[Federal Register Volume 66, Number 247 (Wednesday, December 26, 2001)]
[Notices]
[Pages 66433-66455]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-31607]


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LIBRARY OF CONGRESS

Copyright Office

[Docket No. 2000-2 CARP CD 93-97]


Distribution of 1993, 1994, 1995, 1996 and 1997 Cable Royalty 
Funds

AGENCY: Copyright Office, Library of Congress.

ACTION: Order.

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SUMMARY: The Librarian of Congress, upon the recommendation of the 
Register of Copyrights, announces his rejection of the initial and 
revised reports of the Copyright Arbitration Royalty Panel (``CARP'') 
in the Phase II proceeding in the syndicated programming category for 
distribution of the 1997 cable royalty funds, and remands the case for 
a new proceeding before a new CARP.

EFFECTIVE DATE: December 26, 2001.

ADDRESSES: The full text of the CARP's initial report and revised 
report to the Librarian of Congress are available for inspection and 
copying during normal business hours in the Office of the Copyright 
General Counsel, James Madison Memorial Building, Room LM-403, First 
and Independence Avenue, SE, Washington, DC 20559-6000.

FOR FURTHER INFORMATION CONTACT: David O. Carson, General Counsel, or 
William J. Roberts, Jr., Senior Attorney for Compulsory Licenses, 
Copyright Arbitration Royalty Panel (``CARP''), P.O. Box 70977, 
Southwest Station, Washington, DC 20024-0400. Telephone (202) 707-8380. 
Telefax: (202) 252-3423.

[[Page 66434]]


SUPPLEMENTARY INFORMATION:

Background

    Each year, cable systems in the United States submit royalties to 
the Copyright Office under a statutory license which allows cable 
systems to retransmit over-the-air television and radio broadcast 
signals to their subscribers. 17 U.S.C. 111. These royalties are, in 
turn, distributed in one of two ways to copyright owners whose works 
were included in the cable retransmissions of over-the-air television 
and radio broadcast signals and who timely filed a claim for royalties 
with the Copyright Office. The copyright owners may either negotiate a 
settlement agreement amongst themselves as to the distribution of the 
royalty fees or, if they cannot agree, the Librarian of Congress may 
convene one or more Copyright Arbitration Royalty Panels (``CARPs'') to 
determine the distribution of the royalty fees which remain in 
controversy. See 17 U.S.C. chapter 8.
    Cable royalty distribution proceedings are conducted by the 
Librarian under the CARP system in two phases. In a Phase I proceeding, 
the total cable royalty pool for a given year or years is divided among 
different categories of copyrighted programming that typically appear 
on broadcast programming. These categories are movies and syndicated 
programming, sports programming, devotional or religious programming, 
musical programming, commercial and noncommercial broadcast 
programming, and Canadian programming. Once the royalty pool is divided 
into these categories, the Librarian conducts one or more proceedings 
at Phase II to resolve disputes within a particular category as to the 
division of the royalties. Today's royalty distribution determination 
is a Phase II proceeding in the movie and syndicated programming 
category (often referred to collectively as the ``program supplier'' 
category).
    The litigants in this Phase II proceeding in the program supplier 
category are the Motion Picture Association of America, Inc. 
(``MPAA''), which represents the majority of copyright owners who filed 
claims for a distribution of 1997 cable royalties, and the Independent 
Producers Group (``IPG''), which represents the remaining copyright 
owners who filed claims for a cable royalty distribution. The Librarian 
was required to convene a CARP to resolve this Phase II proceeding 
because MPAA and IPG could not agree as to the division of royalties in 
the program supplier category.
    After a protracted discovery period, the Librarian convened the 
CARP in this proceeding on October 17, 2000. As provided by section 
802(e) of title 17, United States Code, the CARP had six months to hear 
the evidentiary presentations and arguments of MPAA and IPG and to 
render a decision. The CARP delivered its initial report to the 
Librarian on April 16, 2001, awarding IPG 0.5% of the royalty pool and 
the remainder to MPAA. After review, the Librarian returned the case to 
the CARP. By Order dated June 5, 2001, the Librarian dismissed all of 
the claimants comprising IPG's case except for Litton Syndications, 
Inc. and directed the CARP to adjust its award to IPG and MPAA to 
account for the dismissal. In addition, the Librarian directed the CARP 
to articulate the methodology it was using to assign the new 
distribution percentages and to detail the application of the 
methodology to the facts before it. See Order in Docket No. 2000-2 CARP 
CD 93-97 (June 5, 2001). The Librarian fully explains his reasoning for 
rejecting the initial determination of the CARP in this Order.
    On June 20, 2001, the CARP returned a new determination. It awarded 
IPG 0.212% of the royalty funds, with the remaining 99.788% to MPAA. 
The Librarian permitted IPG and MPAA an additional round of petitions 
to modify the CARP's determination and replies. The Register now makes 
her recommendation to the Librarian following her review of the CARP's 
determination.

Part One--Decisions of the CARP

The Initial CARP Report

    The 108-page initial report of the CARP has three essential parts. 
The first part deals with the validity of the royalty claim filed with 
the Copyright Office in July 1998 under 17 U.S.C. 111(d)(4) that forms 
the basis for IPG's participation in this proceeding. The second part 
addresses and ascribes the proper representation of specific television 
programs as between MPAA and IPG. The third part of the report resolves 
the division of the royalties in the program supplier category between 
MPAA and IPG. The Panel awarded MPAA 99.50% of the royalties and 0.50% 
to IPG.
1. IPG's Claim
    The validity of IPG's claim was hotly contested in this proceeding. 
The first challenge was raised in the precontroversy discovery period 
when MPAA moved to dismiss IPG's Phase II case on the grounds that 
IPG's claim (marked as No. 176 by the Copyright Office) did not comply 
with the Office's rules and regulations. MPAA asserted that none of the 
entities listed in exhibit D of IPG's written direct case, which forms 
the basis of IPG's claim for royalties, appeared on claim No. 176 as 
required by Sec. 252.2 of the rules. 37 CFR 252.2. According to MPAA, 
IPG entered into representation agreements with the exhibit D parties 
after July 31, 1998 (the closing date for filing cable royalty claims 
with the Office for calendar year 1997), thereby circumventing the 
requirement of Sec. 252.2 that all claimants to a joint claim be 
identified on the claim as filed with the Office.
    IPG's compliance with Sec. 252.2 was questionable. Stylized as a 
``joint claim,'' IPG identified only one claimant--Artists Collection 
Group (``ACG''). After the Copyright Office questioned the claim in 
July of 1998, IPG amended the claim to include ACG and Worldwide 
Subsidy Group (``WSG''). This amendment appeared, on its face, to 
satisfy the requirements of Sec. 252.2, and the Office did not pursue 
the matter further. However, when IPG filed a written direct case 
identifying 16 other parties as claimants, the Library considered 
MPAA's motion for possible violation of the rule.
    In an Order dated June 22, 2000, the Library determined that the 
prudent course of action was to designate the matter of MPAA's motion 
to the CARP for further factual findings and final resolution. The 
Library did this after consideration of IPG's objections to MPAA's 
motion to dismiss, the language of Sec. 252.2, and the provisions of 
the Copyright Act related to filing cable royalty claims. The Library 
rejected IPG's argument that it was acceptable for ACG to file a single 
claim on behalf of 16 other parties and chastised IPG for not listing 
the 16 in its joint claim as provided in Sec. 252.2 . However, the 
Library declined to dismiss IPG's case and designated the MPAA motion 
to the CARP because:

    [T]he Library cannot say with certainty that all previous claims 
filed in cable royalty proceedings have listed all joint claimants. 
It is sometimes the case that the Copyright Office will receive a 
single claim filed by a production company that does not identify 
any joint claimants. Whether this production company owns all or 
some of the copyrights represented by the claim, or is just a 
representative of unidentified copyright owners, is unknown to the 
Office. To the Library's knowledge, these claims have not been 
challenged in the past, and this is a case of first impression. 
Consequently, the Library is not inclined without prior warning to 
strictly enforce the requirement that all owners and distributors be 
identified in a joint claim. However, what is clear, and what the 
law requires, is a factual determination as to which of the owners 
and distributors identified by IPG in exhibit D of its written

[[Page 66435]]

direct case were in fact represented by Worldwide Subsidy Group \1\ 
at the close of the filing period for 1997 cable claims. Any party 
listed in exhibit D (with the exception of Lacey Entertainment, 
which filed its own claim) that was not represented by Worldwide 
Subsidy Group before August 1998 cannot be said to have filed a 
timely claim, and therefore testimony contained in IPG's written 
direct case regarding such party must be stricken.

    \1\ IPG by this time had informed the Library that ACG had 
withdrawn its claim and that WSG was the sole claimant remaining for 
claim No. 176
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    Order in Docket No. 2000-2 CARP CD 93-97 at 7 (June 22, 2000). The 
Library directed the CARP to make factual determinations as to whether 
there existed written agreements between WSG and each of the exhibit D 
claimants dated on or before July 31, 1998, the close of the cable 
royalty claim filing period. IPG submitted, as directed by the Library, 
copies of the representation agreements between WSG and the exhibit D 
claimants, along with additional corroborating documents to prove the 
existence of a representation arrangement on or before July 31, 
1998.\2\
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    \2\ The Library amended its regulations after the June 22, 2000 
Order to prevent future confusion as to the filing of single and 
joint claims. See 66 FR 29700 (June 1, 2001).
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    Upon its convocation, the CARP turned to the task of examining the 
representation agreements and supporting documents to determine which, 
if any, of IPG's exhibit D claimants would be allowed to remain in the 
proceeding. The representation agreements are standard form contracts 
for representation by WSG in collecting (among other things) cable 
compulsory license royalties. The contract is effective upon the date 
identified in the lead paragraph of the contract, which provides that 
``as of (date),'' WSG and the identified party have entered into the 
agreement. With only two exceptions, none of the signature pages in the 
representation agreements bore a date indicating when the agreement was 
signed and executed. Some of the additional documents provided by IPG 
(copies of letters and faxes) provided context to some of the 
representation agreements to indicate the time period in which they 
were signed and executed.
    In its report, the CARP examined the documents for each of the 
exhibit D claimants and decided which claimants had a signed agreement 
with WSG on or before July 31, 1998, and which did not. The CARP 
determined that a valid representation agreement existed for the 
following: Abrams/Gentile Entertainment; Raycom Sports; Flying Tomato 
Films; Funimation Productions; Golden Films Finance Corporation IV and 
American Film Investment Corporation II; Litton Syndications, Inc.; 
Sandra Carter Productions; and The Tide Group d/b/a Psychic Readers 
Network. The CARP found that while there may have existed a valid 
representation agreement between WSG and Mendelson/PAWS, WSG's claim of 
representation was trumped by General Mills, a claimant ascribed to 
MPAA's claim. The CARP dismissed the United Negro College Fund from 
IPG's case because it determined that a representation agreement did 
not exist until sometime in November of 1998, well after the July 31, 
1998, deadline.
2. IPG's Programs
    As provided in the section 111 cable license, copyrighted works 
that are retransmitted by cable systems on a distant basis are entitled 
to royalties collected from cable systems. In the program supplier 
category, which is the subject of this proceeding, these works are 
movies and syndicated television programs.
    After resolving the matter of which IPG claimants remained in the 
proceeding, the CARP turned to the task of determining which of the 
programs claimed by IPG claimants were entitled to a royalty 
distribution.\3\ Some programs were claimed by both IPG and MPAA. The 
following is a summary of the programs that the CARP credited to IPG's 
claimants.
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    \3\ Because all remaining monies in the 1997 program supplier 
category automatically belonged to MPAA's claimants once IPG's claim 
was determined, the CARP focused its attention only on IPG's 
programs.
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    a. Abrams/Gentile Entertainment. The CARP awarded all five programs 
claimed by IPG--Dragon Flyz; Happy Ness, Secret of the Loch; Jelly Bean 
Jungle; Sky Dancers; and Van Pires--to IPG. MPAA asserted that Jelly 
Bean Jungle belonged to Audio Visual Copyright Society d/b/a 
Screenrights, rather than Abrams/Gentile, but the CARP determined that 
``Audio Visual Copyright Society's own 1997 [program] Certification 
[did] not list such program in its claim.'' CARP Report at 53.
    b. Raycom Sports. The CARP awarded all four programs claimed by 
IPG--Elvis, His Life and Times; Journey of the African American 
Athlete; More Than a Game; Our Holiday Memories--to IPG, finding that 
the MPAA did not contest any of these titles. CARP Report at 53-54.
    c. Flying Tomato Films. The CARP did not credit the one program, 
Just Imagine, to Flying Tomato Films, because it determined that Litton 
Syndications held the syndication rights to the program. CARP Report at 
54-55.
    d. Funimation Productions. The CARP identified only one program 
belonging to Funimation Productions: Dragon Ball Z. The CARP determined 
that Fox Family Worldwide, not Funimation Productions, was the proper 
syndicator for Dragon Ball Z, and therefore IPG was not entitled to a 
distribution for this program. CARP Report at 55-56.
    e. Golden Films Finance Corporation IV and American Film Investment 
Corporation II. Two programs were claimed by IPG for these companies: 
Enchanted Tales and Thumbelina. The CARP determined that Enchanted 
Tales is a series of videos, one of which is Thumbelina, and that the 
syndication rights to these programs belong to Eyemark Entertainment 
and Summit Media, not Golden Films and American Films. CARP Report at 
58. Further, the CARP determined that both Enchanted Tales and 
Thumbelina were not retransmitted by cable systems during 1997. Id. 
Consequently, the CARP did not give credit to IPG for these programs.
    f. Litton Syndications, Inc. IPG identified thirteen programs 
belonging to Litton in its written direct case: Algo's Factory; Jack 
Hanna's Animal Adventures; Dramatic Moments in Black Sports History; 
Dream Big; Harvey Penick's Golf Lessons; Shaka Zulu; Story of a People; 
Mom USA; Nprint; Critter Gitters; Sophisticated Gents; The Sports Bar; 
and Bloopy's Buddies. The CARP eliminated Shaka Zulu and Story of a 
People from IPG's claim, finding that syndication rights to Shaka Zulu 
were properly held by Harmony Gold USA, not Litton, and that the proper 
syndicator for Story of a People was unknown. CARP Report at 60-61. The 
CARP also eliminated Dream Big, determining that Warner Brothers, not 
Litton, was the syndicator of that program. Id. at 62. Although both 
IPG and MPAA claimed Dramatic Moments in Black Sports History, the CARP 
determined that Litton was indeed the syndicator and credited IPG's 
claim with this program. Id. The remaining programs were credited to 
IPG.
    g. Mendelson/PAWS. The single program claimed by Mendelson/PAWS, 
Garfield and Friends, was claimed by both MPAA and IPG. MPAA supplied 
documentary evidence from General Mills indicating that it was the 
syndicator of Garfield and Friends, even though Mendelson/PAWS produced 
the program. The CARP did not credit IPG with Garfield and Friends, 
determining that Mendelson/ PAWS resolved the

[[Page 66436]]

dispute by removing its claim. CARP Report at 64-65.
    h. Sandra Carter Productions. IPG identified five programs 
belonging to Sandra Carter: Bottom Line; By River, By Rail; Flex; 
Parenting in the 90's; Til Earth and Heaven Ring. MPAA asserted that 
Parenting in the 90s belonged to Audio Visual Copyright Society d/b/a/ 
Screenrights, but the CARP determined that Screenrights did not list 
that program in their certification to MPAA and credited it to IPG. 
CARP Report at 66. The CARP determined that Bottom Line; By River, By 
Rail; and Til Earth and Heaven Ring appeared on television station 
WBAL-TV, Baltimore, Maryland, and was not subject to a distant 
retransmission by a cable system. These programs were removed from 
IPG's claim. Id. at 66-67. Finally, the CARP credited Flex to IPG.
    i. The Tide Group d/b/a Psychic Readers Network. IPG claimed 
several programs for the Tide Group that had multiple titles. The CARP 
credited IPG with Alcatraz as one program, Kenny Kingston as one 
program, and Psychic Readers (with its alternate title Psychic Readers 
Network) as one program. CARP Report at 68.
    j. United Negro College Fund. IPG claimed one program for the 
United Negro College Fund: Lou Rawls Parade of Stars. However, the CARP 
determined that the United Negro College Fund did not have a valid 
representation agreement with WSG by July 31, 1998. Consequently, IPG 
did not receive credit for Lou Rawls Parade of Stars. CARP Report at 
69-70.
    k. Lacey Entertainment. Both MPAA and IPG claimed credit for Lacey 
Entertainment's two programs: America's Dumbest Criminals and Mega Man. 
The CARP found that Lacey confirmed that MPAA was its representative 
for section 111 royalties for Mega Man and that Lacey was not the U.S. 
distributor for America's Dumbest Criminals. Consequently, the CARP did 
not credit IPG with these programs. CARP Report at 71-72.
3. The Distribution Percentages
    The third part of the CARP's report, which awards IPG 0.5% of the 
royalties and MPAA 99.5%, is the most troubling portion. After leveling 
a number of criticisms at both MPAA's and IPG's proposed distribution 
methodologies, the CARP failed to articulate the method it settled upon 
in assigning the 0.5% and 99.5% awards.
    Both MPAA and IPG proposed detailed methodologies for determining 
the royalty awards in this proceeding. MPAA's methodology is based upon 
viewership analysis of movies and syndicated television programs 
retransmitted by cable systems in 1997 on a distant signal basis. The 
underlying premise of the MPAA formula is that actual viewing of movies 
and syndicated television programs by cable subscribers is the best way 
to determine the marketplace value of the programming. The source 
elements for determining actual viewership are: (1) TVData station 
logs, which show the programs broadcast by the stations and the date 
and time of their broadcast, for the 82 television stations used by 
MPAA in its sample survey; (2) a special study of the same 82 stations 
for the sweeps period conducted by Nielsen Media Research; (3) program 
ownership data (i.e. which claimants to the 1997 cable royalties own 
which programs) as contained in the Cable Data Corporation (``CDC'') 
database; and (4) the weighting factors used by CDC to interpolate 
viewing for non-sweeps months when data from Nielsen is not available. 
CARP Report at 81.
    The CARP described the details of MPAA's distribution methodology 
as follows:

    MPAA selects 82 of the most heavily carried stations 
retransmitted as a distant signal by Form 3 system operators. Form 3 
systems subscribers comprise the largest group of cable 
subscribers--89% and their gross receipts represent the largest 
portion--96.5%--of the 1997 cable royalty fund.
    The program schedules of these stations are acquired from 
TVData. The program information is matched to viewing data provided 
by Nielsen Media Research (``Nielsen''). In particular, Nielsen 
provides the number of quarter hour segments (QH) each program aired 
on the station and the average number of cable subscribers who 
viewed each program on that station on a distant basis.
    For each station in the MPAA sample, Nielsen goes into the diary 
database of approximately 150,000 homes for each sweep, eliminates 
diaries in local area of the station (as supplied by MPAA), sums the 
weights by quarter hour for each diary and generates estimated 
projections on quarter-hour-by-quarter-hour basis.
    MPAA then calculates the household viewing hours (HHVH) for each 
series and motion picture in the study. Household viewing hours for 
every program (claimed and unclaimed) is [sic] calculated for each 
program using the Nielsen data and interpolated audience data for 
non-sweeps periods.
    After reconciling programs with broadcast times, MPAA then 
calculates the household viewing hours (HHVH) for each series and 
motion picture in the study using the Nielsen data and interpolated 
audience data.
    The HHVH formula is: (<greek-S>QH/4) x DCHH = HHVH. The formula 
may be stated as follows: Add the total number of QH segments a 
program is broadcast in a particular time slot on a particular 
station. The sum is divided by four to get an hourly measure. The 
result is multiplied by the average number of distant cable 
households (DCHH) that actually watched the program on that station 
during the time period.

CARP Report at 81-82 (footnotes omitted). Applying MPAA's formula to 
the 1997 data yields, according to MPAA, a determination that 
programming represented by MPAA received 99.9292% of the total distant 
viewing--3,474,810,364 viewing hours out of 3,477,272,694 total viewing 
hours. MPAA therefore asked for 99.9292% of the 1997 cable royalties. 
MPAA Findings of Fact at 20, para. 55.
    IPG proposed a different distribution methodology which yields a 
greater distribution percentage to IPG. Instead of focusing on 
viewership as the main valuation method, IPG's methodology operates 
from the premise that it is best to look at the availability of 
programming offered to subscribers and the benefits received by the 
cable operators who retransmit that programming. IPG submits that while 
the decision of a television station to transmit a particular program 
is driven by a desire for viewership ratings, cable systems are not 
concerned with viewership of a particular program, but rather are 
concerned with attracting and holding the greatest number of 
subscribers by offering multiple programming choices. IPG attempts to 
place a value on each and every broadcast using the following data: (1) 
The number of distant cable subscribers capable of receiving the 
program broadcast during 1997; (2) the distant retransmission royalties 
generated during 1997 that are attributable to stations broadcasting a 
particular program; (3) the time placement of the broadcast; and (4) 
the length of the particular broadcast. CARP Report at 95.
    The CARP described IPG's distribution methodology as follows:

    IPG expanded MPAA's station sample to 99 television stations, 
including only those with a combined percentage of distant cable 
subscribers and ``fees gen.'' (fees generated) significantly greater 
than the original selection. The added stations were heavily 
retransmitted according to distant subscribership data for Form 1, 
Form 2, and Form 3 cable systems.
    IPG secured data from TVData reflecting all programs broadcast 
on the 99 Sample Stations, 24 hours a day, for the entire year of 
1997 and segregated programming compensable in the syndicated 
programming category.
    IPG accorded a ``Station Weight Factor'' to each and every 
compensable broadcast blending of (i) the average percentage of 
distant cable subscribers capable of viewing the station of 
broadcast and (ii) the average percentage of ``fees gen.'' 
attributable to the station of broadcast, as compared to the other 
99 Sample Stations.

[[Page 66437]]

    IPG then accorded a ``Time Period Weight Factor'' based on the 
time period or daypart of the program broadcast, weighted according 
to data derived from the ``1998 Report on Television'' published by 
Nielsen Media Research, and factored in the length of each such 
broadcast.

CARP Report at 96 (footnotes omitted; parenthetical not in original). 
Applying IPG's methodology to its data yields, according to IPG, a 
determination that 0.881% of the aggregate Sum Weighted Value of all 
programs claimed in this proceeding belongs to IPG. IPG Findings of 
Fact at 16-17, para. 51.
    Both MPAA and IPG leveled criticisms at each other's methodologies, 
and the CARP details those criticisms. See CARP Report at 82-94 (IPG); 
97-102 (MPAA). The CARP accepted the following criticisms of MPAA's 
approach:

--MPAA's direct testimony did not sufficiently lay the foundation for 
the survey or explain its results.
--The Panel was forced to call its own witnesses, Mr. Lindstrom from 
Nielsen, and Mr. Larson from Cable Data Corporation to explain their 
methods of data acquisition and reporting.
--The number of sampled stations [in MPAA's station survey] has 
declined without adequate explanation.
--Station selection criteria was excluded Form 1 and Form 2 cable 
systems.
--The number of ``zero'' viewing hours shows the flaw in attempting to 
use the Nielsen data as a proxy for the retransmission market 
especially since Nielsen had 24 hour sampling capability in 1997.
--There are unanswered technical questions regarding relative error 
rates and mixing diary and meter data.
--The method of interpolation of non-sweep month estimated viewing 
needs statistical validation.
--There is an overvaluation of WTBS and under-valuation of the other 
Superstations in the survey.
Id. at 102-103.

    The CARP found the following criticisms of IPG's methodology:
--A mathematically sound basis for the creation and application of the 
station weight factor and time period weight factor should have been 
presented by a statistician.
--Daypart data was misapplied thus overstating ``all other'' viewing.
--It doesn't directly address the marketplace value of the works 
transmitted, a primary criteria.

Id. at 103.

    After stating that it was ``recogniz[ing] the strengths and 
weaknesses'' of MPAA's and IPG's approaches, the Panel proceeded to 
summarily award IPG 0.5% of the 1997 cable fund and the remaining 99.5% 
to MPAA. The CARP did observe that ``certain ``claimants'' had not 
satisfied the criteria for asserting their claims and certain programs 
were not qualified. The Panel did not award any royalty allocation for 
such unqualified ``claimants'' nor did it award any royalty allocation 
for unqualified programs.'' Id. at 106.

Standard of Review

    Section 802(f) of the Copyright Act directs that, upon the 
recommendation of the Register of Copyrights, the Librarian shall adopt 
the report of the CARP ``unless the Librarian finds that the 
determination is arbitrary or contrary to the applicable provisions of 
this title.'' The narrow scope of review has been discussed in great 
detail in prior decisions which have concluded that the use of the term 
``arbitrary'' in this provision is no different than the ``arbitrary'' 
standard described in the Administrative Procedure Act, 5 U.S.C. 
706(2)(A). See 63 FR 49823 (September 18, 1998); 63 FR 25394 (May 8, 
1998); 62 FR 55742 (October 28, 1997); 62 FR 6558 (February 12, 1997); 
61 FR 55653 (October 28, 1996). Thus, the standard of review adopted by 
the Librarian is narrow and provides that the Librarian will not reject 
the determination of a CARP unless its decision falls outside the 
``zone of reasonableness'' that had been used by the courts to review 
decisions of the Copyright Royalty Tribunal (``CRT''). See National 
Cable Television Ass'n. v. Copyright Royalty Tribunal, 724 F.2d 176, 
182 (D.C. Cir. 1983). Moreover, based on a determination by the 
Register and the Librarian that the Panel's decision is neither 
arbitrary nor contrary to law, the Librarian will adopt the CARP's 
determination even if the Register and the Librarian would have reached 
conclusions different from the conclusions reached by the CARP.
    The U.S. Court of Appeals for the District of Columbia Circuit has 
stated, however, that the Librarian would act arbitrarily if ``without 
explanation or adjustment, he adopted an award proposed by the Panel 
that was not supported by any evidence or that was based on evidence 
which could not reasonably be interpreted to support the award.'' See 
National Ass'n of Broadcasters v. Librarian of Congress, 146 F.3d 907, 
923 (D.C. Cir. 1998).
    For this reason, the Panel must provide a detailed rational 
analysis of its decision, setting forth specific findings of fact and 
conclusions of law. See National Cable Television Ass'n. v. Copyright 
Royalty Tribunal, 689 F.2d 1077, 1091 (D.C. Cir. 1992) (requiring CRT 
to weigh all relevant considerations and set out its conclusions in a 
form that permits the court to determine whether it has exercised its 
responsibilities lawfully).
    It is then the task of the Register of Copyrights to review the 
Panel's 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.

Remand to the CARP

    After receiving the CARP's initial determination, the Register of 
Copyrights recommended, and the Librarian accepted, that the Report be 
rejected and remanded to the CARP for further consideration. It was 
apparent from reviewing the Report that the CARP had acted arbitrarily 
in three instances: (1) The CARP misapprehended the intent of the June 
22, 2000, Order designating consideration of the circumstances of IPG's 
representation agreements with its exhibit D claimants; (2) the CARP 
awarded programs to an IPG claimant when there was no introduction of 
evidence as to the value of the program and assigned another program to 
IPG without adequate explanation of its decision; and (3) the CARP 
failed to articulate the reasoning it used in arriving at a 
distribution percentage of 0.5% for IPG and 99.5% for MPAA. See Order, 
Docket No. 2000-2 CARP CD 93-97 (June 5, 2001).
1. Dismissal of Additional IPG Claimants
    As discussed above, the status of IPG's claim No. 176 has been a 
focal point of this proceeding. MPAA has moved to dismiss IPG's entire 
claim no less than three times, claiming that claim No. 176 flouts the 
Copyright Office's rules and the statute, and is a fraud on the 
Library. The CARP appears to agree with MPAA's contentions, but stops 
short of dismissing most if not all of IPG's exhibit D claimants, 
noting that it ``is attempting to accommodate the Copyright Office's 
previously created, one-time exception to the strict enforcement of the 
Copyright Office's claim filing rules, while aspiring to achieve 
fairness for all affected claimants.'' CARP Report at 42.
    The Register concludes that the CARP did not follow the direction 
and intent of the June 22, 2000, Order directing it to consider the 
status of IPG's representation of the exhibit D

[[Page 66438]]

claimants. The rule and intent of that Order are as follows.
    Section 111(d)(3) of the Copyright Act states that royalties 
collected from cable systems under the cable statutory license may only 
be distributed to copyright owners ``who claim that their works were 
the subject of secondary transmissions by cable systems during the 
relevant semiannual period.'' 17 U.S.C. 111(d)(3). This means that it 
is copyright owners--individuals or entities that own one or more of 
the exclusive rights granted by section 106 of the Copyright Act--that 
are entitled to royalty fees, not those who represent them in CARP 
proceedings. The statute also provides that royalty fees may only be 
distributed to ``claimants'' that file a claim with the Copyright 
Office during the month of July for royalties collected in the previous 
calendar year. 17 U.S.C. 111(d)(4)(A). Further, the statute states that 
claims filed with the Copyright Office shall be submitted ``in 
accordance with requirements that the Librarian of Congress shall 
prescribe by regulation.'' Id.
    The Librarian adopted such regulations, which are found at part 252 
of 37 CFR. Section 252.3 of the rules prescribes the content of a cable 
claim, distinguishing between ``individual claims'' and ``joint 
claims.'' An ``individual claim'' involves royalties that are being 
sought by a single ``claimant,'' whereas a ``joint claim'' involves two 
or more ``claimants.'' The requirements for an ``individual claim'' are 
``a general statement of the nature of the claimant's copyrighted works 
and identification of at least one secondary transmission by a cable 
system of such works establishing a basis for the claim.'' 37 CFR 
252.3(a)(4). ``Joint claims'' have an additional requirement. If the 
claim is a ``joint claim,'' there must be ``a concise statement of the 
authorization for the filing of the joint claim, and the name of each 
claimant to the joint claim.'' 37 CFR 252.3(a)(3). Additionally, the 
``joint claim'' must have ``a general statement of the nature of the 
joint claimants'' copyrighted works and identification of at least one 
secondary transmission of one of the joint claimants' copyrighted works 
by a cable system establishing a basis for the joint claim.'' 37 CFR 
252.3(a)(4).\4\
---------------------------------------------------------------------------

    \4\ See footnote 2, supra.
---------------------------------------------------------------------------

    The June 22, 2000, Order recounts the history of Sec. 252.3, and it 
will not be repeated here. See June 22 Order at 2-5. The importance 
about Sec. 252.3 in the context of this proceeding is that it uses the 
word ``claimant'' in the text, as opposed to the terms ``copyright 
owner'' or ``holder of one or more of the exclusive rights granted by 
section 106 of the Copyright Act.'' IPG argued to the Library in 
response to MPAA's initial motion to dismiss its claim that it was 
acceptable for Artists Collection Group (``ACG'') to file an individual 
claim, even though it represented several copyright owners, because it 
was the only ``claimant'' submitting a claim. June 22 Order at 5. If 
Sec. 252.3 had used the term ``copyright owner'' instead of 
``claimant,'' then this clearly would not be a permissible 
interpretation of the rule. The Library disagreed with IPG's 
interpretation of Sec. 252.3, concluding instead that what ACG had 
filed was in reality a joint claim, because it was representing only a 
group of copyright owners who would ultimately be entitled, under 17 
U.S.C. 111(d)(3), to the royalties. Id. at 6. However, ACG did not list 
the exhibit D claimants it represented on the claim, as required by 
Sec. 252.3(a)(3) for joint claims, other than to list Worldwide Subsidy 
Group (``WSG'') which, as was revealed in the proceedings before the 
CARP, was nothing more than an unregistered, fictitious business name 
for ACG. CARP Report at 35. The Library did not take the harsh step of 
dismissing IPG's claim for ACG's failure to list the exhibit D 
claimants on claim No. 176. Instead, the Library made a one-time 
exception to the requirement by affording IPG the opportunity to prove 
that ACG/WSG had entered into valid written representation agreements 
with each of the exhibit D claimants on or before July 31, 1998, the 
last day for filing claims to 1997 cable royalties. The Library did 
this because it could not

say with certainty that all previous claims filed in cable royalty 
proceedings have listed all joint claimants. It is sometimes the 
case that the Copyright Office will receive a single claim filed by 
a production company that does not identify any joint claimants. 
Whether this production company owns all or some of the copyrights 
represented by the claim, or is just a representative of 
unidentified copyright owners, is unknown to the Office. To the 
Library's knowledge, these claims have not been challenged in the 
past, and this is a case of first impression. Consequently, the 
Library is not inclined without prior warning to strictly enforce 
the requirement that all owners and distributors be identified in a 
joint claim.

June 22 Order at 7.
    In designating to the CARP for factual determination the status of 
ACG/WSG as representatives of the exhibit D claimants, the Library 
offered some decisional guidelines:

    First, because Worldwide Subsidy Group did not list any joint 
claimants, IPG has the burden of proving that it represented each of 
the exhibit D parties for distribution of 1997 cable royalties on or 
before July 31, 1998. Second, IPG must submit written proof of 
representation for each exhibit D party. Written proof is required 
because claim No. 176 does not identify any of the exhibit D 
parties, and because testimonial evidence alone will not preserve 
the integrity of the law and the regulations which prohibit adding 
parties to a joint claim after the fact. Proof must be in the form 
of written agreements of representation between IPG and each of the 
exhibit D parties executed on or before July 31, 1998. Finally, if 
the CARP determines that one or more of the exhibit D parties were 
not validly represented by Worldwide Subsidy Group for distribution 
of 1997 cable royalties on or before July 31, 1998, the CARP must 
strike that portion of IPG's written direct case related to that 
party or parties.

June 22 Order at 7
    After issuance of the June 22 Order, IPG petitioned the Library for 
reconsideration, asserting that it had written material in addition to 
the standard form contract entered into between WSG and the exhibit D 
claimants that clarified that a representational arrangement existed on 
or before July 31, 1998. The Library clarified that the ``June 22 
Order's requirement that proof of representation ``must be in the form 
of written agreements'' does not mean that IPG's standard 
representational agreement form is the only acceptable document that 
proves timely representation.'' Order in Docket No. 2002-2 CARP CD 93-
97 at 4 (September 22, 2000). The Library allowed IPG to submit 
additional documentation, but did not permit the introduction of 
testimonial evidence. IPG submitted the additional documents, which 
consisted of letters and faxes discussing the representational 
contracts submitted earlier by IPG, on October 10, 2000 (these 
documents are hereinafter referred to as the ``October 10 documents'').
    The Library has reviewed the representational contracts and the 
October 10 documents for all sixteen of the exhibit D claimants. 
Several things are evident from this examination. First, with the 
exception of two of the contracts, they do not contain any dates of 
execution of the signature page.\5\ Rather, the contract bears a 
provision, in the lead paragraph, that it is effective ``as of'' a 
certain date. In all instances this date is on or before July 31, 1998. 
Second, it is apparent from the October 10 documents that the ``as of'' 
date in the contract is not the date of execution

[[Page 66439]]

of the contract. Rather, it was the practice of WSG to send a copy of 
its contract to a potential client during negotiations for 
representation and type in the ``as of'' date at that time. The 
contract may not have been signed and executed for weeks, or even 
months, after the ``as of'' date. Third, there are not October 10 
documents for all of the exhibit D parties. For some, the only document 
evidencing representation is the contract itself bearing the ``as of'' 
date.
---------------------------------------------------------------------------

    \5\ The contract with Jay Ward Productions was dated ``11/02/
99.'' IPG, however, voluntarily withdrew Jay Ward Productions from 
its case. Likewise, Mainframe Entertainment's contract was dated 
October 8, 1998, and IPG also withdrew Mainframe from its case.
---------------------------------------------------------------------------

    In each instance, with the exception of the United Negro College 
Fund, the CARP accepted the ``as of'' date on the representational 
contracts as evidence that a representational agreement existed on that 
date. The Register determines that that decision is arbitrary because 
it runs contrary to the evidence presented to the CARP. The Register 
also determines that the Panel's decision on this point countervails 
the June 22 Order. Pursuant to the terms of that Order, the burden was 
squarely on IPG to demonstrate through documentary evidence that a 
valid representational arrangement existed on or before July 31, 1998. 
The ``as of'' date is not evidence of such an arrangement, because it 
is clear from the October 10 documents that the contracts were signed 
sometime after the ``as of'' date. In those circumstances where there 
is documentary evidence that the contract was signed on or before July 
31, 1998, IPG has met its burden of proving a representational 
arrangement.
    For Raycom Sports, Abrams/Gentile Entertainment, Funimation 
Productions, and Sandra Carter Productions, the only documents supplied 
by IPG are the representational contracts. Because the ``as of'' dates 
on these contracts do not prove the dates of their execution, it cannot 
be determined whether they were signed, and a valid representational 
arrangement existed, on or before July 31, 1998. Consequently, these 
parties are dismissed from this proceeding.
    There are October 10 documents for The Tide Group d/b/a Psychic 
Readers Network, but they do not prove that the representational 
contract had been signed or that a valid representational arrangement 
had been reached on or before July 31, 1998. Consequently, this party 
is dismissed.
    The CARP dismissed the United Negro College Fund because the 
October 10 documents suggested that the representational contract was 
not signed on or before July 31, 1998. The contract bears no date on 
the signature page, and an ``as of'' date of July 30, 1998, is 
handwritten in the first paragraph. There are October 10 documents 
discussing entering into a representational agreement in November of 
1998, which led the CARP to conclude that a representational 
arrangement did not exist as of July 30, 1998. IPG has not met its 
burden of demonstrating that a representational arrangement existed on 
or before July 31, 1998. Consequently, the Register accepts the CARP's 
determination to dismiss the United Negro College Fund.
    The only exhibit D party for which IPG has met its burden is Litton 
Syndications.\6\ While there is no date of execution on the Litton/WSG 
contract, there is a June 16, 1998, letter from Peter Sniderman of 
Litton to Raul Galaz of WSG stating that ``enclosed are four copies of 
the executed Litton Syndications, Inc.--Worldwide Subsidy Group 
agreement.'' In addition, there is a June 18, 1998, letter from Galaz 
to Sniderman stating that ``enclosed herein please find two (2) fully 
executed originals of the above-referenced agreement.'' It is clear 
from these documents that a valid representational arrangement existed 
between Litton and WSG prior to July 31, 1998. IPG has therefore met 
its burden as provided in the June 22 Order.
---------------------------------------------------------------------------

    \6\ The remainder of the exhibit D parties have been either 
withdrawn from the preceeding, or their programs have been credited 
to another. The programs of Beacon Communications Corp., Cosgrove-
Meurer Productions, Jay Ward Productions, Mainframe Entertainment, 
and Scholastic Entertainment were withdrawn by IPG. Flying Tomato 
Films' program was credited to Litton. CARP Report at 55. Mendelson/
PAWS, Inc.'s programs were credited to MPAA. Id. at 64. The CARP 
determined that Golden Films Finance Corporation IV and American 
Film Corporation II were not entitled to a distribution because 
their programs were not retransmitted by a cable system on a distant 
basis. Id. at 58. Lacey Entertainment's programs were credited to 
MPAA. Id. at 71-72.
---------------------------------------------------------------------------

2. The Status of ACG, WSG and IPG
    After the extended discussion and analysis of claim No. 176 in the 
June 22 Order and above, one might believe that the validity of claim 
No. 176 is definitively resolved. This is not so, because of issues 
surrounding the names--ACG and WSG--that appeared on the claim. The 
Library must therefore resolve whether claim No. 176 was a deliberately 
perpetrated fraud on the Copyright Office and the section 111 filing 
system.
    The CARP Report devotes a considerable amount of discussion to the 
identity and status of ACG, WSG, and IPG. It is a complicated 
discussion. When claim No. 176 was originally filed with the Copyright 
Office on July 11, 1998, it listed ACG as the sole claimant. ACG was 
incorporated in May of 1998 in the state of California by Raul Galaz, 
its principal, for the apparent purpose of representing claimants 
before the Library for cable and satellite television royalties. 
Although ACG was the only claimant on claim No. 176, the claim stated 
that it was a joint claim being filed on behalf of ACG and ``on behalf 
of others.'' Claim No. 176. Mr. Galaz signed the claim. When Mr. Galaz 
was informed by the Copyright Office that in order for claim No. 176 to 
be a joint claim it must identify at least one other claimant, he 
amended claim No. 176 to include WSG. At that time, WSG was nothing 
more than an unregistered, fictitious business name for ACG. The 
following year, Mr. Galaz moved from California to Texas, whereupon he 
filed articles of incorporation for WSG in Texas. Before leaving 
California, Mr. Galaz also registered the name WSG in California as a 
fictitious business name for WSG.
    Once in Texas, Mr. Galaz took steps in 2000 to dissolve ACG by 
filing articles of dissolution in California for ACG. This left WSG as 
a Texas corporation. Mr. Galaz then adopted an unregistered, fictitious 
business name for WSG in Texas: IPG. When MPAA moved to dismiss claim 
No. 176 in June of 2000, IPG informed the Library in a footnote of its 
opposition to the motion that ACG had voluntarily withdrawn its claim 
from the proceeding, leaving WSG Texas/IPG as the sole claimant in this 
proceeding.
    The first question is whether these various changes in identity 
were an attempt to perpetrate a fraud on the Copyright Office by hiding 
from the Office the real claimants in this proceeding. In other words, 
did IPG deliberately refrain from listing its exhibit D claimants in 
claim No. 176 (Litton, Flying Tomato Films, et al.) because it was 
hiding something from the Office? Assuming that listing only ACG and 
WSG (California) on claim No. 176 was not an honest mistake, as IPG 
vigorously claims that it was, the only reason the Library can divine 
for not listing the exhibit D claimants was that ACG/WSG did not then 
represent some or all of those claimants or, in the alternative, ACG/
WSG did not want to preclude the possibility of signing up additional 
claimants after the July 31, 1998, deadline.
    Whether or not this was ACG/WSG's true motivation is unknown, 
although the CARP at least suggests a sinister element in Mr. Galaz's 
actions. CARP Report at 42. In any event, the Register believes that 
the Library has satisfactorily dealt with the status of IPG's 
representation of the exhibit D claimants in the June 22, 2000, Order 
and the above discussion. It is apparent that WSG--i.e., Mr. Galaz--had 
a valid

[[Page 66440]]

representation arrangement with Litton Syndications in July of 1998 
before the close of the cable claim filing period. The Library need not 
make any determination as to whether Litton's agreement was with ACG/
WSG California, WSG Texas, or IPG. Any attempt to do so would 
necessarily involve questions of state law with respect to the effect 
of incorporation of a company and use of fictitious business names. 
Such determinations are beyond the jurisdiction of the Library and are 
unnecessary in this proceeding. Mr. Galaz/WSG had a valid 
representation agreement with Litton in July of 1998, and Litton 
affirms this relationship by allowing IPG to represent it in this 
proceeding. Because the Library has agreed--this one time \7\--that it 
was acceptable that Litton did not appear on claim No. 176, supra, 
Litton has a valid claim in this proceeding.
---------------------------------------------------------------------------

    \7\ See footnote 2, supra.
---------------------------------------------------------------------------

    The second question surrounds ACG's voluntary withdrawal from this 
proceeding. MPAA contends that when ACG withdrew its claim that left 
only WSG California on claim No. 176, and WSG California was nothing 
more than a fictitious business name for ACG. MPAA Petition to Modify 
CARP Report at 33. Litton's representation agreement is with WSG Texas, 
which is not a claimant in this proceeding, and therefore claim No. 176 
must be dismissed. IPG responds that it was counsel's mistake to inform 
the Library that ACG had withdrawn its claim and that such mistake 
should be discounted because it appeared in a footnote to an opposition 
to MPAA's motion to dismiss. IPG Reply to MPAA Petition to Modify CARP 
Report at 27-29.
    Once again, the legal status of ACG, WSG California, WSG Texas, and 
IPG involve questions of state law beyond the jurisdiction of the 
Library. While it is true that IPG did state that the claims of ACG 
were withdrawn, it is illogical to assume that IPG was effectively 
ending its case by rendering claim No. 176 void. Rather, it is apparent 
that IPG believed that it held all rights of ACG when it sought to 
dissolve ACG in California, particularly since Mr. Galaz was the 
principal for both organizations. It would work a serious injustice to 
deny Litton royalties based upon a determination that Mr. Galaz made a 
technical error in assuming that all rights of ACG were held by IPG 
before ACG withdrew from the proceeding. Indeed, while IPG stated that 
it was withdrawing ACG's claim, the Library did not enter any order to 
that effect, leaving the status of ACG in this proceeding unresolved. 
Certainly, the actions of Mr. Galaz are not to be condoned and should 
serve as a warning to future claimants to make sure that proper 
transfers of rights between corporations are effected prior to seeking 
dismissal or dissolution of a claimant. However, the Library has 
determined that a valid representation arrangement existed for Litton 
and that, in this instance, it is appropriate that Litton's claim be 
allowed to go forward.
    Finally, there is the question of the programs listed on claim No. 
176. Section 252.3(d)(4) requires that for joint claims there must be 
an ``identification of at least one secondary transmission of one of 
the joint claimants' copyrighted works by a cable system establishing a 
basis for the joint claim.'' 37 CFR 252.3(a)(4). ACG listed two 
programs on claim No. 176, Unsolved Mysteries and Garfield and Friends, 
neither of which was ultimately credited to IPG. Unsolved Mysteries was 
dropped from IPG's case because it was determined that it was a network 
program not eligible for section 111 cable royalties. Both IPG and MPAA 
claimed Garfield and Friends, and the CARP ultimately determined that 
it was properly credited to MPAA. This means that ACG did not identify 
a secondary transmission on claim No. 176 that belonged to one or more 
of its joint claimants.
    The purpose of requiring identification of at least one secondary 
transmission by a cable system is to permit the Copyright Office to 
determine if the claim is facially valid. In other words, if a claimant 
lists a network program, or a program that was not retransmitted in the 
calendar year for which royalties are sought, the Office can take 
immediate action either to request further information, or to dismiss 
the claim. The Office has contemplated amending its rules to require 
claimants to identify all the programs that comprise their claim, but 
is aware that there is considerable opposition among copyright 
claimants to adopting such a requirement. If the program listed on a 
claim appears facially valid, the Office does not attempt to resolve 
its ownership status and the claim is allowed to go forward. In this 
case, it is apparent that IPG had a colorable claim to Garfield and 
Friends, believing that it had a valid representation agreement with 
Mendelson/PAWS, the producer of the Garfield programs. The CARP 
determined, however, that MPAA had a stronger claim, ruling that 
General Mills held the syndication rights to the programs. 
Consequently, this is not a case where IPG had no realistic claim to 
Garfield and Friends.\8\
---------------------------------------------------------------------------

    \8\ The same cannot be said for Unsolved Mysteries. Unsolved 
Mysteries is a network program which can never be eligible for 
section 111 royalties. See 17 U.S.C. 111(d)(3)(A) (only nonnetwork 
programs are eligible for distributions). ACG should have known that 
Unsolved Mysteries failed to satisfy the requirements of 37 CFR 
252.3(a)(4). If this had been the only program that ACG listed in 
claim No. 176, there would be solid grounds for dismissal of the 
claim.
---------------------------------------------------------------------------

    Given the dispute over ownership rights of Garfield and Friends, 
the Register determines that it would be unjust to invalidate all of 
the claims covered by claim No. 176 because it was ultimately 
determined that MPAA held the superior claim to the program. Were we to 
rule the other way, it would make Sec. 252.3(a)(4) a trap for unwary 
joint claimants. Since the rule requires identification of only one 
secondary transmission, hundreds of joint claims could potentially be 
invalidated if a single program is identified that, after litigation 
before a CARP, is determined to have a superior claimant. There is also 
the question of what might happen if the joint claimant with the single 
identified program withdraws its claim or changes representation in the 
proceeding. Such gamesmanship could potentially wipe out many otherwise 
valid claims from the proceeding. Because IPG had a colorable claim to 
Garfield and Friends at the start of this proceeding, it would be 
unjust to invalidate claim No. 176 because the program was ultimately 
awarded to MPAA.
    In sum, the Register concludes that claim No. 176 is sufficiently 
valid to allow the claim of Litton, as described below, to go forward 
in this proceeding and receive a distribution of royalties.
3. Programs Credited to Litton
    During proceedings before the CARP, IPG claimed thirteen programs 
for Litton: Algo's Factory; Jack Hanna's Animal Adventures; Dramatic 
Moments in Black Sports History; Dream Big; Harvey Penick's Private 
Golf Lessons; MomUSA; Nprint; Critter Gitters; Shaka Zulu; 
Sophisticated Gents; The Sports Bar, Bloopy's Buddies and Story of a 
People. The CARP did not credit IPG with Shaka Zulu, finding that the 
program properly belonged to Harmony Gold USA, and determined that 
Story of a People was an unclaimed program. The CARP also did not 
credit IPG with Dream Big, determining that it was properly claimed by 
Warner Bros. as the syndicator of the program. The remaining programs 
were credited to IPG.
    In its petition to modify the initial decision of the CARP, MPAA 
challenges

[[Page 66441]]

the CARP's determination to credit Litton with Dramatic Moments in 
Black Sports History, Critter Gitters, and Bloopy's Buddies. The CARP 
credited Critter Gitters and Bloopy's Buddies to Litton because these 
programs appeared on Litton's representation agreement with WSG. CARP 
Report at 59. Both MPAA and IPG claimed Dramatic Moments in Black 
Sports History. After allowing evidentiary supplements to IPG's and 
MPAA's claim on this program, the CARP stated that ``[i]n view of the 
entire supplemented record, therefore, the CARP finds that Dramatic 
Moments in Black Sports History is represented under the IPG rather 
than the MPAA claim.'' Id. at 61-62.
    With respect to Critter Gitters and Bloopy's Buddies, MPAA asserts 
that ``IPG made no claim for either program'' and ``presented no 
evidence of their value.'' MPAA Petition to Modify CARP Report at 44. 
Further, MPAA asserts that the CARP ``cites no evidence that either 
program was broadcast in the United States.'' Id. With respect to 
Dramatic Moments in Black Sports History, MPAA argues that:

    The program is listed in MPAA's list of claimed programs. The 
claimant--New Line Cinema Corporation--appears on MPAA's list of 
claimants. It appears on the alpha list as owned by New Line Cinema. 
New Line has certified its entitlement to royalties for Dramatic 
Moments in Black Sports History. The record, therefore, only will 
support a conclusion that MPAA represents New Line.

Id. at 43-44 (footnotes omitted).
    In response to MPAA's challenge of Critter Gitters and Bloopy's 
Buddies, IPG acknowledges that it made no claim in these programs and 
did not present any evidence of their value ``because both programs 
appear to have been broadcast exclusively on non-commercial television 
stations.'' IPG Reply to MPAA Petition to Modify CARP Report at 34. IPG 
``does not challenge modification of the Panel Report to reflect that 
such programs were not claimed by IPG.'' Id. IPG does assert, however, 
that there was evidence supporting its claim to Dramatic Moments in 
Black Sports History, stating that the program is ``expressly 
identified in the contract between Litton and WSG'' and was therefore 
properly credited to IPG. Id.
    It is apparent that the CARP acted arbitrarily in crediting IPG 
with Critter Gitters and Bloopy's Buddies, and the Register recommends 
rejecting this determination and removing the programs from Litton's 
list. With respect to Dramatic Moments in Black Sports History, the 
CARP offered no reasons or explanation as to why it was awarding the 
program to IPG rather than MPAA, other than to state that such result 
was obtained ``[i]n view of the entire supplemented record.'' CARP 
Report at 61-62. Unexplained decisionmaking is the hallmark of 
arbitrary action. The Register therefore recommends rejection of the 
CARP's award of Dramatic Moments in Black Sports History to IPG. The 
June 5, 2001, Order directed the CARP to explain its reasoning for 
awarding Dramatic Moments in Black Sports History to IPG.
    In sum, the June 5, 2001, Order directed the Panel to credit the 
following programs to Litton: Algo's Factory; Jack Hanna's Animal 
Adventures; Harvey Penick's Private Golf Lessons; Mom USA; Nprint; 
Sophisticated Gents; The Sports Bar; and Just Imagine.\9\ The Order 
also directed the CARP to explain its reasons for crediting Dramatic 
Moments in Black Sports History to IPG and, if it continued to believe 
that it made the correct determination, to credit IPG with that 
program.
---------------------------------------------------------------------------

    \9\ The CARP determined that Just Imagine was properly credited 
to Litton, and not to Flying Tomato Films. Both of these parties are 
represented by IPG. No challenge to the CARP's determination on this 
matter was made.
---------------------------------------------------------------------------

4. The Royalty Awards
    The CARP awarded IPG 0.5% of the program supplier category funds, 
and the remaining 99.5% to MPAA. The CARP, however, failed to explain 
its reasoning or its methodology for bestowing these awards. Because 
unexplained decisionmaking by a CARP is arbitrary, the CARP's awards 
must be rejected. The June 5, 2001, Order remanded the matter to the 
CARP to determine new awards for IPG and MPAA, in light of the decision 
announced in that Order to dismiss additional IPG claimants and 
programs, and to explain the reasoning for the new awards.
    The CARP's failure to articulate any reasons for the 0.5% and 99.5% 
awards, and the methodology it used to produce these numbers, is 
puzzling. The CARP began its analysis in an appropriate fashion, fully 
detailing in its report the distribution methodologies proposed by IPG 
and MPAA. As discussed above, IPG's and MPAA's methodologies were 
premised on fundamentally different principles. MPAA addressed the 
marketplace value of the programs it represented by attempting to 
evaluate the amount of viewership they received, while IPG examined the 
value of the programs to cable operators who retransmitted them. IPG's 
methodology accorded the programs it represented a higher award--
0.881%--than if the MPAA's methodology were applied to the same 
programs--0.0708%. The CARP then analyzed each side's criticisms of the 
other's methodology and concluded that a number of the criticisms were 
valid. It found the following shortcomings for MPAA's methodology:

--MPAA's direct testimony did not sufficiently lay the foundation for 
the survey or explain its results.
--The Panel was forced to call its own witnesses, Mr. Lindstrom from 
Nielsen, and Mr. Larson from Cable Data Corporation to explain their 
methods of data acquisition and reporting.
--The number of sampled stations [in MPAA's station survey] has 
declined without adequate explanation.
--Station selection criteria excluded Form 1 and Form 2 cable systems.
--The number of ``zero'' viewing hours shows the flaw in attempting to 
use the Nielsen data as a proxy for the retransmission market 
especially since Nielsen had 24 hour sampling capability in 1997.
--The method of interpolation of non-sweep month estimated viewing 
needs statistical validation.
--There is an overvaluation of WTBS and under-valuation of the other 
Superstations in the survey.

    CARP Report at 102-103. For IPG, the CARP found the following 
criticisms:

--A mathematically sound basis for the creation and application of the 
station weight factor and time period weight factor should have been 
presented by a statistician.
--Daypart data was misapplied thus overstating ``all other'' viewing.
--It doesn't directly address the marketplace value of the works 
transmitted, a primary criteria.

Id. at 103. The Register has reviewed the record evidence in this 
proceeding and finds that there is ample support for these criticisms. 
They are not arbitrary. What is arbitrary, however, is what the CARP 
did next. Rather than address these criticisms in the context of its 
decision making process, the CARP immediately awarded the 0.5 and 99.5 
percentages without any explanation as to how they arrived at these 
numbers. Since no reasoning was provided for these numbers, they must 
be rejected. National Ass'n of Broadcasters v. Librarian of Congress, 
146 F.3d 907, 923 (D.C. Cir. 1998)(royalty distribution award arbitrary 
if rendered without explanation). The June 5, 2001, Order directed the 
CARP to provide a full explanation of the approach it was using in 
adopting new distribution awards.\10\
---------------------------------------------------------------------------

    \10\ In explaining their final numbers, CARPs have flexibility 
in the methodologies or approaches they use. The courts have 
recognized that there is a considerable ``zone of reasonableness'' 
when awarding a particular distribution percentage. See, e.g. 
National Cable Television Ass'n v. Copyright Royalty Tribunal, 724 
F.2d 176, 182 (D.C. Cir. 1983). In other words, there are no magical 
formulas that produce precise results. In this proceeding, the CARP 
could have chosen either IPG's or MPAA's formulas, adjusted the 
chosen formula to account for the CARP's criticisms of it, and used 
that process to yield the final numbers. Or, the CARP could have 
chosen a combination of both formulas, taking into account the 
criticisms of both, to arrive at the final numbers. Or, the CARP 
could have adopted its own distribution methodology or formula, 
using the data in the record of the proceeding to achieve the final 
results. Each of these approaches is acceptable provided that the 
CARP articulates the reasons for its choice, explains how it applied 
its choice to produce its final determination, and the determination 
itself is reasonable.

---------------------------------------------------------------------------

[[Page 66442]]

The Revised CARP Report

    On June 20, 2001, the CARP delivered its revised report. The 
revised report assigns new distribution percentages to IPG and MPAA and 
explains the CARP's reasoning for both its initial awards and the 
revised awards.
    As directed by the June 5, 2001 Order, the CARP only credited IPG 
with programs belonging to Litton Syndications. The programs are: 
Algo's Factory, Jack Hanna's Animal Adventures, Harvey Pennick's 
Private Golf Lessons, MomUSA, Nprint, Sophisticated Gents, The Sports 
Bar and Just Imagine. The CARP did not credit IPG with Dramatic Moments 
in Black Sports History, reversing its earlier determination that 
Litton was the syndicator of the program. See Initial report at 62; 
Revised report at 2. The CARP determined that ``[a]lthough both parties 
claim this program, New Line Cinema's program certification with MPAA 
indicates that it claims the program as syndicator.'' Revised report at 
2.
    With respect to awards, the CARP modified its initial determination 
by reducing IPG's award from 0.5% to 0.212% , and increasing MPAA's 
award from 99.5% to 99.788%. The CARP then explained how it determined 
the initial 0.5% and 99.5% awards, and then modified them in light of 
the June 5, 2001, Order to produce the new percentages.
    Although the CARP was presented with disparate methodologies for 
calculating the royalty awards-MPAA's methodology based on Nielsen 
household viewing hours and IPG's methodology based on value of the 
programming to cable operators--the CARP did find two elements of these 
competing methodologies in common. MPAA based its methodology upon a 
database obtained from CDC that contained 82 commercial television 
broadcast stations that were retransmitted by large (Form 3) cable 
systems on a distant basis during 1997. IPG based its methodology upon 
a CDC database that contained 99 commercial television broadcast 
stations (which included the same 82 stations used by MPAA) that were 
retransmitted by small, medium, and large (Form 1, 2, and 3) cable 
systems on a distant basis during 1997. Both of these databases have 
two overlapping categories: ``Rebroadcasts,'' the number of times a 
particular program was retransmitted; and ``Airtime,'' the length of 
the program multiplied by the number of times it was rebroadcast. The 
CARP stated that the purpose of examining the two databases was two-
fold: ``First to verify the accuracy of the numbers presented in the 
testimony and exhibits; and secondly to give the CARP a sense of the 
relative positions of MPAA and IPG represented claimants in the 1997 
marketplace by comparing the only two categories included in both 
databases, Rebroadcasts and Airtime.'' Revised report at 18.
    Appendix A of the revised CARP report compares the Rebroadcasts of 
the eight programs credited to Litton (as directed by the June 5, 2001 
Order) for both the IPG and MPAA databases. For the IPG database, these 
programs accounted for 0.4394782365% of the total number of program 
titles Rebroadcast in 1997. For the MPAA database, the eight programs 
account for 0.2811997603% of the total number of program titles 
Rebroadcast in 1997.
    Appendix B of the revised CARP report compares the Airtime of the 
eight programs credited to Litton for both the IPG and MPAA databases. 
For the IPG database, these programs accounted for 0.3494840195% of 
total Airtime of all programs retransmitted in 1997. For the MPAA 
database, the programs accounted for 0.2171099164% of the total Airtime 
of all programs retransmitted in 1997.
    The numbers described in Appendices A and B provide a range of 
comparison as to the amount of time that Litton's eight programs were 
available on distant broadcast signals retransmitted by cable systems. 
But this range did not account for how much these programs were 
watched, or the value ascribed to these programs by cable operators. To 
account for this, the CARP turned to MPAA's and IPG's methodologies and 
applied its criticisms of the evidence presented for each methodology, 
assessing penalties (percentage deductions from the total award yielded 
by the methodology) for each criticism depending upon the severity of 
the criticism. The eight criticisms of MPAA's methodology and the three 
criticisms of IPG's methodology, and their accompanying deductions, are 
described in Appendix D of the CARP's revised report. As a result of 
the eight criticisms, MPAA suffered a 0.450% reduction in the awards 
yielded by its methodology, and IPG suffered a 0.375% reduction in the 
awards yielded by its methodology.
    As with its comparison of IPG and MPAA databases, the revised IPG 
and MPAA methodologies (i.e. after the penalty reductions) yielded yet 
another range of numbers. For IPG, the revised MPAA methodology gave it 
an award of 0.462% of the 1997 royalty funds, while revision of its own 
methodology yielded an award of 0.731%. See Appendix D. According to 
the CARP, it is this range of numbers that yielded the 0.5% award to 
IPG in the initial report. Revised report at 18.
    Because the June 5, 2001, Order eliminated programs credited to IPG 
under both MPAA's and IPG's methodologies, the CARP needed a way to 
adjust downward IPG's award, and increase MPAA's award, to reflect the 
eliminated programs. It did this by examining the reduction in the 
percentages of Rebroadcasts and Airtime credited to IPG for its 
original claim and derived a median change of minus 57.673%. Appendix 
C. The minus 57.673% figure represents the median change from the 
original amount of Rebroadcasts and Airtime credited to IPG. According 
to the CARP, ``[e]liminating all claimants except Litton, means that on 
average, IPG now represents only 42.322% of the Rebroadcasts and 
Airtime that they did before.'' Revised report at 20. This meant that 
``IPG is entitled to 42.322% of the Original Award'' of 0.5%. Id. 
Consequently, the CARP awarded IPG 0.212% of the 1997 royalty funds in 
the syndicated program category, and the remaining 99.788% to MPAA.

Petitions to Modify the CARP's Revised Report

    Both MPAA and IPG level a number of criticisms at the conclusions 
reached by the CARP in the revised report, all of which they charge 
rise to the level of arbitrary action as a matter of law. MPAA submits 
that the CARP's award of 0.212 of one percent of the royalty funds to 
IPG is excessive and must be reduced. IPG counters that the methodology 
used by the CARP is fundamentally flawed and that its award must be 
increased.
    MPAA charges that the CARP made mathematical, methodological, and 
evidentiary errors in both the initial and revised reports. The 
principal mathematical error, according to MPAA,

[[Page 66443]]

concerns the CARP's use of IPG's requested royalty distribution 
percentage of 0.881. In appendix D to the revised report, the CARP used 
the 0.881% distribution percentage offered by IPG and adjusted it 
downward by 0.375% to reflect its three criticisms of IPG's evidentiary 
presentation. MPAA states that 0.881% is the wrong starting percentage 
because it reflects all the programs originally claimed by IPG and does 
not take into account the programs that the CARP eliminated from IPG's 
claim. Using IPG's valuations for each of its claimed programs, MPAA 
asserts that the CARP should have adjusted the 0.881% claim of IPG 
downward to 0.332%, since only 37.68% of the programs originally 
claimed by IPG were credited by the CARP in its initial report. MPAA 
Petition to Modify Revised Report at 5. Deducting 0.375% for the three 
criticisms of IPG's evidentiary presentation from 0.332% yields a 
negative distribution percentage for IPG.
    MPAA challenges the methodology employed by the CARP; in particular 
the use of Rebroadcasts and Airtime for IPG's and MPAA's represented 
programming. MPAA asserts that this approach unduly relies upon time 
considerations (i.e. time on the air) and ignores the marketplace value 
of the programming in contravention of prior CARP precedent. CARP 
Report in Docket No. 94-3 CARP CD 90-92 at 19-20 (June 3, 1996). These 
considerations aside, MPAA also questions the usefulness of comparing 
Rebroadcasts and Airtime from both MPAA's and IPG's sample surveys, 
since MPAA's 82 station sample survey contains more rebroadcasts and 
more hours of airtime than IPG's 99 station survey. The inherent 
illogic of this result should have, according to MPAA, indicated to the 
CARP that reliance solely on these numbers is flawed.\11\
---------------------------------------------------------------------------

    \11\ IPG counters this argument by noting that MPAA's 82 station 
data includes all broadcasts, irrespective of whether the program 
falls in the syndicated programming category or another category 
(such as sports, local programming, etc.) and irrespective of 
whether the program is claimed by IPG, MPAA or no party. IPG's 99 
station data makes these distinctions, resulting in fewer measured 
broadcasts and broadcast hours.
---------------------------------------------------------------------------

    MPAA also makes numerous challenges to the CARP's treatment of the 
evidence presented in this proceeding. In particular, MPAA asserts that 
the CARP's five criticisms of various aspects of MPAA's evidentiary 
presentation, that resulted in a 0.450% upward adjustment to IPG's 
share of the royalties as identified by MPAA, are baseless. First, MPAA 
argues that the 82 station sample survey it put forth was statistically 
sound since it ``very nearly reflects the entire universe of distant 
signal carriage, accounting for 92.5 per cent of aggregate subscribers 
instances. Therefore, the possibility of a margin for error that is in 
any way significant is nil.'' MPAA Petition to Modify Revised Report at 
12.
    Second, MPAA argues that there is no record evidence that 
demonstrates that exclusion of Form 1 and Form 2 cable systems from the 
total instances of distant cable carriage of syndicated programming 
negatively impacts the results of its 82 station sample survey, since 
the Form 3 cable systems used in the survey account for 89% of all 
cable subscribers to distant broadcast stations. Third, MPAA argues 
that the CARP had no grounds to criticize the number of zero viewing 
instances reported in the Nielsen household viewing hours used in the 
MPAA survey, especially since Paul Lindstrom, the only qualified expert 
in economics and statistics testifying in the proceeding, asserted that 
they did not have a significant bearing on the statistical validity of 
the survey.
    Fourth, MPAA charges that it was inappropriate and unfair for the 
CARP to criticize MPAA for not presenting relative error figures with 
respect to its methodology components and for mixing Nielsen diary data 
with Nielsen meter data. Finally, MPAA charges that it was groundless 
for the CARP to penalize MPAA 0.10% for its interpolation of data for 
time periods not measured by Nielsen (i.e. non sweeps periods) and only 
accord IPG a 0.075% penalty for a similar criticism.
    IPG also asserts that the CARP made a series of errors in 
fashioning both the original awards and the revised awards. IPG asserts 
that the CARP erroneously assigned two programs--Dream Big and Dramatic 
Moments in Black Sports History--to MPAA. Dream Big was credited to 
MPAA in the CARP's original report because it identified Warner Bros. 
as the syndicator of the program. With respect to Dramatic Moments in 
Black Sports History, the CARP originally assigned it to IPG (as 
claimed by Litton) but was directed by the Librarian's June 5, 2001, 
Order to provide an explanation for this decision. In the revised 
report, the CARP changed its mind and assigned Dramatic Moments in 
Black Sports History to MPAA because it concluded that New Line Cinema 
was the syndicator of the program, not Litton. IPG submits that if the 
Librarian does not restore these two programs to Litton's claim, then 
he should ``place the funds for the[se] program[s] * * * in escrow 
until the proper recipient is determined.'' IPG Petition to Modify 
Revised Report at 4.
    Like MPAA, IPG criticizes the CARP's reliance upon the number of 
Rebroadcasts and Airtime in fashioning its awards, noting that undue 
reliance on time considerations is contrary to precedent of the CRT and 
is not reflective of the value of the programming. IPG states that it 
provided the CARP with the unit value for each of its claimed programs 
(utilizing IPG's methodology), thereby giving the CARP the opportunity 
to derive an award based on the programs it credited to IPG. The eight 
programs credited to Litton amount to 79.074% of the original award to 
IPG of 0.5%, meaning that the CARP should have adjusted the original 
0.5% award downward to 0.3958%. Such an award would, according to IPG, 
reflect the true value of the Litton programs.
    With respect to the CARP's criticisms of MPAA's methodology, IPG 
argues that the CARP did not go far enough. IPG asserts that the CARP 
never verified the number of household viewing hours attributed to MPAA 
in its study, noting that MPAA received credit for appreciable numbers 
of programs not claimed by MPAA or certified by its members. Further, 
IPG asserts that the CARP should have penalized MPAA for having to call 
Paul Lindstrom and Thomas Larson as witnesses to provide additional 
support for MPAA's methodology. And IPG submits that the CARP should 
have penalized MPAA more than it did for reducing the number of 
stations in its station sample survey and for the large amount of zero 
viewing instances of programming contained in the Nielsen data 
presented by MPAA.
    Finally, IPG asserts that certain of the CARP's criticisms of IPG's 
methodology are not valid. With respect to the CARP's critique that IPG 
misapplied its daypart data thereby overstating its weighted viewing 
factor, IPG asserts that no evidence was presented to demonstrate that 
such misapplication provided any benefit to IPG. And, with respect to 
the CARP's criticism that IPG's methodology attempted to demonstrate 
the overall appeal of broadcast stations to cable operators, as opposed 
to the overall appeal of the programming to cable operators, IPG argues 
that the CARP simply mischaracterized its summary reference of 
``overall station appeal'' by ignoring the elements that comprised this 
aspect of IPG's methodology.

Rejection of the Revised Report

    The Register makes her recommendation as to whether the

[[Page 66444]]

revised royalty awards to IPG and MPAA should be adopted by the 
Librarian of Congress, or whether they are arbitrary or contrary to the 
provisions of the Copyright Act, title 17, United States Code. In 
making this recommendation, the Register has reviewed both the initial 
report of the CARP and the revised report, including the petitions to 
modify both reports filed by the parties. For the reasons stated below, 
the Register concludes that both the initial report and the revised 
report are arbitrary and must be rejected.
    Review of the initial report and the revised report reveals a 
number of arbitrary actions by the CARP. These include: (1) Failure to 
adequately explain the evidence supporting the CARP's reversal of its 
award of Dramatic Moments in Black Sports History from IPG to MPAA; (2) 
failure of the CARP in its initial report to adjust downward IPG's 
requested distribution percentage after the CARP eliminated a number of 
IPG's claimed programs; (3) failure of the CARP in its initial report 
to adjust upward MPAA's requested distribution for IPG given the number 
of programs which the CARP credited IPG; (4) failure of the CARP in the 
revised report to adjust both IPG's and MPAA's requested distributions 
in light of the final programs credited to IPG; (5) failure of the CARP 
to base any of its downward deductions to both IPG's and MPAA's 
methodologies (based on the CARP's criticisms) on record evidence; and 
(6) adoption by the CARP of a distribution methodology that arguably 
has little relationship to the marketplace value of the programs. In 
recommending rejection of the CARP's determination, the Register 
focuses her discussion on the second failure described above-the lack 
of downward adjustment to IPG's requested distribution in light of the 
programs credited-because it created a fundamental flaw in the CARP's 
approach that invalidates the distribution awards granted IPG in both 
the initial and the revised reports.
    The CARP's distribution methodology, articulated only in the 
revised report, is fully discussed above. Briefly recapped, it is the 
product of two ``ranges.'' First, the CARP utilized the Rebroadcast and 
Airtime data-the only data categories common to both methodologies-to 
give the CARP ``a sense of the relative positions of MPAA and IPG 
represented claimants in the 1997 marketplace.'' Revised Report at 18. 
This produced the first range for locating the CARP's final awards. 
Then, the CARP utilized ``the parties competing requests for 
allocations and the formulas presented advocating their averred 
distribution percentages,'' adjusting them by applying deductions 
reflective of the CARP's criticisms of the respective methodologies. 
This produced the second range for locating the CARP's final awards. 
The second range appears to be the one actually used by the CARP to 
settle upon its original award of 0.5% to IPG. Id.
    A critical flaw occurs with the inputs for the second prong of the 
CARP's methodology. The CARP started with IPG's requested distribution 
percentage of 0.881%, drawn from IPG's proposed findings of fact and 
conclusions of law. The 0.881% is an inflated percentage, however, 
because it was based upon inclusion of all programs originally claimed 
by IPG. Earlier in the CARP's initial report, it spent considerable 
time discussing the validity of IPG's claimed programs and found a 
number of the claims invalid. See, Initial Report at 72-74 (royalty 
allocation for Dragon Ball Z to MPAA; no royalty allocation for 
Enchanted Tales and Thumbelina; royalty allocation for Dream Big to 
MPAA; no royalty allocation for Bottom Line, By River By Rail, Til 
Earth and Heaven Ring; no royalty allocation for Lou Rawls Parade of 
Stars; no royalty allocation for Psychic Friends, Psychic Friends 
Network, Psychic Revival Network, Psychic Solution, Psychic Talk, 
Psychic Talk 2, Psychic Talk USA, Psychic Talk Thirty). These programs 
were included in IPG's 0.881% request. It was therefore arbitrary for 
the CARP to accept the 0.881% figure as a starting point because it had 
eliminated many of the programs that produced this number.
    Likewise, the CARP made the same error when it looked at the 
distribution percentage for IPG yielded by MPAA's methodology. MPAA's 
distribution percentage of 0.012% was based on only seven programs 
credited to IPG. However, in its initial award, the CARP credited IPG 
with far more than just seven programs. It was therefore arbitrary for 
the CARP to use the 0.012% figure as a starting point for its 
application of MPAA's methodology.
    In sum, the faulty inputs to the second prong of the CARP's 
methodology make the range generated by that prong wholly inaccurate, 
thereby rendering the initial award erroneous. The revised report, 
since it merely takes the original award to IPG and makes a median 
change to it based upon the reduction in programs credited to IPG, is 
likewise erroneous. Although there are other serious flaws in the 
CARP's approach, as described above, the Register need go no further. 
The CARP's determination must be rejected, and the Librarian must 
substitute his own determination.

Part Two--Recommendation of the Register

    This is not the first time that the Register of Copyrights has 
recommended, and the Librarian of Congress has accepted, a rejection of 
a decision of a CARP. In most of those cases, the Register has 
recommended that only portions of a CARP's decision be rejected, see, 
e.g., 61 FR 55653 (October 28, 1996)(cable distribution); 62 FR 55742 
(October 28, 1997)(satellite rate adjustment). In one case, the 
Register recommended that the Librarian reject the royalty rate 
established by the CARP, and substitute his own determination. 63 FR 
25394 (May 8, 1998)(digital performance right in sound recording rate 
adjustment).
    Section 802(f) of the Copyright Act provides that ``[i]f the 
Librarian rejects the determination of the arbitration panel, the 
Librarian shall * * * after full examination of the record created in 
the arbitration proceeding, issue an order setting the royalty fee or 
distribution of fees, as the case may be.'' 17 U.S.C. 802(f). As 
discussed above, the distribution methodology applied by the CARP in 
this proceeding is so flawed that any distribution percentages 
generated by it are inherently arbitrary. As a consequence, there must 
be an independent review of the record to resolve this proceeding.

Distribution Criteria

    Section 111 does not prescribe the standards or guidelines for 
distributing royalties collected from cable operators under the 
statutory license. Instead, Congress decided to let the Copyright 
Royalty Tribunal ``consider all pertinent data and considerations 
presented by the claimants'' in determining how to divide the 
royalties. H.R. Rep. No. 1476, at 97 (1976). In the first cable 
distribution proceedings, the Tribunal fashioned five distribution 
criteria: three primary criteria and two secondary criteria. The three 
primary criteria were: (1) The harm caused to copyright owners by 
secondary transmissions of their copyrighted works by cable systems; 
(2) the benefit derived by cable systems for secondary transmissions of 
the copyrighted works; and (3) the marketplace value of the works. The 
secondary criteria were: (1) the quality of the copyrighted program and 
(2) time-related considerations. National Ass'n of Broadcasters v. 
Librarian of Congress, 146 F.3d 907 (D.C. Cir. 1998). In 1989, the 
Tribunal eliminated the secondary criterion of program quality from its 
consideration. 57 FR 15286, 15303

[[Page 66445]]

(April 27, 1992). In 1998, the Librarian determined that a CARP did not 
act arbitrarily by eliminating the primary criterion of harm to the 
copyright owner. NAB, 146 F.3d 907 (D.C. Cir. 1998).
    In considering the value of programming in a Phase II cable 
distribution proceeding, we must simulate the marketplace for that 
programming. Under the statutory license regime of section 111, 
programs are not bought and sold in the open marketplace-the statutory 
license substitutes for the marketplace. Cable operators pay an 
established fee for the privilege of retransmitting all the programs 
contained on a particular broadcast signal, rather than license the 
programs individually. However, just because cable systems pay a single 
fee for all the programs does not mean all the programs are of equal 
value. The established distribution criteria, as modified, must be 
applied in an effort to simulate a marketplace for these programs where 
one does not exist because of section 111. We now turn to a 
consideration of the evidence presented by MPAA and IPG as to the value 
of their programs.

The Programs

    Before considering the appropriate methodology for distributing the 
1997 cable royalties in the syndicated programming category, the 
programs to be credited to MPAA's and IPG's royalty distribution claims 
must be determined.\12\ In the Librarian's June 5, 2001 Order, IPG's 
program claim in this proceeding was pared down to the following eight 
programs: Algo's Factory; Jack Hanna's Animal Adventures; Harvey 
Pennick's Golf Lessons; Mom USA; Sophisticated Gents; Nprint; Just 
Imagine and The Sports Bar. Order in Docket No. 2000-2 CARP CD 93-97 at 
1 (June 5, 2001). Each of these programs is claimed by Litton 
Syndications. IPG claims an additional two programs on behalf of 
Litton: Dream Big and Dramatic Moments in Black Sports History.
---------------------------------------------------------------------------

    \12\ As a practical matter, the focus will be on the programs 
represented by IPG. The reason for such focus is obvious. There are 
only two claimants in this proceeding; one that represents most of 
the programs eligible for distribution (MPAA), and one that 
represents only a few (IPG). Once it is determined which IPG-
represented programs are eligible for a distribution of the 1997 
royalty funds, the value of those programs can be ascertained and 
IPG's distribution share can be established. Assuming that 
ineligible and unclaimed programs are excluded from consideration, 
there is no need to focus on the eligibility of MPAA programs 
(except as they affect IPG's claim to the same program), since the 
remainder of the 1997 fund will go to MPAA once IPG's share is 
deducted. But see discussion of MPAA's methodology, infra.
---------------------------------------------------------------------------

A. Dream Big
    Dream Big is listed in exhibit D of IPG's written direct case as 
belonging to Litton. Litton's representation agreement with IPG lists 
Dream Big as a program claimed by Litton, and the representation 
agreement contains the following boilerplate language:

    Principal (i.e. Litton) warrants that to the best of Principal's 
knowledge Principal has the right to collect the Distribution 
Proceeds to Programs, and has not previously conveyed the right to 
collect the Distribution Proceeds to any third party.

Representation agreement at 2, clause 7. At hearing, on cross-
examination of IPG's witness Raul Galaz, the following exchange took 
place:
    Q: The program Dream Big, Mr. Galaz, do you know who the copyright 
owner of that program is?
    A: No.
    Q: And, again, do you know who the syndicator of that program is?
    A: My understanding is that Litton Syndications is the syndicator.
    Q: And do you know, again, the nature of the particular right or 
interest owned by Litton with respect to their entitlement to Section 
111 royalties?
    A: No, I don't know whether they are, additionally, an owner.
    Q: I didn't hear you. I'm sorry.
    A: I don't know whether they are, additionally, an owner or not.

Tr. 1063-64. No additional testimony regarding Dream Big took place.
    In its petition to modify the initial decision of the CARP, IPG 
requests that the Librarian reopen the record to admit a copy of an 
agreement between Warner Vision Entertainment and Litton which, 
according to IPG, conclusively proves that Litton holds the syndication 
rights to Dream Big. The agreement states that Warner Vision ``hereby 
grants to Litton, and Litton hereby accepts, the right to syndicate a 
children's audio-visual series tentatively entitled `Real Kids.'' ' IPG 
Petition to Modify CARP Report at appendix 2. IPG asserts that Warner 
Vision is a subsidiary of Warner Bros., and that ``Real Kids'' is the 
initial name for Dream Big.
    MPAA claims Dream Big in exhibit D of its written direct case. 
Dream Big is identified on MPAA's Alpha List (a listing of all programs 
broadcast in 1997 and including both MPAA-represented and IPG-
represented programs) as belonging to Warner Bros. MPAA also obtained a 
program certification form from Warner Bros. that lists Dream Big as a 
Warner Bros. program. The certification form, signed by Michael 
Troxler, Vice President of Finance, contains MPAA's boilerplate 
language stating that Warner Bros. is entitled to receive 1997 cable 
royalties for Dream Big by virtue of being ``An officer (if a 
corporation) or a partner (if a partnership) of the legal entity 
identified as the owner or the authorized agent of the owner of the 
programs on the printout.'' IPG Exhibit 7XR at 389. Other than the 
cross-examination of Mr. Galaz identified above, MPAA did not put forth 
any further information at hearing regarding Dream Big.
    In reaction to IPG's request to reopen the record and have the 
Librarian consider the Warner Vision/Litton agreement, MPAA submits an 
April 11, 2000, letter of Michael Troxler of Warner Bros. stating:

    WarnerVision is the rightful copyright holder to the series 
Dream Big. This was subdistributed on behalf of WarnerVision by 
Litton for a clearance fee based upon U.S. coverage. Since Litton 
was paid a clearance fee, they are not entitled to any of the Cable 
Copyright Royalties.

MPAA Reply to IPG Petition to Modify CARP Report at appendix 2.
    In National Broadcasting Co., Inc. v. Copyright Royalty Tribunal, 
848 F.2d 1289 (D.C. Cir. 1988), the Court reviewed the Copyright 
Royalty Tribunal's attempt to resolve competing claims for the program 
Little House on the Prairie. NBC created and produced the program and 
granted to Worldvision, Inc. exclusive rights to distribute the program 
for a period of 35 years. The Tribunal determined that Worldvision, as 
the exclusive syndicator of the program, was the party entitled to 
section 111 royalties. The Court upheld this conclusion, stating:

    The CRT determined that the directly affected party [from the 
harm caused by retransmission of the program by cable systems] will 
typically be the exclusive syndicator, and that the CRT will 
therefore as a general rule always distribute royalties initially to 
the syndicator. This presumption by the CRT, in the face of 
congressional silence, is a permissible interpretation of the 
statute, to which we defer.

848 F.2d at 1296.
    Examining the record evidence, the Register cannot ascertain who is 
currently the exclusive syndicator of Dream Big. The non-record 
evidence, even if admitted, still does not resolve the issue. And 
section 802(f) of the Copyright Act states that the Librarian shall 
base his decision only upon the record evidence.
    Given the dearth of record evidence, it would be arbitrary for the 
Register to recommend that Dream Big be awarded to either MPAA or IPG. 
Consequently,

[[Page 66446]]

the Register recommends that the only acceptable course of action is to 
seek further evidence from the parties to determine the proper status 
of the program when the proceeding is remanded to a new CARP.
B. Dramatic Moments in Black Sports History
    Dramatic Moments in Black Sports History (``Dramatic Moments'') is 
also claimed by both MPAA and IPG. The record for Dramatic Moments is 
as follows.
    IPG identifies Dramatic Moments in exhibit D of its written direct 
case as belonging to Litton. The program is identified in Litton's 
representation agreement with IPG and contains the same contract 
warranty provision that applies to Dream Big. At hearing, the following 
exchange took place on cross-examination of Mr. Galaz, IPG's sole 
witness.
    Q: Okay. The program Dramatic Moments in Black Sports History, do 
you know who the copyright owner of that program [is], Mr. Galaz?
    A: No.
    Q: Do you know the syndicator?
    A: My understanding is that Litton Syndications is the syndicator.
    Q: And do you know the particular right or interest owned by Litton 
relative to their entitlement to Section 111 royalties?
    A: Whether it's as the owner or syndicator, I don't know.
    Q: But if it is the owner or syndicator, do you know who they--when 
they acquired and how they acquired the right? If they are a 
syndicator, not if they're an owner?
    A: Restate your question.
    Q: If they're a syndicator, if indeed they are the syndicator, do 
you know how that right was acquired?
    A: Well, they can be both the owner and the syndicator.
    Q: Right.
    A: So your question was asking whether or not
    Q: Right. If they--
    A:--the nature of the right, and the nature of the right could be 
as both the owner or the syndicator. I don't know which.
    Q: You don't know whether they're the owner as well as the 
syndicator?
    A: My understanding is that they're the syndicator. I do not know 
whether they are, additionally, the owner.

Tr. 1062-63. No further record evidence was presented by IPG regarding 
the program.
    In exhibit 3 of its written direct case, MPAA identifies Dramatic 
Moments as part of its claim. The program appears on the revised Alpha 
List of MPAA programming, identifying New Line Cinema as the claimant. 
MPAA presented a program certification form for New Line Cinema, which 
states that New Line is an officer or partner of the ``legal entity 
identified as the owner or the authorized agent of the owner of the 
programs on the printout.'' IPG ex. 7XR at 188. The certification is 
signed by Frank A. Buquicchio, who identified himself as the Senior 
Vice president of Television and Ancillary Accounting for New Line. 
Other than the cross-examination of Mr. Galaz, MPAA presented no other 
evidence as to the ownership of Dramatic Moments.
    In its petition to modify the further report of the CARP, IPG 
argues that the burden should be on MPAA to prove its claim to Dramatic 
Moments. IPG asserts that MPAA did not produce the program 
certification forms until one day before the start of the hearings, 
thereby precluding IPG's ability to prepare an effective cross-
examination on program ownership. IPG further asserts that if the 
Librarian cannot resolve the proper ownership of the royalties 
attributable to Dramatic Moments, the money should be placed in escrow 
to permit resolution between Litton and New Line Cinema.
    As with the case of Dream Big, neither IPG nor MPAA have presented 
sufficient evidence to permit a determination as to who should receive 
credit for Dramatic Moments. Consequently, the Register recommends that 
further evidence must be adduced on remand to resolve the status of 
this program.

The Evidentiary Presentations

    As discussed above, IPG and MPAA presented competing statistical 
methodologies to support their claims to the 1997 syndicated 
programming royalty pool. MPAA's presentation operates from the 
assumption that viewership of programs retransmitted by cable operators 
in 1997 is the way to measure the value of those programs, and provides 
a sample survey purporting to gauge viewing. IPG's presentation 
operates from the assumption that every program retransmitted in 1997 
has value and should be compensated from the royalty pool, and provides 
a sample survey that attempts to value each program based upon the 
royalty fees generated by television stations broadcasting the 
programming.
A. MPAA's Presentation
    1. Description of the methodology. MPAA's written direct case 
consists of the testimony of Marsha Kessler, Vice President of 
Retransmission Royalty Distribution at MPAA, and the nine exhibits that 
she sponsors. In addition, MPAA designated the direct testimony and 
exhibits of Paul Lindstrom, Leonard Kalcheim, and James Von Schilling 
from Docket No. 97-1 CARP SD 92-95 (1992-1995 satellite royalty 
distribution) and the direct and rebuttal testimony and exhibits of 
Marsha Kessler, Allen Cooper and Paul Lindstrom from Docket No. CRT 91-
2-89CD (1989 cable royalty distribution). During the course of the 
proceeding, at the behest of the CARP, MPAA presented two additional 
witnesses: Paul Lindstrom of Nielsen Media Research and Thomas Larson 
of Cable Data Corporation.\13\
---------------------------------------------------------------------------

    \13\ MPAA also presented testimony from David E. Farbman 
regarding activities of IPG's principal, Raul Galaz. His testimony 
is not relevant to the calculation of royalty shares.
---------------------------------------------------------------------------

    MPAA attempts to demonstrate the marketplace value of movies and 
syndicated programs retransmitted by cable systems in 1997. As it has 
done in previous royalty distribution proceedings before the Copyright 
Royalty Tribunal and the CARPs, MPAA submits that the best way to 
determine the marketplace value of a television series or movie is to 
examine how many people watched the program in the given distribution 
year. The greater the number of people who watched the program, the 
more valuable the program is. MPAA notes that in cable and broadcast 
markets where programs are bought and sold without the constraint of a 
compulsory license, broadcasters purchase the rights to broadcast a 
particular program based upon the number of viewers they believe the 
program will attract. The same is true for cable programmers. Kessler 
Direct at 12-13. And advertisers are willing to pay broadcasters and 
cable programmers higher fees to have their ads aired during programs 
that attract many viewers. Id. Thus, from MPAA's perspective, viewer 
avidity for a particular program is the best determinative of the 
program's marketplace value.
    MPAA constructs a study--a sampling of the cable retransmission 
universe in 1997--that attempts to demonstrate the amount of viewing 
that the programs claimed by MPAA and IPG garnered on broadcast 
stations that were retransmitted on a distant basis.\14\ It is not a 
study that reveals how many people in the United States actually 
watched a given program; the cost of such an undertaking would be too 
high.

[[Page 66447]]

Rather, the MPAA study generates estimates of viewing, described as 
total household viewing hours (HHVH) for each program claimed by MPAA 
and IPG.
---------------------------------------------------------------------------

    \14\ The study only attempts to estimate viewership for 
programming retransmitted by cable systems on a distant basis, since 
local retransmissions of the same program are not compensable under 
the cable license. See 17 U.S.C. 111(d)(3)(A).
---------------------------------------------------------------------------

    MPAA's study utilizes data from three sources--Cable Data 
Corporation (``CDC''), TV Data and Nielsen Media Research 
(``Nielsen''). MPAA Proposed Findings at 20, para. 55. First, MPAA 
determines the number of television stations that it wishes to include 
in its survey. For the 1997 study, MPAA selected 82 TV broadcast 
stations. These stations were retransmitted by Form 3 cable systems 
(MPAA excluded Form 1 and Form 2 systems) and account for 92.5% of 
aggregated subscriber instances. Id. ``Aggregated subscriber 
instances,'' means that subscribers receiving broadcast programming 
were viewing it on a distant signal basis only, since section 111 of 
the Copyright Act does not allow compensation for programming that is 
retransmitted on a local basis. Thus, the 82 stations used in MPAA's 
study account for 92.5% of distant signal viewing of MPAA and IPG 
programs. This data was supplied by CDC.
    Next, MPAA consults the TV Data television log books to determine 
what programs were broadcast at what times. For 1997, MPAA examined the 
log books for the 82 stations it included in its survey. Exhibit 3 of 
MPAA's written direct case identifies the programs which MPAA claims 
that it represents in this proceeding, along with the number of 
broadcasts of each program on the 82 stations surveyed. Of the over 
3,700 titles, over 500 of these are television series (sitcoms, dramas, 
etc.) while the remaining titles are movies. MPAA Proposed Findings at 
14, para. 42. MPAA makes great effort to demonstrate that its claim 
includes most of the top-rated syndicated television series and movies. 
Kessler Direct at 6-7.
    Finally, MPAA takes the programming data from these two sources and 
matches it to viewing data supplied by Nielsen. Nielsen provides the 
names of the programs that were broadcast for each station in the 
study, the number of 15-minute segments (referred to as quarter hours 
(QH)) each program aired on that station, and what MPAA describes as 
the average number of cable subscribers who viewed each program on that 
station on a distant basis. Kessler Direct at 8. Using this 
information, MPAA then calculated the household viewing hours for each 
program appearing in the study. The formula that MPAA utilized to make 
this calculation is as follows:

(<greek-S>QH/4) x average DCHH = HHVH

Id. Marsha Kessler stated the formula thus:

    Add together the total number of 15 minute (QH) segments a 
program is broadcast in a particular time slot on a particular 
station. Divide that number by 4 to get an hourly measure. Multiply 
the result by the average number of distant cable households (DCHH) 
that actually watched [the] program on that station during that time 
period.

Id.
    It is important to note that the data supplied by Nielsen does not 
attempt to measure viewing 365 days a year. Rather, Nielsen conducts 
``sweeps'--0limited periods of time in which actual viewing to 
programming is measured. Nielsen can only provide viewing data for four 
or six sweeps periods, meaning that substantial portions of the year 
are not measured. To counteract this problem, MPAA devised a method for 
interpolating viewing for those periods when Nielsen data is not 
available. Using data supplied by Nielsen, MPAA assigns an estimated 
number of viewers for a given broadcast station for a given quarter 
hour in a given day. For example, there are no Nielsen sweeps in June. 
To determine viewership for a program broadcast on a specific station 
during a specific time period in June, MPAA averages the viewing for 
the same time slot in May (a sweeps month) and July (also a sweeps 
month) to estimate what viewership would be for the corresponding time 
slot in June. The process is described as straight line interpolation. 
Tr. 1615-16.
    Once armed with household viewing data for all programs broadcast 
by the 82 stations in its survey, MPAA determined the household viewing 
hours for all of its programs and IPG's programs. MPAA determined that 
the total household viewing hours for MPAA and IPG programming was 
3,476,625,750. MPAA Proposed Findings at 73, para. 291. MPAA's 
programming received 3,476,218,917 household viewing hours, while IPG's 
programming received 406,833. Id. This calculation was based on MPAA's 
assignment of household viewing hours to the following IPG programs:
    Algo's Factory--11,707 viewing hours.
    Harvey Pennick's Private Golf Lessons--5,193 viewing hours.
    Jack Hanna's Animal Adventures--372,488 viewing hours.
    Mom USA--0 viewing hours.
    Nprint--1645 viewing hours.
    Sophisticated Gents--7010 viewing hours.
    The Sports Bar--8790 viewing hours.
    Id. at 72, Paras. 285-291. Missing from this calculation is Just 
Imagine, which the Librarian has credited to IPG's claim. See June 5, 
2001 Order at 2.

    Based on its household viewing hour calculations, MPAA claims that 
it is entitled to 99.9871% of the 1997 cable royalties, while IPG is 
entitled to 0.0117% of the royalties (for the seven Litton programs). 
MPAA Proposed Findings at 73, para. 291.
    2. Validity of the methodology. Throughout the course of this 
proceeding, IPG has attempted to sully both the construct and the 
application of the MPAA methodology. Many of these criticisms were 
accepted by the CARP. See, generally, Initial report at 102-103; 
Revised report at 5-12. We now consider these criticisms as part of our 
evaluation of the evidentiary presentation of MPAA.
    At the outset, we affirm what the Copyright Royalty Tribunal long 
ago stated: that actual measured viewing of a broadcast program is 
significant to determining the marketplace value of that program. 51 FR 
12792, 12808 (April 15, 1986). In a perfect world, we would know all 
viewing to all programs that were retransmitted on a distant basis by 
all cable systems in 1997. We recognize that the cost of attempting to 
present such evidence would be prohibitive. Even if we had access to 
such information, the inquiry would not end there because there are 
other factors besides viewing that can have a bearing on the 
marketplace value of a program. Because we are charged with the task of 
simulating the marketplace for a broadcast program in an effort to 
determine the value of the program, the Register must consider those 
factors, where relevant, in the equation as well.
    Given the recognition that viewing of programs has probative value, 
we turn to a consideration of MPAA's presentation. The construct of 
MPAA's methodology is generally similar to that presented in previous 
cable distribution proceedings before the Tribunal and the CARPs. There 
are, however, some notable differences. In prior proceedings, 
particularly at Phase I, experts from Nielsen participated in the 
construct and presentation of the study, as well as supplying the 
viewing data. Nielsen's participation in MPAA's study in this 
proceeding is limited to providing select data for use by others. 
Lindstrom Tr. 1387-88; 1407; 1421; 1439-42. Consequently, we have 
refrained from describing the 82 sample station survey as the 
``Nielsen'' survey. In addition, MPAA has derived a considerable volume 
of viewing hours from a process described as ``interpolation,'' which 
it is has not presented extensively in prior

[[Page 66448]]

proceedings. ``Interpolation'' is discussed infra.
    When the MPAA presented its viewing study to the Copyright Royalty 
Tribunal in Phase I proceedings, the Tribunal described the study as a 
good ``starting off point.'' 57 FR 15286, 15288(April 27, 1992) (1989 
cable Phase I distribution). Is the MPAA's 82 station sample survey a 
``good starting off point'' for this proceeding?\15\
---------------------------------------------------------------------------

    \15\ Although the Tribunal never described the Nielsen study as 
a ``good starting off point'' for Phase II proceedings, it readily 
accepted Nielsen results that were presented by MPAA in Phase II 
proceedings. See, e.g. 53 FR 7132, 7136 (March 4, 1988)(1985 cable 
Phase II)(``[W]e give great reliance on the Nielsen data'')
---------------------------------------------------------------------------

    The CARP concluded that MPAA's 82 station sample survey was 
``stretched to cover more ground and answer more questions than it was 
originally designed to do.'' It listed eight specific criticisms of the 
MPAA approach:

--MPAA's direct testimony did not sufficiently lay the foundation for 
the survey or explain its results.
--The Panel was forced to call its own witnesses, Mr. Lindstrom from 
Nielsen, and Mr. Larson from Cable Data Corporation to explain their 
methods of data acquisition and reporting.
--The number of sampled stations has declined without adequate 
explanation.
--Station criteria excluded Form 1 and Form 2 cable systems.
--The number of ``zero'' viewing hours shows the flaw in attempting to 
use the Nielsen data as a proxy for the retransmission market 
especially since Nielsen had 24 hour sampling capability in 1997.
--There are unanswered technical questions regarding relative error 
rates and mixing diary and meter data.
--The method of interpolation of non-sweep month estimated viewing 
needs statistical validation.
--There is an overvaluation of WTBS and under-valuation of the other 
Superstations in the survey.

Initial report at 102-03. There is a theme underlying this critique of 
MPAA's case that can be summarized as follows: the broad brush that is 
used to paint the big picture is a poor tool for crafting the details. 
MPAA's viewer study can paint a statistically useful picture of how 
much sports programming, for example, the viewing public watches 
relative to the amount of syndicated programming it watches. But when 
the same study is used in an effort to determine how much the viewing 
public watches an individual television program, the accuracy of the 
results comes into question. Accord 51 FR 12792, 12817 (April 15, 
1986)(1983 cable Phase II distribution)(``[O]verall reliability [of the 
Nielsen study] may be somewhat less when the focus is on individual 
programs.'').
    How much confidence can we place in the results yielded by MPAA's 
82 station sample survey? MPAA does not provide an answer. Section 
251.48(f)(4) requires parties submitting studies involving statistical 
methodology to provide confidence levels for the methodology. 
Specifically, the rule requires calculation of the standard error for 
each component of the methodology. 37 CFR 251.48(f)(4)(ii). MPAA 
acknowledges that it did not comply with the rule, but offers that 
``the absence of relative error figures has raised no bar to 
significant reliance on the Nielsen study in [prior] Phase II 
proceedings.'' MPAA Reply Findings at 38.
    Regardless of what may have sufficed in prior proceedings before 
the Copyright Royalty Tribunal, there is reason to believe there is 
considerable relative error in MPAA's results in this proceeding. On 
cross-examination, Paul Lindstrom stated the following:
    Q: In past CRT proceedings, it's my understanding that Nielsen 
reports have been entered into the record, is that correct?
    A: That is correct.
    Q: And when Nielsen reports have been entered into the record, they 
have come with qualifications or characterizations to assist the 
parties and the Panel understand the data and the relative errors, 
standard error factors and the like, is that correct?
    A: It is correct that we have produced the relative error figures 
for the category data.
    Q: And did you produce relative error figures for the 1997 data?
    A: The relative error figures were not produced by us because the 
final data would not be produced by us. We're basically developing a 
database which is being passed on to Mr. Larson who then takes it and 
produces the aggregated report. The standard errors are really relevant 
on the aggregated data and so we're kind of a mid-product in the 
process.
    Q: Is there any--in Mr. Larson's work would you consult with him so 
that he makes proper assessment of the data?
    A: We have had opportunities at times where we have needed to work 
together in order to work out issues or to make clear on definitions or 
categorizations, but on a day to day basis, he's not directing us on 
how to produce our portion of it and we're not directing him on how to 
produce his.
    Q: But again, in terms of the portion you produced, you basically 
are asked to produce from your database of data, information regarding 
quarter hours of viewing to particular stations within a subset of 
counties that would qualify as distant for purposes of cable copyright 
rules?
    A: That is correct.
    Q: And in past proceedings you've aggregated the information into 
program categories and provided relative errors for that. In this 
proceeding you have not done that, is that correct?
    A: That is correct.
    Q: And in past proceedings you have not been asked to address, 
except in incidental situations specific programs, you have only 
addressed program categories, is that correct?
    A: To the best of my knowledge, yes.
    Q: Do you see any difference in Nielsen, just focusing on 
independent Mr. Larson's responsibilities in terms of the way Nielsen 
data for purposes of this proceeding, should be viewed--should it be 
viewed the same or differently from prior data presented where you do 
not have program categories, but the data is solely addressed to 
quarter hours of particular stations?
    A: If I'm understanding correctly, I'll repeat what I think I hear 
you say, is that is there a difference in--I imagine you're talking 
about the accuracy or use [sic] that word, for aggregated category data 
versus individual program information and if that's the question, then 
that is absolutely correct. Once the data is beginning to get 
aggregated, the sampling errors go down and go down substantially.
    Q: But conversely, if it's not aggregated, the sampling errors 
would increase?
    A: The sampling errors for any--again, any given program on any 
given station on any given day so that we're talking about an 
individual week, individual program, individual station will be subject 
to huge relative errors.

Tr. 1406-10.
    Mr. Lindstrom's testimony underscores the pitfalls of using MPAA's 
82 station sample survey to measure household viewing hours for 
individual programs. When large amounts of programming and household 
viewing hours are measured, such as in a Phase I proceeding, the 
aggregation of the measuring data is substantial and the relative error 
is low. This is what makes the MPAA's sample survey ``a good starting 
off point.'' However, when the number of programs and household viewing 
hours are small, the aggregation of the data is minimal and, in the 
words

[[Page 66449]]

of Mr. Lindstrom, ``subject to huge relative errors.'' Tr. 1409-10. Of 
the thousands of programs and billions of viewing hours represented in 
MPAA's sample survey, IPG's claim only accounts for eight programs and 
less than 500,000 viewing hours. Although we do not know how large the 
error factor is for this calculation since MPAA failed to present such 
information, it is reasonable to presume that it is quite large given 
that it is drawn from such a small piece of the data. This leads us to 
the conclusion that, as a methodological approach, it cannot be said 
that the MPAA sample survey is a ``good'' starting off point; at best, 
it is simply ``a'' starting point.
    Having considered MPAA's sample survey conceptually, we now turn to 
the specifics of its application. As discussed above, the CARP 
concluded that there were a number of flaws in certain aspects of the 
sample survey. Although we do not necessarily agree with the number and 
severity of the CARP's criticisms, there is no need to discuss them 
here. What matters are what the Register, and ultimately the Librarian, 
conclude are the flaws in the sample survey, and what impact those 
flaws have on the usefulness of the MPAA approach.
    (i). Program ownership. Program ownership is an important and 
highly contested issue in this proceeding. The issue, however, has 
centered on the claim of IPG and the programs it has purported to 
represent in this proceeding. Little attention was given to MPAA's 
ownership of programs. The CARP requested that MPAA submit program 
certifications obtained from its member companies, apparently in an 
effort to resolve issues surrounding certain programs claimed by both 
MPAA and IPG. MPAA provided these certifications to the CARP as a 
``courtesy,'' carefully noting that it was not ``legally'' required to 
do so. Tr. 2571-73. MPAA's position is that it is not required to prove 
its program ownership because it will receive all remaining funds in 
the 1997 syndicated program royalty pool once IPG's claim is 
established. While it is true that MPAA will receive all funds less 
IPG's share, program ownership is nonetheless essential to the 
application of MPAA's methodology.
    As discussed above, MPAA's 82 station sample survey is 
straightforward in its approach. Calculate the universe of programs in 
this proceeding, determine the total number of viewing hours for these 
programs, and then calculate the percentage of the total of viewing 
hours for IPG programs, yielding IPG's royalty distribution percentage. 
The so-called ``alpha list'' submitted by MPAA supposedly contains the 
household viewing hours for all IPG and all MPAA programs. Id. at 28, 
para. 79. The number of IPG programs on this list is known; it is the 
eight programs of Litton Syndications which the Library has determined 
are properly attributable to IPG. How do we know that all the remaining 
programs are properly attributable to MPAA? The answer is that we do 
not know. MPAA created the alpha list, but it did not provide any 
testimony to verify the accuracy of the list. It may be that the alpha 
list contains programs which are not properly represented by MPAA. IPG 
raises concerns about the status of several program certifications 
submitted by MPAA, including a number of MPAA claimants for which no 
certifications were submitted. IPG Proposed Findings at 44-48, Paras.  
153-169. The CARP allowed the record of this proceeding to remain open 
after argument had ended to allow submission of additional 
certifications from MPAA. We cannot determine the sufficiency of these 
additional filings because there is no testimony to review.
    The import of these omissions to the confidence to be placed in 
MPAA's sample survey is considerable. If MPAA's program ownership 
cannot be verified, then the total number of household viewing hours 
for programs in this proceeding cannot be verified. What is even more 
troubling is that if the alpha list does contain programs which are not 
properly a part of this proceeding, the benefit of those inclusions 
inures directly to MPAA because the MPAA's methodology measures IPG's 
claim as a percentage of the total number of household viewing hours. 
In other words, the more programs--and consequently the more household 
viewing hours--that are included in the total, the smaller is IPG's 
percentage share of that total and consequently the smaller is its 
royalty share under MPAA's formula.
    MPAA points out there is no regulation that requires that it put 
into evidence program certifications. This is correct. However, MPAA is 
requesting us to accept its methodology as the means of determining the 
division of royalties in this proceeding. Unless MPAA can prove that it 
properly represents all the programs it claims on the alpha list, we 
cannot verify that MPAA's methodology is being correctly applied. We 
cannot assume that the copyright owners of all the programs claimed by 
MPAA are actually represented by MPAA simply because it says so.
    (ii). Zero viewing hours. The amount of zero viewing hours in 
MPAA's 82 station sample survey--instances where Nielsen recorded no 
viewing for a particular program--was especially troubling to the CARP, 
and the CARP penalized MPAA the most for this anomaly. The CARP made 
the following finding:

    The record reveals that 68% of the quarter hours measured by 
Nielsen were attributed with ``zero'' viewing. Factoring in 
broadcasts occurring between 2:00-6:00 a.m. for which the MPAA 
methodology automatically attributes a ``zero'' value, a total of 
73% of the quarter-hour broadcasts occurring on such stations during 
such measurement period were attributed with ``zero'' viewing. With 
one exception, each station in MPAA's study has a significant 
percentage of measured quarter-hour broadcasts accorded ``zero'' 
viewing, ranging from 26% to 96%. Of the 82 stations in the MPAA 
study, 64 measured by Nielsen recorded no viewing in excess of 50% 
of their broadcasts, a figure that increases to 74 of the television 
stations when ``zero'' viewing for the 2:00-6:00 a.m. daypart is 
factored in. Eight stations including the New York affiliate of CBS, 
WCBS-TV, were credited with ``zero'' viewing during more than 90% of 
their measured broadcasts.
    The only exception to the significant percentages of ``zero'' 
viewing are programs broadcast on Superstation WTBS. The Nielsen 
study credited WTBS, the most retransmitted station during 1997, 
with only .5% of ``zero'' viewing. Inexplicably, the Nielsen 
``special study'' credited other superstations with significant 
distant cable subscribers with large percentages of ``zero'' 
viewing. Of note for example, is WGN-TV, the second most 
retransmitted station with an average of 28 million distant cable 
subscribers during 1997. Despite its substantial distant 
subscribership, WGN-TV was credited with ``zero'' viewing in 52% of 
its measured broadcasts. Three other ``Superstations'' were credited 
with ``zero'' viewing ranging between 26% and 62% of their measured 
broadcasts.
    We conclude that of the eight deficiencies we have noted in 
MPAA's distribution royalties,\16\ this ``zero'' viewing hours 
deficiency is, by far, the most egregious. The evidence offered by 
MPAA to explain this perceived deficiency in its methodology was 
less than enlightening. Mr. Lindstrom, who is not a statistician, 
clarified that attribution of ``zero'' viewing does not mean that no 
persons were watching, only that no diaries recorded viewing, and 
that any suggestion to the Panel that no viewing occurred would 
reflect a misunderstanding of the data. But then he stated that the 
``zero'' viewing hour information consists of pieces of data that 
are imprecise; that they are among a series of estimates that may be 
either high or low; that such individual quarter hour entries have 
little usefulness; but that they aggregate up to an accurate result, 
and ``the more imprecise

[[Page 66450]]

bricks you throw in the pile, the more accurate the overall number 
is going to be.''
---------------------------------------------------------------------------

    \16\ The word ``royalties'' should probably read 
``methodology.''
---------------------------------------------------------------------------

    Accepting this and other testimony of Mr. Lindstrom at face 
value, we find that it does not even begin to explain the enormous 
discrepancies described above regarding the crediting of ``zero'' 
viewing hours. There is little if any evidence in this record that 
these high credits of ``zero'' viewing hours were offset in 1997 by 
credits of excessively high units of viewing hours. Thus, we are 
left with a record that more than merely suggests that the MPAA 
methodology is significantly defective in the manner in which it 
credits ``zero'' viewing hours.

Revised report at 8-10 (citations omitted).
    MPAA describes the CARP's rationale as follows: ``Wow. That many 
zeros must mean something. We haven't a clue what it is, but there are 
just too many of them to ignore.'' MPAA Reply to IPG Petition to Modify 
Revised Report at 7. MPAA then summarily concludes that ``[t]he zeros 
mean nothing.'' Id. Contrary to MPAA's assertions, we believe that the 
zeros mean something. They cannot mean ``nothing.''
    MPAA continues to insist that Mr. Lindstrom has adequately 
explained the high number of zero viewing hours, assuring that the 
aggregation of the viewing data makes up for the zeros; ``the more of 
these, sort of, imprecise bricks you throw in the pile, the more 
accurate the overall number is going to be.'' Tr. 1432. We make a 
layperson's observation that when you aggregate lots of zeros, the 
result is still zero. As the CARP noted, almost three-quarters of the 
quarter hour viewing measured by Nielsen for the stations in MPAA's 82 
station sample survey received a zero, despite the fact that Mr. 
Lindstrom stated that a zero viewing rating did not mean that no 
viewing was actually taking place, only that it was not measured. Tr. 
1424. To us the extraordinarily high level of zero viewing does not 
mean that the overall results of MPAA's sample survey are more 
accurate; rather, it means that the sample survey actually measures 
much less viewing than MPAA suggests.
    WTBS is the one station with a modest level of zero viewing; 0.5% 
according to the CARP. This is not surprising, given the large number 
(52 million) of distant cable subscribers to WTBS. What is surprising 
is the number of zero viewing instances for WGN which had an average of 
28 million distant cable subscribers during 1997. Over half of the 
measured WGN broadcasts resulted in zero viewing. Revised report at 9. 
Even further, three other superstations had zero viewing ranging 
between 26% and 62% of their measured broadcasts. Id. How is it 
possible that some of the most distributed broadcast stations in the 
cable industry have such little viewing?
    MPAA offers a couple of possible explanations for such 
discrepancies. For WGN, MPAA suggests that the number of zero viewing 
instances ``could be accounted for by the fact that WGN because WGN 
(sic) satellite feed to distant cable systems includes programs not 
part of the station's local broadcast program schedule. These programs 
are not credited to WGN's distant viewing by Nielsen.'' MPAA Petition 
to Modify Revised Report at 17-18. This is a post hoc speculation, 
because there is nothing in the record of this proceeding that 
demonstrates or even suggests that there are substantial differences 
between the programs contained on the WGN satellite feed distributed to 
cable operators and the over-the-air feed of the station. MPAA 
presented no evidence to support this argument. Furthermore, if MPAA's 
assertion is true, it demonstrates that certain programming contained 
on WGN is greatly undervalued because Nielsen is not measuring its 
viewing.
    MPAA also points to Mr. Lindstrom's testimony where he states that 
there could be ``loads of reasons'' why there are so many instances of 
zero viewing. Tr. 1424. Unfortunately, Mr. Lindstrom does not describe 
the ``loads of reasons,'' other than to suggest that the FCC's network 
nonduplication rules may have resulted in a considerable number of 
distant programs being blacked out in local markets, and consequently 
not measured in the sample survey. Once again, there is no record 
evidence to support Mr. Lindstrom's suggestion. Ms. Kessler's testimony 
that she was unconcerned about the number of zero viewing instances is 
not helpful. Even if one assumes that Mr. Lindstrom's observation is 
correct, the network nonduplication rules only apply to network 
stations and do not explain the vast amounts of zero viewing on 
superstations which are considered to be independent stations under the 
section 111 license.
    The considerable sums of zero viewing, and MPAA's failure to 
explain it, further undermines the value of the 82 station sample 
survey. The practical effect of zero viewing is to overvalue those few 
stations in the survey that received more measured viewing, and thereby 
overvalue the programs broadcast on those stations. Meanwhile, programs 
that even MPAA admits are seen by some viewers are given no value 
whatsoever. In the future, if MPAA continues to present a Nielsen-based 
viewer methodology, it needs to present convincing evidence, backed by 
testimony of a statistical expert, that demonstrates the causes for the 
large amounts of zero viewing and explains in detail the effect of the 
zero viewing on the reliability of the results of the survey. In 
addition, MPAA needs to take steps to improve the measurement of 
broadcasts in the survey to reduce the number of zero viewing hours, 
thereby increasing the reliability of its study.
    (iii) The 82 station sample. According to Ms. Kessler, the 82 
stations used in MPAA's sample survey were selected because they each 
had 90,000 or more Form 3\17\ distant cable subscribers as identified 
by Cable Data Corporation. Tr. 242. MPAA chose the 90,000 subscribers 
as its minimum in selecting its sample of broadcast stations because 
such criteria ``hit virtually all subscribers and accounted for 
generally all of the money that was paid into the fund during that 
time.'' Tr. 243.
---------------------------------------------------------------------------

    \17\ ``Form 3'' refers to the statement of account form used by 
the Copyright Office in collecting royalty fees under the section 
111 cable license. ``Form 3'' cable systems are the largest systems 
filing with the Office, having in excess of $292,000 in gross 
receipts from subscribers for the retransmission of over-the-air 
broadcast signals.
---------------------------------------------------------------------------

    During the proceeding, IPG presented testimony that demonstrated 
that MPAA did not apply the 90,000 subscriber criteria as it claimed. 
Several broadcast stations with more than 90,000 subscribers were 
excluded from the survey, and several with less than 90,000 subscribers 
were included in the survey. IPG written rebuttal at 30-31. In one 
extreme circumstance, station KDVR was included in the sample survey 
despite the fact that it had less than 3,000 distant subscribers in 
1997. Id. at 31. MPAA did not refute this testimony, nor did it explain 
why certain stations that satisfied the criteria were excluded, while 
others that did not were included in the sample survey.
    We cannot determine what effect, if any, MPAA's selection of 
stations had on the results generated by its sample survey. Likewise, 
we cannot determine from the record whether MPAA's failure to apply its 
90,000 subscriber criteria was deliberate, or the result of oversight. 
What is clear is that MPAA's failure to apply its chosen selection 
criteria consistently further undermines our confidence in the accuracy 
of the results generated by its sample survey. In the future, when 
presenting a methodological survey, MPAA needs to rigorously adhere to 
its announced standards and parameters for the survey.
    (iv). Interpolation. As mentioned above, the MPAA sample survey 
submitted in this Phase II proceeding is similar to the one it has 
submitted in

[[Page 66451]]

past Phase I proceedings with one exception. The exception is the use 
of ``straight line,'' ``forward,'' and ``backward'' interpolation. The 
reason for and operation of interpolation is as follows. Nielsen 
measures viewing of all broadcast stations in the 82 station sample 
survey for only four months of the year. These measured viewing periods 
are referred to as the ``sweeps.'' Nielsen also conducts two partial 
sweep periods, in which some of the 82 stations' broadcasts are 
measured, but not others.\18\ This leaves six full months of unmeasured 
viewing, plus an additional two months for stations not covered by the 
partial sweeps periods. If MPAA relied only upon the sweeps and partial 
sweeps periods to measure viewing of programs, many programs belonging 
to MPAA members (as well as to IPG) would receive zero household 
viewing hours because they were broadcast on stations not covered by 
the sweeps. To compensate for this considerable omission, MPAA 
developed an interpolation method that allegedly estimates what the 
viewing might be for these programs had they been included in the 
sweeps periods.
---------------------------------------------------------------------------

    \18\ The partial sweeps periods are confined, for the most part, 
to broadcast stations in the top television markets in the country.
---------------------------------------------------------------------------

    Briefly described, MPAA's interpolation method makes three 
measurements in an effort to estimate viewing for programs outside the 
sweeps period. The first measurement is ``straight line'' 
interpolation. In ``straight line'' interpolation, MPAA ascertained the 
number of household viewing hours for a specific time period from the 
two closest sweeps periods, and then took the average of those hours. 
For example, May and July are sweeps periods, but there is no measured 
viewing for the month of June. MPAA looked at the May sweeps results 
and the July sweeps results and applied the average of those results to 
each corresponding time period in the month of June. Thus, the 
``straight line'' interpolated viewing result for the quarter hour of 
10 a.m. to 10:15 a.m. on June 7, 1997, is the average of the measured 
household viewing hours for that time period for a particular station 
on May 7, 1997, and July 7, 1997. Tr. 1614-17.
    Both ``forward'' and ``backward'' interpolation use data obtained 
from Nielsen meter rankings, as opposed to the data obtained from 
viewing diaries during the sweeps periods. Meter rankings are different 
from the diary method in that meter rankings do not capture specific 
viewing, but rather merely record when a television is on in a given 
Nielsen household (whether or not anyone is actually watching it) and 
what station the television is tuned to. Tr.1273-74; 1347-50. 
``Forward'' interpolation uses the sweeps household viewing measurement 
obtained from the viewing diaries for the period preceding the time 
frame to be measured and multiplies that by the ratio of Nielsen meter 
rankings for the preceding period and the period to be measured. In the 
above example, ``forward'' interpolation takes the corresponding 
daypart measurement from the May sweeps period and multiplies that by 
the Nielsen meter ranking for the same daypart in June divided by the 
May meter ranking for that daypart. Tr. 1616.
    ``Backward'' interpolation utilizes the same approach as 
``forward'' interpolation, except that it uses the sweep data for the 
period following the one to be measured, as well as the meter ranking 
from that period. Again, in the above example, the household viewing 
hours from the July sweeps period would be multiplied by the June meter 
ranking for the corresponding daypart divided by the July meter 
ranking. Tr. 1617. After the three interpolated results have been 
obtained through ``straight line,'' ``forward,'' and ``backward'' 
interpolation, they are divided by three to obtain an average number of 
household viewing hours for the daypart being examined. Id. The 
purported purpose of ``straight line,'' ``forward,'' and ``backward'' 
interpolation is to provide more accuracy to the Nielsen meter rankings 
through the process of averaging. Tr. 1602-03, 1614-17.
    We recognize the purpose of interpolation and appreciate that MPAA 
is forced to estimate viewing for programs broadcast during non-sweeps 
periods. Our problem with interpolation is the manner in which MPAA 
presented it in this proceeding. First, MPAA laid no foundation for a 
statistical methodology that it was presenting for the first time in a 
cable distribution proceeding. Marsha Kessler is not a statistician who 
could testify as to the statistical validity of the interpolation 
approach; and moreover, she did not compile or review the interpolation 
data presented by MPAA and, apparently, did not participate in the 
creation of the methodology or its application. Tr. 1603. The 
interpolated data was created by Tom Larson of Cable Data Corporation 
who only presented testimony on the interpolated data when called as a 
witness by the CARP. In the future if MPAA uses viewing studies to 
present data on household viewing hours obtained through interpolation, 
MPAA should present expert testimony as to the statistical validity of 
the approach, including the confidence intervals for the data.
    Second, the testimony establishes that Mr. Larson made the 
interpolated data calculations, applying ``straight line,'' 
``forward,'' and ``backward'' interpolation ``millions of times'' in 
order to generate viewing data for programs broadcast during the 6-8 
months of 1997 for which Nielsen did not measure viewing. Tr. 1603. 
MPAA apparently asks us to trust that Mr. Larson performed these 
interpolations accurately, because there is nothing in the record that 
permits verification. This is especially troubling given that more than 
half of the viewing data presented in MPAA's sample survey is obtained 
from interpolated results. MPAA should in the future present evidence 
that permits some verification of the results of interpolated viewing, 
rather than just total household viewing hours for all programs.
    Finally, we note the Copyright Royalty Tribunal's admonition that 
data that is not specific to programs is unreliable in determining 
actual viewing of specific programs. 57 FR 15286, 15299 (April 27, 
1992) (1989 cable distribution). MPAA's interpolation methodology 
assigns viewing hours to time slots, not to programs. Tr. 1688-89. It 
is likely that the viewing assigned these time slots was in many cases 
derived from programs of a completely different type, perhaps not the 
same programming category, than the programs measured during the 
Nielsen sweeps periods. And it is certain that many of the individual 
programs accounted for by interpolation were not actually transmitted 
during the period of interpolation. This is particularly troubling 
given the large amount of total viewing hour data presented by MPAA 
which was obtained from interpolation.
    3. Relevance of the methodology. While we agree that viewing of 
programs is probative in assessing their value in a Phase II 
proceeding, the results generated by MPAA's sample survey are so 
unreliable that they cannot support an assessment of IPG's and MPAA's 
claims in this proceeding. All that can be garnered from the MPAA 
presentation is that MPAA's claim is large and IPG's is quite small, 
something that is readily ascertainable from that fact that IPG only 
represents eight programs in this proceeding. Precisely how small IPG's 
claim is, which is the task at hand, cannot be ascertained using MPAA's 
results. Further, MPAA's results cannot be used to establish a zone of 
reasonableness within which to

[[Page 66452]]

place IPG's award because of the high probability of error in MPAA's 
results. Consequently, we cannot accept MPAA's presentation as 
providing any basis for the determination of the distribution of 
royalties in this proceeding.

B. IPG's Presentation

1. Description of the Methodology
    IPG's written direct case presents the testimony of Raul Galaz, 
IPG's president and principal, and the exhibits that he sponsors. As a 
first-time participant in a cable distribution, IPG did not designate 
any prior testimony, nor did the CARP request IPG to call additional 
witnesses.
    IPG takes a different approach in attempting to demonstrate the 
value of programming in this proceeding. Rather than rely on the 
estimated viewing of a particular program, IPG attempts to determine 
the value of a program based upon the carriage of the program by cable 
operators. IPG Proposed Findings at 14, para. 42. According to IPG, a 
cable operator is not interested in the viewer ratings generated by a 
particular broadcast program it retransmits; rather, it is the overall 
appeal of all the programs on the broadcast signal that is of value to 
the operator. Galaz Direct at 6-7. ``Overall appeal'' is important to 
the cable operator because the operator attempts to attract as many 
subscribers as possible to its system. When deciding which stations to 
retransmit, the operator will attempt to appeal to as wide a subscriber 
base as possible by providing multiple program opportunities, so-called 
``niche'' programs that appeal to particular tastes.

In some instances it will be the desire of the cable system operator 
to exhibit certain sports programming, in other instances it may be 
the desire to have news programming from a market that is of 
interest to the cable system operator's market, the desire to 
increase the amount of children's programming offered to the cable 
system's subscribers, or the desire to carry more game shows.

    Id. at 7. According to IPG, in a compulsory license marketplace it 
is the overall appeal of a broadcast station to the cable operator that 
determines the value of the programming on that station.
    Since overall appeal of a station is equated with value, the 
greater the number of subscribers to a station, the greater the value 
of that station and, consequently, the programming on that station. Id. 
at 8. The relative value of the programs contained on the station is 
determined, according to IPG, by the time placement of the program and 
the frequency of its telecast. Thus, a program that is retransmitted in 
prime-time once a week is of greater value than a program broadcast 
once a month at 2 o'clock in the morning.
    In sum, IPG focuses on four elements to determine program value: 
(1) The number of distant cable subscribers capable of receiving the 
program broadcast during 1997; (2) the cable license royalties 
generated during 1997 that are attributable to stations broadcasting 
the program; (3) the time placement of the broadcast; and (4) the 
length of the broadcast. IPG Proposed Findings at 14, para. 43.
    In order to measure these elements, IPG, like MPAA, surveyed a 
number of broadcast stations that were retransmitted by cable systems 
on a distant basis in 1997. IPG sampled 99 stations that were carried 
on Form 1, 2, and 3 cable systems, and examined all the programs that 
were broadcast by these stations during 1997. Id. at 15, Paras. 46-47. 
Such data comprised approximately 1.1 million logged broadcasts. Id. at 
15, para. 47. IPG then segregated all programming not within the 
syndicated programming category, leaving only movies and syndicated 
series.
    Because of the parallel between the number of cable subscribers 
receiving a station and the amount of royalty fees generated by that 
station, IPG created a factor to weigh the relative significance of any 
given station and the broadcast of any program on that station. Dubbed 
the ``Station Weight Factor,'' it was ``derived from the concept that 
the relative significance of any given station should be affected by 
both (i) the number of distant cable subscribers that could potentially 
view such station, and (ii) the amount of distant cable retransmission 
fees generated by such station.'' Galaz Direct at 11. The Station 
Weight Factor was created as follows. For each of the 99 sampled 
stations, IPG summed the figure representing the percentage of 
subscribers in the survey that received the given station with the 
figure representing the percentage of total cable royalty fees 
generated by the 99 sampled stations. This figure was then divided in 
half. Id. The figure generated by this equation equals, according to 
IPG, the relative significance of each of the 99 sampled stations.
    Having determined the relative value of each station--and the 
corresponding programming on that station--IPG then attempted to 
determine the relative value of each program on each station by 
examining the number of broadcasts of the program and its time 
placement within the broadcast day. In order to do this, IPG created a 
factor that uses data on anticipated viewership of all persons during 
time periods of the day (referred to as ``dayparts'') in order to weigh 
the relative significance of any given broadcast. Dubbed the ``Time 
Period Weight Factor,'' it was determined as follows:

The Time Period Weight Factor was derived from data published by 
Nielsen Media Research (``Weekly Viewing Daypart'' table within the 
``1998 Report on Television''), reflecting the weekly viewing habits 
of all persons in 1997. Weekly viewing is stated in terms of the 
number of television hours viewed during the week, specifies the 
amount of viewing attributable to specific time periods, allowing 
allocation amongst such time periods. IPG then determined the 
``Average Minutes Viewed Per Hour in Viewing Period'' (i.e. the 
``Time Period Weight Factor'') in order to apply such Time Period 
Weight Factor against each and every logged broadcast on the ``99 
Sample Stations,'' and according to the period during which such 
logged broadcast appeared.

Id. at 13.
    After ascribing the Station Weight Factor and the Time Period 
Weight Factor to each broadcast, IPG applied the figures for each 
broadcast against the length of such broadcast, in order to ascribe a 
final value to each compensable broadcast. IPG Proposed Findings at 16, 
para. 50.
    As a final step to the process, IPG summed the resulting value for 
its programs and all other programs in its survey and accorded a ``Sum 
Weighted Value'' to both these categories of programs. Id. at 16, para. 
51.
    In its written direct case, IPG applied its methodology for 43 
programs that it believed that it represented in this proceeding. Galaz 
Direct at 5-6. It determined that IPG-represented programs produced a 
Sum Weighted Value of 2,3791.7968, as compared to the Sum Weighted 
Value of 1,369,901.837 for all syndicated broadcasts within the 99 
sample station survey. Id. at 14. This yielded a percentage of 
1.7367519% for IPG programs. Because IPG did not have access to the 
programs claimed by MPAA, it could not apply its methodology to 
determine the Sum Weighted Value of MPAA's programs. Consequently, IPG 
argued that ``[t]o the extent that MPAA represents less than 100% of 
the non-IPG programming appearing on the `99 Sample Stations,' IPG's 
respective percentage must be adjusted upward.'' Id. at 14-15.
    Once proceedings began before the CARP, MPAA produced the program 
certifications for some, but not all, of its

[[Page 66453]]

claimants.\19\ Also, during proceedings before the CARP, a number of 
IPG-claimed programs were eliminated from consideration, either through 
voluntary dismissal by IPG or as a result of the CARP's rejection of 
IPG's representation agreements with Jay Ward Productions, Mainframe 
Entertainment, and Scholastic Productions. IPG Proposed Findings at 53, 
para. 2. IPG then recalculated its own share, and that of MPAA's, and 
determined that its programs accounted for 0.881% of the aggregated Sum 
Weighted Value of all programs claimed in this proceeding.
---------------------------------------------------------------------------

    \19\ MPAA submitted additional certifications to the CARP prior 
to closing arguments in the case. Tr. 2576.
---------------------------------------------------------------------------

    Although IPG's methodology yielded 0.881% for its claimed programs, 
it argued that it was nonetheless entitled to 2% of the royalty pool. 
IPG justified the 2% figure based upon certain alleged failures, 
abuses, and shortcomings on MPAA's part, including: (1) Failure to 
produce program certifications for 33 of MPAA's claimants, and 
production of 6 certifications that were not properly authorized; (2) 
failure to establish entitlement to 1,100 programs that were not, 
according to a 1986 Advisory Opinion of the Copyright Royalty Tribunal, 
eligible for compensation in the syndicated programming category; (3) 
abuse of the discovery process by failing to produce documents 
underlying its methodology in contravention to Library and CARP 
discovery orders; and (4) serious shortcomings in the application of 
MPAA's distribution methodology. Id. at pp. 52-55.
2. Validity of the Methodology
    This marks the first time that IPG has appeared in a cable royalty 
distribution proceeding, and the first time its distribution 
methodology has been presented. As such, we do not have the benefit of 
prior consideration or acceptance of the IPG methodology by either the 
Copyright Royalty Tribunal or a CARP, other than the CARP's opinion in 
this proceeding. We must consider IPG's methodology from a theoretical 
point of view, as well as examine its particular application to this 
Phase II proceeding.
    At the outset, we note that IPG's methodology attempts to blend two 
approaches that have been presented to the Tribunal and the CARPs. The 
first part of the methodology, the Station Weight Factor, is a fee 
generation approach in that it considers the royalty fees paid by cable 
systems during 1997 for the 99 broadcast stations used in the IPG 
survey. Each of the stations in the 99 station sample survey is ranked 
from highest to lowest depending upon the amount of fees the station 
generated for the 1997 royalty pool. IPG submits that the Station 
Weight Factor is relevant to the marketplace value of broadcast 
programs because cable systems' decisions to retransmit a particular 
broadcast station are ``based on the ``overall appeal'' of the 
retransmitted station and its ability to generate additional cable 
system subscribers, not the ratings of a particular program appearing 
on the retransmitted station.'' IPG Proposed Findings at 14-15, para. 
45.
    IPG's focus on the value of distant signals to cable operators 
recalls the Bortz survey that has been presented for many years at 
Phase I in cable royalty distribution proceedings. The Bortz survey 
attempts to measure the value of different categories of programming 
appearing on retransmitted broadcast signals by presenting to persons 
from cable companies a hypothetical programming budget for a given 
year, and then asking how much value they place on different kinds of 
programming (sports, movies, syndicated series, etc.) in compiling 
their program schedule. 57 FR 15286, 15292 (April 27, 1992). The more 
value placed on a program category, the more cable Phase I royalties it 
should receive, according to proponents of the Bortz survey.
    The focus on value to the cable operator has been endorsed by both 
the Tribunal and the CARPs as one of the ways to assess marketplace 
value, and the results of the Bortz survey have received credit in 
Phase I proceedings. See, e.g. 57 FR 15286, 15301 (April 27, 1992)(1989 
cable Phase I) IPG's Station Weight Factor attempts to ride the 
coattails of the Bortz survey's acceptance by ranking the ``overall 
appeal'' of stations as an expression of the value of the programming 
broadcast on those stations. While it must be true that a station such 
as WTBS, for example, has a significant ``overall appeal'' to cable 
operators by virtue of the number of cable systems that retransmit it, 
the ``overall appeal'' does not translate well to a Phase II proceeding 
dealing with one program category. It is quite possible, and perhaps 
likely, that the ``overall appeal'' of stations in the 99 station 
sample survey is based upon programming that is not in issue in this 
proceeding. Thus, the reason that so many cable operators carry WTBS 
may have more to do with Atlanta Braves baseball and Atlanta Hawks 
basketball than it does with syndicated series and movies. IPG failed 
to present any evidence that established a clear nexus between the 
syndicated programming category and the ``overall appeal'' of the 99 
broadcast stations subjected to the Station Weight Factor.
    This is a significant omission which raises serious concerns 
regarding the validity of IPG's methodology. The Copyright Royalty 
Tribunal has rejected estimating techniques that are not tied to 
programming categories because of their inherent unreliability. 57 FR 
at 15299 (1989 Phase I cable distribution). In the absence of 
convincing evidence that demonstrates that the ranking of the 99 
stations is based upon the syndicated programming category, and not 
some other, the validity of the Station Weight Factor is not 
established.
    The second element of IPG's methodology is the Time Period Weight 
Factor. The Time Period Weight Factor uses data from the 1998 Report on 
Television published by Nielsen. Galaz Direct at 13. The Report on 
Television provides viewing estimates for early morning (M-F 7-10 
a.m.), daytime (M-F 10 a.m.-4 p.m.), prime time (M=--at 8-11 p.m. and 
Sun. 7-11 p.m.), and late night (11:30 p.m.-1 a.m.) dayparts. For all 
other dayparts, weekly viewing was extrapolated from the data in the 
above categories and lumped into the ``All Other'' category. IPG 
Exhibit H. These viewing estimates enable IPG to rank the dayparts. 
Like the ranking of the 99 stations in IPG's sample survey, the ranking 
of dayparts is not tied to programming. The Nielsen viewing estimates 
for these dayparts are drawn from viewing of all program categories. In 
fact, the estimates apparently also include viewing of local stations 
over-the-air and on cable, cable networks, and VCR recording of 
programming, which are completely outside the scope of the section 111 
license. Tr. 1369. As with the Station Weight Factor, the Time Period 
Weight Factor is not tied to programming. IPG did not present any 
testimony establishing a link between syndicated programming and the 
ranking accorded to dayparts by Nielsen. Unless such link is 
established, the relevance of the Time Period Weight Factor is in 
question.
    This is our evaluation of the theory of IPG's methodology. In 
addition, there are specific concerns about its application in this 
proceeding with respect to the use of daypart data obtained from 
Nielsen. While we acknowledge that obtaining specific daypart data from 
Nielsen is costly, the dayparts culled by IPG from the 1998 Report on 
Television are far too broad because they ignore variations in viewing 
within dayparts. For example, IPG's methodology assigns the same value 
to any program broadcast within the 1 a.m. to 7 a.m. daypart. MPAA

[[Page 66454]]

points out that Nielsen estimates that household viewing falls from 
18.9% to 8.2% at 4:30 a.m. and then begins to rise back to 19.7% in the 
6:30 a.m. to 7 a.m. half hour. MPAA Proposed Findings at 60, para. 261. 
Thus, a program broadcast at 4:30 a.m. gets the same value under IPG's 
methodology as a program broadcast at 6:30 a.m., even though it has 
less than half the viewers. Even within IPG's own construct, which 
attempts to assign value based on relative viewing, this result is 
illogical. Dayparts must be broken down into smaller increments before 
the Time Period Weight Factor could be given any credence.
    In addition, IPG's extrapolated daypart data, the ``All Other'' 
category, is plainly overweighted. For example, IPG applies the weight 
applicable to the ``All Other'' category to the 1 a.m. to 7 a.m. 
daypart. This is the same weight factor that is applied to programming 
broadcast between 4 p.m. and 8 p.m., where viewing, according to 
Nielsen, is considerably higher than in the 1 a.m. to 7 a.m. time 
frame. The result is that a program broadcast at 3 a.m. is of equal 
value under IPG's methodology as a program broadcast at 7:30 p.m.\20\ 
Further, the 1998 Report on Television contains viewing estimates for 
the Saturday 7 a.m. to 1 p.m. daypart and the Sunday 1 p.m. to 7 p.m. 
daypart, neither of which IPG used in its methodology. Instead, IPG 
applied the ``All Other'' category to these time periods. As the CARP 
correctly observed, the value of the ``All Other Category'' is 
overstated, thereby inflating the value of IPG's claim. Revised Report 
at 14.
---------------------------------------------------------------------------

    \20\ There is record evidence that shows that as much as 30% of 
IPG's originally claimed programs were broadcast between 1 a.m. and 
7 a.m. Tr. 1035-37.
---------------------------------------------------------------------------

    3. Relevance of the methodology. As with MPAA's presentation, we 
conclude that the results of IPG's presentation are so unreliable that 
they cannot be used as a basis for determining the distribution of 
royalties in this proceeding. The theory of IPG's case lacks 
statistical foundation, and places value on programs unconnected to 
their actual viewership. The evidence demonstrates that IPG's 
methodology overstates the value of its claim, although by how much 
cannot be determined. Given the lack of reliability of the results, 
IPG's presentation cannot be used as a basis for the distribution of 
royalties in this proceeding.

Determination

    1. Remand. Having determined that the results presented by MPAA and 
IPG are wholly unreliable, we examined the record to determine if there 
is any evidence sufficient to base a distribution of royalties. As part 
of its distribution methodology, the CARP examined the number of 
rebroadcasts of programs and the airtime of programs contained in both 
the 82 sample stations presented by MPAA and the 99 stations presented 
by IPG. The CARP examined this data because it was the only data common 
to both MPAA's and IPG's presentations. Revised report at 17. This gave 
an indication of the relative size of MPAA's and IPG's claims; i.e. 
that MPAA's was large and IPG's small. Id. at 18. The CARP then turned 
to the methodologies presented by the parties and used them as a means 
of creating final distribution percentages.
    We determine that the number of rebroadcasts and airtime of 
programs contained in the 82 station and 99 station sample surveys 
cannot form the basis of a distribution. All that data demonstrates is 
that MPAA's programming dominated the broadcast marketplace, something 
that is already known. The number of times a program is broadcast and 
the amount of time it is on the air is no indication of the marketplace 
value of the program. While the number of times a program is broadcast 
might intuitively suggest that it is of more value, the opposite is 
often true. Programs which garner low syndication fees are often 
broadcast by television stations many times because the rights are 
cheap. And other programs, such as motion pictures, may be broadcast 
relatively few times because the rights are expensive, but they are 
nonetheless of greater marketplace value. Number of broadcasts and 
airtime are therefore not the answer.
    What then is the answer? We determine that the record of this 
proceeding is insufficient on which to base a distribution 
determination. The record does not permit us to assess what is the zone 
of reasonableness for the distribution awards, let alone determine the 
awards themselves. Given the lack of reliability of MPAA's and IPG's 
presentations, crafting awards from the current record would constitute 
arbitrary action.
    We conclude that a distribution of royalties cannot be made based 
on the current record. Consequently, this case must be remanded to a 
new CARP for a new proceeding under chapter 8 of the Copyright Act.
    2. New proceeding. In the new proceeding, the parties will be 
required to submit new written direct cases and present evidence that 
takes into account the concerns expressed in this Order, with the new 
CARP rendering its determination based upon the new record. All 
procedural and substantive requirements for a CARP proceeding will 
apply to the new proceeding.
    Although the parties will able to present new cases and new 
evidence in the new proceeding, there are two matters that have been 
decided. As discussed above, the Librarian has ruled that IPG 
represents Litton Syndications for distribution of 1997 cable 
royalties, and no other claimant. Consequently, in the new proceeding, 
IPG is barred from relitigating whether it represents other claimants. 
The Librarian also determined that Litton's claim consists of at least 
8 programs, and listed them in the June 5, 2001 Order. This part of 
Litton's claim is decided and may not be relitigated. Whether there are 
additional programs that should be credited to Litton's claim (such as 
Dream Big and Dramatic Moments in Black Sports History) may be 
addressed in the new proceeding. Likewise, all other matters as to 
program ownership, and the proper division of the royalties, are open 
to consideration in the new proceeding.
    The Library will issue a scheduling order for the new proceeding 
once the arrangements have been made.

Order of the Librarian

    Having duly considered the recommendation of the Register of 
Copyrights regarding the initial report and the revised report of the 
CARP in the above-captioned proceeding, the Librarian determines the 
following. First, the Librarian has accepted the recommendation of the 
Register to reject the initial report of the CARP and remand the 
proceeding to the CARP with instructions for further action. This was 
done in the June 5, 2001, Order in this proceeding, and the Librarian 
incorporates that Order as a part of his final determination. See 
Appendix A.
    Second, the Librarian accepts the recommendation of the Register to 
reject the revised report of the CARP. Third, the Librarian accepts the 
recommendation of the Register to remand this proceeding to a new CARP 
for a new proceeding to determine the proper distribution of 1997 cable 
royalties between MPAA and IPG. The Library will issue a scheduling 
order for the new CARP proceeding once arrangements have been made.


[[Page 66455]]


    Dated: December 14, 2001.
Marybeth Peters,
Register of Copyrights.

APPENDIX A--LIBRARIAN'S REMAND ORDER DATED JUNE 5, 2001

[Docket No. 2002-2 CARP CD 93-97]

    In the Matter of Distribution of 1993, 1994, 1995, 1996 and 1997 
Cable Royalty Funds

Order

    On April 16, 2001, the Librarian of Congress received the report 
of the Copyright Arbitration Royalty Panel (CARP) in the above-
captioned proceeding. Both the Motion Picture Association of America 
(MPAA) and the Independent Producers Group (IPG), the two litigants 
in this proceeding, have filed their petitions to modify and/or set 
aside the determination of the CARP, and their replies to those 
petitions.
    After a review of the report and examination of the record in 
this proceeding, the Register recommends that the Librarian reject 
the decision of the CARP, and remand the case to the CARP for 
modification of the decision. The Register concludes that the CARP 
acted arbitrarily in three ways. First, the CARP did not follow the 
decisional guidelines and intent of the June 22, 2000, Order issued 
in this proceeding which directed the CARP to dismiss any claimants 
listed in exhibit D of IPG's written direct case that did not have a 
written representation agreement with Worldwide Subsidy Group on or 
before July 31, 1998.
    Second, the CARP arbitrarily included two programs--Critter 
Gitters and Bloopy's Buddies--in the claim of Litton Syndications, 
Inc. (represented by IPG) when IPG did not introduce any evidence as 
to the value of those programs. In addition, the CARP arbitrarily 
assigned the program Dramatic Moments in Black Sports History to IPG 
without adequate explanation of its decision.
    Third, the CARP acted arbitrarily in awarding 0.5% of the 1997 
cable royalties to IPG, and the remaining 99.5% of the royalties to 
MPAA, because it did not provide any explanation of the methodology 
or analysis it used to arrive at these numbers.
    A full discussion of the Register's reasons for these 
conclusions shall appear in the final order in this proceeding 
published in the Federal Register.
    Wherefore, the Register recommends that the Librarian reject the 
CARP's report and remand to the CARP to take the following actions 
in modifying its report:
    1. That the CARP award royalties to IPG only on the claims of 
Litton Syndications and not award any royalties to IPG based upon 
the other claimants in exhibit D of IPG's written direct case;
    2. That the CARP credit Litton with only the following programs: 
Algo's Factory; Jack Hanna's Animal Adventures; Harvey Penick's Golf 
Lesson; Mom USA; Nprint; Sophisticated Gents; Just Imagine and The 
Sports Bar;
    3. That the CARP explain its reasons for crediting Dramatic 
Moments in Black Sports History to Litton's claim; and, if it 
concludes that its initial decision was correct, add the program to 
the list contained in #2;
    4. That the CARP enter a new distribution percentage for IPG, 
based only on the claim of Litton and the programs listed in #2 and, 
if appropriate, #3, and allocate the remainder of the royalties to 
MPAA; and
    5. That the CARP fully explain its reasons and methodology for 
the distribution percentages it assigns to IPG and MPAA.
    The Register further recommends that the CARP be given until 
June 20, 2001, to report its modified decision to the Librarian and 
that section 251.55 of the rules, 37 C.F.R., apply to the CARP's 
modified report, except that the periods for petitions and replies 
be shortened from 14 days to 7 days for petitions, and from 14 days 
to 5 days for replies, due to the proximity of the time period for 
issuance of the Librarian's final order in this proceeding.

    So recommended.

    Dated: June 5, 2001.
Marybeth Peters,
Register of Copyrights.
    So Ordered.
James H. Billington,
The Librarian of Congress.

[FR Doc. 01-31607 Filed 12-21-01; 8:45 am]
BILLING CODE 1410-33-P