ANNOUNCEMENT from the" Copyright Office, Library of Congress, 101 Independence Avenue, S.E., Washington, D.C. 20559-6000

FINAL RULE AND ORDER. RATE ADJUSTMENT FOR THE SATELLITE. CARRIER COMPULSORY LICENSE

The following excerpt is taken from Volume 62, Number 208 of the Federal Register for Tuesday, October 28, 1997 (p. 55742-55759)

television networks in the United States t SUPPLEMENTARYINFORMAnON: LIBRARY OF CONGRESS which offer an interconnected program Recommendation of the Register of service on a regular basis for 15 or more Copyright Offjce Copyrights hours per week to at least 25 of its affiliated television licensees in 10 or 37 CFR Part 258 I. Background more States; or (B) A noncommercial educational [Docket No. 96·3 CARP SRA] Congress passed the Satellite Home broadcast station (as defined in section Viewer Act of 1988 to create a compul­ 397 of the Communications Act of 1934).1 Rate Adjustment for the Satellite sory copyright license, codified at section 17 U.S.C. 119(d)(2). Examples of network Carrier CompUlsory License 119 of the Copyright Act, for the signals carried by satellite carriers are retransmission of over-the-air television ABC, CBS, and NBC. A station of the ~ AGENCY: Copyright Office, Library of broadcast signals. 17 U.S.C. 119. Similar Public Broadcasting Service (PBS) would Congress. in many ways to the cable compulsory also be considered a network signal ACTION: Final rule and order. license enacted by Congress in 1976, the under the statute. satellite carrier compulsory license Under the section 119 license, satellite permits satellite carriers to retransmit TV carriers can retransmit any superstation SUMMARY: The Librarian of Congress, signals to their subscribers upon they choose to any subscriber located upon recommendation of the Register semiannual submission of royalty fees anywhere in the United States. However, of Copyrights, is announcing the and statements of account to the such is not the case with the adjustment of the royalty rates for Copyright Office. The royalty fees retransmission of network signals. superstation and network signals under collected by the Copyright Office are Satellite carriers may only make use of the satellite carrier compulsory deposited with the United States the license to retransmit a network signal license, 17 U.S.C. 119. Treasury for subsequent distribution to to a subscriber who resides in an copyright owners of programming "unserved household." An "unserved EFFECTIVE DATE: January 1, 1998.' retransmitted by the satellite carriers. household" is defined as a household Section 119 identifies two types of that: ADDRESSES: The full text of the television broadcast signals that are (A) Cannot receive through the use of a CARP's report to the Librarian of subject to compulsory licensing: conventional outdoor rooftop receiving Congress is available for inspection and superstations and network signals. A antenna, an over-the-air signal of grade B copying during normal business superstation is the signal of any intensity (as defined by the Federal . hours in the Office of the General commercial independent television Communications Commission) of a primary network station affiliated with that Counsel, James Madison Memorial station licensed by the Federal Building, Room LM-403, First and nenwork,and . Communications Commission. (B)Has not, within 90 days before the date Independence Avenue, S.E., Washington, Examples of superstations retransmitted D.C. 20540. on which that household subscribes, either by satellite carriers under section 119 are initially or on renewal, to receive WTBS, Atlanta and WGN, Chicago. A secondary transmissions by a satellite carrier FOR ADDITIONAL INFORMATION: network station is defined as follows: of a network station affiliated with that David O. Carson, General Counsel, (A) A television broadcast station, network, subscribed to a cable system that William J. Roberts, Ir., Senior Attorney including any translator station or . provides the signal of a primary network for Compulsory Licenses, or terrestrial satellite station that station affiliated with that network. Tanya M. Sandros, Attorney Advisor, rebroadcasts all or substantially all of the

'U'"...... 0. Box 70977, Southwest Station, programming broadcast by a network "Thisis the definition of a network signal after • 'Washington, D.C. 20024. Telephone (202) station, that is owned or operated by, or the 1994 amendments to section 119.The earlier 707-8380. affiliated with, one or more of the definition was the same one appearing in section 111 of the Copyright Act.

December 1997-500 (i) PRINTED ON RECYCLED PAPER Page 1 of 18 ML-574 17 U.S.C. 119(d)(10).Service of network copyright owner and the copyright user in date of issuance of Tribunal's order, May signals to subscribers who do not reside the product made available to the public 1, 1992, not January 1, 1993 date ~ in unserved households is an act of with respect to relative creative recommended by panel). No appeal of copyright infringement, subject to the contribution, technological contribution, the Tribunal's order was taken. remedies of chapter 5 of the Copyright capital investment, cost, risk, and contribution to the opening of new markets 199~ Act, unless the carrier is able to negotiate for creative expression and media for III. Satellite Home Viewer Act of a private agreement with copyright their communication. owners to license all the copyrighted (iv) To minimize any disruptive impact The rates adopted by the Tribunal in works on those network signals. on the structure of the industries involved 1992 were to last only until the end of In creating the section 1191icense in and on generally prevailing industry 1994, when the section 119 license was 1988,Congress established different practices. slated to expire. However, in 1994, royalty rates for superstation and 17 U.S.C. 119(c)(3)(B) (1988). Congress passed the Satellite Home network signals, based upon approxima­ The arbitration panel was given 60 Viewer Act of 1994, which extended the tions of what cable paid for such signals days to reach its determination; it section 119 license another 5 years. In under the section 111cable compulsory delivered its report to the Copyright reauthorizing the license, Congress made license. 17 U.S.C. 111.The original rate Royalty Tribunal on March 2, 1992. The several changes to its provisions. for a superstation was 12 cents per panel recommended that the royalty fee Another rate adjustment--this roceeding­ subscriber per month. The original for network signals be raised from 3 -was scheduled to take place, and the rate for a network was 3 cents per cents to 6 cents per subscriber. 57 FR duty of conducting the proceeding was subscriber per month. Congress, 19061 (May 1, 1992). For superstations, given to a copyright arbitration royalty however, authorized a rate adjustment the panel recommended a two-tiered rate panel (CARP), with review by the procedure to change these rates in 1992. structure. The panel was impressed with Librarian of Congress. Congress' consideration of the applica­ The most significant change to section II. The 1992 Rate Adjustment tion of syndicated exclusivity protection 119 made by the 1994 amendments, for on the satellite industry. With respect to purposes of this proceeding, was a At the time of passage of section 119, cable retransmissions of broadcast change in the factors to be applied by the the Copyright Royalty Tribunal was still signals, broadcasters may purchase CARP to determine the new royalty in existence. However, rather than invest exclusive rights to broadcast rates. Rather than focus on the price paid the Tribunal with authority to adjust the programming within their local market, by the cable industry for similar section 119rates, as was the case for all and any cable operator importing the retransmissions, Congress required that other compulsory licenses in the same programming into the the royalty fees for superstations and Copyright Act, Congress instead gave broadcaster's local market is required to network signals represent the fair market the task to an ad hoc arbitration panel black it out. Congress directed the FCC value. 17 U.S.C. 119(c)(3)(D) (1994). assembled solely for that purpose. The in 1988 to consider adopting syndicated Although Congress intended to replace Tribunal was given authority to review exclusivity rules for the satellite industry, the statutory criteria for adjusting the the decision of the arbitration panel, as is but the Commission ultimately royalty rates from the 1988 Act with the the Librarian in this proceeding, hut determined that it was not technically new "fair market value" standard, a under a different standard of review. feasible for satellite carriers to black-out scrivener's error was made in the 1994 Congress also established a number of programming. See 6 FCC Red. 725 (1991). Act. The result was that the original factors for the arbitration panel to To make up for this technological provisions of section 119(c)(3)(B) consider in reaching its determination. deficiency, the panel imposed a higher remained, and the new provisions The statute provided: royalty rate to compensate for the loss of inadvertently replaced the subparagraph In determining royalty fees under this exclusivity protection. determining those parties subject to pay paragraph, the Arbitration Panel shall For superstations, if they had been the section 119 royalty fees. Certain consider the approximate average cost to a retransmitted by a cable system rather copyright owners to this proceeding cable system for the right to secondarily than a satellite carrier and would have requested clarification of the statute, and transmit to the public a primary been subject to the FCC's syndicated the Library issued an order prior to transmission made by a broadcast station, exclusivity rules, the panel adopted a the fee established under any voluntary commencement of the CARP instructing rate of 17.5 cents per subscriber per the CARP to apply only the new fair agreement filed with the Copyright Office ~onth. in accordance with paragraph (2),2 and the 57 FR at 19061 (1992). For market value provisions, and to last fee proposed by the parties, before SIgnals that would not have been subject disregard the old criteria of section proceedings under this paragraph, for the to the syndicated exclusivity rules for 119(c)(3)(B). Order in Docket No. 96-3 secondary transmission of superstations or cable (known as "syndex proof" signals), CARP SRA (Ianuary 6, 1997). network stations for private home viewing. the panel adopted a rate of 14 cents per The royalty rates adopted in the 1992 The fee shall also be calculated to achieve subscriber per month. Id. rate adjustment were incorporated into the following objectives: The Copyright Royalty Tribunal, the 1994 Act, subject to adjustment in this (i) To maximize the availability of reviewing the panel's decision only proceeding. The rates adopted in this creative works to the public. under a contrary to law standard, (ii) To afford the copyright owner a fair Order shall remain effective until return for his or her creative work and the adopted the rates recommended by the December 31, 1999, the current date- for copyright user a fair income under existing arbitration panel. 57 FR 19052 (1992). The the section 119 compulsory license. economic conditions. Tribunal did, however, substitute a new (iii) To reflect the relative roles of the effective date for the rates, because it determined that the panel misapplied the statute. Id. at 19053 (rates effective on

2 No such voluntary agreements were reached.

a Error; line should read: "expiration date for the section 119"

Page 2 of 18 December 1997-500 ML-574 IV.This Proceeding Librarian on August 29, 1997. ~ant specifically by "arbitrary." but The CARP concluded that rates for there is no reason to conclude that the Pursuant to section 119(c)(2),the both networks signals andsuper-stations use of the term is any different than the Librarian of Congress initiated this should be adjusted upwards to 27 cents "arbitrary" standard described in the ,~.,",.. proceeding with publication of a Federal per subscriber per month. In addition, Administrative Procedure Act (APA),5 ~Registernotice on June II, 1996, the Panel determined that no royalty fee U.S.C. 706(2)(A). establishing a voluntary negotiation should be paid for the retransmission of _ Review of the caselaw applying the period and a precontroversy discovery superstations within the superstations' APA "arbitrary" standard reveals six schedule.' 61 FR 29573 (Iune II, 1996). local markets, and that it had no factors or circumstances under which a The schedule was vacated on September authority to set a royalty rate for court is likely to find that an agency 19, 1996,at the request of certain . retransmissions of network signals acted arbitrarily. An agency is generally copyright owner parties, Order in Docket within their local markets. The Panel considered to be arbitrary when it: No. 96-3 CARP SRA (September 19, recommended July 1, 1997, as the (1) Relies on factors that Congress did 19%), and rescheduled on October 29, effective date for the new rates. not intend it to consider; 1996.Order in Docket No. 96-3 CARP Section 802(f) of the Copyright Act (2) Fails to consider entirely an SRA (October 29, 1996). The CARP was provides that [w]ithin 60 days after important aspect-of the problem that it convened on March 3, 1997. receiving the report of a copyright was solving; The following parties submitted arbitration royalty panel." ,.. "',the (3) Offers an explanation for its written direct cases to the CARP: (1) Joint Librarian of Congress, upon the decision that runs counter to the . Sports Claimants (U]SC"), representing recommendation of the Register evidence presented before it; national sports associations including of Copyrights shall adopt or reject the (4) Issues a decision that is so Major League Baseball, the National determination of the panel." implausible that it cannot be explained as Basketball Association, the National 17 U.S.C. 802(f). Today's order of the a product of agency expertise or a Hockey League, and the National Librarian fulfills this statutory difference of viewpoint; Collegiate Athletic Association; (2) the obligation. (5) Fails to examine the data and Public Broadcasting Service ("PBS"); articulate a satisfactory explanation for (3) the Commercial Network Claimants v:The Librarian's Scope of Review its action including a rational connection ("Commercial Networks"), representing between the facts found and the choice the National Broadcasting Co., Inc., The Librarian of Congress has, in made; and Capital Cities/ABC, Inc. and CBS,Inc.; previous proceedings, discussed (6) When the agency's action entails (4) the Broadcaster Claimants Group his narrow scope of review of CARP the unexplained discrimination or ("Broadcaster Claimants Group"), determinations. See 52 FR 6558 disparate treatment of similarly situated representing certain commercial (February 12, 1997) (DART distribution parties. television stations whose signals are order); 61 FR 55653 (October 26, 1996) Motor Vehicle Manufacturers Ass'n v. State retransmitted by satellite carriers; (5) the (cable distribution order). The salient Farm Mutual Insurance Co., 463 U.S. 29 ~ ..'.,Program Supplier Claimants (UProgram points regarding the scope of review, (1983);Celcom Comm. Corp. v. FCC, 789 ..."Suppliers"), representing various however, merit repeating. F.2d 67 (D.C. Cir. 1986);Airmark Corp v. copyright owners of motion pictures, The Copyright Royalty Tribunal FAA, 758 F2d 685 (D.C. Cir. 1985). television series and specials; (6) the Reform Act of 1993 created a unique Given these guidelines for determining Music Claimants ("Music Claimants"), system of review of a CARP's when a determination is "arbitrary," prior representing the American Society of determination. Typically, an arbitrator's decisions of the courts reviewing the Composers, Authors and Publishers, decision is not reviewable, but the determinations of the former Copyright Broadcast Music, Inc., and SESAC, Inc.; Reform Act created two layers of Royalty Tribunal have been consulted. (7) the Devotional Claimants review: the Librarian and the Court of The decisions of the Tribunal were ("Devotional Claimants"), representing Appeals for the District of Columbia reviewed under the "arbitrary and various'copyright owners of religious Circuit. Section 802(f) directs the capricious" standard of 5 U.S.C. programming; (8) the Satellite Librarian to either accept the decision of 706(2)(A) which, as noted above, appears Broadcasting & Communications the CARP or reject it. If the Librarian to be applicable to the Librarian's review Association ("SBCA"), representing rejects it, he must substitute his own of the CARP's decision. AlphaStar Television, Inc., BosCom, Inc., determination "after full examination of Review of judicial decisions regarding Consumer Satellite Systems, DirecTV, the record created in the arbitration Tribunal actions reveals a Inc., EchoStar Communications Corp., proceeding." Id. If the Librarian accepts consistent theme: provided that the Netlink USA, PrimeStar Partners L.~, it, then the determination of the CARP Tribunal adequately articulated the Prime Time 24 Joint Venture, Southern has become the determination of the reasons for its decision, specific Satellite Systems, Inc., and Superstar Librarian. In either case, through determinations were granted a Satellite Entertainment; and (9) American issuance of the Librarian's Order, it is his relatively wide "zone of reasonableness." Sky Broadcasting L.L.C. e'ASkyB"). decision that will be subject to review by See National Ass'n ofBroadcasters v. The CARP held oral hearings on the the Court of Appeals. CRT, 772 F.2d 922 (D.C. Cir. 1985); written cases and evidence, and Section 802(f) of the Copyright Act Christian Broadcasting Network v. CRT, oral argument on the proposed findings directs that the Librarian shall adopt the 720 F.2d 1295 (D.C. Cir. 1983); National of fact and conclusions of law. The report of the CARP "unless the Librarian Cable Television Ass'n v. CRT, 689 F.2d CARP submitted its report to the finds that the determination is arbitrary 1077 (D.C. Cir. 1982); Recording Industry or contrary to the provisions of this . Ass'n of America v. CRT, 662 F.2d 1 (D.C. 3 The voluntary negotiation period proved title." Neither the Reform Act nor its Cir. 1981).As one panel of the D.C. unsuccessful as no agreements were reached. legislative history indicates what is Circuit succinctly noted:

December 1997-500 Page 3 of 18 ML-574 To the extent that the statutory Group, PBS, Program Suppliers, After reviewing the Panel's report and objectives determine a range of reasonable Commercial Networks, Music Claimants the record in this proceeding, the ~ royalty rates that would serve all these and Devotional Claimants (collectively, Register has determined that there are 6 objectives adequately but to differing "Copyright Owners"), PBS, JSC and primary aspects of the Panel's decision degrees, the Tribunal is free to choose Broadcaster Claimants Group (collective that warrant detailed discussion and , among those rates, and courts are without "Certain CopyrightOwners"), and authority to set aside the particular rate analysis: ,." chosen by the Tribunal if it lies within a EchoStar. ') (1) Whether the Panel correctly interpreted "zone of reasonableness." Satellite carriers oppose the decision of l!!!,d applied the statutory standard for the CARP, while copyright owners are determining royalty fees; Recording Industry Ass'n of America v. (2) Whether the Panel acted arbitrarily in CRT, 662 F.2d I, 9 (D.C. Cir. 1981). generally supportive of it. SBCA offers numerous reasons why, in its view, the adopting the license fees paid by cable Because the Librarian is reviewing the networks as the benchmark for determining CARP decision under the same Panel's decision is arbitrary and contrary section 119 fees; "arbitrary" standard used by the courts to law. EchoStar confines its comments to (3) Whether the Panel should have made to review the Tribunal, he must be the Panel's decision not to establish a certain adjustments in the benchmark rates it presented with a detailed rational royalty rate for the local retransmission adopted; analysis of the CARP's decision, setting of network signals by satellite-carriers, (4) Whether it was permissible for the Panel forth specific findings of fact and and Commercial Networks request a to adopt the same rate for superstations and conclusions of law. This requirement of "clarification" of the Panel's ruling in network signals; order to construe it to mean that the 27 (5) Whether the Panel correctly declined to every CARP report is confirmed by the adopt a royalty rate for local retransmission of legislative history to the Reform Act cent fee for network signals applies to any local retransmission of network network signals by satellite carriers; and which notes that a "clear report setting (6) Whether the Panel supplied the forth the panel's reasoning and findings stations to subscribers in unserved appropriate effective date for the newly will greatly assist the Librarian of households. Certain Copyright Owners established royalty fees. . Congress." H.R. Rep. No. 103-286, 103 challenge EchoStar's standing to SBCA has made additional arguments Cong., 1st Sess. 13 (1993). Thus, to file a Sec. 251.55 petition to modify in in its petition to modify as to why the engage in reasoned decisionmaking, the this proceeding. Panel's decision should be set aside. CARP must "weigh all the relevant Section 251.55 of the rules assists the These arguments, which primarily considerations and * * * set out its Register of Copyrights in making her involve evaluation of the evidence and conclusions in a form that permits [a recommendation to the Librarian, and allege deficiencies in the discovery rules determination of] whether it has the Librarian in conducting his review of for CARP proceedings, are addressed at exercised its responsibilities lawfully." the CARP's decision by allowing the the end of this section. National Cable Television Ass' n v. CRT, 689 parties to the proceeding to raise specific F.2d 1077, 1091 (D.C. Cir. 1982). This goal objections to a CARP's determination. A. Determination of Fair Market Value cannot be reached by "attempt[ing] to As required by section 802(f) of the distinguished apparently inconsistent Copyright Act, if the Librarian deter­ 1. Action of the Panel ~'" awards with simple, undifferentiated mines that the Panel in this proceeding A fundamental dispute between allusions to a 10,000 page record." has acted arbitrarily or contrary to the satellite carriers and copyright owners~' ) Christian Broadcasting Network, Inc. v. provisions of the Copyright Act, he must this proceeding is the meaning of the CRT,720 F.2d 1295, 1319 (D.C. Cir. 1983). "after full examination of the record term "fair market value" as used in It is the task of the Register to review created in the arbitration proceeding, section 119(c)(3)(D) of the Copyright Act. the report and make her recommen­ issue an order setting the royalty fee * * Tha t section provides:' dation to the Librarian as to whether it is *." 17 U.S.C. 802(f). In determining royalty fees under this arbitrary or contrary to the provisions of paragraph, the Copyright Arbitration Panel the Copyright Act and, if so, whether, VII. Review and Recommendation of shall establish fees for the retransmission of and in what manner, the Librarian the Register network stations and superstations that most should substitute his own determination. clearly represent the fair market value of As discussed above, the parties to this secondary transmissions. In determining the fair market value, the Panel shall base its VI. Review of the CARP Report proceeding submitted petitions to the Librarian to modify the Panel's decision on economic, competitive, and determination based on their assertions programming information presented by the Section 251.55(a) of the rules provides parties, inc1uding-­ that "[ajny party to the proceeding may that the Panel acted arbitrarily or (i) The competitive environment in which file with the Librarian of Congress a contrary to the applicable provisions of such programming is distributed, the cost for petition to modify or set aside the the Copyright Act. These petitions have similar signals in similar private and determination of a Copyright Arbitration assisted the Register in identifying what compulsory license market-places, and any Royalty Panel within 14 days of the evidence and issues in this large special features and conditions of the Librarian's receipt of the panel's report of proceeding, in the eyes of the petitioners, retransmission marketplace; (ii) The economic impact of its determination. 37 CFR 251.55(a). are areas where the Panel may have such fees on acted improperly, thereby requiring the copyright owners and satellite carriers; and Replies to petitions to modify are due (iii) The impact on the continued 14 days after the filing of the petitions. 37 Librarian to substitute his own CFR 251.55(b). determination. The law gives the The following parties filed petitions to Register the responsibility to make recommendations to the Librarian 4 As discussed above, section 119(c)(3)(D) is the modify: SBCA, EchoStar appropriate statutory provision governing the Communications Corp. ("EchoStar"), and regarding the Panel's determination, 17 adjustment of royalty rates. Section 119(c)(3)(B), commercial Networks. Replies b U.S.C. 802(f), and in so doing she must which also prescribes royalty adjustment factors, were filed by JSC, Broadcaster Claimants conduct a thorough review. was inadvertently left in the statute after the 1994 amendments.

b Error; line should read: c Error; line should read: "and Commercial Networks, Replies" "(Broadcaster Claimants Group (collective"

Page 4 of 18 December 1997-500 ML-574 1

availability of secondary transmissions to the that the royalty fee paid by satellite carriers statements provide clear Congressional "f . ,public. are on par with those paid by cable direction that the royalty fees for section 17 U.S.C.119(c)(3)(D). operators. The guiding criteria for the 119 are to be either identical or The Panel examined this provision, arbitration panel to establish fair market. substantially similar to those paid by and the legislative history, and value in this legislation will accomplish cable operators under section111.SBCA that objective...... i~etermined that fair market value meant provided testimony demonstrating that ~e ..* If- The fact that the Senate agrees with prize that would be negotiated in.a" the House on this compromise language is -.., cable operators pay 9.8 cents per free market setting as compensation for due to the criteria that defines fair market subscriber per month for superstations, the satellite carriers' right to retransmit value in the bill. I have long opposed the and 2.45 cents per subscriber per month network and superstation signals imposition of royalty fees based simply on for network signals, and submits that the containing the copyright owners' the mechanical application of some Librarian should adopt these rates. SBCA copyrighted programming. The Panel conceptual fair market value formula If- If- * Petition to Modify at 18. stated that: The arbitration panel will take steps to Copyright Owners contend that the [T]he language, structure, and legislative ensure that the royalty fees paid by satellite Panel acted correctly in attributing the carriers are on par to those paid by cable history of the 1994amendments to section operators. The guiding criteria for the plain meaning to the term .... fair market 119suggest the Panel is directed to arbitration panel to establish fair market value," and properly rejected SBCA's determine actual fair market value and "in value will accomplish this objective. position that the rates paid by cable determining the fair market value under section 111 is the governing factor If- .... base its decision * * *" upon the non­ in exhaustive list of considerations. We 140 Congo Rec. 514105, 14106 (daily ed. determining fair market value. interpret the phrase "base its decision" to Oct. 4, 1994). Copyright Owners Reply at 12. require the Panel to consider each Brooks: In the hard-fought compromise Copyright Owners' note further that enumerated type of information but, the reached on this bill, the factors to be even one of SBCA's own expert weight to be accorded each consideration considered under the bill's "fair market witnesses, Mr. Harry Shooshan, must necessarily depend upon the quality value" determination have been made more conceded at the hearing that Congress and quantity of the evidence adduced and specific. I would note that in determining intended to accord the conventional its relative significance to a determination fair market value, we intend that the meaning to "fair market value." Id. of actual fair market value. All evidence copyright arbitration panel consider all the L Copyright Owners also submit that falling within the enumerated types of factors raised by the parties, including portions of floor statements delivered at information must be considered but the cable rates. evidence which is more probative of fair the time of passage of the 1994Satellite market value must be accorded greater 140CongoRec. H9270 (daily ed. Sept. 20, Home Viewer Act are not proper weight than less probative evidence * If- If-. 1994). legislative history and must be given The Panel agrees that the fair market value Hughes: [L]egislation contemplates that little, if any, weight.Id. at 14-15 (citing rate is that which most closely the panel will look to the competitive Overseas Educ. Ass'n, Inc. v. FLRA,876 approximates the rate that would be F.2d 960 (D.C. Cir. 1989);In the Matter of negotiated in a free market between a environment in which section 119 retransmissions are distributed as well as Sinclair, 870 F.2d 1340 (7th Cir. 1989». " willing buyer and a willing seller. the costs of distribution of similar signals Rather, the text of the statute is the ~Panel in similar private and compulsory license principle source for determining its Report at 17 (emphasis in original). marketplaces, including the cable copyright meaning. Id. at 15 (citing West Virginia fees under section 111.This will help ensure Hosp. v. Casey, 499 U.S. 83 (1991). 2. Arguments of the Parties that there is vigorous competition and SBCAasserts that the Panel diversity in the video programming 3. Recommendation of the Register misapprehended the meaning of .... fair distribution industry. The Panel determined that the term market value," and that it should have "fair market value" should be in 140 Congo Rec. H9271 (daily ed. Sept. 20, determined the section 119fees accorded its plain meaning--Le., the price accordance with what cable operators 1994). a willing buyer and a willing seller pay for distant signals under the section Synar: I am also hopeful that any fee would negotiate in a free marketplace-­ resulting from the fair market value 111 cable compulsory license. SBCA and that the economic, competitive, and Petition to Modify at 12..... Fair market standard does not disadvantage the delivery of satellite transmissions vis-a-vis programming information presented by value is a Congressionally defined term, the parties provided the evidence to and thus cannot be considered under the the delivery of cable retransmission under If- If- determine what fair market value "traditional' sense, as urged by the the section 111 compulsory license * It is my hope that the fees set for satellite royalty rates would be under the satellite [Copyright] Owners." Id. at 14. SBCA retransmissions under the fair market carrier compulsory license. The Register cites certain 1994floor statements at value standard will, among other things, concludes that this decision is not length as evidence that Congress reflect the competitive environment in arbitrary, nor is it contrary to law. intended that section 119royalty rates be which those retransmissions are distri­ Both SBCA and Copyright Owners set on a parity with cable rates. buted. There is little question that ongress would like to ensure that there is vigorous contend that the meaning of .... fair DeConcini: Copyright license parity with market value" is a matter of statutory cable is the central feature of the fair market competi-tion and diversity in the standard articulated in this legislation. distribution of video programming and interpretation. Moreover, it is The inclusion of specific guidance to the the determination of fair market value fees a well-established principle that, in arbitration panel to take into consideration should reflect that intent. interpreting the meaning of a statute, the the competitive environment in which language of the law is the best evidence satellite programming is distributed is 140CongoRec. H9272 (daily ed. Sept. 20, of its meaning. Sutherland Stat. Const. essential to ensure that satellite carriers are 1994). Sec. 46.01 (5th Ed.). not required to pay higher royalty fees than The express words of the statute cable operators If- If- If- I am confident that the According to SBCA, these floor charge the Panel with determining arbitration panel will take steps to ensure

d Error; line should read: "the price that would be negotiated in a"

December 1997-500 Page 5 of 18 ML-574 the fair market value of retransmitted but those rates are not to be a benchmark Zuber u. Allen, 396 U.S. 168, 186 (1969) broadcast signals by satellite carriers.Jd, for setting rates under section 119;they ("Floor debates reflect at best the (plain meaning of the statute governs its are only one potentially [sic] piece of understanding of individual interpretation). The Panel determined evidence in reaching the objective fair Congressmen"). The reasoning behind that "fair market value" meant the price market value."). The Register, therefore, this principle was aptly described by tr~ that would be negotiated between a determines that the Panel did not act Federal Circuit Court for the District 0"'" willing buyer and a willing seller in a free arbitrarily or contrary to law in ~. Columbia: . marketplace. Panel Report at 17. The determining the meaning of fair market [Ilt is necessary for judges to exercise Register determines that this is not an value. extreme caution before concluding that arbitrary interpretation of the meaning Although the Panel determined that statement made in floor debate, or at a of "fair market value," nor is it contrary to its' plain meaning of fair market value hearing, or printed in a committee document law. See Black's Law Dictionary 537 (5th controlled their interpretation, the Panel. may be taken as statutory gospel. Otherwise, Ed. 1989) (definition of "fair market nevertheless consulted the legislative they run the risk of reading authentic insight value"). history to the 1994 amendments and into remarks intended to serve quite different In the 1994 amendments Congress concluded that "Iwle find no support for purposes. Furthermore, to the degree that stated that "[i]n determining the fair judges are perceived as grasping any the proposition that Congress did not fragment of legislative history for insights market value, the Panel shall base its mean what it said. The legislative history into congressional intent, to that decision on economic, competitive, and reveals no intent to attach a unique degree will legislators be encouraged to salt programming information presented by meaning to the commonly understood the legislative record with unilateral the parties " ,.. ,.." 119U.S.C. 119(c)(3)(d).e and well-established "fair market value" interpretations of statutory provisions they Congress then included in that term." Panel Report at 16. were unable to persuade their colleagues to amendment a nonexhaustive list of the A review of all floor statements offered except * * *.8 types of "economic, competitive, and at the time of passage of the 1994 Int. Broth. of Elec. Wkrs. Loc. U. 474 v. programming information" that the Panel amendments reveals considerable NLRB, 814 F.2d 697 (D.C. Cir. 1987) must consider in fashioning royalty rates differences between the views of the two (Buckley, concurring); see also Overseas that represent fair market value. That the Chairmen and some of the members. Educ. Ass'n.Inc. v. FLRA, 876 F.2d 960, list is nonexhaustive is significant, for These differences are accentuated by a 975 (D.C. Cir. 1989) ("While a sponsor's there may be other types of information later floor statement offered by statements may reveal his understanding presented by the parties that, while not Chairman Hughes when he introduced a and intentions, they hardly provide falling within one of the enumerated bill that would make technical definitive insights into Congress' categories, is nevertheless relevant to the corrections to the 1994 Satellite Home understanding of the meaning issue of what the fair market value Viewer Act. 140 Congo Rec. E2290 (daily of a particular provision") (emphasis in royalty rates should be. The Panel would ed. November 29, 1994) (statement of original). be responsible for considering this type of Rep. Hughes). Of greater importance in discerning information as well, if it were relevant to The statement of.Chairman DeConcini ~e intent of Congress, as opposed to the. determining fair market value. offers the greatest support to the statements of individual Members, is tl The Register does not interpret the argument that the rates established in fact that Congress changed the statute enumerated categories of "economic, this proceeding should approximate 1994. When Congress decides to change a competitive, and programming what cable pays under the cable statute, the decision to do so signifies information"(for example, costs in similar compulsory license. 140 Congo Rec. . that it intended to change the meaning. private and compulsory license 514105 (daily ed. Oct. 4, 1994) ("I am Brewster v. Gage, 280 U.S. 327, 338 (1932); marketplaces) as establishing criteria that confident that the arbitration panel will United States v. NEC Corp., 931 F.2d 1493, define the meaning of "fair market take steps to ensure that the royalty fee 1502 (11th Cir. 1991); In reRequest for value." To do so would, in the Register's paid by satellite carriers are on par with Assistance, 848 F.2d 1151, 1154 (11th Cir. view, run contrary to the plain those paid by cable operators"). 1988), cert. denied sub. nom., Azar v. meaning of the statute. Sutherland Stat. Representative Synar's comments Minister of Legal Affairs,488 U.S. 1005 Const. Sec. 47.07 (5th Ed.). Likewise, the suggest his desire that a satellite rate (1989). That is what occurred here. If Register does not see any support for the adjustment produce rates comparable to, Congress had truly intended cable argument that one of the enumerated the cable compulsory license, but he does compulsory license rates to govern the categories of information, such as the not state that application of the fair adjustment of fees in this proceeding, compulsory license fee paid by cable market value standard should or must then it would not have amended the under 17 U.S.C. 111,must be accorded produce such comparability. The statute in1994 to provide for a fair more weight than another. The House statements of Representative Brooks and market value determina-tion." Committee Report to the 1994 Hughes provide that cable compulsory In sum, while floor statements by amendments makes it clear that this license rates are one of the factors to be some Members indicate an intent that should not be the case. See H.R. Rep. No. considered by the Panel, but they do not fair market value be determined in 703, 103d Cong., 2d Sess. 10 (1994) ("In indicate that they are the only or various ways, by looking at the statute, order to aid the panel, the Committee controlling factor. committee reports, floor statements and adopted an amendment offered by Mr. The Register has consulted the caselaw colloquies the Register does not find any Hughes directing the panel to consider in determining the weight to be accorded special meaning or limitation attached to economic, competitive, and programming floor statements made by Congressmen the term "fair market value" and, information presented by the parties as during the passage of legislation. The therefore, must rely on the plain well as the competitive environment in caselaw provides that floor statements of language of the statute and the plain which such programming is distributed. legislators are to be given little weight meaning of the term. The Panel, in the This would, of course, include cable rates, Garcia V. U.S., 469 U.S. 70, 78, (1984); view of the Register, therefore, did not

e Error; line should read: f Error; line should read: g Error; line should read: "the parties?" " 119(c)(3)(D)." "the plain meaning of fair market value" "colleagues to accept. *,..,.. "

Page 6 of 18 December 1997-500 ML-574 act arbitrarily, or contrary to law in its 1992--when the maximum market value, and accepting the analysis interpretation of the meaning of "fair satellite compulsory rate was 17.5 cents--and of Ms. McLaughlin. Copyright Owners market value.' has risen to 24 cents in 1995, an annual not" that they wished to examine the increase of ten percent per year. The license license fees paid by satellite carriers to fees for these 12 basic cable networks are ~ cable networks in particular, as opposed B. TheCable NetworkFee Benchmark forecast to increase to an average of 26 cents in 1997,27 cents in 1998 to the fee paid by all MVPDs in general, .. 1. Action of the Panel and 28 cents in 1999.This suggeststhat the but SBCA refused to disclose through In order to determine fair market value compulsory rate for satellite discovery the amounts that satellite royalty rates as required by section retransmitted stations should increase at least carriers paid. Copyright Owners Reply at 119(c)(3)(O), the Panel considered the correspondingly with the average prices for 17. They further note that while SBCA's voluminous testimony and exhibits basic cable networks, to an average at least 27 witness, Mr. Jerry L. Parker, stated that a presented by the parties. Witnesses for cents for the 1997-99period. meaningful license fee could not be PBS,]SC, the Commercial Networks, determined from satellite/cable network SBCA,and ASkyB sponsored economic Id. at 7. contracts, SBCA never produced the analyses and testified as to their The Panel endorsed Ms. McLaughlin's documents to support that assertion. Id. calculation of fair market value. The approach because it determined that it at 18. Copyright Owners assert that Ms. copyright owners used empirical data of represented the closest model, of those McLaughlin testified that the license fees license fees paid to certain cable presented, to a free market negotiation presented by her analysis demonstrated networks by multichannel video for satellite carriage of broadcast signals, at least the minimum amount that programming distributors (principally and because it was the most conservative satellite carriers would pay for cable cable operators), while satellite carriers approach offered by the copyright networks, and that her analysis offered focused primarily on the license fees owners. Panel Report at 29-30. The Panel the best evidence that was properly paid by cable operators under section rejected the analysis of JSC (Testimony of accepted by the Panel. ld. 111. Mr. Larry Gerbrandt) as too narrow/ and The Panel specifically endorsed the the analysis of the Commercial Networks 3. Recommendation of the Register approach taken by PBS, and its principal (testimony of Mr. Bruce Owen) as too In the Register's view, the Panel's witness, Ms. Linda McLaughlin. Using speculative." The Panel also rejected the decision to use cable network license fees data supplied by an industry survey analyses of SBCA and ASkyB because it as a benchmark for establishing the fair group," Ms. McLaughlin examined the determined that their analyses did not market value of section 119 rates was the license fees paid by multichannel video comport with the plain statutory product of rational decisionmaking, and programming distributors ("MVPDs") to meaning of the term "fair market value." its decision to use the PBS/McLaughlin license the viewing rights to 12 popular ld. at 29-30. approach was not improper. basic cable networks. These networks are Having determined that "fair market A&E, CNN, Headline News, Discovery, 2. Arguments of the Parties value" meant the price that would be ESPN, the Family Channel, Lifetime, SBCA contends that cable network paid by a willing buyer and seller in a j, MTV, Nickelodeon, TNN, TNT, and USA. license fees are not an appropriate free marketplace, it was not illogical for ~ Ms. McLaughlin testified that these basic benchmark because cable networks are the Panel to give careful consideration to cable networks represented the closest fundamentally different from evidence of markets that most closely alternative programming to broadcast retransmission of broadcast signals. It resembled the licensing of signals under programming for satellite homes, and asserts that "[e]xtracting an accurate, or section 119.In fact, section 119(c)(3)(D)(i) that studies indicated that consumers even representative license fee per requires that the Panel consider "the cost value networks and superstations as subscriber is basically impossible for similar signals in similar private * *,. least as highly as popular basic cable because multiple programming services marketplaces." 17 U.S.C. 119(c)(3)(D). networks. Direct Testimony of Linda are included within contracts, there are All three of the evidentiary resentations McLaughlin at 2-5. She then calculated a ceilings on aggregate license fees for I~f... the copyright owners--PBS, JSC, and "benchmark" rate for these networks to MVPDs in some cases, free subscriptions Lfpmmercial Networks-- focused upon be used by the Panel as representative of in others, marketing and launch support the fees paid to cable networks by the fair market value of broadcast signals provided by the cable networks, MVPDs..SBCA's evidence of fair market retransmitted by satellite carriers: purchases of advertising time by the value, the cable license fees paid under at- at- at-I have calculated a basic cable network cable networks from MVPDs, and equity section 111,was less relevant to the benchmark price and used it to estimate a investments by each in the other." SBCA Panel's determination because the Panel minimum compulsory license fee for" satellite­ Petition to Modify at 20-21. had rejected the notion that cable fees retransmitted broadcast stations. The average In reply, Copyright Owners assert that equaled fair market value. Panel Report license fee of the 12 the Panel acted properly by utilizing popular basic cable networks was 18 cents in at 29-30. The Panel's adoption of cable cable networks as the benchmark of fair network fees as the benchmark was not unqualified, however, because it stated that "we agree with the satellite carriers 5 There is no question that the principal factor for that the economic model governing cable determining rates under the 1988legislation was the rates paid by cable. 17 U.S.C. 119(c)(3)(B) (1988)(the 7 Mr. Gerbrandt isolated the license fees paid for two networks varies markedly from the Panel .... shall consider the approximate average cost basic cable networks: TNT and USA. Tr.2025-2026. economic model governing broadcasters." to a cable system for the right to secondarily ld. at 29. Nevertheless, the Panel transmit to the public a primary transmission made by a broadcast station .... "."). "adopt[ed] the copyright owners' general 8 Mr. Owen used regression analysis in an attempt to approach using the most similar free demonstrate that MVPDs are willing to pay 6 The data was supplied by Paul Kagan Associates, a proportionally higher license fees for network . market we can observe." Id. at 30. After leading information and data company in the video signals which contain more expensive programming. reviewing the record, the Register industry. Direct Testimony of Bruce Owen at 7·10. \.,. h Error; line should read: "note that they wished to examine the "

December 1997-500 Page 7 of 18 ML-574 •

has determined that the Panel's by Ms. Mcl.aughlin, as the benchmark the 27 cent benchmark figure, stating that conclusion is not "arbitrary" within for determining the section 119royalty Hit must be recognized that all cable .., the meaning of 17 U.S.C. 802(f). rates, the Panel examined, inter alia, the networks that are charging and receiving SBCAcontends that cable network fees special features and conditions of the 27 cents have made the necessary are not a useful benchmark because the retransmission marketplace to determine economics of cable networks are if an upward, or downward, adjustment ~~~~==r! ~~~~~~:~~et~1~i:;~~i~~~ fundamentally different from those of in the benchmark was appropriate. One [ojwners or broadcasters in this broadcast networks and superstations. of the aspects of satellite retransmission proceeding incurred this necessary SBCAPetition to Modify at 20 (citing of broadcast signals that differ expense for satellite distribution of testimony of Mr. Harry Shooshan, Mr. significant!y from the transmission of superstations or network stations." SBeA John Haring and Mr. Edwin Desser). The cable networks involved the costs of Petition to Modify at 22. SBCAcites the testimony of Mr. Shooshan and Mr. delivering the signals to the MVPDs. The testimony of Ms. McLaughlin, who Haring, in particular, suggest that there Panel found this .issue, along with that of acknowledged that broadcast stations are some marked differences between the advertising inserts (discussed infra), as are not responsible, and do not incur the licensing of cable networks and being "among the most challenging cost of, delivering their signal to satellite broadcast signals. The Panel, however, issues for the Panel to resolve." Panel carriers for subsequent retransmission. took account of that. Panel Report at 29. Report at 43. Id. at 22-23. SBCAsubmits that "[tjhe Nevertheless, there was ample The Panel found that the license fees error in Ms. McLaughlin's analysis, testimony that the two markets were also charged for cable networks included the implicitly accepted by the Panel, is that quite similar. Tr.1202-04(Mr. Robert cost of delivering the cable network to these expenses were basically the cost of Crandall); Tr. 1609 (Ms. Mc-Laughlin);Tr. the MPVD--i.e., making the signal the [s]atellite [c]arriers in distributing 1284(Mr.Owen). The Panel weighed the readily available for reception by the their own product." Id. at 23. SBCA evidence and accepted the copyright MVPD for subsequent distribution to asserts that the Panel understood that owners' approach using cable network subscribers. Id. at 45. With satellite satellite carriers bore the cost of delivery, fees because it was "the most similar retransmission of broadcast signals, but then mistakenly categorized it as a free market we can observe." Panel however, the satellite carriers absorb the "discount" to compensate carriers for Report at 30 (emphasis in original). costs of getting the broadcast signal from their costs, when in fact it is a cost that Because this conclusion is grounded in its geographic point of origin, and then must be borne by the copyright owners. the record, it is not arbitrary. National delivering it to its subscribers. Id. The Id. at 25-26. Cable Television Ass'n, Inc. v. CRT, 724 F.2d Panel considered whether the cost of SBCAsubmits that it demonstrated 176, 189 (D.C. Cir. 1983) (decisions delivering the signals should, therefore, that the average delivery cost per signal, grounded in the record within the zone be deducted from the benchmark. per subscriber, per month is 10 cents, and of reasonableness). The Panel declined to make such a 6.5 cents for volume discounts. SBCA, Likewise, the Panel's decision to rely deduction. The Panel found that there therefore, contends that the 27 cent on the PBS/McLaughlin testimony to was no evidence presented to suggest benchmark rate must be adjusted establish the cable network benchmark that if satellite carriers and copyright ~~~;~~~~~~~etween17 and 21.5 cen\J was adequately grounded in the record. owners negotiated in a free marketplace Panel Report at 18-20. Again, the Panel for the retransmission of broadcast In reply, Copyright Owners assert that stated that use of cable networks was by signals, the copyright owners would SBCAmischaracterizes the transmission no means flawless and, to account for offer satellite carriers a discount on cost issue by suggesting that the major this, the Panel was adopting the license fees to accommodate delivery focus should be the structural nature of "conservative" approach offered in costs. The Panel discussed the testimony such costs, rather than whether they Ms. McLaughlin's analysis. Id. at 31. The of Mr. Jerry L. Parker, an SBCAwitness would result in any marketplace price Register determines that the Panel's who offered testimony as to the history, adjustments. Copyright Owners Reply at decision to accord the PBS/McLaughlin nature and operation of the satellite 22. Copyright Owners cite Mr. Larry . testimony controlling weight is industry: ~erbrandt's testimony that transmission consistent with its determination to Mr. Parker was invited to demonstrate costs do not yield different cable network utilize the plain meaning of "fair market whether carrier costs impacted the rates license fees in the marketplace, and note value" as the proper standard for setting negotiated between satellite carriers and cable that Mr. Jerry Parker was unable to royalty fees. Further, it is well established networks. He could not. Indeed, Mr. Parker demonstrate otherwise. Id. at 22-23. that using evidence of analogous markets conceded, for example, that despite additional c. Recommendation of the Register. The is the best evidence in determining costs incurred by DBS9 carriers (beyond those Panel discussed the issue of transmission of HSD 10 carriers), DBS operators were unable market price. See National Cable to negotiate lower rates on that basis. costs quite extensively, finding that the Television, 724 F.2d at 187. For these Moreover, he declined to urge the Panel to set record was devoid of credible evidence reasons, the Register determines that the a discounted rate for DBS carriers to account demonstrating that transmission costs of Panel did not act arbitrarily or contrary for their higher costs than HSD carriers. We satellite carriers affected the rates to the Copyright Act. must similarly decline to discount the cable network benchmark to account for higher C. Adjustments to the Cable NetworkFee delivery costs of broadcast signals. 9 "DBS" stands for Direct Broadcast Service, and is Benchmark associated with high powered, high frequency direct Panel Report at 45-46 (citations omitted). broadcast satellite services. An example of a DBS 1. Adjustment to the Benchmark for operator is OirecTV. Delivery Costs b. Arguments of the Parties. SBCA · a. Action of the Panel. After establishing vigorously contests the Panel's resis­ 10 "HSO" stands for "Horne Satellite Dish," and cable network license fees, as presented tance to deducting delivery costs from typically refers to satellite providers who operate at lower frequencies than DBS providers.

Page 8 of 18 December 1997-500 ML-574 ~c,ftegotiated between satellite carriers and the rate paid by multichannel distributors downward adjustments for advertising cable networks. Panel Report at 45-46. to cable networks, we must deduct $0.08 to inserts. Copyright Owners Reply at 23­ The Panel expressly found that SBCA's obtain the 'real cost' of cable networks. 24. witness.' Mr. Parker, could not offer The copyright owners counter that most c. Recommendation of the Register. The satellite carriers don't insert advertising I.. ~idence of such an impact, and Panel fully discussed what effect, if any, ~ceded into cable network signals anyway. Indeed, that despite additional costs HSO carriers don't possess the technology advertising inserts might have on the incurred by DBS carriers, DBS operators to insert advertising. Moreover, negotiated fee for retransmission of were unable to negotiate lower rates on multichannel distributors appear to pay broadcast signals. Panel Report at 43-45. that basis. Tr.2528. The Panel grounded the same cable network license fee The Panel cited the testimony of Ms. its determination in the record regardless of whether they insert Mclaughlin and Mr. Gerbrandt that evidence, which is the hallmark of advertising. "based upon their knowledge and rational decision making. National If this last assertion is accurate, one experience, neither the availability Cable Television Ass'n. v. CRT, 724 F.2d 176 would expect that in a hypothetical free of advertising inserts, nor the carriers market negotiation, broadcasters would ability [sic] to insert, affects the prices (D.C. Cir. 1983). similarly decline to reduce their license SBCA's discussion of transmission fees to satellite carriers for their lack of that cable networks charge * * *. The costs fails to focus on what impact, if any, advertising availabilities and no satellite carriers allowed this testimony they would have on negotiated license benchmark adjustment would be to stand essentially unrefuted. Indeed, fees, and instead relates to which party appropriate. Both Ms. McLaughlin and Mr. Dr. Haring was explicitly invited to should bear the cost. Costs can be shifted Gerbrandt opined that, based upon their render an opposing opinion but . between parties in a business knowledge and experience, neither the forthrightly declined." Id. at 44. SBCA did relationship, and SBCAasserts that their availability of advertising inserts, nor the not offer any testimony which costs, when comparing delivery of carriers [sic] ability to insert, affects the incontrovertibly rebuts the testimony of prices that cable networks charge. They Ms. McLaughlin and Mr. Gerbrandt. broadcast signals with delivery of cable did not support this opinion with any networks, must be shifted to copyright documentary evidence or empirical data. Consequently, the Panel's determination owners to prevent a windfall. However, However, the satellite carriers allowed this that no adjustment should be made is not costs can also be absorbed by a party as testimony to stand essentially unrefuted. arbitrary because it is grounded in the part and parcel of doing business, and Indeed, Dr. Haring was explicitly invited record. must be when one party cannot shift the to render an opposing opinion but costs (or a portion thereof) to the other. forthrightly declined. In the final analysis, D. Equality Between Superstation and Where there is no credible evidence we accept the copyright owners' expert Network SignalRates demonstrating a party's ability to shift a testimony and decline to deduct $0.08 the negotiated price from the benchmark as advocated by the 1. Action of the Panel cost, no change in satellite carriers. should occur. The Panel found that to be Panel Report at 44-45 (citations omitted). As discussed above, Congress the situation with transmission costs, and established different royalty rates the Register has no grounds on which to b.Argumentsof the Parties. SBCA for superstation and network signals ~reject that finding. alleges that the Panel "completely when it created the section 119 license. misconceived the adjustment necessary The initial rate for superstations was 12 2. Adjustment to the Benchmark for to reflect the value for insertable cents per subscriber per month, and 3 Advertising Inserts advertising." SBCA Petition to Modify at cents per subscriber per month for Q. Actionof the Panel. In addition to 26. They note that the arbitration panel in network signals. This 4 to 1 ratio delivery costs, the Panel considered the the 1992 rate adjustment made a reflected the payment of royalties under issue of advertising inserts very downward adjustment for advertising the section 111license. Under section 111, significant. Cable networks typically inserts. 57 FR 19058 (May I, 1992). SBCA only copyright owners of nonnetwork grant MVPD's a certain number of time asserts that the "value of insertable programming are allowed to share in the slots during the programming provided­ advertising is significant," and that its royalty funds. Cable operators pay full known as advertising inserts--for the value is "no less than 7.5 cents" per value for retransmitting independent MVPDs to sell to advertisers. The monies subscriber per month. Id. at 27. broadcast stations (of which uperstations raised from these inserts are retained by As a "variation" on the advertising are a subset), and only one-quarter value the MVPD, and can defray the cost of the insert issue, SBCA offers that the for retransmission of network signals. 17 license fee for the cable network increased national exposure of broadcast U.S.C. 11(f)·k The one-quarter value approximately 8 cents per subscriber per stations offered by satellite reflects Congress' determination in 1976 month. Panel Report at 43-44. The Panel retransmissions increases the amount of that approximately 25 percent of the found, however, that because section revenue that copyright owners receive programming on network signals is ~~mpensable 119(a)(4) requires satellite carriers to for the advertising slots that they retain. I nonnetwork programming, ~hile retransmit the signals of broadcast Id. at 28. SBCA submits that the Panel the remainder is not. Congress stations intact, they do not receive any should have further adjusted downward carried over this 4 to 1 ratio in the 1988 advertising inserts for the retransmission for this value, and argues that it could Satellite Home Viewer Act when it set of broadcast signals. Id. at 44. The Panel not quantify the value because the considered whether this should result in necessary information was in the 11 SBCAalleges throughout its Petition to Modify a downward adjustment of the possession of the copyright owners who benchmark rate. that the CARP discovery rules, and particularly the were not required to disclose it through Panel's application of the rule,' precluded it from The Panel declined to make an the CARP discovery rules:" obtaining vital information from copyright owners adjustment: In reply, Copyright Owners assert that to support its case, which resulted in negative inferences by the Panel as to the sufficiency of its [T)he satellite carriers naturally argue the Panel fully considered the arguments that because the benchmark is based upon presentation, This argument is addressed, infra in of SBCA, and correctly rejected any subsection G. ~ iError; line should read: "Panel's application of the rules, 'Error: line should read: precluded it from" "witness, Mr. Parker, could not offer " kError; line should read: "U.S.C. 111(f).The one-quarter value" December 1997-500 Page 9 of 18 ML-574 the 12 cent and 3 cent rates in the statute. network programming is not for network signals that is one-fourth of The 1992 arbitration panel that compensable, and carried this rationale that for superstations (or any other ratio, • adjusted the section 119 rates took into the rate structure of section 119.The for that matter) if that rate did not into account the 4 to 1 ratio, but found fact that networks are allowed to share in represent the fair market value of that the amount of network program­ the section 119·royalties, but not the network signals. ~ ming on network stations had declined section 111 royalties, "does not mean that SBCA asserts that the 1994 amend- ..... ' to approximately 50 percent, down from the network-signals are to be paid for ments contemplate a CARP establishin the 75 percent contemplated by section any differently under the satellite license two rates--one for network signals, and 111. That panel, however, set the network than under the cable license " ,.. ,.. " Id. at another for superstations-thereby station rate at 6 cents, which represented 39. Furthermore, SBCA submits that inferring that Congress contemplated roughly a 3 to 1 ratio to the superstation satellite carriers give added value to rate differentiation (Le. that one rate rate it set, because it was concerned with network signals by carrying them to would be less than the other). Such disruption in the satellite industry of unserved households who would not an inference is belied by language in the carriage of network signals if it otherwise receive such signals. Id. at 41. House Report, however, which states established a network signal rate at SBCAcontends that, if anything, there that the rates set by the CARP in this half (a 2 to 1 ratio) that of the should be no fee for network signals. Id. proceeding "should reflect the fair superstation rate. 57 FR 19052, 19060 at 40. market value of satellite carriers' (May 1, 1992).The Copyright Royalty Finally, SBCA argues that the Panel secondary transmissions of superstations Tribunal, in reviewing the panel's erred by creating a 27 cent royalty rate and network stations." H.R. Rep. No. decision on this matter, stated that: applicable to PBS (defined under the 703, 102d Cong., 2d Sess. 7 (1994).The The Tribunal believes that the Panel was statute as a network) because "PBS statute does not require or suggest that not bound by either a 4:1 ratio or a 1:1 signals are free on the satellite by law." the rate for network signals, or ratio. When the Tribunal issued its Id. at 41. These signals, SBCA contends, superstations, be set at anything less declaratory ruling concerning network cannot possibly have a market value, and than fair market value. copyright owners, we did not intend to there should be no royalty fee for PBS There is no binding precedent that prejudge any future ratesetting. We noted that in cable and satellite, the pay-in may signals. Id. required the Panel to apply a ratio in not necessarily correlate to the pay-out. Copyright Owners contend that the value between network signals and Therefore, a 1:1 ratio is not required. Panel correctly rejected the 4 to 1 ratio superstations, and set network signal However, we do believe the Panel had the because the new law requires a rates lower than superstation rates. The authority to take our declaratory ruling determination of fair market value. 1992 arbitration panel applied a different into account, so that it was entitled to Copyright Owners Reply at 32. criterion (rates paid by cable under adjust the 4:1 ratio downward to reflect Copyright Owners note that the binding section 111)to determine section 119 that network copyright owners are entitled precedent referred to by SBCAwas an rates, and its decision therefore does not to receive satellite royalties. interpretation of the 1988 Satellite Home serve as precedent for this proceeding. Viewer Act, not the 1994 Act, and that Furthermore, even if the 1992 arbitration Id. at 19052. nothing in the 1994 Act requires were binding precedent, the final orde The Panel in this proceeding rejected assignment of different rates for of the Copyright Royalty Tribunal (w the notion that it was required to set superstation and network signals. Id. at constituted the final agency action in that different royalty rates for superstations 33-34. proceeding) clearly stated that no and network signals, respectively, With regard to SBCA's contention that differentiation between network and because it was seeking the fair market retransmission of PBS signals should not superstation rates was required. 57 FR value of these signals. The Panel stated: be compensated at the 27 cent level, 19052 (May 1, 1992) ("The Tribunal Copyright Owners argue that such a believes the Panel was not bound by We find no credible evidence that contention "flies in the face of the fair either a 4:1 ratio or a 1:1 ratio."). The retransmitted network stations are worth less than retransmitted superstations. market value evidence," and that the PBS Panel, therefore, did not act arbitrarily by Indeed, even assuming arguendo, we were signal available for free on the satellite rejecting application of the 4 to 1 ratio. to conclude that network programming is is not the signal of the member stations The Register has also examined the worth less/or even wholly ncompensable, that are at issue in this proceeding. Id. at record to determine whether, under a fair we find no record support for any 35. market value analysis and regardless of particular ratio--no evidence was adduced application of a pre-set ratio, the as to the present day average proportion of 3. Recommendation of the Register evidence required a differentiation in network to non-network programming. The Panel did not err by rejecting the 4 network and superstation rates. The And imposition of the original 4 to 1 ratio to 1 ratio and adopting a network signal Panel determined that there was "no by rote, merely to replicate section 111 rates, would not be consistent with a fair rate that was equal to the value of the credible evidence that retransmitted market value analysis. superstation rate. The Panel correctly network stations are worth less than observed that while the 1992 arbitration retransmitted superstations." Panel Panel Report at 40. panel generally followed the ratio set by Report at 40. It was wholly within Congress in the 1988 Act, the 1994 the Panel's discretion to arrive at such a 2. Arguments of the Parties amendments changed any reliance upon determination. SBCApresented evidence SBCAchallenges the Panel's refusal to a pre-set ratio by directing the Panel to demonstrating that network viewer apply the 4 to 1 ratio, asserting that such determine only the fair market value for ratings have declined, SBCA Proposed ratio is binding precedent upon the network and superstation signals. Panel Findings of Fact and Conclusion of Law Panel. SBCA Petition to Modify at 38. Report at 40. There is not evidence in the at 39, but it did not offer evidence as to SBCAcontends that Congress 1994Act, or its legislative history, that what impact such a decline had relative determined, under section 111,that Congress intended the Panel to set a rate to superstations, nor did it quantify the difference in value between network ~

Page 10 of 18 December 1997-500 ML-574 signals and superstations under a fair satellite retransmission! of "distant" network-affiliate relationship from . market value analysis, except to insist broadcast signals, and satellite importation of distant signals of the same that all signals should be free. See SBCA retransmissions of "local" broadcast network, citing the recent Copyright Reply Findings of Fact and Conclusions signals. The Panel did make this Office Report on revision of the cable and I.. of Law at 7. The Panel, consequently, did distinction, setting a royalty rate of 27 satellite carrier compulsory licenses. Id. ~Ilotact arbitrarily by adopting the same cents for distant retransmission of at 4. Because local retransmissions do 'royalty rate tor both network signals and superstations, and zero cents for local not harm the network-affiliate Isuperstations. retransmission of superstations. Panel relationship, EchoStar asserts that "[i]n '---i:inally, SBCA argues that because the Report at 54. light of the intent behind the compulsory Panel failed to take account of the fact While the Panel adopted a 27 cent rate license, therefore, the 'unserved that PBSsignals are free on the satellite for retransmission of distant network household' limitation should be read as by law, it was error to accord them the signals, Id., it declined to adopt a rate for not precluding such local-into-local same royalty rate as other network local retransmission of network signals retransmissions--a form of retransmis­ signals." Section 605(c) of the because it determined that it lacked sion which required technologies not in Communications Act, 47 U.S.C., subject matter jurisdiction to do so. Id. at existence at the time of the legislation." prohibits encryption of programs 48. The Panel considered section Id. at 5. included in the National Program 119(a)(2)(B),which provides that the In addition, EchoStar submits that the Service of the Public Broadcasting satellite compulsory license is "limited to Panel should have interpreted section Service, essentially making the National secondary transmissions to persons who 119 flexibly enough to allow local Program Service free to all satellite home reside in unserved households," and retransmission of network signals, citing dish owners. Member stations of PBS, examined the section 119(d)(10) Sony Corp. of America v. Universal City however, are not subject to 47 U.S.C. definition of an unserved household. The Studios, Inc., 464 U.S. 417 (1984) and 605(c), and satellite carriers may charge Panel concluded that: Twentieth Century Music Corp. v. their subscribers for retransmission of [N]etwork signals generally may not" Aiken, 422 U.S. 151 (1975). Id. at 10. these stations. Furthermore, the National retransmitted to the local coverage area of Finally, EchoStar argues that, since the Program Service is not a network signal local network signals. The separate rate section 119 license was modeled after the as defined under section 119(d)(2). request of ASkyB is explicitly intended to section 111license, and local Member stations of PBS are network apply to retransmission of network signals to retransmission of network signals is signals under section 119(d)(2). served households. Section 119does not provide a compul-sory license for these permitted under section Ill, the two Presumably, there are PBS programs retransmissions. Hence, we lack subject matter statutes should be interpreted similarly. available on the National Program jurisdic-tion to set a rate for local Id. at 11 (citing Northcross v. Board of Service that are the same programs retransmissions of local network signals. Education, 412 U.S. 427 (1973). available from PBS stations, although no Panel Report at 48 (emphasis in original). Commercial Networks seek a such evidence was adduced in this clarification of the Panel's ruling on proceeding. There are also likely to be The Panel did acknowledge in a local retransmission of network signals, • :different programs, particularly those footnote that there may be "rare albeit from a completely different ~roducedby member stations. SBCA did instances" where a household located perspective. Commercial Networks not quantify by how much, under a fair within the local market of a network request the Librarian to make clear that market value analysis, the same signal was, indeed, an unserved where local retransmission of a network programs on the National Program household within the meaning of signal does not violate the unserved Service and PBS stations should reduce section 119(d)(10). Id. at 48, f.n. 62. The household restriction (a circumstance the royalty fee for PBS stations, beyond a Panel stated that "[tjhese households acknowledgedby the Panel likely to be blanket assertion that all PBS stations qualify as unserved but, under section rare), the rate for such retransmission is should be free. SBCA Reply Findings of 119, ASkyB would pay the conventional 27 cents per subscriber per month. Fact and Conclusions of Law at 68-69. 'rate for non-local signals.' " Id. Commercial Networks Petition to The Panel concluded that there was "no Modify at 1. credible evidence" warranting a 2. Arguments of the Parties In reply, EchoStar opposes Commercial conclusion that network signals were EchoStar contends that the Panel Networks position, and argues that the worth less, which would include PBS committed reversible error in same rationale that the Panel used in stations. The Register cannot find determining that it has" no jurisdiction to adopting the zero rate for superstations credible evidence to the contrary, and set a royalty rate for local retransmission applies with equal force to network therefore the Panel's determination must of network signals, and that the rate stations that are locally retransmitted to be affirmed. should be zero. EchoStar Petition to unserved households. EchoStar Reply at Modify at 1. According to EchoStar, the 2. E. Local Retransmission of NetworkSignals language of section 119 regarding the Certain Copyright Owners object to permissibility of local retransmission of Echobtar's position, and contend that 1. Action of the Panel network signals is nuclear," and the Panel EchoStar does not have standing under In setting the satellite carrier should therefore have consulted the the rules to file a petition to modify the compulsory license royalty rates for legislative history, rather than decide the Librarian's decision when it was not an networks and superstations, the Panel matter on the basis of the statutory active party in this proceeding. Certain was asked to distinguish between language.Id. at 7..8. EchoStar submits that Copyright Owners Reply at 1. Certain the Congressional intent behind the Copyright Owners contend that the unserved household restriction of Panel correctly interpreted section 119 as section 119(a)(2)(B)was to protect the preventing retransmission of local 12 PBSsignals are defined as network stations under section 119(d)(2). network signals to served households, 'Error: line should read: nError; line should read: "satellite retransmissions of "distant'?' "determining that it had no jurisdiction" "Error: line should read: °Error; line should read: "[Nletwork signals generally may not be" "network signals is unclear, and the Panel"

December 1997-500 Page 11 of 18 ML-574 • and that the legislative history does not principally because the technology to Commerical Networks urge that the warrant a different conclusion. Id.. at 3-6. make such local retransmission did not rate for such retransmissions should be w commercially exist. It is evident from the 27 cents. EchoStar 14 argues that the rate 3. Recommendation of the Register history surrounding adoption of the should be zero, consistent with the Two separate issues are presented by unserved household restriction in 1998q Panel's adopted rate for local '""'~ the local retransmission of network that adoption of the restriction was retransmissions of superstations. To th~ .signals, First, there is the retransmission motivated by concerns expressed by extent that the Panel sought to impose of a network station within that station's network affiliate stations that the 27 cent rate on local retransmissions local market. The Panel categorized this importation of distant network stations of network signals to unserved house­ as local retransmission to served affiliated with the same network would holds, the Register determines that such households, and concluded that section erode their over-the-air viewership. action is arbitrary. The Register cannot 119did not permit such retransmissions. Register's Report at 103-104. This . find testimony in the record that Second, there is retransmission of a suggests that if Congress had considered supports the conclusion that local network station within that station's local the issue, it might have condoned local retransimssion of network signals to market to subscribers who satisfy the retransmissions to served households. unserved households has a fair market definition of an "unserved household" On the other hand, the section value rate of 27 cents, particularly where lin section 119(d)(10). The Panel 119(d)(10)(A) portion of the definition of the Panel determined that the fair market ~owledgedthat such retransmissions an "unserved household" does not value of local retransmissions of were permissible under section 119, specify receipt of what network signal superstations was zero. Panel Report at though likely to occur in "rare over-the-air triggers the prohibition in 52. Likewise, the record does not support instances," but was unclear as to what making retransmissions of network a conclusion that there is any the proper royalty rate should be. signals. The language of section differentiation between the fair market Local retransmission of network 119(d)(10)(A) could easily be read to value of local retransimssions' of signals to served households presents a prohibit retransmission by satellite network signals vis-a-vis superstations. challenging issue. The Copyright Office whenever the subscriber receives an commercial Networks do not cite any declined to issue a declaratory ruling over-the-air signal of Grade B intensity testimony to the contrary in their petition that such retransmissions are ermissible, from any network affiliate, including the to modify. though it did not preclude addressing local network affiliate that the satellite To the extent that the Panel failed to such a matter through a rulemaking carrier intends to retransmit to the adopt a rate for local retransmissions of procedure. Letter of the Acting General subscriber. This is the position that the network signals to unserved households, Counsel to William Reyner, August 15, Panel took. the Register determines that such action 1996. Moreover, the Office has, in its In sum, the Register determines that is inconsistent with its task in this recent report to the Senate on revision of the law is silent on this issue. proceeding, and recommends that the the satellite and cable compulsory Consequently, the Register cannot Librarian substitute his own licenses, expressly endorsed the unequivocally say that the Panel's determination. 17 U.S.C. 802(g). The permissibility of such retransmissions, decision is arbitrary or contrary to law. dearth of testimony on this issue and, f." ..~ and requested Congress to "clarify" the The second issue is the local that matter, the Panel's cursory "'" statute on the matter. "A Review retransmission of network signals to discussion of it, is not surprising because of the Copyright Licensing Regimes unserved households. The Panel appears local retransmission of network signals Covering Retransmission of Broadcast to have presumed that such to unserved households, and' served Signals," Report of the Register of retransmissions are permissible. Panel households as well, is undoubtedly an Copyrights at xxr (1997) (hereinafter Report at 48. The Register determines unattractive business proposition to "Register's Report"). As the agency that they are permissible, as provided by satellite carriers. Nevertheless, the issue responsible for administering the the express terms of section 119. The was before the CARP, and requires a Copyright Act, the Office believes that it Panel failed to articulate what royalty resolution. retains the authority to conduct a rate would be applicable to such local The Register recommends that the rulemaking proceeding to determine the retransmissions. It mentioned, in a Librarian adopt a zero rate for local permissibility of local retransmission of footnote, that the number of unserved retransmissions of network signals to network signals to served households, . households within a network station's unserved households because the regardless of the Panel's determination in local market were likely to be few, and Register is persuaded that the Panel's this proceeding. cited the testimony of ASkyB's witness, conclusions with respect to local Nevertheless, the Register must Preston Padden, that ASkyB would, in determine whether the Panel's decision those instances, "pay the conventional that such retransmissions are not 'rate for non-local signals.' " Id. 14 The Register agrees with Copyright Owners that EchoStar lacks standing to file a petition to modify permitted under section 119 is contrary at 48, f.n. 62 (quoting written direct the Panel's determination, and recommends 13 to the provisions of the Copying Act. testimony of Mr. Padden). The Panel did dismissal of the petition. Section 251.55(a) of the The Register reviewed the language of not expressly state what the rate should rules, 37 CFR provides that only parties to the section 119,and its legislative history, be for all carriers making local proceeding may file petitions to modify, and makes both in the context of this proceeding, no provision for nonparties. EchoStar, though a retransmissions of network signals to member of, and represented by SBCA, was not a and in her report to the Senate. Such unserved households. party to this proceeding because it did not file a review confirmed the Register's belief Notice of Intent to Participate as required by the that Congress simply did not consider rules. See 37 CFR 251.45(a). Dismissal of EchoStar's petition, however, does the issue of local retransmission of not preclude consideration of the issues surrounding network signals to served households at 13 Because the Panel's decision on this point is a local retransmissions of network signals, and the the time of passage of section 119, conclusion of law, the arbitrary standard is not Register has considered these as requiredby section applicable. 802(g). 'Error; line should read: ~ "value of local retransmissions of " PError;line should read: qError; line should read: "Copyrights at 138 (1997) (hereinafter" "unserved household restriction in 1988 " sError; line should read: "to unserved households, and not served" Page 12 of 18 December 1997-500 ML-574 retransmissions of superstations are SBCA contests the Library's decision to whichever date is later. equally applicable to local temporarily suspend the schedule to Section 802(g) governs judicial review retransmissions of network signals to address issues raised by ASkyB, so of the Librarian's decision in this unserved households. Panel Report that the CARP was initiated on March 3, proceeding. The section gives ....any I. at 52-53.As noted above, there is no 1997, as opposed to January 1, 1997, as aggrieved party who would be bound by ~:fconclusive evidence to suggest that contemplated in section 119(c)(3)(A). the [Librarian's] determination," 30 days .• . ,. locally retransmitted network signals are " .SBCA argues that because the Library in which to notice an appeal with the of greater fair market value than locally violated the time requirement of section United States Court of Appeals for the retransmitted superstations. Accordingly, 119(c)(3)(A), and such delay caused District of Columbia Circuit. The section the Register recommends adoption of a substantial harm to satellite carriers, "the then provides that "[ijf no appeal is zero rate for local retransmission of Panel'sreport should be invalidated on brought within such 3D-day period, the network signals to unserved households. due process grounds, particularly with decision of the Librarian is final, and the respect to the prejudicial effective date royalty fee * * ,.. shall take effect as set F. Effective Date oftheNew Rates directly resulting from the Librarian's forth in the decision." (emphasis added). failure to comply with a critically Section 802(g) then provides that if an 1. Action of the Panel important statutory requirement." Id. at appeal is taken, "[tjhe pendency of an In announcing the royalty rate of 27 55 (citing Baumgardner v. ~ecretary, Dept. appeal under this paragraph shall not cents for distant retransmission of of Housing and Urban Development, 960 relieve persons obligated to make royalty network and superstation signals, and F.2d 572 (6th Cir. 1992). payments under section ( ) ,..,.. * 119 *,.. ,..,. zero cents for local retransmission of Copyright Owners assert that they Nothing else is said in section 802(g) superstations, the Panel stated that the have interpreted section 119 from with regard to the possible effective date time period for payment of the rates the beginning of this proceeding as of royalty rates. would be from July 1, 1997, through requiring an effective date of July 1, 1997, SBCA and Copyright Owners strongly December 31, 1999. Panel Report at 54. for the new rates, and that SBCA never disagree over the effective dates" of the 2. Arguments of the Parties challenged that position until now, royalty rates established in this SBCA contends that the Panel acted thereby estopping SBCA from raising the proceeding. SBCA believes that the Icontrary to law by setting an effective issue. Copyright Owners Reply at 42-43. effective date can be no sooner than 30 ~te of July 1, 1997, for the new rates. Copyright Owners also argue that the days after the Librarian's decision (i.e. SBCAstates that the Panel did not have Librarian's good cause delay in November 26, 1997) at which time it will any authority to set an effective date commencing this proceeding does not be known whether or not the Librarian's because section 119(c)(3)(C)states that invalidate it, and that the cases cited by decision is final, while the Copyright the rates become effective as set forth in SBCA are inapposite. Id. at 44-45. Owners maintain that July 1, 1997, is the the Librarian's order. SBCA Petition to Copyright Owners also attach an proper effective date. The Register has Modify at 46. Further, SBCA argues accompanying motion to strike the examined the governing language of that the effective date of the new rates affidavits offered by SBCA to corroborate sections 119(c)(3)(C) and 802(£),and , 'must be prospective only. Id. at 47. It its .argument that the July 1 effective date notes an incongruity with respect to the ~ notes that section 119contemplates will cause undue hardship on satellite July 1, 1997, date. prospective application by discussing the carriers. SBCA opposes this motion. Section 119(c)(3)(A) provides that this rates "to be paid." Id. at 48-49 (citing proceeding was supposed to have started section 119(c)(3)(A)and the 1988 House 3. Recommendation of the Register on January 1, 1997. Given the 180-day Report to the Satellite Home Viewer arbitration period, as provided by section Act). SBCAargues that the caselaw Section 119(c)(3)(C) provides that: 802(e), the latest the Panel could have prevents retroactive application of The obligation to pay the royalty fee delivered its report would have been agency rulemaking unless the enabling established under a determination June 29, 1997. The Librarian would then statute expressly states otherwise, and which-­ have the 60-day review period in which submits that the Librarian's order in this (i) is made by a copyright arbitration to either accept or reject the Panel's proceeding effectively constitutes a royalty panel in an decision, which would place the date of rulemaking because the Copyright arbitration proceeding under this . final agency action at no later than Office's rules are being amended to paragraph and is adopted by the August 28, 1997. This is almost two reflect the new rates. Id. at 50-51. Librarian of Congress under section months after July 1, 1997. While Additionally, SBCA argues that 802(£),or Congress could have contemplated the applying the July 1, 1997, effective (ii) is established by the Librarian of Librarian completing his review in less date would cause substantial harm to the Congress under section 802(£)shall than 60 days, it is hard to imagine that satellite industry. Id. at 55. SBCA submits become effective as provided in section Congress could have expected him to affidavits of representatives of the 802(g) or July 1, 1997, whichever is later. complete it in just one day: the time satellite industry discussing their 17 U.S.C. 119(c)(3)(C). Clause' (i) of period from delivery of the Panel's report inability to adequately inform their section 119(c)(3)(C) describe- the on June 29 to the issuance of the subscribers on atimely basis of the rate situation where the Librarian adopts the increase, and the difficulty of adjusting decision of the CAM while clause (ii) 15 Interestingly, the statute does not address the distribution contracts to accommodate describes the situation where the situation, as in this proceeding, where the Panel's fee increases. Id. at attachment A. Librarian has rejected the CARP's decision is accepted in part and rejected in part. Finally, SBCA takes the Librarian to decision and substituted his own Subclause (ii) most likely applies to this proceeding because the Librarian has established one of the task for not complying precisely with the determination.IS The effective date of the royalty rates (the rate for local retransmission of procedural schedule established in the established rates is either July 1, 1997, or . network signals to unserved households). statute for this proceeding. Specifically, the date set pursuant to section 802(g),

'Error: new paragraph starting with word "Clause" "Error: line should read: "Error: line should read: "describes the situation where the" "disagree over the effective date of the ~,

December 1997-500 Page 13 of 18 ML-574 •

Librarian's decision on July 1, 1997. The effective period for the new rates. Id. at significant administrative considerations more likely explanation is that Congress 42-43. surrounding implementation of the new 11 envisioned the CARP delivering its The Register recommends rejection of rates. Satellite royalty rates are calculated report well before--at least two months-­ Copyright Owner's contention for two on a monthly basis, so that an effective the 180-day deadline. Only in this reasons. First, the Panel accepts Ms. date other than the first day of a month manner could the Librarian have issued McLaughlin's testimony as a general will require application of two sets of a decision that was before July 1, 1997, matter to establish a workable royalty rates (the old rates and the new thereby justifying inclusion of the. benchmark. Panel Report at 31. rates) to one monthly calculation. The language "July 1, 1997," and "whichever The Panel did not accept her testimony, Register finds this not only burdensome date is later" in section 119(c)(3)(C). and its accompanying premises and to satellite carriers calculating the rates, Contrary to the assertions of the assumptions, as the precise analysis of but to the Copyright Office as well in Copyright Owners, July 1, 1997, what the royalty rates should be. Id. administering the section 119 license and is not the statutorily prescribed effective Furthermore, although the Panel stated examining the statement of account)' date for the new royalty rates that "Ms. McLaughlin's analysis yielded The Register, therefore, counsels against announced in today's decision. July 1, a rate of $0.27 per subscriber per month adopting an effective date ,that is other 1997, is only a contingency date in the averaged over the three year statutory than the first day of a month. event that this proceeding had ended period," Panel Report at 30, a July 1 Also, there are Significant costs to the before July 1, 1997, which it clearly did effective date accounts for only half of Copyright Office associated with not. Rather, the Register must look the year, and Ms. McLaughlin did not so implementing the new rates. New to section 802(g), which provides that limit her testimony. PBS Proposed statement of account forms must be the effective date of the new rates is "as Findings of Fact and Conclusions of Law created and sent to satellite carriers, and set forth in the decision." 17 U.S.C. at 18-19.16 staff must be trained to examine for 802(g). The Register interprets "decision" In the Register's view, an'

Page 14 of 18 December 1997-500 ML-574 the Librarian to rule on the matter of reopened to take additional testimony. Panel correctly evaluated the evidence of :( whether local retransmissions should be Since the matters discussed in SBCA's retransmission consent negotiations and a part of this proceeding, the entire affidavits are moot, the Register found it unavailing in making an proceeding is invalid. The Register recommends that they be stricken. adjustment to the benchmark. Copyright agrees with Copyright Owners that the Owners Reply at 27-31. G. Additional1ssues Raised by SBCA 2. The second issue involves the issue ~, ~~e:r~~~1eb~~~~~:~ra~~~~~ite. of the costs incurred by cable networks United States v. AmdahlCorp., 786 F.2d 387 SBCA raises several additional issues in assembling the clearances for their (Fed. Cir. 1986)involved a contract in its Petition to Modify. Because these programming. SBCAattempted to show entered into by the Treasury Department issues all relate to evidence not adduced at hearing that copyright owners do not that was statutorily outside the scope of during the course of the proceeding, and have costs in the broadcast signal its authority. Contracting outside the the weight to be accorded evidence that retransmission context, and therefore an scope of authority differs significantly was adduced, they are addressed appropriate downward adjustment of the from postponing procedural dates for together. benchmark must be made. The Panel good cause. Albenga v. Ward, 635 F.SUppa 1. The first issue involves the history of stated that the clearance costs in the 660(S.D.N.Y. 1986)involved an agency retransmission consent negotiations cable network arena are unknown, but that created rules beyond its authority. . under the communications law. Under did not agree that a downward Again, this is significantly different. retransmission consent, an MVPD must adjustment of the benchmark was Finally, Baumgardner v. Secretary, Dept.of obtain the permission of a broadcaster required: Housing and Urban Development, 960 F.2d before the MVPD can retransmit the In a hypothetical free market, it is 572 (6th Cir. 1992)involved the failure of broadcaster's signal to the MVPD's quite conceivable that the higher the an agency to timely deliver an accurate subscribers. Retransmission consent costs broadcasters must pay to clear their complaint. As SBCAnotes, the court in negotiations took place between the signals for DTH17 distribution, the higher this case did not find the agency action cable industry and broadcasters in 1993 the royalty rates they would charge invalidated because the delay was not and 1996.SBCA attempted to show that satellite carriers. Accordingly, the impact sufficiently prejudicial. The Register little compensation was obtained by of high clearance costs on fair market cannot find any convincing evidence of broadcasters for permission to value (based upon a hypothetical free irreparable prejudice incurred by SBCA retransmit their signals in an effort to market analysis) could be positive rather as a result of the brief delay, particularly prove that the fees under the section 111 than negative. No adjustment to where the Register is recommending a license represent actual fair market the cable network benchmark is required. January 1, 1998,effective date. value. The Panel stated that "[w]e agree Furthermore, the Register notes that that these retransmission consent Panel Report at 41. the same claim of invalidity has been negotiations are relevant to a raised in a Copyright Royalty Tribunal determination of fair market value and SBCAargues that it could not proceeding, and expressly rejected by the represent potentially probative evidence. determine the costs to copyright owners , 'D.C. Circuit. The Court stated: "It would Unfortunately, the evidence adduced is for clearances of cable networks since ~ be irrational and wholly unprecedented so vague and replete with qualifiers as to such information was not within the for a court to direct an agency to scrap a provide little guidance." Panel Report at scope of discovery, and therefore one year's hearings and decisionmaking 34. The Panel noted cross-examination should not assume, as the Panel did, that effort and start over because its testimony of Ms. McLaughlin and Mr. such costs could automatically be shifted proceeding did not conclude precisely on Gerbrandt indicating that some to satellite carriers. SBCAPetition to time." National Cable Television Ass' n, Inc. compensation was paid, but also noted Modify at 30. v. CRT, 724F.2d 176, 189 n. 23 (D.C. Cir. that Mr. Shooshan's and Mr. Haring's Likewise, SBCAargues that it could 1983). The Register agrees with this view, testimony discussed retransmission not quantify at hearing the added benefit and recommends rejection of SBCA's consent negotiations only in the context that satellite retransmission gives argument. of local, and not distant, retransmissions. copyrighted programming (digital Second, in support of its position that Id. at 35. The Panel concluded that the picture quality, inclusion in electronic satellite carriers would be unduly "testimony upon which SBCArelies lacks guides) because of "the absence of any I~~~med by a July 1, 1997,effective date, sufficient scope and specificity to rebut ability to take discovery." Id. at 31­ ~CA submitted affidavits of satellite or modify the PBS-McLaughlin analysis." 32. The Panel determined that "no representatives. Copyright Owners Id. quantifiable benefit was identified moved to strike these affidavits, and SBCAsubmits that it could not present and no evidence adduced" to SBCAopposed. The Register's further evidence on the compensation demonstrate added value by satellite recommendation of a January 1, 1998, received by copyright owners and retransmission." Panel Report at 40. effective date has mooted the issue. The broadcasters for retransmission consent SBCA asserts that "the Panel held the Register does recommend, however, that negotiations because "discovery Carriers to an unworkable standard of the affidavits be stricken. The record is procedures do not allow the Carriers to proof." SBCAPetition to Modify at 32. closed in this proceeding by order of determine those amounts." SBCA In reply, Copyright Owners contend August 14, 1997,aa section 251.55does Petition to Modify at 35. SBCA asserts that the Panel acted correctly. Copyright not permit submission of additional that the failure to present such Owners Reply at 24-27. evidence. Although the matter of the information "should not be then turned 3. A third issue involves quantifying effective date is for the Librarian, and not against the Carriers to say that the the effect on advertising revenues and the CARP,to decide, such affidavits retransmission consent negotiations superstation fees of satellite could only be accepted if the Librarian cannot be properly quantified." Id.

determined that the record needed to be Copyright Owners contend that the 17 "D'I'H'vstands for .... direct to home:'

MError; line should read: "August 14, 1997,and section 251.55"

December 1997-500 Page 15 of 18 ML-574 final etransmissions of broadcast signals. and that it is "no excuse that the [o]wners Modify at 42. Rather, SBCA asserts, the SBCA asserts that they quantified "as refused to divulge the extent of the evidence, including that relied upon by " well as could be in a regime which compensation." SBCAPetition to Modify Ms. McLaughlin, "shows that satellite denies discovery" that advertising at 38. SBCA asserts that not subtracting carriers have yet to earn a profit, revenues are higher because copyright this added value from the benchmark especially in the DBS market, and that .. ~ owners known'" that their programming would result in "vastly the C-Band market is waning." Id. SBC~ reaches a wider audience due to satellite overcompensat[ing]" copyright owners. notes that Ms. McLaughlin did not retransmission. SBCAPetition to Modify Id. perform a demand elasticity analysis for at 36. Likewise, SBCA asserts that In reply, Copyright Owners assert that increased rates, and that her testimony "superstation taxes"--the amounts the Panel correctly determined that, that the 1992 rate increase did not impact charged to broadcasters by copyright while such revertues might conceptually subscriptions or the number of signals owners--are greater, particularly in the result in a downward adjustment, SBCA carried was not based upon anything in sports context, because copyright owners failed to quantify such an adjustment. the record.Id. at 42-43. SBCAalso know that satellite retransmissions result Copyright Owners Reply at 31. mentions that the 1992 panel reduced its in greater viewership. Id. at 37-38. SBCA 4. The fourth issue concerns the impact initial rate increase because of a concern presented evidence that both the of increased royalty fees on the satellite for disruptive impact. 57 FR 19061. professional baseball and basketball industry and the continued availability SBCA also charges that the Panel leagues extracted additional of retransmitted broadcast signals. The ignored its evidence regarding the compensation from WGN in Chicago and Panel accepted Ms. McLaughlin's disruptive impact of a rate increase. It WTBSin Atlanta--both superstations testimony that the 27 cent fee would not points to the testimony of Mr. Parker known to be widely distributed on significantly adversely impact satellite: who stated that there is a limit on the satellite--though the amount was not Although Ms McLaughlin did not package rate to be charged consumers, quantified. SBCAProposed Findings, perform a demand elasticity study, she and that satellite carriers have tradition­ of Fact and Conclusions of Law at 72-73. testified that after the 1992 rate increases, ally go~e back to cable networks to ' The Panel addressed the potential for the number of broadcast stations demand concessions in order to keep increased advertising revenue due to retransmitted and the percentage of satellite subscribers to retransmitted prices down: SBCA Petition to Modify at satellite retransmissions, stating: broadcast signals remained constant. 44. SBCAargues that any increases in The fundamental mission of broad­ She concluded that despite an increase in the rates should be examined in light of casters is to expand their audiences to the compulsory license rate to $0.27 per the impact lower fees would have on maximize advertising revenues. At their subscriber per month, the number of copyright owners. According to SBCA, own expense and risk, the satellite carriers subscribers to retransmitted broadcast there is no evidence that suggests that developed a DTH market which expands stations would continue to grow at the current fees of section 119have any the broadcasters [sic] reach at no cost to substantially the same rate as the number the broadcasters. However, we agree that adverse impact on the copyright and of satellite subscribers generally. Ms. broadcast industries. Id. at 45.18 no empirical evidence demonstrating an McLaughlin also examined the retail prices In increase in advertising revenues was charged by satellite distributors and reply, Copyright Owners assert that adduced. Though the broadcasters (and concluded that if the rates for it was completely within the discretio hence the copyright owners) clearly retransmitted broadcast signals were the Panel to accord weight to Ms. benefit from expanded reach, these increased to $0.27 per subscriber per McLaughlin's testimony that satellite benefits may not be amenable to month and not passed on to subscribers, carriers would not be adversely measurement and quantification. The those rates would constitute only 30% of impacted by the increased royalty rates. copyright owners further argue that the average retail prices charged to Copyright Owners Reply at 36. because most basic cable networks also. subscribers leaving sufficient profit margin Copyright Owners argue that Mr. .advertise, to the extent that broadcasters for the satellite carriers to avoid significant CC Parker's testimony is nonspecific, and to benefit from expanded reach, the adverse impact to them or their benefit is already reflected in the cable subscribers. that the testimony of Mr. Edwin Desser network benchmark. We agree to a point. Again, we recognize that any rate and Mr. James Trautman show that Broadcast stations rely upon advertising increase, particularly if rates are set above satellite carriers are owned by large revenue to a much greater extent than do those paid by their entrenched competitor, corporate enterprises that can well afford cable networks (excepting those cable tends to adversely impact the satellite the proposed rate increase. Id. at 39-40. networks which command very low or carriers. However, the satellite carriers did even negative royalty fees). It naturally not attempt to quantify the impact of Recommendation of the Register follows that the benefits which accrue to increased rates and adduced no credible broadcasters have not been fully reflected evidence that the availability of secondary The Register is addressing these four in the cable network benchmark price. transmissions would be interrupted. Though some downward adjustment from Accordingly, we conclude that-a rate arguments presented by SBCA together the copyright owners general approach increase to $0.27 per subscriber per month because they contain a common thread: seems appropriate, we are unable to would have no significant adverse impact the absence of evidence adduced before quantify such an adjustment. However, upon the satellite carriers or the the Panel and, where evidence was our decision to adopt the most onservative availability of secondary transmissions to produced, the weight and sufficiency to approach (PBS-McLaughlin) reflects this the public. be accorded it. consideration. Given the limited scope of the Panel Report at 36-37.The Panel did not Panel Report at 46-47 (citations omitted). Librarian's review in this proceeding, , ~~~ the term "superstation tax" in its SBCA contends that the Panel had no "the Librarian will not second guess a ~cussion. evidence upon which to base its conclu­ CARP's balance and consideration of the SBCA complains that the Panel sion that a dramatic rate increase would evidence, unless its decision runs ignored its evidence of increased not adversely affect satellite carriers and completely counter to the evidence revenues from satellite retransmissions, their subscribers. SBCA Petition to presented to it." 61 FR 55663 (Oct. 28,

bbError; line should read: "owners know that their programming" ccError; line should read: "do benefit from expanded reach, the"

Page 16 of 18 December 1997-500 ML-574 •

1996)(citing MotorVehicle Manufacturers 92, 1-2 (October 30, 1995). There are retransmission consent negotiations r Ass'n v. StateFarm Mutual Auto Insurance several reasons for the limited discovery affected the fair market value analysis. Co., 463 U.S. 29,43 (1983). In the case of practice. CARP proceedings are [d. at 35. Because there is record evidence the impact of a rate increase on the relatively short in duration (180 days) to support the Panel's determination, the '. ... satellite industry, the Panel chose to and, like this proceeding, begin and end Panel did not act arbitrarily. ~

I eeError;line should read: "particularly where, as in this case, the" ddError;line should read: . ffError;line should read: "were broader, it could have presented" "was not asked to do so. See National" "Error; line should read: December 1997-500 "take discovery on the issues it raises:" ML-574 never put on any evidence Congress adopt the royalty rate, effective Ckf{f{IERS demonstrating their cost savings, and it January 1, 1998, of 27 cents per should not therefore be presumed that subscriber per month for retransmission 1. The authority citation for part 258 clearance costs would be passed on to of any distant superstation and network continues to read as follows: satellite carriers. SBCAPetition to signals by satellite carriers to subscribers Modify at 30. SBCA's argument, for private home viewing. Authority: 17 U.S.c. 702, 802. :J however, is one of emphasis rather than In addition, the Register recommends evidence. SBCAasked the Panel to that the Librarian not adopt any royalty 2. Section 258.3 is revised to read as quantify what the average cost might be, fee for the local retransmission of follows: in a hypothetical market, for clearance superstation signals, as defined under 17 costs, and how satellite carriers and U.S.C. 119(d)(11),and for the local Sec. 258.3 Royalty fee for secondary broadcasters might allocate such retransmission of a network Signal, as transmission of broadcast stations by costs. Not surprisingly, SBCA does not defined under Sec. 119(d)(11), to any satellite carriers. indicate what, if any evidence, would subscriber residing in an unserved (a) Commencing May I, 1992, the conclusively demonstrate what such household, as defined in Sec. 119(d)(10). royalty rate for the secondary costs might be, or who might bear Finally, the Register recommends that transmission of broadcast stations for them.'?» It is not reversible error for the the petition to modify the Panel's private home viewing by satellite carriers Panel to reason that in a marketplace decision filed by EchoStar be dismissed, shall be as follows: which does not exist, clearance costs and the motion of Copyright Owners to (1) 17.5 cents per subscriber per month might have a positive effect on the cable I?!~miss attachment A of SBCA's petition for superstations. network benchmark, rather than a L!£..modify (and the accompanying (2) 14 cents per subscriber per month negative one." argument and discussion) be granted. for superstations whose signals are Finally, with regard to the purported syndex-proof, as defined in Sec. 258.2. increase in advertising revenues and Order of the Librarian (3) 6 cents per subscriber per month compensation from expanding coverage for network stations and of broadcast signals by satellite Having duly considered the noncommercial educational stations. retransmission, the Panel found that it recommendation of the Register of (b) Commencing January 1, 1998, the could not quantify any potential Copyrights regarding the Report of the royalty fee for secondary transmission of reductions of the cable network Copyright Arbitration Royalty Panel in broadcast stations for private home benchmark. Panel Report at 37. While the matter of the adjustment of the viewing by satellite carriers shall be as allowing SBCAexpanded discovery on royalty rates for the satellite carrier follows: these points might have assisted the compulsory license, 17 U.S.C. 119, the (1) 27 cents per subscriber per month Panel in quantifying a downward Librarian of Congress fully endorses and for distant superstations. adjustment to the cable network adopts hers'" recommendation to accept (2) 27 cents per subscriber per month benchmark, the Register cannot the Panel's decision in part and reject it for distant network stations. determine anything in the record that in part. For the reasons stated in the (3) No royalty rate (zero) for a ~"~ compelled it. Furthermore, the Panel did Register's recommendation, the Librarian superstation secondarily transmitted \fI/1 conclude that its choice of the is exercising his authority under 17 within the station's local market, as "conservative" PBS/McLaughlin cable U.S.C.802(f) and is issuing this order, defined in 17 U.S.C. 119(d)(11). network benchmark reflected its inability and amending the rules of the Library (4) No royalty rate (zero) for a network to quantify any increased advertising and the Copyright Office, announcing station secondarily transmitted within revenues that copyright owners might the new royalty rates for the section 119 the station's local market, as defined in receive from expanded markets through compulsory license. 17 U.S.C. 119(d)(11),to subscribers satellite retransmission. Id. In the The Librarian is also dismissing the residing in unserved households, as Register's view, the Panel's action was petition to modify filed by EchoStar, and defined in 17 U.S.C. 119(d)(10). the product of rational decisionmaking. is dismissing the affidavits contained in attachmentA of SBCA's petition to Dated: October 23, 1997. H. Conclusion modify, and the accompanying So Ordered. . discussion"and argument. James H. Billington, Having fully analyzed the record in TheLibrarian of Congress. this proceeding and considered the List of Subjects in 37 CFR Part 258 contentions of the parties, the Register [FR Doc. 97-28543 Filed 10-27-97; 8:45 am] recommends that the Librarian of Copyright, Satellites, Television" BILLING CODe 141Q-33-M Final Regulation

19 SBeA does cite a statement of FCC Commissioner In consideration of the foregoing, the Dennis that broadcasters might have to bear these Library of Congress amends part 258 of costs. SBCA Petition to Modify at 30 (citing .... In re 37 CFR as follows: Compulsory Copyright License for Cable Retransmissions," 4 FCC Red. 6711 (1989) (Commissioner Dennis, concurring). However, PART 258--ADJUSTMENT OF Commissioner Dennis' statement is speculative, ROYALTY FEE FOR SECONDARY describing' what might happen to broadcasters "in some cases," 4 FCC Red. at 6711, and is far from TRANSMISSIONS BY SATELLITE conclusive evidence. 20 In fact, the Panel did not make any change to the benchmark for clearance costs. kkError; line should read: . "adopts her recommendation to accept" iiError; line should read: "Error: line should read: "them." It is not reversible error for the" "Copyright, Satellites."

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