MVPD must

obtain the permission of a broadcaster

before the MVPD can retransmit the

broadcaster’s signal to the MVPD’s

subscribers. Retransmission consent

negotiations took place between the

cable industry and broadcasters in 1993

and 1996. SBCA attempted to show that

little compensation was obtained by

broadcasters for permission to

retransmit their signals in an effort to

prove that the fees under the section 111

license represent actual fair market

value. The Panel stated that ‘‘[w]e agree

that these retransmission consent

negotiations are relevant to a

determination of fair market value and

represent potentially probative

evidence. Unfortunately, the evidence

adduced is so vague and replete with

qualifiers as to provide little guidance.’’

Panel Report at 34. The Panel noted

cross-examination testimony of Ms.

McLaughlin and Mr. Gerbrandt

indicating that some compensation was

paid, but also noted that Mr. Shooshan’s

and Mr. Haring’s testimony discussed

retransmission consent negotiations

only in the context of local, and not

distant, retransmissions. Id. at 35. The

Panel concluded that the ‘‘testimony

upon which SBCA relies lacks sufficient

scope and specificity to rebut or modify

the PBS-McLaughlin analysis.’’ Id.

SBCA submits that it could not

present further evidence on the

compensation received by copyright

owners and broadcasters for

retransmission consent negotiations

because ‘‘discovery procedures do not

allow the Carriers to determine those

amounts.’’ SBCA Petition to Modify at

35. SBCA asserts that the failure to

present such information ‘‘should not be

then turned against the Carriers to say

that the retransmission consent

negotiations cannot be properly

quantified.’’ Id.

Copyright Owners contend that the

Panel correctly evaluated the evidence

of retransmission consent negotiations

and found it unavailing in making an

adjustment to the benchmark. Copyright

Owners Reply at 27–31.

2. The second issue involves the issue

of the costs incurred by cable networks

in assembling the clearances for their

programming. SBCA attempted to show

at hearing that copyright owners do not

have costs in the broadcast signal

retransmission context, and therefore an

appropriate downward adjustment of

the benchmark must be made. The Panel

stated that the clearance costs in the

cable network arena are unknown, but

did not agree that a downward

adjustment of the benchmark was

required:

In a hypothetical free market, it is quite

conceivable that the higher the costs

broadcasters must pay to clear their signals

for DTH17 distribution, the higher the royalty

rates they would charge satellite carriers.

Accordingly, the impact of high clearance

costs on fair market value (based upon a

hypothetical free market analysis) could be

positive rather than negative. No adjustment

to the cable network benchmark is required.

Panel Report at 41.

SBCA argues that it could not

determine the costs to copyright owners

for clearances of cable networks since

such information was not within the

scope of discovery, and therefore one

should not assume, as the Panel did,

that such costs could automatically be

shifted to satellite carriers. SBCA

Petition to Modify at 30.

Likewise, SBCA argues that it could

not quantify at hearing the added

benefit that satellite retransmission

gives copyrighted programming (digital

picture quality, inclusion in electronic

guides) because of ‘‘the absence of any

ability to take discovery.’’ Id. at 31–32.

The Panel determined that ‘‘no

quantifiable benefit was identified and

no evidence adduced’’ to demonstrate

added value by satellite

retransmission.’’ Panel Report at 40.

SBCA asserts that ‘‘the Panel held the

Carriers to an unworkable standard of

proof.’’ SBCA Petition to Modify at 32.

In reply, Copyright Owners contend

that the Panel acted correctly. Copyright

Owners Reply at 24–27.

3. A third issue involves quantifying

the effect on advertising revenues and

superstation fees of satellite

retransmissions of broadcast signals.

SBCA asserts that they quantified ‘‘as

well as could be in a regime which

denies discovery’’ that advertising

revenues are higher because copyright

owners known that their programming

reaches a wider audience due to satellite

retransmission. SBCA Petition to

Modify at 36. Likewise, SBCA asserts

that ‘‘superstation taxes’’—the amounts

charged to broadcasters by copyright

owners—are greater, particularly in the

sports context, because copyright

owners know that satellite

retransmissions result in greater

viewership. Id. at 37–38. SBCA

presented evidence that both the

professional baseball and basketball

leagues extracted additional

compensation from WGN in Chicago

and WTBS in Atlanta—both

superstations known to be widely

distributed on satellite—though the

amount was not quantified. SBCA

Proposed Findings of Fact and

Conclusions of Law at 72–73.

The Panel addressed the potential for

increased advertising revenue due to

satellite retransmissions, stating:

The fundamental mission of broadcasters is

to expand their audiences to maximize

advertising revenues. At their own expense

and risk, the satellite carriers developed a

DTH market which expands the broadcasters

[sic] reach at no cost to the broadcasters.

However, we agree that no empirical

evidence demonstrating an increase in

advertising revenues was adduced. Though

the broadcasters (and hence the copyright

owners) clearly benefit from expanded reach,

these benefits may not be amenable to

measurement and quantification. The

copyright owners further argue that because

most basic cable networks also advertise, to

the extent that broadcasters to benefit from

expanded reach, the benefit is already

reflected in the cable network benchmark.

We agree to a point. Broadcast stations rely

upon advertising revenue to a much greater

extent than do cable networks (excepting

those cable networks which command very

low or even negative royalty fees). It

naturally follows that the benefits which

accrue to broadcasters have not been fully

reflected in the cable network benchmark

price. Though some downward adjustment

from the copyright owners general approach

seems appropriate, we are unable to quantify

such an adjustment. However, our decision

to adopt the most conservative approach

(PBS-McLaughlin) reflects this consideration.

Panel Report at 36–37. The Panel did

not use the term ‘‘superstation tax’’ in

its discussion.
Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Rules and Regulations 55757

18Regarding the economic impact of royalty fees

on copyright owners, the Panel stated that ‘‘[t]he

parties devoted little hearing time to this issue.’’

Panel Report at 46. The Panel did ‘‘accept the

obvious, general notion that higher royalty rates

provide greater incentive to copyright owners while

lower rates would render broadcast stations a

‘ * * * less attractive vehicle at the margin for

program supplies.’ ’’ Id. (citation omitted).

SBCA complains that the Panel

ignored its evidence of increased

revenues from satellite retransmissions,

and that it is ‘‘no excuse that the

[o]wners refused to divulge the extent of

the compensation.’’ SBCA Petition to

Modify at 38. SBCA asserts that not

subtracting this added value from the

benchmark would result in ‘‘vastly

overcompensat[ing]’’ copyright owners.

Id.

In reply, Copyright Owners assert that

the Panel correctly determined that,

while such revenues might conceptually

result in a downward adjustment, SBCA

failed to quantify such an adjustment.

Copyright Owners Reply at 31.

4. The fourth issue concerns the

impact of increased royalty fees on the

satellite industry and the continued

availability of retransmitted broadcast

signals. The Panel accepted Ms.

McLaughlin’s testimony that the 27 cent

fee would not significantly adversely

impact satellite:

Although Ms McLaughlin did not perform

a demand elasticity study, she testified that

after the 1992 rate increases, the number of

broadcast stations retransmitted and the

percentage of satellite subscribers to

retransmitted broadcast signals remained

constant. She concluded that despite an

increase in the compulsory license rate to

$0.27 per subscriber per month, the number

of subscribers to retransmitted broadcast

stations would continue to grow at

substantially the same rate as the number of

satellite subscribers generally. Ms.

McLaughlin also examined the retail prices

charged by satellite distributors and

concluded that if the rates for retransmitted

broadcast signals were increased to $0.27 per

subscriber per month and not passed on to

subscribers, those rates would constitute only

30% of the average retail prices charged to

subscribers leaving sufficient profit margin

for the satellite carriers to avoid significant

adverse impact to them or their subscribers.

Again, we recognize that any rate increase,

particularly if rates are set above those paid

by their entrenched competitor, tends to

adversely impact the satellite carriers.

However, the satellite carriers did not

attempt to quantify the impact of increased

rates and adduced no credible evidence that

the availability of secondary transmissions

would be interrupted. Accordingly, we

conclude that a rate increase to $0.27 per

subscriber per month would have no

significant adverse impact upon the satellite

carriers or the availability of secondary

transmissions to the public.

Panel Report at 46–47 (citations

omitted).

SBCA contends that the Panel had no

evidence upon which to base its

conclusion that a dramatic rate increase

would not adversely affect satellite

carriers and their subscribers. SBCA

Petition to Modify at 42. Rather, SBCA

asserts, the evidence, including that

relied upon by Ms. McLaughlin, ‘‘shows

that satellite carriers have yet to earn a

profit, especially in the DBS market, and

that the C-Band market is waning.’’ Id.

SBCA notes that Ms. McLaughlin did

not perform a demand elasticity analysis

for increased rates, and that her

testimony that the 1992 rate increase

did not impact subscriptions or the

number of signals carried was not based

upon anything in the record. Id. at 42–

43. SBCA also mentions that the 1992

panel reduced its initial rate increase

because of a concern for disruptive

impact. 57 FR 19061.

SBCA also charges that the Panel

ignored its evidence regarding the

disruptive impact of a rate increase. It

points to the testimony of Mr. Parker

who stated that there is a limit on the

package rate to be charged consumers,

and that satellite carriers have

traditionally gone back to cable

networks to demand concessions in

order to keep prices down. SBCA

Petition to Modify at 44. SBCA argues

that any increases in the rates should be

examined in light of the impact lower

fees would have on copyright owners.

According to SBCA, there is no

evidence that suggests that the current

fees of section 119 have any adverse

impact on the copyright and broadcast

industries. Id. at 45.18

In reply, Copyright Owners assert that

it was completely within the discretion

of the Panel to accord weight to Ms.

McLaughlin’s testimony that satellite

carriers would not be adversely

impacted by the increased royalty rates.

Copyright Owners Reply at 36.

Copyright Owners argue that Mr.

Parker’s testimony is nonspecific, and

that the testimony of Mr. Edwin Desser

and Mr. James Trautman show that

satellite carriers are owned by large

corporate enterprises that can well

afford the proposed rate increase. Id. at

39–40.

Recommendation of the Register

The Register is addressing these four

arguments presented by SBCA together

because they contain a common thread:

the absence of evidence adduced before

the Panel and, where evidence was

produced, the weight and sufficiency to

be accorded it.

Given the limited scope of the

Librarian’s review in this proceeding,

‘‘the Librarian will not second guess a

CARP’s balance and consideration of the

evidence, unless its decision runs

completely counter to the evidence

presented to it.’’ 61 FR 55663 (Oct. 28,

1996) (citing Motor Vehicle

Manufacturers Ass’n v. State Farm

Mutual Auto Insurance Co., 463 U.S. 29,

43 (1983). In the case of the impact of

a rate increase on the satellite industry,

the Panel chose to accord weight to Ms.

McLaughlin’s testimony that her

proposed rate increase would not

adversely affect the satellite industry,

rather than Mr. Parker’s testimony. It

was clearly within the Panel’s discretion

to do so. There is record testimony that

supports the Panel’s conclusion, and the

Librarian’s review need go no further.

Recording Industry Ass’n of America,

Inc. v. CRT, 662 F.2d 1, 14 (D.C. Cir.

1981) (decision must be upheld where

decisionmaker’s path may reasonably be

discerned).

The remaining issues contested by

SBCA—the impact of retransmission

consent negotiations, added value from

digital picture/electronic guides and

avoidance of clearance costs, and

increased advertiser revenue and

compensation from expanded markets—

predominately involve the matter of

evidence not presented to the CARP. In

essence, SBCA contends that if the

discovery rule of 37 CFR 251.45(c)(1)

were broader, if could have presented

evidence to the Panel on these issues

that would have caused the Panel to

reduce the 27 cent royalty fee. Instead,

according to SBCA, the Panel punished

it for failure to present the necessary

evidence to quantify the reductions, and

the 27 cent rate, consequently, is

unfairly high.

Section 251.45(c)(1) of the rules

provides that, after the exchange of the

written direct cases, a party ‘‘may

request of an opposing party

nonprivileged underlying documents

related to the written exhibits and

testimony.’’ 37 CFR 251.45(c)(1). The

Librarian has clarified that discovery is

limited in CARP proceedings:

Discovery in CARP proceedings is

intended to produce only the documents that

underlie the witness’ factual assertions. It is

not intended to augment the record with

what the witness might have said or put

forward, or to range beyond what the witness

said. Any augmentation of the record is the

prerogative of the arbitrators, not the parties.

Order in Docket No. 94–3 CARP CD 90–

92, 1–2 (October 30, 1995). There are

several reasons for the limited discovery

practice. CARP proceedings are

relatively short in duration (180 days)

and, like this proceeding, begin and end

according to statutorily specified

deadlines. There is not sufficient time to

conduct wide-ranging discovery,
55758 Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Rules and Regulations

19SBCA does cite a statement of FCC

Commissioner Dennis that broadcasters might have

to bear these costs. SBCA Petition to Modify at 30

(citing ‘‘In re Compulsory Copyright License for

Cable Retransmissions,’’ 4 FCC Rcd. 6711 (1989)

(Commissioner Dennis, concurring). However,

Commissioner Dennis’ statement is speculative,

describing what might happen to broadcasters ‘‘in

some cases,’’ 4 FCC Rcd. at 6711, and is far from

conclusive evidence.

20 In fact, the Panel did not make any change to

the benchmark for clearance costs.

particularly where, as in the case, the

litigation is quite complex and involves

the technically-oriented testimony of

numerous witnesses. There are also cost

considerations. Broad discovery rules

would considerably increase the cost of

CARP proceedings, without necessarily

producing a corresponding increase in

the quality of the evidentiary

presentations. The parties may,

therefore, as of right only request

documents which underlie a witness’s

factual assertions.

The rules do not, however, prohibit a

party, once the CARP has begun, from

petitioning the Panel to take discovery

on an issue or issues that it believes are

critical to the resolution of the

proceeding. As noted above,

augmentation of the record is the

prerogative of the CARP, and the Panel

has the discretion to decide whether or

not to allow additional discovery

beyond that of section 251.45(c)(1). See

37 C.F.R. 251.42 (CARP may waive the

rules upon a showing of good cause).

SBCA complains that the Panel might

have reduced the royalty rates based on

the issues it raised had it allowed

additional discovery. Yet, SBCA never

petitioned the Panel to take such

discovery. The Panel cannot be faulted

for not reopening the record and

allowing additional discovery when it

was asked to do so. See National Ass’n

of Broadcasters v. CRT, 772 F.2d 922,

936–937 (D.C. Cir. 1985) (claimant

failed to petition Tribunal to allow it to

adduce additional evidence regarding

opposing party’s alleged lack of

copyright ownership).

The issue remains as to whether the

Panel should have reopened the record,

on its own motion, and allowed SBCA

to take discovery on the issues it rates:

i.e. whether it was arbitrary for the

Panel not to do so. In the Register’s

view, the Panel did not act arbitrarily.

Regarding the value of retransmission

consent negotiations, the Panel found

that Ms. McLaughin, and Messrs.

Gerbrandt, Shooshan and Harin offered

testimony regarding the probative value

of retransmission consent negotiations

on the fair market value of retransmitted

broadcast signals. Panel Report at 34–

35. The Panel found this testimony to be

unsupportive of the proposition that

retransmission consent negotiations

affected the fair market value analysis.

Id. at 35. Because there is record

evidence to support the Panel’s

determination, the Panel did not act

arbitrarily.

With regard to the purported added

value to broadcast signals by satellite

retransmission in digital format, and

attractive electronic guides provided the

subscribers, the Panel determined that

‘‘no quantifiable benefit was identified

and no evidence adduced that this

benefit would materially affect fair

market value * * *.’’ Panel Report at

40. As the Copyright Owners correctly

point out, any added value from digital

picture quality and electronic guides

would occur for both broadcast and

cable network programming. Copyright

Owners Reply at 25. SBCA could have

presented evidence that demonstrated

that satellite carriers pay a lower fee for

licensing cable networks as a result of

digital picture quality and electronic

guides provided by the carriers. Such

evidence, if it exists, is in the sole

possession of the satellite carriers.

SBCA presented no such evidence. The

Panel, therefore, cannot be faulted from

finding no evidence to support added

value from these items.

Regarding clearance costs saved by

broadcasters and copyright owners from

satellite retransmissions, the Panel

stated:

SBCA further argues that in a free market,

it would be virtually impossible for satellite

carriers to negotiate directly with every

copyright owner of every program contained

in each day’s signal they retransmit.

Accordingly, they reason, broadcasters would

invariably by compelled by market forces to

clear all rights and negotiate with satellite

carriers for retransmission of their entire

signals. Those costs which the broadcasters

would incur in purchasing the clearances are

unknown. Hence, SBCA concludes that the

section 119 rates should not be raised

without considering the broadcasters’ cost

savings. We tend to agree with both of

SBCA’s premises but not its conclusion. In a

hypothetical free market, it is quite

conceivable that the higher the costs

broadcasters must pay to clear their signals

for DTH distribution, the higher the royalty

rates they would charge satellite carriers.

Accordingly, the impact of higher clearance

costs on the fair market value (based upon a

hypothetical free market analysis) could be

positive rather than negative. No adjustment

to the cable network benchmark is required.

Panel Report at 41.

SBCA contends that Copyright

Owners never put on any evidence

demonstrating their cost savings, and it

should not therefore be presumed that

clearance costs would be passed on to

satellite carriers. SBCA Petition to

Modify at 30. SBCA’s argument,

however, is one of emphasis rather than

evidence. SBCA asked the Panel to

quantify what the average cost might be,

in a hypothetical market, for clearance

costs, and how satellite carriers and

broadcasters might allocate such costs.

Not surprisingly, SBCA does not

indicate what, if any evidence, would

conclusively demonstrate what such

costs might be, or who might bear

them.10 It is not reversible error for the

Panel to reason that in a marketplace

which does not exist, clearance costs

might have a positive effect on the cable

network benchmark, rather than a

negative one.20

Finally, with regard to the purported

increase in advertising revenues and

compensation from expanding coverage

of broadcast signals by satellite

retransmission, the Panel found that it

could not quantify any potential

reductions of the cable network

benchmark. Panel Report at 37. While

allowing SBCA expanded discovery on

these points might have assisted the

Panel in quantifying a downward

adjustment to the cable network

benchmark, the Register cannot

determine anything in the record that

compelled it. Furthermore, the Panel

did conclude that its choice of the

‘‘conservative’’ PBS/McLaughlin cable

network benchmark reflected its

inability to quantify any increased

advertising revenues that copyright

owners might receive from expanded

markets through satellite

retransmission. Id. In the Register’s

view, the Panel’s action was the product

of rational decisionmaking.

H. Conclusion

Having fully analyzed the record in

this proceeding and considered the

contentions of the parties, the Register

recommends that the Librarian of

Congress adopt the royalty rate, effective

January 1, 1998, of 27 cents per

subscriber per month for retransmission

of any distant superstation and network

signals by satellite carriers to

subscribers for private home viewing.

In addition, the Register recommends

that the Librarian not adopt any royalty

fee for the local retransmission of

superstation signals, as defined under

17 U.S.C. 119(d)(11), and for the local

retransmission of a network signal, as

defined under § 119(d)(11), to any

subscriber residing in an unserved

household, as defined in § 119(d)(10).

Finally, the Register recommends that

the petition to modify the Panel’s

decision filed by EchoStar be dismissed,

and the motion of Copyright Owners to

dismiss attachment A of SBCA’s

petition to modify (and the
Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Rules and Regulations 55759

accompanying argument and

discussion) be granted.

Order of the Librarian

Having duly considered the

recommendation of the Register of

Copyrights regarding the Report of the

Copyright Arbitration Royalty Panel in

the matter of the adjustment of the

royalty rates for the satellite carrier

compulsory license, 17 U.S.C. 119, the

Librarian of Congress fully endorses and

adopts here recommendation to accept

the Panel’s decision in part and reject it

in part. For the reasons stated in the

Register’s recommendation, the

Librarian is exercising his authority

under 17 U.S.C. 802(f) and is issuing

this order, and amending the rules of

the Library and the Copyright Office,

announcing the new royalty rates for the

section 119 compulsory license.

The Librarian is also dismissing the

petition to modify filed by EchoStar,

and is dismissing the affidavits

contained in attachment A of SBCA’s

petition to modify, and the

accompanying discussion and

argument.

List of Subjects in 37 CFR Part 258

Copyright, Satellites, Television.

Final Regulation

In consideration of the foregoing, the

Library of Congress amends part 258 of

37 CFR as follows:

PART 258—ADJUSTMENT OF

ROYALTY FEE FOR SECONDARY

TRANSMISSIONS BY SATELLITE

CARRIERS

1. The authority citation for part 258

continues to read as follows:

Authority: 17 U.S.C. 702, 802.

2. Section 258.3 is revised to read as

follows:

§ 258.3 Royalty fee for secondary

transmission of broadcast stations by

satellite carriers.

(a) Commencing May 1, 1992, the

royalty rate for the secondary

transmission of broadcast stations for

private home viewing by satellite

carriers shall be as follows:

(1) 17.5 cents per subscriber per

month for superstations.

(2) 14 cents per subscriber per month

for superstations whose signals are

syndex-proof, as defined in § 258.2.

(3) 6 cents per subscriber per month

for network stations and noncommercial

educational stations.

(b) Commencing January 1, 1998, the

royalty fee for secondary transmission of

broadcast stations for private home

viewing by satellite carriers shall be as

follows:

(1) 27 cents per subscriber per month

for distant superstations.

(2) 27 cents per subscriber per month

for distant network stations.

(3) No royalty rate (zero) for a

superstation secondarily transmitted

within the station’s local market, as

defined in 17 U.S.C. 119(d)(11).

(4) No royalty rate (zero) for a network

station secondarily transmitted within

the station’s local market, as defined in

17 U.S.C. 119(d)(11), to subscribers

residing in unserved households, as

defined in 17 U.S.C. 119(d)(10).

Dated: October 23, 1997.

So Ordered.

James H. Billington,

The Librarian of Congress.

[FR Doc. 97–28543 Filed 10–27–97; 8:45 am]

BILLING CODE 1410–33–M

DEPARTMENT OF DEFENSE

DEPARTMENT OF TRANSPORTATION

Coast Guard

DEPARTMENT OF VETERANS

AFFAIRS

38 CFR Part 21

RIN 2900–AI69

Miscellaneous Educational Revisions

AGENCIES: Department of Defense,

Department of Transportation (Coast

Guard), and Department of Veterans

Affairs.

ACTION: Final rule.

SUMMARY: This document amends the

educational assistance and educational

benefit regulations of the Department of

Veterans Affairs (VA). It removes a

number of provisions that no longer

apply or otherwise have no substantive

effect, and makes other changes for the

purpose of clarification.

DATES: This final rule is effective

October 28, 1997.

FOR FURTHER INFORMATION CONTACT: June

C. Schaeffer, Assistant Director for

Policy and Program Administration,

Education Service, Veterans Benefits

Administration, 202–273–7187.

SUPPLEMENTARY INFORMATION: This

document affects 38 CFR part 21,

subparts C, D, G, H, K, and L. It removes

provisions that are obsolete, duplicative,

or otherwise without substantive effect,

and makes changes for the purpose of

clarification. This document makes no

substantive changes. Accordingly, there

is a basis for dispensing with prior

notice and comment and delayed

effective date provisions of 5 U.S.C. 552

and 553.

The Department of Defense (DOD) and

VA are jointly issuing this final rule

insofar as it relates to the Post-Vietnam

Era Educational Assistance Program

(VEAP) and the Educational Assistance

Test Program (EATP). These programs

are funded by DOD and administered by

VA. DOD, the Department of

Transportation (Coast Guard), and VA

are jointly issuing this final rule insofar

as it relates to the Montgomery GI Bill—

Selected Reserve program. This program

is funded by DOD and the Coast Guard,

and is administered by VA. The

remainder of this final rule is issued

solely by VA.

The Secretary of Defense, the

Commandant of the Coast Guard, and

Acting Secretary of Veterans Affairs

hereby certify that this final rule will

not have a significant economic impact

on a substantial number of small entities

as they are defined in the Regulatory

Flexibility Act, 5 U.S.C. 601–612. This

final rule makes no substantive changes.

Pursuant to 5 U.S.C. 605(b), this final

rule, therefore, is exempt from the

initial and final regulatory flexibility

analyses requirements of sections 603

and 604.

The Catalog of Federal Domestic

Assistance numbers for programs

affected by this final rule are 64.117,

64.120, and 64.124. This document also

affects the Montgomery GI Bill—

Selected Reserve program which has no

Catalog of Federal Domestic Assistance

number.

List of Subjects in 38 CFR Part 21

Administrative practice and

procedure, Armed forces, Civil rights,

Claims, Colleges and universities,

Conflict of interests, Education,

Employment, Grant programseducation, Grant programs-veterans,

Health care, Loan programs-education,

Loan programs-veterans, Manpower

training programs, Reporting and

recordkeeping requirements, Schools,

Travel and transportation expenses,

Veterans, Vocational education,

Vocational rehabilitation.