[Federal Register Volume 61, Number 88 (Monday, May 6, 1996)]
[Proposed Rules]
[Pages 20197-20199]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11226]



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LIBRARY OF CONGRESS

Copyright Office

37 CFR Ch. II

[Docket No. 96-2]


Eligibility for the Cable Compulsory License

AGENCY: Copyright Office, Library of Congress.

ACTION: Notice of inquiry.

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SUMMARY: The Copyright Office of the Library of Congress is opening a 
rulemaking proceeding to consider the eligibility for the cable 
compulsory license of open video systems of telephone companies which 
retransmit broadcast signals. The Office requests interested parties to 
submit comments as to whether, and what extent, open video systems may 
make use of the cable compulsory license.

DATES: Comments should be received on or before July 5, 1996. Reply 
comments are due on or before June 5, 1996.

ADDRESSES: If delivered BY MAIL, fifteen copies of written comments 
should be addressed to Office of the General Counsel, Copyright GC/I&R, 
PO Box 70400, Southwest Station, Washington, DC 20024. If delivered BY 
HAND, fifteen copies of written comments should be brought to: Office 
of the General Counsel, Copyright Office, James Madison Memorial 
Building, Room LM-407, First and Independence Avenue, SE., Washington, 
DC 20540.

FOR FURTHER INFORMATION CONTACT: Marilyn J. Kretsinger, Acting General 
Counsel, or William Roberts, Senior Attorney for Compulsory Licenses, 
Telephone (202) 707-8380 or Telefax (202) 707-8366.

SUPPLEMENTARY INFORMATION:

Background

    Section 111 of the Copyright Act, 17 U.S.C., grants a compulsory 
copyright license to cable television systems for the retransmission of 
over-the-air broadcast stations to their subscribers. In exchange for 
the license, cable operators submit royalty payments, along with 
statements of account detailing their retransmissions, to the Copyright 
Office on a semi-annual basis, which deposits the royalties with the 
United States Treasury in interest bearing accounts for later 
distribution to copyright owners of non-network broadcast programming.
    Cable systems determine their royalty payments according to a 
calculation formula devised by Congress in 1976. 17 U.S.C. 111(d). 
Payments are made based upon a cable system's gross receipts from 
subscribers for the retransmission of broadcast signals. The statute 
subdivides cable systems, based on their gross receipts totals, into 
three categories: Small, medium and large. Small systems pay a fixed 
amount without regard to the number of broadcast signals they 
retransmit, while medium-sized systems pay a royalty within a specified 
range, with a maximum amount, based on the number of signals they 
retransmit.
    Large cable systems, which pay over ninety percent of royalties 
submitted by cable systems, calculate their royalties according to the 
number of distant broadcast signals which they retransmit to their 
subscribers.\1\ These cable systems pay a percentage of their gross 
receipts for each distant signal they retransmit, and different royalty 
rates apply to different signals, depending upon the total number of 
distant signals carried. Determining when a broadcast signal is 
distant, what rate must be applied to it, and the royalty due for the 
signal is, for the most part, determined by reference to the rules and 
regulations of the Federal Communications Commission governing cable 
systems that were in effect on April 15, 1976. Copyright payments under 
section 111 of the Copyright Act today are, therefore, dependent upon 
the manner in which the cable television industry was regulated in 
1976.
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    \1\ For large cable systems which retransmit only local 
broadcast signals, there is still a minimum royalty fee which must 
be paid. This minimum fee is not applied, however, once the cable 
system carries one or more distant signals.
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    Section 111(f) defines a ``cable system'' as follows:

    A ``cable system'' is a facility, located in any State, 
Territory, Trust Territory, or Possession, that in whole or in part 
receives signals transmitted or programs broadcast by one or more 
television broadcast stations licensed by the Federal Communications 
Commission, and makes secondary transmissions of such signals or 
programs by wires, cables, microwave, or other communications 
channels to subscribing members of the public who pay for such 
service. For purposes of determining the royalty fee under 
subsection (d)(1), two or more cable systems in contiguous 
communities under common ownership or control or operating from one 
head-end shall be considered as one system.

17 U.S.C. 111(f).
    At the time of passage of the Copyright Act, the only type of 
retransmission system serving subscribers with broadcast programming 
was traditional wired cable systems regulated as such by the FCC. 
Consequently, it was generally well understood in 1976 what was meant 
by ``cable system'' for purposes of section 111. However, beginning in 
the early to mid-1980's, retransmission services other than traditional 
wired cable systems came into existence. Like traditional wired cable 
systems, these other services were capable of delivering broadcast 
signals to their subscribers, and they sought eligibility for the 
section 111 license.
    The addition of new retransmission providers significantly altered 
the

[[Page 20198]]

complexion of the video marketplace as it existed at the time of 
passage of the Copyright Act. Not only did new faces appear, but the 
FCC of the late 70's and early 80's took a decidedly deregulatory 
stance with respect to the industry. The Commission lifted its distant 
signal and syndicated exclusivity restrictions, see Malrite T.V. of New 
York, Inc. v. FCC, 652 F.2d 1140 (2d Cir. 1981), cert. denied sub. 
nom., National Football League, Inc. v. FCC, 454 U.S. 1143 (1982), 
which formed the bedrock of determining section 111 copyright fees, and 
the Commission's must-carry rules fell to court challenge. See Quincy 
Cable T.V., Inc. v. FCC, 768 F.2d 1434 (D.C. Cir. 1985), cert. denied, 
476 U.S. 1169 (1986) and Century Communications v. FCC, 835 F.2d 292 
(D.C. Cir. 1987), cert. denied, 486 U.S. 1032 (1988). Thus, three sets 
of rules--distant signal carriage, syndicated exclusivity and must-
carry--while still applicable by statute to the compulsory license 
royalty calculation, no longer had a life of their own. The Copyright 
Office has been attempting to deal with the consequences of these 
eliminations ever since.
    With new retransmission providers seeking to use 17 U.S.C. 111, the 
Copyright Office opened a rulemaking proceeding to consider the issue. 
Specifically, the Office considered the eligibility of wireless cable 
systems (MMDS and MDS), satellite master antenna television systems 
(SMATVs), and satellite carriers.\2\ In a Notice of Proposed 
Rulemaking, the Office proposed new regulations that would govern the 
conditions under which SMATVs would qualify for compulsory licensing 
under section 111, announced a preliminary decision that wireless cable 
was not eligible, and a policy decision that satellite carriers were 
not eligible. 56 FR 31580 (July 11, 1991). The Office confirmed that 
wireless cable and satellite carriers were not eligible in final 
regulations. 57 FR 3284 (January 29, 1992).\3\ The decision, with 
respect to satellite carriers, has withstood judicial challenge. See 
Satellite Broadcasting Communications Association v. Oman, 17 F.3d 344 
(11th Cir.), cert. denied, 115 S.Ct. 88 (1994).
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    \2\ The proceeding initially considered the eligibility of only 
SMATVs and wireless cable. 51 FR 36706 (October 15, 1986). The 
comment period was later reopened to consider satellite carriers. 52 
FR 28731 (August 3, 1987).
    \3\ The Office has yet to issue final regulations for SMATVs, 
but has made a preliminary finding that they are eligible for 17 
U.S.C. 111. See 56 FR 31593 (July 11, 1991).
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    In late 1994, Congress passed legislation to overturn the Office's 
final regulations with respect to wireless cable. The Satellite Home 
Viewer Act of 1994, Pub.L.No. 103-369, amended the section 111(f) 
definition of a ``cable system'' to specifically include systems which 
retransmit broadcast programming via microwave. It is now clear that 
wireless cable systems are eligible for section 111. Satellite 
carriers, however, still do not qualify, and must use the license found 
in 17 U.S.C. 119.

Telecommunications Act

    The Copyright Office's SMATV, wireless cable and satellite carrier 
rulemaking proceeding was prompted by a video marketplace in the 80's 
that differed significantly from that of the 70's. It is readily 
apparent that the video marketplace of the 90's and the future will be 
ever more different.
    In February 1996, Congress enacted the Telecommunications Act. 
Pub.L.No. 104-104, 110 Stat. 56 (1996). Among the sweeping reforms and 
actions of this legislation is recognition and authorization of 
telephone company entry into the video marketplace. Section 653 of the 
Communications Act, as amended, now provides that ``[a] local exchange 
carrier may provide cable service to its cable service subscribers in 
its telephone service area through an open video system that complies 
with this section.'' 47 U.S.C. 653(a)(1).
    Prior to passage of the Telecommunications Act, the telephone 
companies had been prohibited from entering the cable television 
business within their own service areas. The Federal Communications 
Commission was, however, considering the possibility of authorizing 
telephone companies to lease channel capacity over its phone lines to 
third parties who would provide video service to phone company 
subscribers. See First Report & Order in Docket No. 87-266, 56 FR 65464 
(December 17, 1991). Known as video dialtone, the FCC issued 
experimental licenses to a handful of video dialtone operators, several 
of whom have already begun service to subscribers. These operators 
provide original and source licensed programming, as well as 
retransmission of over-the-air broadcast signals.
    The Telecommunications Act has terminated the FCC's video dialtone 
proceeding by expressly allowing telephone entry into cable through 
``open video systems.'' See section 302(b)(3); Report and Order in 
Docket No. 96-46, 61 FR 10475 (March 14, 1996)(eliminating video 
dialtone rulemaking proceeding). Under the Telecommunications Act's 
authorization, telephone companies can act not only as common carriers 
providing the pipeline between third party program providers and 
subscribers, but can offer programming services themselves. This 
creates a possibility, with respect to broadcast retransmission, of 
several program providers using the same facility to provide 
subscribers with broadcast signals.
    The structure and appearance of open video systems remains largely 
unresolved at this time. Private industry is still very much in the 
planning stage, while the FCC is conducting a rulemaking proceeding to 
determine the amount and extent of regulation that open video systems 
will require. See Notice of Proposed Rulemaking in Docket No. 96-46, 61 
FR 10496 (March 14, 1996). The Telecommunications Act directs the 
Commission to apply much of its cable regulations to open video 
systems,<SUP>4 but of course the FCC's cable rules in effect in 1976 
will have no application to such systems.
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    \4\ Examples are the sports exclusivity, network non-
duplication, and syndicated exclusivity rules.
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    While Congress has cleared the path for telephone entry into the 
broadcast retransmission business for communications law purposes, it 
has not taken any action to resolve the copyright licensing aspects. 
Section 653(c)(4) of the Communications Act, as amended, provides that 
``[n]othing in this Act precludes a video programming provider making 
use of an open video system from being treated as an operator of a 
cable system for purposes of section 111 of title 17, United States 
Code.'' Some have argued that this provision is a congressional 
affirmation that open video systems are eligible for section 111 
licensing. The plain language of the provision, however, belies that 
argument. Section 653(c)(4) simply states that nothing in the 
Telecommunications Act, by itself, shall be construed as preventing 
open video systems from being considered as a section 111 cable system; 
it says nothing about whether such systems can be considered cable 
systems under the terms of section 111 of the Copyright Act. It matters 
little to the copyright inquiry that an open video system is a cable 
system under the Telecommunications Act if it is not a cable system 
under the Copyright Act. Further, there is not any legislative history 
to the Telecommunications Act that demonstrates congressional intention 
to amend or otherwise clarify the eligibility of open video systems for 
section 111 under the Copyright Act.<SUP>5
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    \5\ Section 653(c)(4) comes from the Senate bill, which stated 
`` [n]othing in this Act precludes a video programming provider 
making use of a common carrier video platform from being treated as 
an operator of a cable system for purposes of section 111 of title 
17, United States Code.''

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[[Page 20199]]

Recent Filings

    Although telephone entry into the cable business was under 
consideration at the FCC for some time before enactment of the 
Telecommunications Act, the Copyright Office has not considered such 
entry in terms of the cable compulsory license.<SUP>6 As noted above, 
through agency interpretation and legislative amendment, the section 
111 license is available to traditional wired cable systems, wireless 
cable systems, and SMATV systems. The Office now must consider the 
eligibility of open video systems.
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    \6\ During the legislative process of the Telecommunications 
Act, proposals were considered to specifically address telephone 
company eligibility for 17 U.S.C. 111. Such amendments, however, 
were not included in the Telecommunications Act.
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    For the second accounting period of 1995, the Copyright Office has 
received statements of account and royalty filings from three systems 
identifying themselves as video dialtone operators. Interface 
Communications Group, Inc. identifies itself as a ``video dialtone 
system being conducted by U.S. West Communications, Inc. in Omaha, 
Nebraska.'' California Standard Television Corp. identifies itself as a 
video dialtone programmer whose ``physical facilities'' are owned by 
Pacific Bell. And Anchor Pacific Corp. also identifies itself as a 
video dialtone programmer whose ``physical facilities'' are owned by 
Pacific Bell.
    These three filings represent the first claims of eligibility under 
17 U.S.C. 111 by an open video system (formerly known as video 
dialtone). The Office expects that the number of filings for future 
accounting periods will increase, particularly in light of the 
Telecommunications Act. We, therefore, feel that now is an appropriate 
time to open a rulemaking proceeding to consider the eligibility issue.

Request for Comments

    The threshold issue in this rulemaking proceeding is whether open 
video systems are cable systems within the meaning of 17 U.S.C. 111. 
The initial filings we have received appear to be from independent 
program providers leasing access on an open video system created by a 
telephone company. The Telecommunications Act now allows telephone 
companies to act as program providers as well. We solicit comment on 
whether both independent program providers and telephone companies 
should be eligible for section 111 and, if so, under what 
circumstances. We also seek comment as to whether a telephone company 
providing an open video system, and not itself engaged in 
retransmitting broadcast programming, is eligible for the passive 
carrier exemption of section 111(a)(3), and under what circumstances.
    In addressing the threshold eligibility issue, we request that the 
commentators direct their responses to a consideration of 17 U.S.C. 111 
as a whole, as opposed to solely the section 111(f) definition of a 
``cable system.'' In the wireless/SMATV/satellite carrier rulemaking 
proceeding some commentators focused on the section 111(f) definition, 
and did not discuss how the rest of section 111 might or might not 
apply to a particular system. The Office stated in the 1992 final rules 
that section 111 must be interpreted as a whole in determining whether 
a particular retransmission provider is eligible for compulsory 
licensing. See 57 FR 3292 (1992) (``[E]ach part of a section should be 
construed in connection with every other part or section so as to 
produce a harmonious whole. Thus, it is not proper to confine 
interpretation to the one section to be construed,'' citing 2A 
Sutherland, Stat. Const. 46.05 (5th ed. 1992)). Consequently, we direct 
the commentators' attention to the particular applicability of all 17 
U.S.C. 111 provisions, particularly the royalty calculation scheme. In 
particular, we are interested in how the 1976 distant signal carriage 
and syndicated exclusivity rules might or might not be applicable to 
open video systems. We are also interested in how an open video system 
would apply the 1976 must-carry rules, plus ADI, to determine local/
distant status, particularly where there is not an established 
traditional wired cable system operating in the same service area as 
the open video system. And, we are interested in knowing how the 
``contiguous communities'' provision of the section 111(f) cable 
definition might or might not apply to open video systems.
    Aside from the threshold eligibility question, the Office directs 
the commentators to practical questions arising from the filing of 
statements of account and payment of royalty fees. Thus, we request 
commentators favoring 17 U.S.C. 111 eligibility of open video systems 
to detail what changes, if any, are required in the Copyright Office 
statement of account forms to accommodate open video system filings. We 
are especially interested in a detailed analysis of how an open video 
system would calculate its gross receipts, and what fees and charges 
would be included. We also seek comment as to whether the statement of 
account form should require all filers to identify what type of cable 
system they are (SMATV, wireless, traditional wired, etc.). Finally, we 
seek comment as to how current Office policies and practices, such as 
application of the 3.75% rate, non-allocation among subscriber groups, 
and the grandfathering of broadcast signals would apply.
    In directing interested parties' attention to the above-identified 
issues, we do not wish to limit the scope or focus of the comments in 
any way. We therefore welcome all comments regarding application of 17 
U.S.C. 111 to open video systems.

    Dated: May 1, 1996.
Marybeth Peters,
Register of Copyrights.
    Approved by:
James H. Billington,
The Librarian of Congress.
[FR Doc. 96-11226 Filed 5-3-96; 8:45 am]
BILLING CODE 1410-30-P