[Federal Register: October 28, 1997 (Volume 62, Number 208)]
[Rules and Regulations]
[Page 55742-55759]
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LIBRARY OF CONGRESS
Copyright Office
37 CFR Part 258
[Docket No. 96-3 CARP SRA]
Rate Adjustment for the Satellite Carrier Compulsory License
AGENCY: Copyright Office, Library of Congress.
ACTION: Final rule and order.
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SUMMARY: The Librarian of Congress, upon recommendation of the Register
of Copyrights, is announcing the adjustment of the royalty rates for
superstation and network signals under the satellite carrier compulsory
license, 17 U.S.C. 119.
EFFECTIVE DATE: January 1, 1998.
ADDRESSES: The full text of the CARP's report to the Librarian of
Congress is available for inspection and copying during normal business
hours in the Office of the General Counsel, James Madison Memorial
Building, Room LM-403, First and Independence Avenue, S.E., Washington,
D.C. 20540.
FOR FURTHER INFORMATION CONTACT: David O. Carson, General Counsel,
William J. Roberts, Jr., Senior Attorney for Compulsory Licenses, or
Tanya M. Sandros, Attorney Advisor, P.O. Box
[[Page 55743]]
70977, Southwest Station, Washington, D.C. 20024. Telephone (202) 707-
8380.
SUPPLEMENTARY INFORMATION:
Recommendation of the Register of Copyrights
I. Background
Congress passed the Satellite Home Viewer Act of 1988 to create a
compulsory copyright license, codified at section 119 of the Copyright
Act, for the retransmission of over-the-air television broadcast
signals. 17 U.S.C. 119. Similar in many ways to the cable compulsory
license enacted by Congress in 1976, the satellite carrier compulsory
license permits satellite carriers to retransmit TV signals to their
subscribers upon semiannual submission of royalty fees and statements
of account to the Copyright Office. The royalty fees collected by the
Copyright Office are deposited with the United States Treasury for
subsequent distribution to copyright owners of programming
retransmitted by the satellite carriers.
Section 119 identifies two types of television broadcast signals
that are subject to compulsory licensing: superstations and network
signals. A superstation is the signal of any commercial independent
television station licensed by the Federal Communications Commission.
Examples of superstations retransmitted by satellite carriers under
section 119 are WTBS, Atlanta and WGN, Chicago. A network station is
defined as follows:
(A) A television broadcast station, including any translator
station or terrestrial satellite station that rebroadcasts all or
substantially all of the programming broadcast by a network station,
that is owned or operated by, or affiliated with, one or more of the
television networks in the United States which offer an
interconnected program service on a regular basis for 15 or more
hours per week to at least 25 of its affiliated television licensees
in 10 or more States; or
(B) A noncommercial educational broadcast station (as defined in
section 397 of the Communications Act of 1934). \1\
\1\ This is the definition of a network signal after the 1994
amendments to section 119. The earlier definition was the same one
appearing in section 111 of the Copyright Act.
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17 U.S.C. 119(d)(2). Examples of network signals carried by satellite
carriers are ABC, CBS, and NBC. A station of the Public Broadcasting
Service (PBS) would also be considered a network signal under the
statute.
Under the section 119 license, satellite carriers can retransmit
any superstation they choose to any subscriber located anywhere in the
United States. However, such is not the case with the retransmission of
network signals. Satellite carriers may only make use of the license to
retransmit a network signal to a subscriber who resides in an
``unserved household.'' An ``unserved household'' is defined as a
household that:
(A) Cannot receive through the use of a conventional outdoor
rooftop receiving antenna, an over-the-air signal of grade B
intensity (as defined by the Federal Communications Commission) of a
primary network station affiliated with that network, and
(B) Has not, within 90 days before the date on which that
household subscribes, either initially or on renewal, to receive
secondary transmissions by a satellite carrier of a network station
affiliated with that network, subscribed to a cable system that
provides the signal of a primary network station affiliated with
that network.
17 U.S.C. 119(d)(10). Service of network signals to subscribers who do
not reside in unserved households is an act of copyright infringement,
subject to the remedies of chapter 5 of the Copyright Act, unless the
carrier is able to negotiate a private agreement with copyright owners
to license all the copyrighted works on those network signals.
In creating the section 119 license in 1988, Congress established
different royalty rates for superstation and network signals, based
upon approximations of what cable paid for such signals under the
section 111 cable compulsory license. 17 U.S.C. 111. The original rate
for a superstation was 12 cents per subscriber per month. The original
rate for a network was 3 cents per subscriber per month. Congress,
however, authorized a rate adjustment procedure to change these rates
in 1992.
II. The 1992 Rate Adjustment
At the time of passage of section 119, the Copyright Royalty
Tribunal was still in existence. However, rather than invest the
Tribunal with authority to adjust the section 119 rates, as was the
case for all other compulsory licenses in the Copyright Act, Congress
instead gave the task to an ad hoc arbitration panel assembled solely
for that purpose. The Tribunal was given authority to review the
decision of the arbitration panel, as is the Librarian in this
proceeding, but under a different standard of review.
Congress also established a number of factors for the arbitration
panel to consider in reaching its determination. The statute provided:
In determining royalty fees under this paragraph, the
Arbitration Panel shall consider the approximate average cost to a
cable system for the right to secondarily transmit to the public a
primary transmission made by a broadcast station, the fee
established under any voluntary agreement filed with the Copyright
Office in accordance with paragraph (2),\2\ and the last fee
proposed by the parties, before proceedings under this paragraph,
for the secondary transmission of superstations or network stations
for private home viewing. The fee shall also be calculated to
achieve the following objectives:
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\2\ No such voluntary agreements were reached.
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(i) To maximize the availability of creative works to the
public.
(ii) To afford the copyright owner a fair return for his or her
creative work and the copyright user a fair income under existing
economic conditions.
(iii) To reflect the relative roles of the copyright owner and
the copyright user in the product made available to the public with
respect to relative creative contribution, technological
contribution, capital investment, cost, risk, and contribution to
the opening of new markets for creative expression and media for
their communication.
(iv) To minimize any disruptive impact on the structure of the
industries involved and on generally prevailing industry practices.
17 U.S.C. 119(c)(3)(B) (1988).
The arbitration panel was given 60 days to reach its determination;
it delivered its report to the Copyright Royalty Tribunal on March 2,
1992. The panel recommended that the royalty fee for network signals be
raised from 3 cents to 6 cents per subscriber. 57 FR 19061 (May 1,
1992). For superstations, the panel recommended a two-tiered rate
structure. The panel was impressed with Congress' consideration of the
application of syndicated exclusivity protection on the satellite
industry. With respect to cable retransmissions of broadcast signals,
broadcasters may purchase exclusive rights to broadcast programming
within their local market, and any cable operator importing the same
programming into the broadcaster's local market is required to black it
out. Congress directed the FCC in 1988 to consider adopting syndicated
exclusivity rules for the satellite industry, but the Commission
ultimately determined that it was not technically feasible for
satellite carriers to black-out programming. See 6 FCC Rcd. 725 (1991).
To make up for this technological deficiency, the panel imposed a
higher royalty rate to compensate for the loss of exclusivity
protection.
For superstations, if they had been retransmitted by a cable system
rather than a satellite carrier and would have been subject to the
FCC's syndicated exclusivity rules, the panel adopted a rate of 17.5
cents per subscriber per month. 57 FR at 19061 (1992). For
[[Page 55744]]
signals that would not have been subject to the syndicated exclusivity
rules for cable (known as ``syndex proof'' signals), the panel adopted
a rate of 14 cents per subscriber per month. id.
The Copyright Royalty Tribunal, reviewing the panel's decision only
under a contrary to law standard, adopted the rates recommended by the
arbitration panel. 57 FR 19052 (1992). The Tribunal did, however,
substitute a new effective date for the rates, because it determined
that the panel misapplied the statute. Id. at 19053 (rates effective on
date of issuance of Tribunal's order, May 1, 1992, not January 1, 1993
date recommended by panel). No appeal of the Tribunal's order was
taken.
III. Satellite Home Viewer Act of 1994
The rates adopted by the Tribunal in 1992 were to last only until
the end of 1994, when the section 119 license was slated to expire.
However, in 1994, Congress passed the Satellite Home Viewer Act of
1994, which extended the section 119 license another 5 years. In
reauthorizing the license, Congress made several changes to its
provisions. Another rate adjustment--this proceeding--was scheduled to
take place, and the duty of conducting the proceeding was given to a
copyright arbitration royalty panel (CARP), with review by the
Librarian of Congress.
The most significant change to section 119 made by the 1994
amendments, for purposes of this proceeding, was a change in the
factors to be applied by the CARP to determine the new royalty rates.
Rather than focus on the price paid by the cable industry for similar
retransmissions, Congress required that the royalty fees for
superstations and network signals represent the fair market value. 17
U.S.C. 119(c)(3)(D) (1994).
Although Congress intended to replace the statutory criteria for
adjusting the royalty rates from the 1988 Act with the new ``fair
market value'' standard, a scrivener's error was made in the 1994 Act.
The result was that the original provisions of section 119(c)(3)(B)
remained, and the new provisions inadvertently replaced the
subparagraph determining those parties subject to pay the section 119
royalty fees. Certain copyright owners to this proceeding requested
clarification of the statute, and the Library issued an order prior to
commencement of the CARP instructing the CARP to apply only the new
fair market value provisions, and to disregard the old criteria of
section 119(c)(3)(B). Order in Docket No. 96-3 CARP SRA (January 6,
1997).
The royalty rates adopted in the 1992 rate adjustment were
incorporated into the 1994 Act, subject to adjustment in this
proceeding. The rates adopted in this Order shall remain effective
until December 31, 1999, the current date for the section 119
compulsory license.
IV. This Proceeding
Pursuant to section 119(c)(2), the Librarian of Congress initiated
this proceeding with publication of a Federal Register notice on June
11, 1996, establishing a voluntary negotiation period and a
precontroversy discovery schedule.\3\ 61 FR 29573 (June 11, 1996). The
schedule was vacated on September 19, 1996, at the request of certain
copyright owner parties, Order in Docket No. 96-3 CARP SRA (September
19, 1996), and rescheduled on October 29, 1996. Order in Docket No. 96-
3 CARP SRA (October 29, 1996). The CARP was convened on March 3, 1997.
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\3\ The voluntary negotiation period proved unsuccessful as no
agreements were reached.
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The following parties submitted written direct cases to the CARP:
(1) Joint Sports Claimants (``JSC''), representing national sports
associations including Major League Baseball, the National Basketball
Association, the National Hockey League, and the National Collegiate
Athletic Association; (2) the Public Broadcasting Service (``PBS'');
(3) the Commercial Network Claimants (``Commercial Networks''),
representing the National Broadcasting Co., Inc., Capital Cities/ABC,
Inc. and CBS, Inc.; (4) the Broadcaster Claimants Group (``Broadcaster
Claimants Group''), representing certain commercial television stations
whose signals are retransmitted by satellite carriers; (5) the Program
Supplier Claimants (``Program Suppliers''), representing various
copyright owners of motion pictures, television series and specials;
(6) the Music Claimants (``Music Claimants''), representing the
American Society of Composers, Authors and Publishers, Broadcast Music,
Inc., and SESAC, Inc.; (7) the Devotional Claimants (``Devotional
Claimants''), representing various copyright owners of religious
programming; (8) the Satellite Broadcasting & Communications
Association (``SBCA''), representing AlphaStar Television, Inc.,
BosCom, Inc., Consumer Satellite Systems, DirecTV, Inc., EchoStar
Communications Corp., Netlink USA, PrimeStar Partners L.P., Prime Time
24 Joint Venture, Southern Satellite Systems, Inc., and Superstar
Satellite Entertainment; and (9) American Sky Broadcasting L.L.C.
(``ASkyB'').
The CARP held oral hearings on the written cases and evidence, and
oral argument on the proposed findings of fact and conclusions of law.
The CARP submitted its report to the Librarian on August 29, 1997.
The CARP concluded that rates for both networks signals and
superstations should be adjusted upwards to 27 cents per subscriber per
month. In addition, the Panel determined that no royalty fee should be
paid for the retransmission of superstations within the superstations'
local markets, and that it had no authority to set a royalty rate for
retransmissions of network signals within their local markets. The
Panel recommended July 1, 1997, as the effective date for the new
rates.
Section 802(f) of the Copyright Act provides that [w]ithin 60 days
after receiving the report of a copyright arbitration royalty panel * *
*, the Librarian of Congress, upon the recommendation of the Register
of Copyrights shall adopt or reject the determination of the panel.''
17 U.S.C. 802(f). Today's order of the Librarian fulfills this
statutory obligation.
V. The Librarian's Scope of Review
The Librarian of Congress has, in previous proceedings, discussed
his narrow scope of review of CARP determinations. See 52 FR 6558
(February 12, 1997) (DART distribution order); 61 FR 55653 (October 26,
1996) (cable distribution order). The salient points regarding the
scope of review, however, merit repeating.
The Copyright Royalty Tribunal Reform Act of 1993 created a unique
system of review of a CARP's determination. Typically, an arbitrator's
decision is not reviewable, but the Reform Act created two layers of
review: the Librarian and the Court of Appeals for the District of
Columbia Circuit. Section 802(f) directs the Librarian to either accept
the decision of the CARP or reject it. If the Librarian rejects it, he
must substitute his own determination ``after full examination of the
record created in the arbitration proceeding.'' Id. If the Librarian
accepts it, then the determination of the CARP has become the
determination of the Librarian. In either case, through issuance of the
Librarian's Order, it is his decision that will be subject to review by
the Court of Appeals.
Section 802(f) of the Copyright Act directs that the Librarian
shall adopt the report of the CARP ``unless the Librarian finds that
the determination is arbitrary or contrary to the provisions of this
title.'' Neither the Reform Act nor its legislative history indicates
what is meant specifically by ``arbitrary,'' but
[[Page 55745]]
there is no reason to conclude that the use of the term is any
different than the ``arbitrary'' standard described in the
Administrative Procedure Act (APA), 5 U.S.C. 706(2)(A).
Review of the caselaw applying the APA ``arbitrary'' standard
reveals six factors or circumstances under which a court is likely to
find that an agency acted arbitrarily. An agency is generally
considered to be arbitrary when it:
(1) Relies on factors that Congress did not intend it to consider;
(2) Fails to consider entirely an important aspect of the problem
that it was solving;
(3) Offers an explanation for its decision that runs counter to the
evidence presented before it;
(4) Issues a decision that is so implausible that it cannot be
explained as a product of agency expertise or a difference of
viewpoint;
(5) Fails to examine the data and articulate a satisfactory
explanation for its action including a rational connection between the
facts found and the choice made; and
(6) When the agency's action entails the unexplained discrimination
or disparate treatment of similarly situated parties.
Motor Vehicle Manufacturers Ass'n v. State Farm Mutual Insurance Co.,
463 U.S. 29 (1983); Celcom Comm. Corp. v. FCC, 789 F.2d 67 (D.C. Cir.
1986); Airmark Corp v. FAA, 758 F2d 685 (D.C. Cir. 1985).
Given these guidelines for determining when a determination is
``arbitrary,'' prior decisions of the courts reviewing the
determinations of the former Copyright Royalty Tribunal have been
consulted. The decisions of the Tribunal were reviewed under the
``arbitrary and capricious'' standard of 5 U.S.C. 706(2)(A) which, as
noted above, appears to be applicable to the Librarian's review of the
CARP's decision.
Review of judicial decisions regarding Tribunal actions reveals a
consistent theme: provided that the Tribunal adequately articulated the
reasons for its decision, specific determinations were granted a
relatively wide ``zone of reasonableness.'' See National Ass'n of
Broadcasters v. CRT, 772 F.2d 922 (D.C. Cir. 1985); Christian
Broadcasting Network v. CRT, 720 F.2d 1295 (D.C. Cir. 1983); National
Cable Television Ass'n v. CRT, 689 F.2d 1077 (D.C. Cir. 1982);
Recording Industry Ass'n of America v. CRT, 662 F.2d 1 (D.C. Cir.
1981). As one panel of the D.C. Circuit succinctly noted:
To the extent that the statutory objectives determine a range of
reasonable royalty rates that would serve all these objectives
adequately but to differing degrees, the Tribunal is free to choose
among those rates, and courts are without authority to set aside the
particular rate chosen by the Tribunal if it lies within a ``zone of
reasonableness.''
Recording Industry Ass'n of America v. CRT, 662 F.2d 1, 9 (D.C. Cir.
1981). Because the Librarian is reviewing the CARP decision under the
same ``arbitrary'' standard used by the courts to review the Tribunal,
he must be presented with a detailed rational analysis of the CARP's
decision, setting forth specific findings of fact and conclusions of
law. This requirement of every CARP report is confirmed by the
legislative history to the Reform Act which notes that a ``clear report
setting forth the panel's reasoning and findings will greatly assist
the Librarian of Congress.'' H.R. Rep. No. 103-286, 103 Cong., 1st
Sess. 13 (1993). Thus, to engage in reasoned decisionmaking, the CARP
must ``weigh all the relevant considerations and * * * set out its
conclusions in a form that permits [a determination of] whether it has
exercised its responsibilities lawfully.'' National Cable Television
Ass'n v. CRT, 689 F.2d 1077, 1091 (D.C. Cir. 1982). This goal cannot be
reached by ``attempt[ing] to distinguished apparently inconsistent
awards with simple, undifferentiated allusions to a 10,000 page
record.'' Christian Broadcasting Network, Inc. v. CRT, 720 F.2d 1295,
1319 (D.C. Cir. 1983).
It is the task of the Register to review the report and make her
recommendation to the Librarian as to whether it is arbitrary or
contrary to the provisions of the Copyright Act and, if so, whether,
and in what manner, the Librarian should substitute his own
determination.
VI. Review of the CARP Report
Section 251.55(a) of the rules provides that ``[a]ny party to the
proceeding may file with the Librarian of Congress a petition to modify
or set aside the determination of a Copyright Arbitration Royalty Panel
within 14 days of the Librarian's receipt of the panel's report of its
determination. 37 CFR 251.55(a). Replies to petitions to modify are due
14 days after the filing of the petitions. 37 CFR 251.55(b).
The following parties filed petitions to modify: SBCA, EchoStar
Communications Corp. (``EchoStar''), and commercial Networks. Replies
were filed by JSC, Broadcaster Claimants Group, PBS, Program Suppliers,
Commercial Networks, Music Claimants and Devotional Claimants
(collectively, ``Copyright Owners''), PBS, JSC and Broadcaster
Claimants Group (collective, ``Certain Copyright Owners''), and
EchoStar.
Satellite carriers oppose the decision of the CARP, while copyright
owners are generally supportive of it. SBCA offers numerous reasons
why, in its view, the Panel's decision is arbitrary and contrary to
law. EchoStar confines its comments to the Panel's decision not to
establish a royalty rate for the local retransmission of network
signals by satellite carriers, and Commercial Networks request a
``clarification'' of the Panel's ruling in order to construe it to mean
that the 27 cent fee for network signals applies to any local
retransmission of network stations to subscribers in unserved
households. Certain Copyright Owners challenge EchoStar's standing to
file a Sec. 251.55 petition to modify in this proceeding.
Section 251.55 of the rules assists the Register of Copyrights in
making her recommendation to the Librarian, and the Librarian in
conducting his review of the CARP's decision by allowing the parties to
the proceeding to raise specific objections to a CARP's determination.
As required by section 802(f) of the Copyright Act, if the Librarian
determines that the Panel in this proceeding has acted arbitrarily or
contrary to the provisions of the Copyright Act, he must ``after full
examination of the record created in the arbitration proceeding, issue
an order setting the royalty fee * * *.'' 17 U.S.C. 802(f).
VII. Review and Recommendation of the Register
As discussed above, the parties to this proceeding submitted
petitions to the Librarian to modify the Panel's determination based on
their assertions that the Panel acted arbitrarily or contrary to the
applicable provisions of the Copyright Act. These petitions have
assisted the Register in identifying what evidence and issues in this
large proceeding, in the eyes of the petitioners, are areas where the
Panel may have acted improperly, thereby requiring the Librarian to
substitute his own determination. The law gives the Register the
responsibility to make recommendations to the Librarian regarding the
Panel's determination, 17 U.S.C. 802(f), and in so doing she must
conduct a thorough review.
After reviewing the Panel's report and the record in this
proceeding, the Register has determined that there are 6 primary
aspects of the Panel's decision that warrant detailed discussion and
analysis:
(1) Whether the Panel correctly interpreted and applied the
statutory standard for determining royalty fees;
[[Page 55746]]
(2) Whether the Panel acted arbitrarily in adopting the license
fees paid by cable networks as the benchmark for determining section
119 fees;
(3) Whether the Panel should have made certain adjustments in
the benchmark rates it adopted;
(4) Whether it was permissible for the Panel to adopt the same
rate for superstations and network signals;
(5) Whether the Panel correctly declined to adopt a royalty rate
for local retransmission of network signals by satellite carriers;
and
(6) Whether the Panel supplied the appropriate effective date
for the newly established royalty fees.
SBCA has made additional arguments in its petition to modify as to
why the Panel's decision should be set aside. These arguments, which
primarily involve evaluation of the evidence and allege deficiencies in
the discovery rules for CARP proceedings, are addressed at the end of
this section.
A. Determination of Fair Market Value
1. Action of the Panel
A fundamental dispute between satellite carriers and copyright
owners in this proceeding is the meaning of the term ``fair market
value'' as used in section 119(c)(3)(D) of the Copyright Act. That
section provides: \4\
\4\ As discussed above, section 119(c)(3)(D) is the appropriate
statutory provision governing the adjustment of royalty rates.
Section 119(c)(3)(B), which also prescribes royalty adjustment
factors, was inadvertently left in the statute after the 1994
amendments.
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In determining royalty fees under this paragraph, the Copyright
Arbitration Panel shall establish fees for the retransmission of
network stations and superstations that most clearly represent the
fair market value of secondary transmissions. In determining the
fair market value, the Panel shall base its decision on economic,
competitive, and programming information presented by the parties,
including--
(i) The competitive environment in which such programming is
distributed, the cost for similar signals in similar private and
compulsory license marketplaces, and any special features and
conditions of the retransmission marketplace;
(ii) The economic impact of such fees on copyright owners and
satellite carriers; and
(iii) The impact on the continued availability of secondary
transmissions to the public.
17 U.S.C. 119(c)(3)(D).
The Panel examined this provision, and the legislative history, and
determined that fair market value meant the prize that would be
negotiated in a free market setting as compensation for the satellite
carriers' right to retransmit network and superstation signals
containing the copyright owners' copyrighted programming. The Panel
stated that:
[T]he language, structure, and legislative history of the 1994
amendments to section 119 suggest the Panel is directed to determine
actual fair market value and ``in determining the fair market value
* * * base its decision * * *'' upon the non-exhaustive list of
considerations. We interpret the phrase ``base its decision'' to
require the Panel to consider each enumerated type of information
but, the weight to be accorded each consideration must necessarily
depend upon the quality and quantity of the evidence adduced and its
relative significance to a determination of actual fair market
value. All evidence falling within the enumerated types of
information must be considered but the evidence which is more
probative of fair market value must be accorded greater weight than
less probative evidence * * *. The Panel agrees that the fair market
value rate is that which most closely approximates the rate that
would be negotiated in a free market between a willing buyer and a
willing seller.
Panel Report at 17 (emphasis in original).
2. Arguments of the Parties
SBCA asserts that the Panel misapprehended the meaning of ``fair
market value,'' and that it should have determined the section 119 fees
in accordance with what cable operators pay for distant signals under
the section 111 cable compulsory license. SBCA Petition to Modify at
12. ``Fair market value is a Congressionally defined term, and thus
cannot be considered under the `traditional' sense, as urged by the
[Copyright] Owners.'' Id. at 14. SBCA cites certain 1994 floor
statements at length as evidence that Congress intended that section
119 royalty rates be set on a parity with cable rates.
DeConcini: Copyright license parity with cable is the central
feature of the fair market standard articulated in this legislation.
The inclusion of specific guidance to the arbitration panel to take
into consideration the competitive environment in which satellite
programming is distributed is essential to ensure that satellite
carriers are not required to pay higher royalty fees than cable
operators * * * I am confident that the arbitration panel will take
steps to ensure that the royalty fee paid by satellite carriers are
on par with those paid by cable operators. The guiding criteria for
the arbitration panel to establish fair market value in this
legislation will accomplish that objective.
* * * The fact that the Senate agrees with the House on this
compromise language is due to the criteria that defines fair market
value in the bill. I have long opposed the imposition of royalty
fees based simply on the mechanical application of some conceptual
fair market value formula * * * The arbitration panel will take
steps to ensure that the royalty fees paid by satellite carriers are
on par to those paid by cable operators. The guiding criteria for
the arbitration panel to establish fair market value will accomplish
this objective.
140 Cong. Rec. S14105, 14106 (daily ed. Oct. 4, 1994).
Brooks: In the hard-fought compromise reached on this bill, the
factors to be considered under the bill's ``fair market value''
determination have been made more specific. I would note that in
determining fair market value, we intend that the copyright
arbitration panel consider all the factors raised by the parties,
including cable rates.
140 Cong. Rec. H9270 (daily ed. Sept. 20, 1994).
Hughes: [L]egislation contemplates that the panel will look to
the competitive environment in which section 119 retransmissions are
distributed as well as the costs of distribution of similar signals
in similar private and compulsory license marketplaces, including
the cable copyright fees under section 111. This will help ensure
that there is vigorous competition and diversity in the video
programming distribution industry.
140 Cong. Rec. H9271 (daily ed. Sept. 20, 1994).
Synar: I am also hopeful that any fee resulting from the fair
market value standard does not disadvantage the delivery of
satellite transmissions vis-a-vis the delivery of cable
retransmission under the section 111 compulsory license * * * It is
my hope that the fees set for satellite retransmissions under the
fair market value standard will, among other things, reflect the
competitive environment in which those retransmissions are
distributed. There is little question that Congress would like to
ensure that there is vigorous competition and diversity in the
distribution of video programming and the determination of fair
market value fees should reflect that intent.
140 Cong. Rec. H9272 (daily ed. Sept. 20, 1994).
According to SBCA, these floor statements provide clear
Congressional direction that the royalty fees for section 119 are to be
either identical or substantially similar to those paid by cable
operators under section111. SBCA provided testimony demonstrating that
cable operators pay 9.8 cents per subscriber per month for
superstations, and 2.45 cents per subscriber per month for network
signals, and submits that the Librarian should adopt these rates. SBCA
Petition to Modify at 18.
Copyright Owners contend that the Panel acted correctly in
attributing the plain meaning to the term ``fair market value,'' and
properly rejected SBCA's position that the rates paid by cable under
section 111 is the governing factor in determining fair market value.
Copyright Owners Reply at 12. Copyright Owners' note further that even
one of SBCA's own expert witnesses, Mr. Harry Shooshan, conceded at the
hearing that Congress intended to accord the conventional meaning to
``fair market value.'' Id.
[[Page 55747]]
Copyright Owners also submit that portions of floor statements
delivered at the time of passage of the 1994 Satellite Home Viewer Act
are not proper legislative history and must be given little, if any,
weight. Id. at 14-15 (citing Overseas Educ. Ass'n, Inc. v. FLRA, 876
F.2d 960 (D.C. Cir. 1989); In the Matter of Sinclair, 870 F.2d 1340
(7th Cir. 1989)). Rather, the text of the statute is the principle
source for determining its meaning. Id. at 15 (citing West Virginia
Hosp. v. Casey, 499 U.S. 83 (1991).
3. Recommendation of the Register
The Panel determined that the term ``fair market value'' should be
accorded its plain meaning--i.e., the price a willing buyer and a
willing seller would negotiate in a free marketplace--and that the
economic, competitive, and programming information presented by the
parties provided the evidence to determine what fair market value
royalty rates would be under the satellite carrier compulsory license.
The Register concludes that this decision is not arbitrary, nor is it
contrary to law.
Both SBCA and Copyright Owners contend that the meaning of ``fair
market value'' is a matter of statutory interpretation. Moreover, it is
a well-established principle that, in interpreting the meaning of a
statute, the language of the law is the best evidence of its meaning.
Sutherland Stat. Const. Sec. 46.01 (5th Ed.).
The express words of the statute charge the Panel with determining
the fair market value of retransmitted broadcast signals by satellite
carriers. Id. (plain meaning of the statute governs its
interpretation). The Panel determined that ``fair market value'' meant
the price that would be negotiated between a willing buyer and a
willing seller in a free marketplace. Panel Report at 17. The Register
determines that this is not an arbitrary interpretation of the meaning
of ``fair market value,'' nor is it contrary to law. See Black's Law
Dictionary 537 (5th Ed. 1989) (definition of ``fair market value'').
In the 1994 amendments Congress stated that ``[i]n determining the
fair market value, the Panel shall base its decision on economic,
competitive, and programming information presented by the parties * *
*'' 119 U.S.C. 119(c)(3)(d). Congress then included in that amendment a
nonexhaustive list of the types of ``economic, competitive, and
programming information'' that the Panel must consider in fashioning
royalty rates that represent fair market value. That the list is
nonexhaustive is significant, for there may be other types of
information presented by the parties that, while not falling within one
of the enumerated categories, is nevertheless relevant to the issue of
what the fair market value royalty rates should be. The Panel would be
responsible for considering this type of information as well, if it
were relevant to determining fair market value.
The Register does not interpret the enumerated categories of
``economic, competitive, and programming information'' (for example,
costs in similar private and compulsory license marketplaces) as
establishing criteria that define the meaning of ``fair market value.''
To do so would, in the Register's view, run contrary to the plain
meaning of the statute. Sutherland Stat. Const. Sec. 47.07 (5th Ed.).
Likewise, the Register does not see any support for the argument that
one of the enumerated categories of information, such as the compulsory
license fee paid by cable under 17 U.S.C. 111, must be accorded more
weight than another. The House Committee Report to the 1994 amendments
makes it clear that this should not be the case. See H.R. Rep. No. 703,
103d Cong., 2d Sess. 10 (1994) (``In order to aid the panel, the
Committee adopted an amendment offered by Mr. Hughes directing the
panel to consider economic, competitive, and programming information
presented by the parties as well as the competitive environment in
which such programming is distributed. This would, of course, include
cable rates, but those rates are not to be a benchmark for setting
rates under section 119; they are only one potentially [sic] piece of
evidence in reaching the objective fair market value.''). The Register,
therefore, determines that the Panel did not act arbitrarily or
contrary to law in determining the meaning of fair market value.
Although the Panel determined that its plain meaning of fair market
value controlled their interpretation, the Panel nevertheless consulted
the legislative history to the 1994 amendments and concluded that
``[w]e find no support for the proposition that Congress did not mean
what it said. The legislative history reveals no intent to attach a
unique meaning to the commonly understood and well-established `fair
market value' term.'' Panel Report at 16.
A review of all floor statements offered at the time of passage of
the 1994 amendments reveals considerable differences between the views
of the two Chairmen and some of the members. These differences are
accentuated by a later floor statement offered by Chairman Hughes when
he introduced a bill that would make technical corrections to the 1994
Satellite Home Viewer Act. 140 Cong. Rec. E2290 (daily ed. November 29,
1994) (statement of Rep. Hughes).
The statement of Chairman DeConcini offers the greatest support to
the argument that the rates established in this proceeding should
approximate what cable pays under the cable compulsory license. 140
Cong. Rec. S14105 (daily ed. Oct. 4, 1994) (``I am confident that the
arbitration panel will take steps to ensure that the royalty fee paid
by satellite carriers are on par with those paid by cable operators'').
Representative Synar's comments suggest his desire that a satellite
rate adjustment produce rates comparable to the cable compulsory
license, but he does not state that application of the fair market
value standard should or must produce such comparability. The
statements of Representative Brooks and Hughes provide that cable
compulsory license rates are one of the factors to be considered by the
Panel, but they do not indicate that they are the only or controlling
factor.
The Register has consulted the caselaw in determining the weight to
be accorded floor statements made by Congressmen during the passage of
legislation. The caselaw provides that floor statements of legislators
are to be given little weight Garcia v. U.S., 469 U.S. 70, 78, (1984);
Zuber v. Allen, 396 U.S. 168, 186 (1969) (``Floor debates reflect at
best the understanding of individual Congressmen''). The reasoning
behind this principle was aptly described by the Federal Circuit Court
for the District of Columbia:
[I]t is necessary for judges to exercise extreme caution before
concluding that statement made in floor debate, or at a hearing, or
printed in a committee document may be taken as statutory gospel.
Otherwise, they run the risk of reading authentic insight into
remarks intended to serve quite different purposes. Furthermore, to
the degree that judges are perceived as grasping any fragment of
legislative history for insights into congressional intent, to that
degree will legislators be encouraged to salt the legislative record
with unilateral interpretations of statutory provisions they were
unable to persuade their colleagues to except * * *.
Int. Broth. of Elec. Wkrs. Loc. U. 474 v. NLRB, 814 F.2d 697 (D.C. Cir.
1987) (Buckley, concurring); see also Overseas Educ. Ass'n. Inc. v.
FLRA, 876 F.2d 960, 975 (D.C. Cir. 1989) (``While a sponsor's
statements may reveal his understanding and intentions, they hardly
provide definitive insights into Congress' understanding of the meaning
of a particular provision'') (emphasis in original).
Of greater importance in discerning the intent of Congress, as
opposed to the
[[Page 55748]]
statements of individual Members, is the fact that Congress changed the
statute in 1994. When Congress decides to change a statute, the
decision to do so signifies that it intended to change the meaning.
Brewster v. Gage, 280 U.S. 327, 338 (1932); United States v. NEC Corp.,
931 F.2d 1493, 1502 (11th Cir. 1991); In re Request for Assistance, 848
F.2d 1151, 1154 (11th Cir. 1988), cert. denied sub. nom., Azar v.
Minister of Legal Affairs, 488 U.S. 1005 (1989). That is what occurred
here. If Congress had truly intended cable compulsory license rates to
govern the adjustment of fees in this proceeding, then it would not
have amended the statute in1994 to provide for a fair market value
determination.\5\
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\5\ There is no question that the principal factor for
determining rates under the 1988 legislation was the rates paid by
cable. 17 U.S.C. 119(c)(3)(B) (1988) (the Panel ``shall consider the
approximate average cost to a cable system for the right to
secondarily transmit to the public a primary transmission made by a
broadcast station * * *.'').
---------------------------------------------------------------------------
In sum, while floor statements by some Members indicate an intent
that fair market value be determined in various ways, by looking at the
statute, committee reports, floor statements and colloquies the
Register does not find any special meaning or limitation attached to
the term ``fair market value'' and, therefore, must rely on the plain
language of the statute and the plain meaning of the term. The Panel,
in the view of the Register, therefore, did not act arbitrarily, or
contrary to law in its interpretation of the meaning of ``fair market
value.''
B. The Cable Network Fee Benchmark
1. Action of the Panel
In order to determine fair market value royalty rates as required
by section 119(c)(3)(D), the Panel considered the voluminous testimony
and exhibits presented by the parties. Witnesses for PBS, JSC, the
Commercial Networks, SBCA, and ASkyB sponsored economic analyses and
testified as to their calculation of fair market value. The copyright
owners used empirical data of license fees paid to certain cable
networks by multichannel video programming distributors (principally
cable operators), while satellite carriers focused primarily on the
license fees paid by cable operators under section 111.
The Panel specifically endorsed the approach taken by PBS, and its
principal witness, Ms. Linda McLaughlin. Using data supplied by an
industry survey group,\6\ Ms. McLaughlin examined the license fees paid
by multichannel video programming distributors (``MVPDs'') to license
the viewing rights to 12 popular basic cable networks. These networks
are A&E, CNN, Headline News, Discovery, ESPN, the Family Channel,
Lifetime, MTV, Nickelodeon, TNN, TNT, and USA. Ms. McLaughlin testified
that these basic cable networks represented the closest alternative
programming to broadcast programming for satellite homes, and that
studies indicated that consumers value networks and superstations as
least as highly as popular basic cable networks. Direct Testimony of
Linda McLaughlin at 2-5. She then calculated a ``benchmark'' rate for
these networks to be used by the Panel as representative of the fair
market value of broadcast signals retransmitted by satellite carriers:
\6\ The data was supplied by Paul Kagan Associates, a leading
information and data company in the video industry.
---------------------------------------------------------------------------
* * * I have calculated a basic cable network benchmark price and
used it to estimate a minimum compulsory license fee for satellite-
retransmitted broadcast stations. The average license fee of the 12
popular basic cable networks was 18 cents in 1992--when the maximum
satellite compulsory rate was 17.5 cents--and has risen to 24 cents
in 1995, an annual increase of ten percent per year. The license
fees for these 12 basic cable networks are forecast to increase to
an average of 26 cents in 1997, 27 cents in 1998 and 28 cents in
1999. This suggests that the compulsory rate for satellite
retransmitted stations should increase at least correspondingly with
the average prices for basic cable networks, to an average at least
27 cents for the 1997-99 period.
Id. at 7.
The Panel endorsed Ms. McLaughlin's approach because it determined
that it represented the closest model, of those presented, to a free
market negotiation for satellite carriage of broadcast signals, and
because it was the most conservative approach offered by the copyright
owners. Panel Report at 29-30. The Panel rejected the analysis of JSC
(Testimony of Mr. Larry Gerbrandt) as too narrow,\7\ and the analysis
of the Commercial Networks (testimony of Mr. Bruce Owen) as too
speculative.\8\ The Panel also rejected the analyses of SBCA and ASkyB
because it determined that their analyses did not comport with the
plain statutory meaning of the term ``fair market value.'' Id. at 29-
30.
---------------------------------------------------------------------------
\7\ Mr. Gerbrandt isolated the license fees paid for two basic
cable networks: TNT and USA. Tr. 2025-2026.
\8\ Mr. Owen used regression analysis in an attempt to
demonstrate that MVPDs are willing to pay proportionally higher
license fees for network signals which contain more expensive
programming. Direct Testimony of Bruce Owen at 7-10.
---------------------------------------------------------------------------
2. Arguments of the Parties
SBCA contends that cable network license fees are not an
appropriate benchmark because cable networks are fundamentally
different from retransmission of broadcast signals. It asserts that
``[e]xtracting an accurate, or even representative license fee per
subscriber is basically impossible because multiple programming
services are included within contracts, there are ceilings on aggregate
license fees for MVPDs in some cases, free subscriptions in others,
marketing and launch support provided by the cable networks, purchases
of advertising time by the cable networks from MVPDs, and equity
investments by each in the other.'' SBCA Petition to Modify at 20-21.
In reply, Copyright Owners assert that the Panel acted properly by
utilizing cable networks as the benchmark of fair market value, and
accepting the analysis of Ms. McLaughlin. Copyright Owners not that
they wished to examine the license fees paid by satellite carriers to
cable networks in particular, as opposed to the fee paid by all MVPDs
in general, but SBCA refused to disclose through discovery the amounts
that satellite carriers paid. Copyright Owners Reply at 17. They
further note that while SBCA's witness, Mr. Jerry L. Parker, stated
that a meaningful license fee could not be determined from satellite/
cable network contracts, SBCA never produced the documents to support
that assertion. Id. at 18. Copyright Owners assert that Ms. McLaughlin
testified that the license fees presented by her analysis demonstrated
at least the minimum amount that satellite carriers would pay for cable
networks, and that her analysis offered the best evidence that was
properly accepted by the Panel. Id.
3. Recommendation of the Register
In the Register's view, the Panel's decision to use cable network
license fees as a benchmark for establishing the fair market value of
section 119 rates was the product of rational decisionmaking, and its
decision to use the PBS/McLaughlin approach was not improper.
Having determined that ``fair market value'' meant the price that
would be paid by a willing buyer and seller in a free marketplace, it
was not illogical for the Panel to give careful consideration to
evidence of markets that most closely resembled the licensing of
signals under section 119. In fact, section 119(c)(3)(D)(i) requires
that the Panel consider ``the cost for similar signals in similar
private * * * marketplaces.'' 17 U.S.C. 119(c)(3)(D).
All three of the evidentiary presentations of the copyright
owners--PBS, JSC, and Commercial Networks--
[[Page 55749]]
focused upon the fees paid to cable networks by MVPDs. SBCA's evidence
of fair market value, the cable license fees paid under section 111,
was less relevant to the Panel's determination because the Panel had
rejected the notion that cable fees equaled fair market value. Panel
Report at 29-30. The Panel's adoption of cable network fees as the
benchmark was not unqualified, however, because it stated that ``we
agree with the satellite carriers that the economic model governing
cable networks varies markedly from the economic model governing
broadcasters.'' Id. at 29. Nevertheless, the Panel ``adopt[ed] the
copyright owners' general approach using the most similar free market
we can observe.'' Id. at 30. After reviewing the record, the Register
has determined that the Panel's conclusion is not ``arbitrary'' within
the meaning of 17 U.S.C. 802(f).
SBCA contends that cable network fees are not a useful benchmark
because the economics of cable networks are fundamentally different
from those of broadcast networks and superstations. SBCA Petition to
Modify at 20 (citing testimony of Mr. Harry Shooshan, Mr. John Haring
and Mr. Edwin Desser). The testimony of Mr. Shooshan and Mr. Haring, in
particular, suggest that there are some marked differences between the
licensing of cable networks and broadcast signals. The Panel, however,
took account of that. Panel Report at 29. Nevertheless, there was ample
testimony that the two markets were also quite similar. Tr. 1202-04
(Mr. Robert Crandall); Tr. 1609 (Ms. McLaughlin); Tr. 1284 (Mr. Owen).
The Panel weighed the evidence and accepted the copyright owners'
approach using cable network fees because it was ``the most similar
free market we can observe.'' Panel Report at 30 (emphasis in
original). Because this conclusion is grounded in the record, it is not
arbitrary. National Cable Television Ass'n, Inc. v. CRT, 724 F.2d 176,
189 (D.C. Cir. 1983) (decisions grounded in the record within the zone
of reasonableness).
Likewise, the Panel's decision to rely on the PBS/McLaughlin
testimony to establish the cable network benchmark was adequately
grounded in the record. Panel Report at 18-20. Again, the Panel stated
that use of cable networks was by no means flawless and, to account for
this, the Panel was adopting the ``conservative'' approach offered in
Ms. McLaughlin's analysis. Id. at 31. The Register determines that the
Panel's decision to accord the PBS/McLaughlin testimony controlling
weight is consistent with its determination to utilize the plain
meaning of ``fair market value'' as the proper standard for setting
royalty fees. Further, it is well established that using evidence of
analogous markets is the best evidence in determining market price. See
National Cable Television, 724 F.2d at 187. For these reasons, the
Register determines that the Panel did not act arbitrarily or contrary
to the Copyright Act.
C. Adjustments to the Cable Network Fee Benchmark
1. Adjustment to the Benchmark for Delivery Costs
a. Action of the Panel. After establishing cable network license
fees, as presented by Ms. McLaughlin, as the benchmark for determining
the section 119 royalty rates, the Panel examined, inter alia, the
special features and conditions of the retransmission marketplace to
determine if an upward, or downward, adjustment in the benchmark was
appropriate. One of the aspects of satellite retransmission of
broadcast signals that differ significantly from the transmission of
cable networks involved the costs of delivering the signals to the
MVPDs. The Panel found this issue, along with that of advertising
inserts (discussed infra), as being ``among the most challenging issues
for the Panel to resolve.'' Panel Report at 43.
The Panel found that the license fees charged for cable networks
included the cost of delivering the cable network to the MPVD--i.e.,
making the signal readily available for reception by the MVPD for
subsequent distribution to subscribers. Id. at 45. With satellite
retransmission of broadcast signals, however, the satellite carriers
absorb the costs of getting the broadcast signal from its geographic
point of origin, and then delivering it to its subscribers. Id. The
Panel considered whether the cost of delivering the signals should,
therefore, be deducted from the benchmark.
The Panel declined to make such a deduction. The Panel found that
there was no evidence presented to suggest that if satellite carriers
and copyright owners negotiated in a free marketplace for the
retransmission of broadcast signals, the copyright owners would offer
satellite carriers a discount on license fees to accommodate delivery
costs. The Panel discussed the testimony of Mr. Jerry L. Parker, an
SBCA witness who offered testimony as to the history, nature and
operation of the satellite industry:
Mr. Parker was invited to demonstrate whether carrier costs
impacted the rates negotiated between satellite carriers and cable
networks. He could not. Indeed, Mr. Parker conceded, for example,
that despite additional costs incurred by DBS \9\ carriers (beyond
those of HSD \10\ carriers), DBS operators were unable to negotiate
lower rates on that basis. Moreover, he declined to urge the Panel
to set a discounted rate for DBS carriers to account for their
higher costs than HSD carriers. We must similarly decline to
discount the cable network benchmark to account for higher delivery
costs of broadcast signals.
\9\ ``DBS'' stands for Direct Broadcast Service, and is
associated with high powered, high frequency direct broadcast
satellite services. An example of a DBS operator is DirecTV.
\10\ ``HSD'' stands for ``Home Satellite Dish,'' and typically
refers to satellite providers who operate at lower frequencies than
DBS providers.
---------------------------------------------------------------------------
Panel Report at 45-46 (citations omitted).
b. Arguments of the Parties. SBCA vigorously contests the Panel's
resistance to deducting delivery costs from the 27 cent benchmark
figure, stating that ``it must be recognized that all cable networks
that are charging and receiving 27 cents have made the necessary
investment and expense in distributing the signal * * *. None of the
[c]opyright [o]wners or broadcasters in this proceeding incurred this
necessary expense for satellite distribution of superstations or
network stations.'' SBCA Petition to Modify at 22. SBCA cites the
testimony of Ms. McLaughlin, who acknowledged that broadcast stations
are not responsible, and do not incur the cost of, delivering their
signal to satellite carriers for subsequent retransmission. Id. at 22-
23. SBCA submits that ``[t]he error in Ms. McLaughlin's analysis,
implicitly accepted by the Panel, is that these expenses were basically
the cost of the [s]atellite [c]arriers in distributing their own
product.'' Id. at 23. SBCA asserts that the Panel understood that
satellite carriers bore the cost of delivery, but then mistakenly
categorized it as a ``discount'' to compensate carriers for their
costs, when in fact it is a cost that must be borne by the copyright
owners. Id. at 25-26.
SBCA submits that it demonstrated that the average delivery cost
per signal, per subscriber, per month is 10 cents, and 6.5 cents for
volume discounts. SBCA, therefore, contends that the 27 cent benchmark
rate must be adjusted downward to between 17 and 21.5 cents. Id. at 23,
f.n. 53.
In reply, Copyright Owners assert that SBCA mischaracterizes the
transmission cost issue by suggesting that the major focus should be
the structural nature of such costs, rather than whether they would
result in any marketplace price adjustments. Copyright Owners Reply at
22. Copyright Owners cite Mr. Larry Gerbrandt's testimony that
transmission
[[Page 55750]]
costs do not yield different cable network license fees in the
marketplace, and note that Mr. Jerry Parker was unable to demonstrate
otherwise. Id. at 22-23.
c. Recommendation of the Register. The Panel discussed the issue of
transmission costs quite extensively, finding that the record was
devoid of credible evidence demonstrating that transmission costs of
satellite carriers affected the rates negotiated between satellite
carriers and cable networks. Panel Report at 45-46. The Panel expressly
found that SBCA's witness. Mr. Parker, could not offer evidence of such
an impact, and conceded that despite additional costs incurred by DBS
carriers, DBS operators were unable to negotiate lower rates on that
basis. Tr. 2528. The Panel grounded its determination in the record
evidence, which is the hallmark of rational decision making. National
Cable Television Ass'n. v. CRT, 724 F.2d 176 (D.C. Cir. 1983).
SBCA's discussion of transmission costs fails to focus on what
impact, if any, they would have on negotiated license fees, and instead
relates to which party should bear the cost. Costs can be shifted
between parties in a business relationship, and SBCA asserts that their
costs, when comparing delivery of broadcast signals with delivery of
cable networks, must be shifted to copyright owners to prevent a
windfall. However, costs can also be absorbed by a party as part and
parcel of doing business, and must be when one party cannot shift the
costs (or a portion thereof) to the other. Where there is no credible
evidence demonstrating a party's ability to shift a cost, no change in
the negotiated price should occur. The Panel found that to be the
situation with transmission costs, and the Register has no grounds on
which to reject that finding.
2. Adjustment to the Benchmark for Advertising Inserts
a. Action of the Panel. In addition to delivery costs, the Panel
considered the issue of advertising inserts very significant. Cable
networks typically grant MVPD's a certain number of time slots during
the programming provided--known as advertising inserts--for the MVPDs
to sell to advertisers. The monies raised from these inserts are
retained by the MVPD, and can defray the cost of the license fee for
the cable network approximately 8 cents per subscriber per month. Panel
Report at 43-44. The Panel found, however, that because section
119(a)(4) requires satellite carriers to retransmit the signals of
broadcast stations intact, they do not receive any advertising inserts
for the retransmission of broadcast signals. Id. at 44. The Panel
considered whether this should result in a downward adjustment of the
benchmark rate.
The Panel declined to make an adjustment:
[T]he satellite carriers naturally argue that because the
benchmark is based upon the rate paid by multichannel distributors
to cable networks, we must deduct $0.08 to obtain the `real cost' of
cable networks. The copyright owners counter that most satellite
carriers don't insert advertising into cable network signals anyway.
Indeed, HSD carriers don't possess the technology to insert
advertising. Moreover, multichannel distributors appear to pay the
same cable network license fee regardless of whether they insert
advertising.
If this last assertion is accurate, one would expect that in a
hypothetical free market negotiation, broadcasters would similarly
decline to reduce their license fees to satellite carriers for their
lack of advertising availabilities and no benchmark adjustment would
be appropriate. Both Ms. McLaughlin and Mr. Gerbrandt opined that,
based upon their knowledge and experience, neither the availability
of advertising inserts, nor the carriers [sic] ability to insert,
affects the prices that cable networks charge. They did not support
this opinion with any documentary evidence or empirical data.
However, the satellite carriers allowed this testimony to stand
essentially unrefuted. Indeed, Dr. Haring was explicitly invited to
render an opposing opinion but forthrightly declined. In the final
analysis, we accept the copyright owners' expert testimony and
decline to deduct $0.08 from the benchmark as advocated by the
satellite carriers.
Panel Report at 44-45 (citations omitted).
b. Arguments of the Parties. SBCA alleges that the Panel
``completely misconceived the adjustment necessary to reflect the value
for insertable advertising.'' SBCA Petition to Modify at 26. They note
that the arbitration panel in the 1992 rate adjustment made a downward
adjustment for advertising inserts. 57 FR 19058 (May 1, 1992). SBCA
asserts that the ``value of insertable advertising is significant,''
and that its value is ``no less than 7.5 cents'' per subscriber per
month. Id. at 27.
As a ``variation'' on the advertising insert issue, SBCA offers
that the increased national exposure of broadcast stations offered by
satellite retransmissions increases the amount of revenue that
copyright owners receive for the advertising slots that they retain.
Id. at 28. SBCA submits that the Panel should have further adjusted
downward for this value, and argues that it could not quantify the
value because the necessary information was in the possession of the
copyright owners who were not required to disclose it through the CARP
discovery rules.\11\
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\11\ SBCA alleges throughout its Petition to Modify that the
CARP discovery rules, and particularly the Panel's application of
the rule, precluded it from obtaining vital information from
copyright owners to support its case, which resulted in negative
inferences by the Panel as to the sufficiency of its presentation.
This argument is addressed, infra in subsection G.
---------------------------------------------------------------------------
In reply, Copyright Owners assert that the Panel fully considered
the arguments of SBCA, and correctly rejected any downward adjustments
for advertising inserts. Copyright Owners Reply at 23-24.
c. Recommendation of the Register. The Panel fully discussed what
effect, if any, advertising inserts might have on the negotiated fee
for retransmission of broadcast signals. Panel Report at 43-45. The
Panel cited the testimony of Ms. McLaughlin and Mr. Gerbrandt that
``based upon their knowledge and experience, neither the availability
of advertising inserts, nor the carriers ability [sic] to insert,
affects the prices that cable networks charge * * *. The satellite
carriers allowed this testimony to stand essentially unrefuted. Indeed,
Dr. Haring was explicitly invited to render an opposing opinion but
forthrightly declined.'' Id. at 44. SBCA did not offer any testimony
which incontrovertibly rebuts the testimony of Ms. McLaughlin and Mr.
Gerbrandt. Consequently, the Panel's determination that no adjustment
should be made is not arbitrary because it is grounded in the record.
D. Equality Between Superstation and Network Signal Rates
1. Action of the Panel
As discussed above, Congress established different royalty rates
for superstation and network signals when it created the section 119
license. The initial rate for superstations was 12 cents per subscriber
per month, and 3 cents per subscriber per month for network signals.
This 4 to 1 ratio reflected the payment of royalties under the section
111 license. Under section 111, only copyright owners of nonnetwork
programming are allowed to share in the royalty funds. Cable operators
pay full value for retransmitting independent broadcast stations (of
which superstations are a subset), and only one-quarter value for
retransmission of network signals. 17 U.S.C. 11(f). The one-quarter
value reflects Congress' determination in 1976 that approximately 25
percent of the programming on network signals is compensable nonnetwork
programming, while the remainder is not. Congress
[[Page 55751]]
carried over this 4 to 1 ratio in the 1988 Satellite Home Viewer Act
when it set the 12 cent and 3 cent rates in the statute.
The 1992 arbitration panel that adjusted the section 119 rates took
into account the 4 to 1 ratio, but found that the amount of network
programming on network stations had declined to approximately 50
percent, down from the 75 percent contemplated by section 111. That
panel, however, set the network station rate at 6 cents, which
represented roughly a 3 to 1 ratio to the superstation rate it set,
because it was concerned with disruption in the satellite industry of
carriage of network signals if it established a network signal rate at
half (a 2 to 1 ratio) that of the superstation rate. 57 FR 19052, 19060
(May 1, 1992). The Copyright Royalty Tribunal, in reviewing the panel's
decision on this matter, stated that:
The Tribunal believes that the Panel was not bound by either a
4:1 ratio or a 1:1 ratio. When the Tribunal issued its declaratory
ruling concerning network copyright owners, we did not intend to
prejudge any future ratesetting. We noted that in cable and
satellite, the pay-in may not necessarily correlate to the pay-out.
Therefore, a 1:1 ratio is not required. However, we do believe the
Panel had the authority to take our declaratory ruling into account,
so that it was entitled to adjust the 4:1 ratio downward to reflect
that network copyright owners are entitled to receive satellite
royalties.
Id. at 19052.
The Panel in this proceeding rejected the notion that it was
required to set different royalty rates for superstations and network
signals, respectively, because it was seeking the fair market value of
these signals. The Panel stated:
We find no credible evidence that retransmitted network stations
are worth less than retransmitted superstations. Indeed, even
assuming arguendo, we were to conclude that network programming is
worth less, or even wholly uncompensable, we find no record support
for any particular ratio--no evidence was adduced as to the present
day average proportion of network to non-network programming. And
imposition of the original 4 to 1 ratio by rote, merely to replicate
section 111 rates, would not be consistent with a fair market value
analysis.
Panel Report at 40.
2. Arguments of the Parties
SBCA challenges the Panel's refusal to apply the 4 to 1 ratio,
asserting that such ratio is binding precedent upon the Panel. SBCA
Petition to Modify at 38. SBCA contends that Congress determined, under
section 111, that network programming is not compensable, and carried
this rationale into the rate structure of section 119. The fact that
networks are allowed to share in the section 119 royalties, but not the
section 111 royalties, ``does not mean that the network signals are to
be paid for any differently under the satellite license than under the
cable license * * * '' Id. at 39. Furthermore, SBCA submits that
satellite carriers give added value to network signals by carrying them
to unserved households who would not otherwise receive such signals.
Id. at 41. SBCA contends that, if anything, there should be no fee for
network signals. Id. at 40.
Finally, SBCA argues that the Panel erred by creating a 27 cent
royalty rate applicable to PBS (defined under the statute as a network)
because ``PBS signals are free on the satellite by law.'' Id. at 41.
These signals, SBCA contends, cannot possibly have a market value, and
there should be no royalty fee for PBS signals. Id.
Copyright Owners contend that the Panel correctly rejected the 4 to
1 ratio because the new law requires a determination of fair market
value. Copyright Owners Reply at 32. Copyright Owners note that the
binding precedent referred to by SBCA was an interpretation of the 1988
Satellite Home Viewer Act, not the 1994 Act, and that nothing in the
1994 Act requires assignment of different rates for superstation and
network signals. Id. at 33-34.
With regard to SBCA's contention that retransmission of PBS signals
should not be compensated at the 27 cent level, Copyright Owners argue
that such a contention ``flies in the face of the fair market value
evidence,'' and that the PBS signal available for free on the satellite
is not the signal of the member stations that are at issue in this
proceeding. Id. at 35.
3. Recommendation of the Register
The Panel did not err by rejecting the 4 to 1 ratio and adopting a
network signal rate that was equal to the value of the superstation
rate. The Panel correctly observed that while the 1992 arbitration
panel generally followed the ratio set by Congress in the 1988 Act, the
1994 amendments changed any reliance upon a pre-set ratio by directing
the Panel to determine only the fair market value for network and
superstation signals. Panel Report at 40. There is not evidence in the
1994 Act, or its legislative history, that Congress intended the Panel
to set a rate for network signals that is one-fourth of that for
superstations (or any other ratio, for that matter) if that rate did
not represent the fair market value of network signals.
SBCA asserts that the 1994 amendments contemplate a CARP
establishing two rates--one for network signals, and another for
superstations--thereby inferring that Congress contemplated rate
differentiation (i.e. that one rate would be less than the other). Such
an inference is belied by language in the House Report, however, which
states that the rates set by the CARP in this proceeding ``should
reflect the fair market value of satellite carriers' secondary
transmissions of superstations and network stations.'' H.R. Rep. No.
703, 102d Cong., 2d Sess. 7 (1994). The statute does not require or
suggest that the rate for network signals, or superstations, be set at
anything less than fair market value.
There is no binding precedent that required the Panel to apply a
ratio in value between network signals and superstations, and set
network signal rates lower than superstation rates. The 1992
arbitration panel applied a different criterion (rates paid by cable
under section 111) to determine section 119 rates, and its decision
therefore does not serve as precedent for this proceeding. Furthermore,
even if the 1992 arbitration were binding precedent, the final order of
the Copyright Royalty Tribunal (which constituted the final agency
action in that proceeding) clearly stated that no differentiation
between network and superstation rates was required. 57 FR 19052 (May
1, 1992) (``The Tribunal believes the Panel was not bound by either a
4:1 ratio or a 1:1 ratio.''). The Panel, therefore, did not act
arbitrarily by rejecting application of the 4 to 1 ratio.
The Register has also examined the record to determine whether,
under a fair market value analysis and regardless of application of a
pre-set ratio, the evidence required a differentiation in network and
superstation rates. The Panel determined that there was ``no credible
evidence that retransmitted network stations are worth less than
retransmitted superstations.'' Panel Report at 40. It was wholly within
the Panel's discretion to arrive at such a determination. SBCA
presented evidence demonstrating that network viewer ratings have
declined, SBCA Proposed Findings of Fact and Conclusion of Law at 39,
but it did not offer evidence as to what impact such a decline had
relative to superstations, nor did it quantify the difference in value
between network signals and superstations under a fair market value
analysis, except to insist that all signals should be free. See SBCA
Reply Findings of Fact and Conclusions of Law at 7. The Panel,
consequently, did not act arbitrarily by adopting the same royalty rate
for both network signals and superstations.
[[Page 55752]]
Finally, SBCA argues that because the Panel failed to take account
of the fact that PBS signals are free on the satellite by law, it was
error to accord them the same royalty rate as other network
signals.\12\ Section 605(c) of the Communications Act, 47 U.S.C.,
prohibits encryption of programs included in the National Program
Service of the Public Broadcasting Service, essentially making the
National Program Service free to all satellite home dish owners. Member
stations of PBS, however, are not subject to 47 U.S.C. 605(c), and
satellite carriers may charge their subscribers for retransmission of
these stations. Furthermore, the National Program Service is not a
network signal as defined under section 119(d)(2). Member stations of
PBS are network signals under section 119(d)(2). Presumably, there are
PBS programs available on the National Program Service that are the
same programs available from PBS stations, although no such evidence
was adduced in this proceeding. There are also likely to be different
programs, particularly those produced by member stations. SBCA did not
quantify by how much, under a fair market value analysis, the same
programs on the National Program Service and PBS stations should reduce
the royalty fee for PBS stations, beyond a blanket assertion that all
PBS stations should be free. SBCA Reply Findings of Fact and
Conclusions of Law at 68-69. The Panel concluded that there was ``no
credible evidence'' warranting a conclusion that network signals were
worth less, which would include PBS stations. The Register cannot find
credible evidence to the contrary, and therefore the Panel's
determination must be affirmed.
---------------------------------------------------------------------------
\12\ PBS signals are defined as network stations under section
119(d)(2).
---------------------------------------------------------------------------
E. Local Retransmission of Network Signals
1. Action of the Panel
In setting the satellite carrier compulsory license royalty rates
for networks and superstations, the Panel was asked to distinguish
between satellite retransmission of ``distant'' broadcast signals, and
satellite retransmissions of ``local'' broadcast signals. The Panel did
make this distinction, setting a royalty rate of 27 cents for distant
retransmission of superstations, and zero cents for local
retransmission of superstations. Panel Report at 54.
While the Panel adopted a 27 cent rate for retransmission of
distant network signals, id., it declined to adopt a rate for local
retransmission of network signals because it determined that it lacked
subject matter jurisdiction to do so. Id. at 48. The Panel considered
section 119(a)(2)(B), which provides that the satellite compulsory
license is ``limited to secondary transmissions to persons who reside
in unserved households,'' and examined the section 119(d)(10)
definition of an unserved household. The Panel concluded that:
[N]etwork signals generally may not retransmitted to the local
coverage area of local network signals. The separate rate request of
ASkyB is explicitly intended to apply to retransmission of network
signals to served households. Section 119 does not provide a
compulsory license for these retransmissions. Hence, we lack subject
matter jurisdiction to set a rate for local retransmissions of local
network signals.
Panel Report at 48 (emphasis in original).
The Panel did acknowledge in a footnote that there may be ``rare
instances'' where a household located within the local market of a
network signal was, indeed, an unserved household within the meaning of
section 119(d)(10). Id. at 48, f.n. 62. The Panel stated that ``[t]hese
households qualify as unserved but, under section 119, ASkyB would pay
the conventional `rate for non-local signals.' '' Id.
2. Arguments of the Parties
EchoStar contends that the Panel committed reversible error in
determining that it has no jurisdiction to set a royalty rate for local
retransmission of network signals, and that the rate should be zero.
EchoStar Petition to Modify at 1. According to EchoStar, the language
of section 119 regarding the permissibility of local retransmission of
network signals is nuclear, and the Panel should therefore have
consulted the legislative history, rather than decide the matter on the
basis of the statutory language. Id. at 7-8. EchoStar submits that the
Congressional intent behind the unserved household restriction of
section 119(a)(2)(B) was to protect the network-affiliate relationship
from importation of distant signals of the same network, citing the
recent Copyright Office Report on revision of the cable and satellite
carrier compulsory licenses. Id. at 4. Because local retransmissions do
not harm the network-affiliate relationship, EchoStar asserts that
``[i]n light of the intent behind the compulsory license, therefore,
the `unserved household' limitation should be read as not precluding
such local-into-local retransmissions--a form of retransmission which
required technologies not in existence at the time of the
legislation.'' Id. at 5.
In addition, EchoStar submits that the Panel should have
interpreted section 119 flexibly enough to allow local retransmission
of network signals, citing Sony Corp. of America v. Universal City
Studios, Inc., 464 U.S. 417 (1984) and Twentieth Century Music Corp. v.
Aiken, 422 U.S. 151 (1975). Id. at 10. Finally, EchoStar argues that,
since the section 119 license was modeled after the section 111
license, and local retransmission of network signals is permitted under
section 111, the two statutes should be interpreted similarly. Id. at
11 (citing Northcross v. Board of Education, 412 U.S. 427 (1973).
Commercial Networks seek a clarification of the Panel's ruling on
local retransmission of network signals, albeit from a completely
different perspective. Commercial Networks request the Librarian to
make clear that where local retransmission of a network signal does not
violate the unserved household restriction (a circumstance acknowledged
by the Panel likely to be rare), the rate for such retransmission is 27
cents per subscriber per month. Commercial Networks Petition to Modify
at 1.
In reply, EchoStar opposes Commercial Networks position, and argues
that the same rationale that the Panel used in adopting the zero rate
for superstations applies with equal force to network stations that are
locally retransmitted to unserved households. EchoStar Reply at 2.
Certain Copyright Owners object to EchoStar's position, and contend
that EchoStar does not have standing under the rules to file a petition
to modify the Librarian's decision when it was not an active party in
this proceeding. Certain Copyright Owners Reply at 1. Certain Copyright
Owners contend that the Panel correctly interpreted section 119 as
preventing retransmission of local network signals to served
households, and that the legislative history does not warrant a
different conclusion. Id. at 3-6.
3. Recommendation of the Register
Two separate issues are presented by the local retransmission of
network signals. First, there is the retransmission of a network
station within that station's local market. The Panel categorized this
as local retransmission to served households, and concluded that
section 119 did not permit such retransmissions. Second, there is
retransmission of a network station within that station's local market
to subscribers who satisfy the definition of an ``unserved household''
in section
[[Page 55753]]
119(d)(10). The Panel acknowledged that such retransmissions were
permissible under section 119, though likely to occur in ``rare
instances,'' but was unclear as to what the proper royalty rate should
be.
Local retransmission of network signals to served households
presents a challenging issue. The Copyright Office declined to issue a
declaratory ruling that such retransmissions are permissible, though it
did not preclude addressing such a matter through a rulemaking
procedure. Letter of the Acting General Counsel to William Reyner,
August 15, 1996. Moreover, the Office has, in its recent report to the
Senate on revision of the satellite and cable compulsory licenses,
expressly endorsed the permissibility of such retransmissions, and
requested Congress to ``clarify'' the statute on the matter. ``A Review
of the Copyright Licensing Regimes Covering Retransmission of Broadcast
Signals,'' Report of the Register of Copyrights at xx (1997)
(hereinafter ``Register's Report''). As the agency responsible for
administering the Copyright Act, the Office believes that it retains
the authority to conduct a rulemaking proceeding to determine the
permissibility of local retransmission of network signals to served
households, regardless of the Panel's determination in this proceeding.
Nevertheless, the Register must determine whether the Panel's
decision that such retransmissions are not permitted under section 119
is contrary to the provisions of the Copying Act.\13\ The Register
reviewed the language of section 119, and its legislative history, both
in the context of this proceeding, and in her report to the Senate.
Such review confirmed the Register's belief that Congress simply did
not consider the issue of local retransmission of network signals to
served households at the time of passage of section 119, principally
because the technology to make such local retransmission did not
commercially exist. It is evident from the history surrounding adoption
of the unserved household restriction in 1998 that adoption of the
restriction was motivated by concerns expressed by network affiliate
stations that importation of distant network stations affiliated with
the same network would erode their over-the-air viewership. Register's
Report at 103-104. This suggests that if Congress had considered the
issue, it might have condoned local retransmissions to served
households. On the other hand, the section 119(d)(10)(A) portion of the
definition of an ``unserved household'' does not specify receipt of
what network signal over-the-air triggers the prohibition in making
retransmissions of network signals. The language of section
119(d)(10)(A) could easily be read to prohibit retransmission by
satellite whenever the subscriber receives an over-the-air signal of
Grade B intensity from any network affiliate, including the local
network affiliate that the satellite carrier intends to retransmit to
the subscriber. This is the position that the Panel took.
---------------------------------------------------------------------------
\13\ Because the Panel's decision on this point is a conclusion
of law, the arbitrary standard is not applicable.
---------------------------------------------------------------------------
In sum, the Register determines that the law is silent on this
issue. Consequently, the Register cannot unequivocally say that the
Panel's decision is arbitrary or contrary to law.
The second issue is the local retransmission of network signals to
unserved households. The Panel appears to have presumed that such
retransmissions are permissible. Panel Report at 48. The Register
determines that they are permissible, as provided by the express terms
of section 119. The Panel failed to articulate what royalty rate would
be applicable to such local retransmissions. It mentioned, in a
footnote, that the number of unserved households within a network
station's local market were likely to be few, and cited the testimony
of ASkyB's witness, Preston Padden, that ASkyB would, in those
instances, ``pay the conventional `rate for non-local signals.' '' Id.
at 48, f.n. 62 (quoting written direct testimony of Mr. Padden). The
Panel did not expressly state what the rate should be for all carriers
making local retransmissions of network signals to unserved households.
Commerical Networks urge that the rate for such retransmissions
should be 27 cents. EchoStar \14\ argues that the rate should be zero,
consistent with the Panel's adopted rate for local retransmissions of
superstations. To the extent that the Panel sought to impose the 27
cent rate on local retransmissions of network signals to unserved
households, the Register determines that such action is arbitrary. The
Register cannot find testimony in the record that supports the
conclusion that local retransimssion of network signals to unserved
households has a fair market value rate of 27 cents, particularly where
the Panel determined that the fair market value of local
retransmissions of superstations was zero. Panel Report at 52.
Likewise, the record does not support a conclusion that there is any
differentiation between the fair market value of local retransimssions
of network signals vis-a-vis superstations. Commercial Networks do not
cite any testimony to the contrary in their petition to modify.
---------------------------------------------------------------------------
\14\ The Register agrees with Copyright Owners that EchoStar
lacks standing to file a petition to modify the Panel's
determination, and recommends dismissal of the petition. Section
251.55(a) of the rules, 37 CFR provides that only parties to the
proceeding may file petitions to modify, and makes no provision for
nonparties. EchoStar, though a member of, and represented by SBCA,
was not a party to this proceeding because it did not file a Notice
of Intent to Participate as required by the rules. See 37 CFR
251.45(a).
Dismissal of EchoStar's petition, however, does not preclude
consideration of the issues surrounding local retransmissions of
network signals, and the Register has considered these as required
by section 802(g).
---------------------------------------------------------------------------
To the extent that the Panel failed to adopt a rate for local
retransmissions of network signals to unserved households, the Register
determines that such action is inconsistent with its task in this
proceeding, and recommends that the Librarian substitute his own
determination. 17 U.S.C. 802(g). The dearth of testimony on this issue
and, for that matter, the Panel's cursory discussion of it, is not
surprising because local retransmission of network signals to unserved
households, and served households as well, is undoubtedly an
unattractive business proposition to satellite carriers. Nevertheless,
the issue was before the CARP, and requires a resolution.
The Register recommends that the Librarian adopt a zero rate for
local retransmissions of network signals to unserved households because
the Register is persuaded that the Panel's conclusions with respect to
local retransmissions of superstations are equally applicable to local
retransmissions of network signals to unserved households. Panel Report
at 52-53. As noted above, there is no conclusive evidence to suggest
that locally retransmitted network signals are of greater fair market
value than locally retransmitted superstations. Accordingly, the
Register recommends adoption of a zero rate for local retransmission of
network signals to unserved households.
F. Effective Date of the New Rates
1. Action of the Panel
In announcing the royalty rate of 27 cents for distant
retransmission of network and superstation signals, and zero cents for
local retransmission of superstations, the Panel stated that the time
period for payment of the rates would be from July 1, 1997, through
December 31, 1999. Panel Report at 54.
2. Arguments of the Parties
SBCA contends that the Panel acted contrary to law by setting an
effective
[[Page 55754]]
date of July 1, 1997, for the new rates. SBCA states that the Panel did
not have any authority to set an effective date because section
119(c)(3)(C) states that the rates become effective as set forth in the
Librarian's order. SBCA Petition to Modify at 46. Further, SBCA argues
that the effective date of the new rates must be prospective only. Id.
at 47. It notes that section 119 contemplates prospective application
by discussing the rates ``to be paid.'' Id. at 48-49 (citing section
119(c)(3)(A) and the 1988 House Report to the Satellite Home Viewer
Act). SBCA argues that the caselaw prevents retroactive application of
agency rulemaking unless the enabling statute expressly states
otherwise, and submits that the Librarian's order in this proceeding
effectively constitutes a rulemaking because the Copyright Office's
rules are being amended to reflect the new rates. Id. at 50-51.
Additionally, SBCA argues that applying the July 1, 1997, effective
date would cause substantial harm to the satellite industry. Id. at 55.
SBCA submits affidavits of representatives of the satellite industry
discussing their inability to adequately inform their subscribers on a
timely basis of the rate increase, and the difficulty of adjusting
distribution contracts to accommodate fee increases. Id. at attachment
A.
Finally, SBCA takes the Librarian to task for not complying
precisely with the procedural schedule established in the statute for
this proceeding. Specifically, SBCA contests the Library's decision to
temporarily suspend the schedule to address issues raised by ASkyB, so
that the CARP was initiated on March 3, 1997, as opposed to January 1,
1997, as contemplated in section 119(c)(3)(A). SBCA argues that because
the Library violated the time requirement of section 119(c)(3)(A), and
such delay caused substantial harm to satellite carriers, ``the Panel's
report should be invalidated on due process grounds, particularly with
respect to the prejudicial effective date directly resulting from the
Librarian's failure to comply with a critically important statutory
requirement.'' Id. at 55 (citing Baumgardner v. Secretary, Dept. of
Housing and Urban Development, 960 F.2d 572 (6th Cir. 1992).
Copyright Owners assert that they have interpreted section 119 from
the beginning of this proceeding as requiring an effective date of July
1, 1997, for the new rates, and that SBCA never challenged that
position until now, thereby estopping SBCA from raising the issue.
Copyright Owners Reply at 42-43. Copyright Owners also argue that the
Librarian's good cause delay in commencing this proceeding does not
invalidate it, and that the cases cited by SBCA are inapposite. Id. at
44-45. Copyright Owners also attach an accompanying motion to strike
the affidavits offered by SBCA to corroborate its argument that the
July 1 effective date will cause undue hardship on satellite carriers.
SBCA opposes this motion.
3. Recommendation of the Register
Section 119(c)(3)(C) provides that:
The obligation to pay the royalty fee established under a
determination which--
(i) is made by a copyright arbitration royalty panel in an
arbitration proceeding under this paragraph and is adopted by the
Librarian of Congress under section 802(f), or
(ii) is established by the Librarian of Congress under section
802(f) shall become effective as provided in section 802(g) or July
1, 1997, whichever is later. 17 U.S.C. 119(c)(3)(C). Clause (i) of
section 119(c)(3)(C) described the situation where the Librarian
adopts the decision of the CARP, while clause (ii) describes the
situation where the Librarian has rejected the CARP's decision and
substituted his own determination.\15\ The effective date of the
established rates is either July 1, 1997, or the date set pursuant
to section 802(g), whichever date is later.
\15\ Interestingly, the statute does not address the situation,
as in this proceeding, where the Panel's decision is accepted in
part and rejected in part. Subclause (ii) most likely applies to
this proceeding because the Librarian has established one of the
royalty rates (the rate for local retransmission of network signals
to unserved households).
Section 802(g) governs judicial review of the Librarian's decision
in this proceeding. The section gives ``any aggrieved party who would
be bound by the [Librarian's] determination,'' 30 days in which to
notice an appeal with the United States Court of Appeals for the
District of Columbia Circuit. The section then provides that ``[i]f no
appeal is brought within such 30-day period, the decision of the
Librarian is final, and the royalty fee * * * shall take effect as set
forth in the decision.'' (emphasis added). Section 802(g) then provides
that if an appeal is taken, ``[t]he pendency of an appeal under this
paragraph shall not relieve persons obligated to make royalty payments
under section ( ) * * * 119 * * *'' Nothing else is said in section
802(g) with regard to the possible effective date of royalty rates.
SBCA and Copyright Owners strongly disagree over the effective
dates of the royalty rates established in this proceeding. SBCA
believes that the effective date can be no sooner than 30 days after
the Librarian's decision (i.e. November 26, 1997) at which time it will
be known whether or not the Librarian's decision is final, while the
Copyright Owners maintain that July 1, 1997, is the proper effective
date. The Register has examined the governing language of sections
119(c)(3)(C) and 802(f), and notes an incongruity with respect to the
July 1, 1997, date.
Section 119(c)(3)(A) provides that this proceeding was supposed to
have started on January 1, 1997. Given the 180-day arbitration period,
as provided by section 802(e), the latest the Panel could have
delivered its report would have been June 29, 1997. The Librarian would
then have the 60-day review period in which to either accept or reject
the Panel's decision, which would place the date of final agency action
at no later than August 28, 1997. This is almost two months after July
1, 1997. While Congress could have contemplated the Librarian
completing his review in less than 60 days, it is hard to imagine that
Congress could have expected him to complete it in just one day: the
time period from delivery of the Panel's report on June 29 to the
issuance of the Librarian's decision on July 1, 1997. The more likely
explanation is that Congress envisioned the CARP delivering its report
well before--at least two months--the 180-day deadline. Only in this
manner could the Librarian have issued a decision that was before July
1, 1997, thereby justifying inclusion of the language ``July 1, 1997,''
and ``whichever date is later'' in section 119(c)(3)(C).
Contrary to the assertions of the Copyright Owners, July 1, 1997,
is not the statutorily prescribed effective date for the new royalty
rates announced in today's decision. July 1, 1997, is only a
contingency date in the event that this proceeding had ended before
July 1, 1997, which it clearly did not. Rather, the Register must look
to section 802(g), which provides that the effective date of the new
rates is ``as set forth in the decision.'' 17 U.S.C. 802(g). The
Register interprets ``decision'' to mean the decision of the Librarian,
and not the decision of the CARP, since section 802(g) only refers to
the decision of the Librarian. Consequently, the Register concludes
that only the Librarian of Congress has the authority to set the
effective dates of the royalty rates in this proceeding, and it was
contrary to law for the Panel to announce an effective date. See Panel
Report at 54. The Register recommends that the Librarian reject the
Panel's determination of an effective date.
The remaining issue is, if the Panel had no authority to set the
effective date, what is the correct effective date for the Librarian to
establish? Neither the statute, nor the legislative history, offers any
guidance on this point.
[[Page 55755]]
Copyright Owners urge the July 1, 1997 date, and submit that SBCA is
estopped from arguing for a later date since SBCA did not object to
Copyright Owners' request to the Panel for a July 1, 1997, effective
date. Copyright Owners Reply at 43-44. The Register recommends
rejecting Copyright Owners' estoppel argument because the Panel did not
have authority to set the effective date, and the matter is now being
properly raised before the Librarian for the first time.
Copyright Owners also contend that July 1, 1997, must be the date
because the evidence it presented to the Panel, particularly the PBS/
McLaughlin testimony, was premised on a July 1, 1997, date. Id. at 42.
According to Copyright Owners, if the Librarian adopts an effective
date of January 1, 1998, he would have to increase the 27 cent fee to
reflect the Panel's understanding of a thirty-month effective period
for the new rates. Id. at 42-43.
The Register recommends rejection of Copyright Owner's contention
for two reasons. First, the Panel accepts Ms. McLaughlin's testimony as
a general matter to establish a workable benchmark. Panel Report at 31.
The Panel did not accept her testimony, and its accompanying premises
and assumptions, as the precise analysis of what the royalty rates
should be. Id. Furthermore, although the Panel stated that ``Ms.
McLaughlin's analysis yielded a rate of $0.27 per subscriber per month
averaged over the three year statutory period,'' Panel Report at 30, a
July 1 effective date accounts for only half of the year, and Ms.
McLaughlin did not so limit her testimony. PBS Proposed Findings of
Fact and Conclusions of Law at 18-19.\16\
---------------------------------------------------------------------------
\16\ Ms. McLaughlin's testimony was based upon her projection of
what the average cable network license fees would be for 1997 (26
cents), 1998 (27 cents) and 1999 (28 cents), not the actual figures.
Id. at 19.
---------------------------------------------------------------------------
In the Register's view, an effective date later than July 1, 1997,
does not significantly undermine the Panel's use of the 27 cent
benchmark generally, or its later decision to adopt that figure
specifically, nor does a later effective date require an upward
adjustment.
The second, and most significant, reason for not setting the
effective date at July 1, 1997, involves the issue of retroactive
rulemaking. Although the Librarian's decision today involves review of
the Panel's determination, it is also a final rule with respect to
setting the rates. The Copyright Office has previously determined that
it lacks the authority to engage in retroactive rulemaking. 54 FR 14217
(1989). The United States Court of Appeals for the District of Columbia
Circuit, the only court with jurisdiction to consider an appeal of
today's decision, has expressly held that the Copyright Act does not
confer retroactive rulemaking authority. Motion Picture Ass'n of
America, Inc. v. Oman, 696 F.2d 1154, 1156 (D.C. Cir. 1992). The
Register does not believe that the Librarian has the authority to set
an effective date for the new royalty rates which is prior to the
issuance of today's decision.
Given this limitation, the issue still remains regarding the proper
effective date. Copyright owners obviously desire an effective date as
soon as possible, so that they may reap the benefits of the higher
rates. There are, however, significant administrative considerations
surrounding implementation of the new rates. Satellite royalty rates
are calculated on a monthly basis, so that an effective date other than
the first day of a month will require application of two sets of
royalty rates (the old rates and the new rates) to one monthly
calculation. The Register finds this not only burdensome to satellite
carriers calculating the rates, but to the Copyright Office as well in
administering the section 119 license and examining the statement of
account. The Register, therefore, counsels against adopting an
effective date that is other than the first day of a month.
Also, there are significant costs to the Copyright Office
associated with implementing the new rates. New statement of account
forms must be created and sent to satellite carriers, and staff must be
trained to examine for application of the new rates. The Register notes
that satellite statements of account for the second accounting period
of 1997 are due to be filed no later than January 30, 1998. 27 CFR
201.11(c). An effective date in the second accounting period of 1997
would cause significant burden and hardship to the Copyright Office to
prepare to collect royalties and issue and process statements of
account generated by the new royalty fees by the January 30, 1998, due
date. Consequently, the Register recommends that the new royalty rates,
adopted in today's decision, not be effective until January 1, 1998.
In recommending a January 1, 1998, effective date, the Register
draws support from section 119(c)(3)(C). As discussed above, Congress
apparently contemplated the possibility of the issuance of a final
decision in this proceeding before (perhaps even well before) July 1,
1997. Congress could have chosen simply to make the decision effective
on the date of adoption, but instead chose July 1, 1997, as the later
effective date. July 1 is the first day of an accounting period which,
has the final decision issued on or before that date, would have
allowed the Copyright Office ample time to prepare for implementation
of the new rates. Because today's decision is issuing only two months
from the end of the 1997/2 accounting period, a January 1, 1998,
effective date is consistent with Congressional intent.
The parties have raised two other issues, discussed above, which
the Register briefly addresses. First, SBCA alleges that because
initiation of the CARP was delayed 2 months to enable the Librarian to
rule on the matter of whether local retransmissions should be a part of
this proceeding, the entire proceeding is invalid. The Register agrees
with Copyright Owners that the cases cited by SBCA for this rather
remarkable contention are inapposite. United States v. Amdahl Corp.,
786 F.2d 387 (Fed. Cir. 1986) involved a contract entered into by the
Treasury Department that was statutorily outside the scope of its
authority. Contracting outside the scope of authority differs
significantly from postponing procedural dates for good cause. Albenga
v. Ward, 635 F. Supp. 660 (S.D.N.Y. 1986) involved an agency that
created rules beyond its authority. Again, this is significantly
different. Finally, Baumgardner v. Secretary, Dept. of Housing and
Urban Development, 960 F.2d 572 (6th Cir. 1992) involved the failure of
an agency to timely deliver an accurate complaint. As SBCA notes, the
court in this case did not find the agency action invalidated because
the delay was not sufficiently prejudicial. The Register cannot find
any convincing evidence of irreparable prejudice incurred by SBCA as a
result of the brief delay, particularly where the Register is
recommending a January 1, 1998, effective date.
Furthermore, the Register notes that the same claim of invalidity
has been raised in a Copyright Royalty Tribunal proceeding, and
expressly rejected by the D.C. Circuit. The Court stated: ``It would be
irrational and wholly unprecedented for a court to direct an agency to
scrap a year's hearings and decisionmaking effort and start over
because its proceeding did not conclude precisely on time.'' National
Cable Television Ass'n, Inc. v. CRT, 724 F.2d 176, 189 n. 23 (D.C. Cir.
1983). The Register agrees with this view, and recommends rejection of
SBCA's argument.
Second, in support of its position that satellite carriers would be
unduly harmed by a July 1, 1997, effective date, SBCA submitted
affidavits of satellite
[[Page 55756]]
representatives. Copyright Owners moved to strike these affidavits, and
SBCA opposed. The Register's recommendation of a January 1, 1998,
effective date has mooted the issue. The Register does recommend,
however, that the affidavits be stricken. The record is closed in this
proceeding by order of August 14, 1997, section 251.55 does not permit
submission of additional evidence. Although the matter of the effective
date is for the Librarian, and not the CARP, to decide, such affidavits
could only be accepted if the Librarian determined that the record
needed to be reopened to take additional testimony. Since the matters
discussed in SBCA's affidavits are moot, the Register recommends that
they be stricken.
G. Additional Issues Raised by SBCA
SBCA raises several additional issues in its Petition to Modify.
Because these issues all relate to evidence not adduced during the
course of the proceeding, and the weight to be accorded evidence that
was adduced, they are addressed together.
1. The first issue involves the history of retransmission consent
negotiations under the communications law. Under retransmission
consent, an MVPD must obtain the permission of a broadcaster before the
MVPD can retransmit the broadcaster's signal to the MVPD's subscribers.
Retransmission consent negotiations took place between the cable
industry and broadcasters in 1993 and 1996. SBCA attempted to show that
little compensation was obtained by broadcasters for permission to
retransmit their signals in an effort to prove that the fees under the
section 111 license represent actual fair market value. The Panel
stated that ``[w]e agree that these retransmission consent negotiations
are relevant to a determination of fair market value and represent
potentially probative evidence. Unfortunately, the evidence adduced is
so vague and replete with qualifiers as to provide little guidance.''
Panel Report at 34. The Panel noted cross-examination testimony of Ms.
McLaughlin and Mr. Gerbrandt indicating that some compensation was
paid, but also noted that Mr. Shooshan's and Mr. Haring's testimony
discussed retransmission consent negotiations only in the context of
local, and not distant, retransmissions. Id. at 35. The Panel concluded
that the ``testimony upon which SBCA relies lacks sufficient scope and
specificity to rebut or modify the PBS-McLaughlin analysis.'' Id.
SBCA submits that it could not present further evidence on the
compensation received by copyright owners and broadcasters for
retransmission consent negotiations because ``discovery procedures do
not allow the Carriers to determine those amounts.'' SBCA Petition to
Modify at 35. SBCA asserts that the failure to present such information
``should not be then turned against the Carriers to say that the
retransmission consent negotiations cannot be properly quantified.''
Id.
Copyright Owners contend that the Panel correctly evaluated the
evidence of retransmission consent negotiations and found it unavailing
in making an adjustment to the benchmark. Copyright Owners Reply at 27-
31.
2. The second issue involves the issue of the costs incurred by
cable networks in assembling the clearances for their programming. SBCA
attempted to show at hearing that copyright owners do not have costs in
the broadcast signal retransmission context, and therefore an
appropriate downward adjustment of the benchmark must be made. The
Panel stated that the clearance costs in the cable network arena are
unknown, but did not agree that a downward adjustment of the benchmark
was required:
In a hypothetical free market, it is quite conceivable that the
higher the costs broadcasters must pay to clear their signals for
DTH\17\ distribution, the higher the royalty rates they would charge
satellite carriers. Accordingly, the impact of high clearance costs
on fair market value (based upon a hypothetical free market
analysis) could be positive rather than negative. No adjustment to
the cable network benchmark is required.
\17\ ``DTH'' stands for ``direct to home.''
---------------------------------------------------------------------------
Panel Report at 41.
SBCA argues that it could not determine the costs to copyright
owners for clearances of cable networks since such information was not
within the scope of discovery, and therefore one should not assume, as
the Panel did, that such costs could automatically be shifted to
satellite carriers. SBCA Petition to Modify at 30.
Likewise, SBCA argues that it could not quantify at hearing the
added benefit that satellite retransmission gives copyrighted
programming (digital picture quality, inclusion in electronic guides)
because of ``the absence of any ability to take discovery.'' Id. at 31-
32. The Panel determined that ``no quantifiable benefit was identified
and no evidence adduced'' to demonstrate added value by satellite
retransmission.'' Panel Report at 40. SBCA asserts that ``the Panel
held the Carriers to an unworkable standard of proof.'' SBCA Petition
to Modify at 32.
In reply, Copyright Owners contend that the Panel acted correctly.
Copyright Owners Reply at 24-27.
3. A third issue involves quantifying the effect on advertising
revenues and superstation fees of satellite retransmissions of
broadcast signals. SBCA asserts that they quantified ``as well as could
be in a regime which denies discovery'' that advertising revenues are
higher because copyright owners known that their programming reaches a
wider audience due to satellite retransmission. SBCA Petition to Modify
at 36. Likewise, SBCA asserts that ``superstation taxes''--the amounts
charged to broadcasters by copyright owners--are greater, particularly
in the sports context, because copyright owners know that satellite
retransmissions result in greater viewership. Id. at 37-38. SBCA
presented evidence that both the professional baseball and basketball
leagues extracted additional compensation from WGN in Chicago and WTBS
in Atlanta--both superstations known to be widely distributed on
satellite--though the amount was not quantified. SBCA Proposed Findings
of Fact and Conclusions of Law at 72-73.
The Panel addressed the potential for increased advertising revenue
due to satellite retransmissions, stating:
The fundamental mission of broadcasters is to expand their
audiences to maximize advertising revenues. At their own expense and
risk, the satellite carriers developed a DTH market which expands
the broadcasters [sic] reach at no cost to the broadcasters.
However, we agree that no empirical evidence demonstrating an
increase in advertising revenues was adduced. Though the
broadcasters (and hence the copyright owners) clearly benefit from
expanded reach, these benefits may not be amenable to measurement
and quantification. The copyright owners further argue that because
most basic cable networks also advertise, to the extent that
broadcasters to benefit from expanded reach, the benefit is already
reflected in the cable network benchmark. We agree to a point.
Broadcast stations rely upon advertising revenue to a much greater
extent than do cable networks (excepting those cable networks which
command very low or even negative royalty fees). It naturally
follows that the benefits which accrue to broadcasters have not been
fully reflected in the cable network benchmark price. Though some
downward adjustment from the copyright owners general approach seems
appropriate, we are unable to quantify such an adjustment. However,
our decision to adopt the most conservative approach (PBS-
McLaughlin) reflects this consideration.
Panel Report at 36-37. The Panel did not use the term ``superstation
tax'' in its discussion.
[[Page 55757]]
SBCA complains that the Panel ignored its evidence of increased
revenues from satellite retransmissions, and that it is ``no excuse
that the [o]wners refused to divulge the extent of the compensation.''
SBCA Petition to Modify at 38. SBCA asserts that not subtracting this
added value from the benchmark would result in ``vastly
overcompensat[ing]'' copyright owners. Id.
In reply, Copyright Owners assert that the Panel correctly
determined that, while such revenues might conceptually result in a
downward adjustment, SBCA failed to quantify such an adjustment.
Copyright Owners Reply at 31.
4. The fourth issue concerns the impact of increased royalty fees
on the satellite industry and the continued availability of
retransmitted broadcast signals. The Panel accepted Ms. McLaughlin's
testimony that the 27 cent fee would not significantly adversely impact
satellite:
Although Ms McLaughlin did not perform a demand elasticity
study, she testified that after the 1992 rate increases, the number
of broadcast stations retransmitted and the percentage of satellite
subscribers to retransmitted broadcast signals remained constant.
She concluded that despite an increase in the compulsory license
rate to $0.27 per subscriber per month, the number of subscribers to
retransmitted broadcast stations would continue to grow at
substantially the same rate as the number of satellite subscribers
generally. Ms. McLaughlin also examined the retail prices charged by
satellite distributors and concluded that if the rates for
retransmitted broadcast signals were increased to $0.27 per
subscriber per month and not passed on to subscribers, those rates
would constitute only 30% of the average retail prices charged to
subscribers leaving sufficient profit margin for the satellite
carriers to avoid significant adverse impact to them or their
subscribers.
Again, we recognize that any rate increase, particularly if
rates are set above those paid by their entrenched competitor, tends
to adversely impact the satellite carriers. However, the satellite
carriers did not attempt to quantify the impact of increased rates
and adduced no credible evidence that the availability of secondary
transmissions would be interrupted. Accordingly, we conclude that a
rate increase to $0.27 per subscriber per month would have no
significant adverse impact upon the satellite carriers or the
availability of secondary transmissions to the public.
Panel Report at 46-47 (citations omitted).
SBCA contends that the Panel had no evidence upon which to base its
conclusion that a dramatic rate increase would not adversely affect
satellite carriers and their subscribers. SBCA Petition to Modify at
42. Rather, SBCA asserts, the evidence, including that relied upon by
Ms. McLaughlin, ``shows that satellite carriers have yet to earn a
profit, especially in the DBS market, and that the C-Band market is
waning.'' Id. SBCA notes that Ms. McLaughlin did not perform a demand
elasticity analysis for increased rates, and that her testimony that
the 1992 rate increase did not impact subscriptions or the number of
signals carried was not based upon anything in the record. Id. at 42-
43. SBCA also mentions that the 1992 panel reduced its initial rate
increase because of a concern for disruptive impact. 57 FR 19061.
SBCA also charges that the Panel ignored its evidence regarding the
disruptive impact of a rate increase. It points to the testimony of Mr.
Parker who stated that there is a limit on the package rate to be
charged consumers, and that satellite carriers have traditionally gone
back to cable networks to demand concessions in order to keep prices
down. SBCA Petition to Modify at 44. SBCA argues that any increases in
the rates should be examined in light of the impact lower fees would
have on copyright owners. According to SBCA, there is no evidence that
suggests that the current fees of section 119 have any adverse impact
on the copyright and broadcast industries. Id. at 45.\18\
---------------------------------------------------------------------------
\18\ Regarding the economic impact of royalty fees on copyright
owners, the Panel stated that ``[t]he parties devoted little hearing
time to this issue.'' Panel Report at 46. The Panel did ``accept the
obvious, general notion that higher royalty rates provide greater
incentive to copyright owners while lower rates would render
broadcast stations a ` * * * less attractive vehicle at the margin
for program supplies.' '' Id. (citation omitted).
---------------------------------------------------------------------------
In reply, Copyright Owners assert that it was completely within the
discretion of the Panel to accord weight to Ms. McLaughlin's testimony
that satellite carriers would not be adversely impacted by the
increased royalty rates. Copyright Owners Reply at 36. Copyright Owners
argue that Mr. Parker's testimony is nonspecific, and that the
testimony of Mr. Edwin Desser and Mr. James Trautman show that
satellite carriers are owned by large corporate enterprises that can
well afford the proposed rate increase. Id. at 39-40.
Recommendation of the Register
The Register is addressing these four arguments presented by SBCA
together because they contain a common thread: the absence of evidence
adduced before the Panel and, where evidence was produced, the weight
and sufficiency to be accorded it.
Given the limited scope of the Librarian's review in this
proceeding, ``the Librarian will not second guess a CARP's balance and
consideration of the evidence, unless its decision runs completely
counter to the evidence presented to it.'' 61 FR 55663 (Oct. 28, 1996)
(citing Motor Vehicle Manufacturers Ass'n v. State Farm Mutual Auto
Insurance Co., 463 U.S. 29, 43 (1983). In the case of the impact of a
rate increase on the satellite industry, the Panel chose to accord
weight to Ms. McLaughlin's testimony that her proposed rate increase
would not adversely affect the satellite industry, rather than Mr.
Parker's testimony. It was clearly within the Panel's discretion to do
so. There is record testimony that supports the Panel's conclusion, and
the Librarian's review need go no further. Recording Industry Ass'n of
America, Inc. v. CRT, 662 F.2d 1, 14 (D.C. Cir. 1981) (decision must be
upheld where decisionmaker's path may reasonably be discerned).
The remaining issues contested by SBCA--the impact of
retransmission consent negotiations, added value from digital picture/
electronic guides and avoidance of clearance costs, and increased
advertiser revenue and compensation from expanded markets--
predominately involve the matter of evidence not presented to the CARP.
In essence, SBCA contends that if the discovery rule of 37 CFR
251.45(c)(1) were broader, if could have presented evidence to the
Panel on these issues that would have caused the Panel to reduce the 27
cent royalty fee. Instead, according to SBCA, the Panel punished it for
failure to present the necessary evidence to quantify the reductions,
and the 27 cent rate, consequently, is unfairly high.
Section 251.45(c)(1) of the rules provides that, after the exchange
of the written direct cases, a party ``may request of an opposing party
nonprivileged underlying documents related to the written exhibits and
testimony.'' 37 CFR 251.45(c)(1). The Librarian has clarified that
discovery is limited in CARP proceedings:
Discovery in CARP proceedings is intended to produce only the
documents that underlie the witness' factual assertions. It is not
intended to augment the record with what the witness might have said
or put forward, or to range beyond what the witness said. Any
augmentation of the record is the prerogative of the arbitrators,
not the parties.
Order in Docket No. 94-3 CARP CD 90-92, 1-2 (October 30, 1995). There
are several reasons for the limited discovery practice. CARP
proceedings are relatively short in duration (180 days) and, like this
proceeding, begin and end according to statutorily specified deadlines.
There is not sufficient time to conduct wide-ranging discovery,
[[Page 55758]]
particularly where, as in the case, the litigation is quite complex and
involves the technically-oriented testimony of numerous witnesses.
There are also cost considerations. Broad discovery rules would
considerably increase the cost of CARP proceedings, without necessarily
producing a corresponding increase in the quality of the evidentiary
presentations. The parties may, therefore, as of right only request
documents which underlie a witness's factual assertions.
The rules do not, however, prohibit a party, once the CARP has
begun, from petitioning the Panel to take discovery on an issue or
issues that it believes are critical to the resolution of the
proceeding. As noted above, augmentation of the record is the
prerogative of the CARP, and the Panel has the discretion to decide
whether or not to allow additional discovery beyond that of section
251.45(c)(1). See 37 C.F.R. 251.42 (CARP may waive the rules upon a
showing of good cause). SBCA complains that the Panel might have
reduced the royalty rates based on the issues it raised had it allowed
additional discovery. Yet, SBCA never petitioned the Panel to take such
discovery. The Panel cannot be faulted for not reopening the record and
allowing additional discovery when it was asked to do so. See National
Ass'n of Broadcasters v. CRT, 772 F.2d 922, 936-937 (D.C. Cir. 1985)
(claimant failed to petition Tribunal to allow it to adduce additional
evidence regarding opposing party's alleged lack of copyright
ownership).
The issue remains as to whether the Panel should have reopened the
record, on its own motion, and allowed SBCA to take discovery on the
issues it rates: i.e. whether it was arbitrary for the Panel not to do
so. In the Register's view, the Panel did not act arbitrarily.
Regarding the value of retransmission consent negotiations, the Panel
found that Ms. McLaughin, and Messrs. Gerbrandt, Shooshan and Harin
offered testimony regarding the probative value of retransmission
consent negotiations on the fair market value of retransmitted
broadcast signals. Panel Report at 34-35. The Panel found this
testimony to be unsupportive of the proposition that retransmission
consent negotiations affected the fair market value analysis. Id. at
35. Because there is record evidence to support the Panel's
determination, the Panel did not act arbitrarily.
With regard to the purported added value to broadcast signals by
satellite retransmission in digital format, and attractive electronic
guides provided the subscribers, the Panel determined that ``no
quantifiable benefit was identified and no evidence adduced that this
benefit would materially affect fair market value * * *.'' Panel Report
at 40. As the Copyright Owners correctly point out, any added value
from digital picture quality and electronic guides would occur for both
broadcast and cable network programming. Copyright Owners Reply at 25.
SBCA could have presented evidence that demonstrated that satellite
carriers pay a lower fee for licensing cable networks as a result of
digital picture quality and electronic guides provided by the carriers.
Such evidence, if it exists, is in the sole possession of the satellite
carriers. SBCA presented no such evidence. The Panel, therefore, cannot
be faulted from finding no evidence to support added value from these
items.
Regarding clearance costs saved by broadcasters and copyright
owners from satellite retransmissions, the Panel stated:
SBCA further argues that in a free market, it would be virtually
impossible for satellite carriers to negotiate directly with every
copyright owner of every program contained in each day's signal they
retransmit. Accordingly, they reason, broadcasters would invariably
by compelled by market forces to clear all rights and negotiate with
satellite carriers for retransmission of their entire signals. Those
costs which the broadcasters would incur in purchasing the
clearances are unknown. Hence, SBCA concludes that the section 119
rates should not be raised without considering the broadcasters'
cost savings. We tend to agree with both of SBCA's premises but not
its conclusion. In a hypothetical free market, it is quite
conceivable that the higher the costs broadcasters must pay to clear
their signals for DTH distribution, the higher the royalty rates
they would charge satellite carriers. Accordingly, the impact of
higher clearance costs on the fair market value (based upon a
hypothetical free market analysis) could be positive rather than
negative. No adjustment to the cable network benchmark is required.
Panel Report at 41.
SBCA contends that Copyright Owners never put on any evidence
demonstrating their cost savings, and it should not therefore be
presumed that clearance costs would be passed on to satellite carriers.
SBCA Petition to Modify at 30. SBCA's argument, however, is one of
emphasis rather than evidence. SBCA asked the Panel to quantify what
the average cost might be, in a hypothetical market, for clearance
costs, and how satellite carriers and broadcasters might allocate such
costs. Not surprisingly, SBCA does not indicate what, if any evidence,
would conclusively demonstrate what such costs might be, or who might
bear them.\10\ It is not reversible error for the Panel to reason that
in a marketplace which does not exist, clearance costs might have a
positive effect on the cable network benchmark, rather than a negative
one.\20\
---------------------------------------------------------------------------
\19\ SBCA does cite a statement of FCC Commissioner Dennis that
broadcasters might have to bear these costs. SBCA Petition to Modify
at 30 (citing ``In re Compulsory Copyright License for Cable
Retransmissions,'' 4 FCC Rcd. 6711 (1989) (Commissioner Dennis,
concurring). However, Commissioner Dennis' statement is speculative,
describing what might happen to broadcasters ``in some cases,'' 4
FCC Rcd. at 6711, and is far from conclusive evidence.
\20\ In fact, the Panel did not make any change to the benchmark
for clearance costs.
---------------------------------------------------------------------------
Finally, with regard to the purported increase in advertising
revenues and compensation from expanding coverage of broadcast signals
by satellite retransmission, the Panel found that it could not quantify
any potential reductions of the cable network benchmark. Panel Report
at 37. While allowing SBCA expanded discovery on these points might
have assisted the Panel in quantifying a downward adjustment to the
cable network benchmark, the Register cannot determine anything in the
record that compelled it. Furthermore, the Panel did conclude that its
choice of the ``conservative'' PBS/McLaughlin cable network benchmark
reflected its inability to quantify any increased advertising revenues
that copyright owners might receive from expanded markets through
satellite retransmission. Id. In the Register's view, the Panel's
action was the product of rational decisionmaking.
H. Conclusion
Having fully analyzed the record in this proceeding and considered
the contentions of the parties, the Register recommends that the
Librarian of Congress adopt the royalty rate, effective January 1,
1998, of 27 cents per subscriber per month for retransmission of any
distant superstation and network signals by satellite carriers to
subscribers for private home viewing.
In addition, the Register recommends that the Librarian not adopt
any royalty fee for the local retransmission of superstation signals,
as defined under 17 U.S.C. 119(d)(11), and for the local retransmission
of a network signal, as defined under Sec. 119(d)(11), to any
subscriber residing in an unserved household, as defined in
Sec. 119(d)(10).
Finally, the Register recommends that the petition to modify the
Panel's decision filed by EchoStar be dismissed, and the motion of
Copyright Owners to dismiss attachment A of SBCA's petition to modify
(and the
[[Page 55759]]
accompanying argument and discussion) be granted.
Order of the Librarian
Having duly considered the recommendation of the Register of
Copyrights regarding the Report of the Copyright Arbitration Royalty
Panel in the matter of the adjustment of the royalty rates for the
satellite carrier compulsory license, 17 U.S.C. 119, the Librarian of
Congress fully endorses and adopts here recommendation to accept the
Panel's decision in part and reject it in part. For the reasons stated
in the Register's recommendation, the Librarian is exercising his
authority under 17 U.S.C. 802(f) and is issuing this order, and
amending the rules of the Library and the Copyright Office, announcing
the new royalty rates for the section 119 compulsory license.
The Librarian is also dismissing the petition to modify filed by
EchoStar, and is dismissing the affidavits contained in attachment A of
SBCA's petition to modify, and the accompanying discussion and
argument.
List of Subjects in 37 CFR Part 258
Copyright, Satellites, Television.
Final Regulation
In consideration of the foregoing, the Library of Congress amends
part 258 of 37 CFR as follows:
PART 258--ADJUSTMENT OF ROYALTY FEE FOR SECONDARY TRANSMISSIONS BY
SATELLITE CARRIERS
1. The authority citation for part 258 continues to read as
follows:
Authority: 17 U.S.C. 702, 802.
2. Section 258.3 is revised to read as follows:
Sec. 258.3 Royalty fee for secondary transmission of broadcast
stations by satellite carriers.
(a) Commencing May 1, 1992, the royalty rate for the secondary
transmission of broadcast stations for private home viewing by
satellite carriers shall be as follows:
(1) 17.5 cents per subscriber per month for superstations.
(2) 14 cents per subscriber per month for superstations whose
signals are syndex-proof, as defined in Sec. 258.2.
(3) 6 cents per subscriber per month for network stations and
noncommercial educational stations.
(b) Commencing January 1, 1998, the royalty fee for secondary
transmission of broadcast stations for private home viewing by
satellite carriers shall be as follows:
(1) 27 cents per subscriber per month for distant superstations.
(2) 27 cents per subscriber per month for distant network stations.
(3) No royalty rate (zero) for a superstation secondarily
transmitted within the station's local market, as defined in 17 U.S.C.
119(d)(11).
(4) No royalty rate (zero) for a network station secondarily
transmitted within the station's local market, as defined in 17 U.S.C.
119(d)(11), to subscribers residing in unserved households, as defined
in 17 U.S.C. 119(d)(10).
Dated: October 23, 1997.
So Ordered.
James H. Billington,
The Librarian of Congress.
[FR Doc. 97-28543 Filed 10-27-97; 8:45 am]
BILLING CODE 1410-33-M