Statement of Marybeth Peters
The Register of Copyrights
before the
Subcommittee on Courts and Intellectual Property
Committee on the Judiciary

United States House of Representatives
106^th Congress, 1^st Session

February 25, 1999

Copyright Compulsory License Improvement Act (H.R. 768)

The Copyright Office is pleased to present its views on H.R. 768, the “Copyright Compulsory License Improvement Act.” This is important legislation designed to address important issues that have arisen relating to the Satellite Home Viewer Act in recent years and to provide the satellite industry with the necessary copyright clearances to allow it to compete equally in the multichannel video marketplace.

In 1997, Senator Hatch, Chairman of the Senate Judiciary Committee, requested that the Copyright Office present him with recommendations and suggested revisions to the cable and satellite compulsory licenses. After seeking the comments of the affected industries through written submissions and public hearings, the Office submitted a report recommending a comprehensive revision of the Satellite Home Viewer Act. H.R. 768 incorporates the most important recommendations that we made in our 1997 report.

Background

The Satellite Home Viewer Act was enacted in 1988 as a means of allowing Americans access to broadcast television programming that they were not receiving through other conventional means. The Act created a copyright compulsory license for the then-fledgling satellite industry modeled after the compulsory license for the cable television industry enacted in 1976. Satellite carriers could retransmit the signals of broadcast television stations to their subscribers upon semi-annual submission of royalty fees to the Copyright Office for later distribution to copyright owners of the programs contained on those signals. Although similar to the cable license in many respects, there were two significant differences between the new satellite license and the prior cable license.

First, rather than pay royalties based upon a complex calculation method contingent upon outdated Federal Communications Commission cable rules, as is the case with the cable license, the new satellite license instituted a flat, per-subscriber-per-month royalty fee for carriage of each broadcast station. The statute initially prescribed a 12-cent per-subscriber- per-month fee for independent television stations (known as superstations), and a 3-cent per- subscriber-per-month fee for network signals. The rates are currently 27 cents per subscriber per month for both superstations and network stations, respectively.

Second, satellite carriers can make use of the satellite license for retransmission of network stations only to subscribers who reside in unserved households. An "unserved household" is one that cannot receive a signal of Grade B intensity (as defined by the FCC) from a local network station using a conventional outdoor rooftop antenna, and has not subscribed to cable within the previous 90 days. If a satellite carrier provides a network signal to a subscriber who is not an unserved household, then the carrier is liable for copyright infringement and must terminate the service of that signal.

The reason that the unserved household limitation on network signals is in the Copyright Act is largely historical. Unlike the cable industry, which was heavily regulated by the FCC at the time of passage of the cable license in 1976, the satellite industry was virtually unregulated by the Commission in 1988. Cable was long subjected to regulations -- known as the network nonduplication rules -- which prevented a cable operator from importing distant network stations to its subscribers when the subscribers were already receiving their local network signals. The reason for network nonduplication protection was to allow both network broadcasters and copyright owners to enjoy the benefits of exclusive licensing. Copyright owners/licensors could grant exclusive licenses to local broadcasters to perform their programs in the broadcasters' local markets without concern that a cable operator could negatively affect the value of these licenses by importing the same programming shown on a distant network station.

The satellite industry in 1988 did not possess the technology to provide local signals to subscribers, and consequently in virtually all markets all of the retransmitted network signals were distant signals. Copyright owners could not license their programs to local network broadcasters on a truly exclusive basis if satellite carriers were allowed to import distant network signals into those markets. Because the FCC's network nonduplication rules did not apply to satellite (and still do not), Congress included the unserved household limitation in the satellite license as a means of protecting the exclusivity rights of copyright owners/licensors and broadcasters. Only those households that cannot receive an over-the-air signal from their local network station, and are not subscribing to cable, can receive a network station from a satellite carrier.

In the first years after its enactment, the Satellite Home Viewer Act worked well. However, as the expiration of the license approached in 1994, it became apparent to some that large numbers of subscribers who did not reside in unserved households were nevertheless receiving network signals from their satellite carrier. In order to preserve the integrity of the unserved household limitation, Congress reauthorized the Satellite Home Viewer Act in 1994 for an additional five years, but implemented a two-year testing regime designed to weed out ineligible subscribers of network signals. Under this testing regime, a local network broadcaster could issue written challenges to subscribers in its local market that it suspected were not unserved households. Upon receipt of the written challenge, the satellite carrier had two options: either terminate service of the network station immediately, or conduct a test at the subscriber's household to determine whether the subscriber was receiving an over-the-air signal of Grade B intensity from the local network broadcaster. If the test revealed that the subscriber was unserved, satellite service could continue and the broadcaster was required to pay the cost of the test. If the subscriber was not unserved, satellite service was required to be terminated and the carrier absorbed the cost of the test. Though it was not written into law, satellite and broadcaster representatives offered assurances in 1994 that the standards and parameters of a correct household test would be worked out by the industries.

Unfortunately, the two-year signal testing regime was a complete failure. The satellite carriers and broadcasters could never agree to a test, and the practical result for most subscribers was termination of their service upon written challenge whether or not they were an unserved household. Both the Copyright Office and the FCC were flooded with angry calls from subscribers who had no means to prove that they were not receiving one or more local network signals and had no recourse for the loss of the challenged signals from their satellite service.

The expiration of the signal testing regime at the end of 1996 led to the filing of lawsuits by broadcasters against a single satellite carrier, PrimeTime 24, alleging massive violations of the unserved household limitation. To date, two federal district courts, in Florida and North Carolina, have issued injunctions against carriage of network signals by PrimeTime 24; and large numbers of subscribers will lose their network service at the end of this month and again at the end of April. A third lawsuit in federal district court in Texas is still pending.

H.R. 768

H.R. 768 attacks the heart of the problems surrounding the satellite compulsory copyright license. Specifically, by creating a new, permanent license for the retransmission of local network signals by satellite to subscribers who reside in the local markets of those signals, the bill protects the integrity of the exclusivity rights of copyright owners/licensors and local broadcasters while affording satellite carriers a means of providing network service to all their subscribers. The Copyright Office submits the following comments regarding the new section 122 license for local-into-local retransmissions, as well as other key elements of the legislation.

1. Local-into-local retransmissions. When the Copyright Office considered revisions of the satellite license in 1997, it considered a number of possible solutions to the problems associated with the unserved household limitation. The Office's conclusion was

[T]he best solution to the issue of subscriber eligibility for satellite service of network signals is a technological one. If satellite carriers were to provide subscribers who reside within the local market of a network affiliate the signal of that affiliate, the need for the unserved household restriction with respect to that affiliate would be eliminated. The subscriber would be served with the local network affiliate, and the satellite carrier would no longer be required to import a distant network affiliate in order to provide network service to the subscriber. The Copyright Office, therefore, recommends that retransmission of any broadcast station, network or independent, within that station's local market be permissible....

A Review of the Copyright Licensing Regimes Covering Retransmission of Broadcast Signals, Report of the Register of Copyrights at 119-120 (August 1, 1997) (footnote omitted).

H.R. 768 sets into law that recommendation by creating a new and separate compulsory license for the retransmission by satellite of television broadcast stations to subscribers who reside within the local markets of those stations. There are several advantages to this provision. First, it provides satellite carriers with a license that allows them to compete directly with the cable industry. Under current law, it is unclear whether satellite carriers have a compulsory license to retransmit local signals. Cable has enjoyed such a license since 1976. Second, by retransmitting local signals, satellite carriers will no longer have the need to import distant signals to these subscribers; and the local broadcasters will enjoy the benefits of having their local viewers watch their signals on digital quality satellite.

Third, the new license is royalty free. This should provide a strong incentive to satellite carriers considering implementation of local service, and places the satellite industry on par with the cable industry which likewise does not pay royalties for retransmission of local signals.

Fourth, the new license will allow satellite carriers to provide their subscribers with the programming they want most: their local broadcast stations.

Finally, the new license presents the opportunity to eliminate most of the consumer acrimony surrounding the unserved household limitation. When a subscriber signs up with a satellite carrier that provides local service, there is no testing associated with the subscriber's eligibility for network service and no angst about the possibility that such service may be terminated at a future date. In short, the section 122 license is a win/win situation for consumers and the satellite and broadcaster industries.

2. Extension of the section 119 license. H.R. 768 extends the current section 119 license for a period of five years. In principle, the Copyright Office believes that the licensing of secondary transmissions of broadcast signals should be left to the marketplace. However, the Office took the position in its 1997 report to Senator Hatch that the section 119 satellite license should remain in effect for as long as the cable compulsory license does (the cable license is currently permanent). The Office recognizes and supports Congress's desire to maintain oversight of the satellite license, and agrees that a five-year extension would permit assessment of the continuing function of the license and allow for legislative amendment, if necessary, at the expiration of the period.

3. Notice requirements. Section 7 of the bill amends section 119(a)(2) by requiring satellite carriers who make use of the section 119 license for retransmission of distant network stations to disclose to their potential subscribers prior to the point of sale that they may not be able to receive network service from the carrier. For those subscribers currently receiving network service, carriers are given 60 days from the date of enactment to provide such notification. The Copyright Office believes this is an important amendment.

Much of the consumer confusion and anger directed at the unserved household limitation comes from subscribers' lack of information. Many subscribers sign up without being informed that they may be ineligible to receive network signals, and are only made aware of the law at the time their service is terminated. If satellite carriers are required to disclose to potential subscribers the provisions of the unserved household limitation, then these potential subscribers can make more informed choices about their purchase of satellite service and will not be suddenly surprised that their network service is being terminated due to enforcement of the unserved household limitation.

4. Royalty rate reduction. As described above, Congress initially set the royalty rates in the Satellite Home Viewer Act of 1988 at 12 cents per subscriber per month for superstations, and 3 cents per subscriber per month for network stations. These figures were based upon a rough approximation of what cable paid at that time under its compulsory license for retransmission of the same signals. The satellite rates were adjusted by an independent arbitration panel in 1991 to either 14 cents or 17.5 cents for superstations (depending upon syndicated exclusivity protection) and 6 cents for network signals. These rates were subsequently approved by the Copyright Royalty Tribunal.

When Congress extended the Satellite Home Viewer Act in 1994, it provided for another rate adjustment and changed the standard for adjusting rates. Rather than hinge the adjustment on the fee that cable paid under its license, the new standard required an adjustment of the rates to reflect the fair market value of the programming retransmitted on network and superstations. The Librarian of Congress empaneled a Copyright Arbitration Royalty Panel (CARP) to adjust the rates in 1997, and the CARP determined that a fee of 27 cents per subscriber per month represented the fair market value of a network and superstation signal, respectively. The Librarian approved the CARP's determination because it was neither arbitrary nor contrary to the Copyright Act.

Neither the Librarian nor the Copyright Office have a stake in the royalty fee charged under the section 119 license for the retransmission of broadcast stations. The Court of Appeals for the District of Columbia Circuit has recently affirmed the Librarian's decision accepting the 27-cent fee, confirming that the Librarian correctly performed his duties under the section 119 license. H.R. 768 reduces the 27-cent fee by 30 percent for superstations, and 45 percent for network stations. The reduction is in the interest of bringing the fee for the section 119 license more in line with the fee for the section 111 cable license. Because this is more a matter of competition in the video retransmission marketplace than copyright policy, the Office expresses no opinion as to the advisability of the reduction.

The Copyright Office looks forward to working with the Subcommittee on this important legislation.