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Federal Register

/Vol. 71, No. 154/Thursday, August 10, 2006/Proposed Rules

LIBRARY OF CONGRESSCopyright Office37 CFR Part 201

[Docket No. RM

–

2005

–

Cable Compulsory License ReportingPractices

AGENCY

ACTION

Notice of inquiry.

SUMMARY

The Copyright Office isseeking input on possible rulesgoverning the reporting practices of cable operators under the Copyright Act.

DATES

Written comments are dueSeptember 25, 2006. Reply commentsare due October 24, 2006. August 10,2006.

ADDRESSES

If hand delivered by aprivate party, an original and five copiesof a comment or reply comment should be brought to Library of Congress, U.S.Copyright Office, 2221 S. Clark Street,11th Floor, Arlington, Va. 22202, between 8:30 a.m. and 5 p.m. and theenvelope should be addressed asfollows: Office of the General Counsel,U.S. Copyright Office.If delivered by a local commercialcourier, an original and five copies of acomment or reply comment must bedelivered to the Congressional CourierAcceptance Site located at 2nd and DStreets, NE, between 8:30 a.m. and 4p.m. The envelope should be addressedas follows: Office of the GeneralCounsel, U.S. Copyright Office, LM 430, James Madison Building, 101Independence Avenue, SE, Washington,DC. Please note that CCAS will notaccept delivery by means of overnightdelivery services such as FederalExpress, United Parcel Service andDHL.If sent by mail (including overnightdelivery using U.S. Postal ServiceExpress Mail), an original and fivecopies of a comment or reply commentshould be addressed to U.S. CopyrightOffice, Copyright GC/I&R, P.O. Box70400, Southwest Station, Washington,DC 20024.

FOR FURTHER INFORMATION CONTACT

BenGolant, Senior Attorney, and Tanya M.Sandros, Associate General Counsel,Copyright GC/I&R, P.O. Box 70400,Southwest Station, Washington, DC20024. Telephone: (202) 707

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8380.Telefax: (202) 707

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8366.

SUPPLEMENTARY INFORMATION

Cablesystems that retransmit broadcastsignals in accordance with the provisiongoverning the statutory license set forthin Section 111 of the Copyright Act, title17 of the United States Code (

‘‘

Section111

’’

), are required to deposit royaltyfees with the Copyright Office.Payments made under the cablestatutory license are remittedsemiannually to the Copyright Office.The Copyright Office invests theroyalties in United States Treasurysecurities pending distribution of thesefunds to those copyright owners whoare entitled to receive a share of the fees.

I. Introduction

The Motion Picture Association of America, Inc. (

‘‘

MPAA

’’

), on behalf of its member companies and otherproducers and/or distributors of movies,series and specials (

‘‘

ProgramSuppliers

’’

), has petitioned theCopyright Office to commence arulemaking proceeding addressingseveral issues related to the reportingpractices of cable operators underSection 111. First, Program Suppliersrequest that the Copyright Office requireadditional information to be reported onthe cable operators

’

Statement of Accounts (

‘‘

SOAs

’’

), particularlyinformation relating to gross receipts,service tiers, subscribers, headendlocations, and cable communities.Second, Program Suppliers requestregulatory clarification regarding theeffect of cable operators

’

interestpayments that accompany late

–

filedSOAs or amended SOAs, specifically,that payment of such interest does notimpair the ability of copyright owners to bring infringement actions against cableoperators that fail to pay the full amountof the royalties they owe on a timely basis. Finally, Program Suppliersrequest that the Copyright Office clarifythe definition of the term cable

‘‘

community

’’

in its regulations tocomport with the meaning of

‘‘

cablesystem

’’

as defined in Section 111.The regulatory actions requested byProgram Suppliers are properly withinthe authority of the Copyright Office. 17U.S.C. 111(d) and 702. However, wefind it necessary to establish a fullrecord on the need for the changessuggested by Program Suppliers beforedeciding whether to propose rules. Wetherefore initiate this Notice of Inquiryto address the various issues raised byProgram Suppliers in their Petition forRulemaking.

II. Changes to Information Reported onCable SOAs

Verifying Gross Receipts Using Subscriber and Rate Information

Section 111 requires cable operatorsto report both the

‘‘

total number of subscribers

’’

to their system and the

‘‘

the gross amounts paid to the cablesystem for the basic service of providingsecondary transmissions of primary broadcast transmitters . . . .

’’

17 U.S.C.111(d)(1)(A). Consistent with Section111, the Copyright Office

’

s regulationsrequire cable operators to report

‘‘

thegross amount paid to the cable system by subscribers for the basic service of providing secondary transmissions of primary broadcast transmissions . . . .

’’

37 CFR 201.17(e)(7). This regulation isimplemented by Space E (titled

‘‘

Secondary Transmission Service:Subscribers and Rates

’’

) and Space K(titled

‘‘

Gross Receipts

’’

) of the SOAs.According to the instructions for SpaceE, the information provided therein

‘‘

should cover all categories of

’

secondary transmission service

’

of thecable system

’’

including the number of subscribers and the rate applicable toeach category of subscribers. FormsSA1

–

2 (

‘‘

Short Form

’’

) and SA3 (

‘‘

LongForm

’’

), p. 2, Space E. Instructions forcompleting Space K require cableoperators to

‘‘

[e]nter the total of allamounts (

’

gross receipts

’

) paid to [their]cable system by subscribers for thesystem

’

secondary transmissionservice

’

(as identified in space E)[.]

’’

Forms SA1

–

2 and SA3, p. 7, Space K.The total amount obtained bymultiplying the number of subscribersidentified in each category in Space E by the applicable rate shouldapproximate the cable operators

’

grossreceipts in Space K.

See Compulsory License for Cable Systems

, 43 FR 958,959 (Jan. 5, 1978).The Copyright Office

’

s regulationsrequire cable operators to provide

‘‘

[a] brief description of each subscribercategory for which a charge is made bythe cable system for the basic service of providing secondary transmissions of primary broadcast transmitters,

’’

as wellas

‘‘

the number of subscribers to thecable system in each subscribercategory,

’’

and the

‘‘

charge or chargesmade per subscriber to each subscribercategory.

’’

37 CFR 201.17(d)(6)(i)

–

(iii).The regulations state that for thesepurposes,

‘‘

[e]ach entity (for example,the owner of a private home, theresident of an apartment, the owner of a motel, or the owner of an apartmenthouse) which is charged by the cablesystem for the basic service of providingsecondary transmissions shall beconsidered one subscriber.

’’

37 CFR201.17(e)(6)(iii)(B). Space E of the SOAdoes not instruct cable operators toprovide information on subscribercategories. Rather, Space E directs cableoperators to report the number of subscribers in each

‘‘

Category of Service,

’’

a phrase which many cableoperators may construe as relating to

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45750

Federal Register

/Vol. 71, No. 154/Thursday, August 10, 2006/Proposed Rules

tiers of service. Forms SA1

–

2 and SA3,p.2, Space E, Blocks 1 and 2.Program Suppliers request that theCopyright Office revise the SOAs torequire greater congruity between the

‘‘

gross receipts

’’

information and thesubscriber and rate informationprovided on the SOAs as well as greaterdetail concerning the nature of therevenues that a cable operator includesand excludes in its

‘‘

gross receipts.

’’

Specifically, Program Suppliers requestthat the Copyright Office: (1) ReviseSpace E of the SOAs to solicitinformation on

‘‘

subscriber categories

’’

rather than

‘‘

categories of service;

’’

(2)revise Space K of the SOAs to includeinstructions specifying that the grossreceipts reported in Space K shouldapproximate calculated gross receipts(

i.e.

, the sum of the number of subscribers in each category identifiedin Space E, multiplied by the applicablerate), and (3) require the cable operatorto briefly explain in Space K anyvariation of more than 10% betweenthese calculated gross receipts andreported gross receipts.Program Suppliers state that theserevisions are necessary because theyfrequently find substantial variance inthe Space E and Space K data. Inaddition, they assert that the changeswill: (1) Reduce confusion amongoperators about whether to reportsubscriber categories or servicecategories; (2) mitigate inconsistentreporting practices; and (3) makecompliance review more meaningful.On a separate issue, ProgramSuppliers state that cable operators donot report multiple dwelling unit(

‘‘

MDU

’’

) subscriber data, for entitiessuch as hotels, motels, and apartments,in a consistent manner. They assert thatsome cable operators report the totalsubscriber counts for each of the MDUsthey serve while others report eachMDU simply as one subscriber. ProgramSuppliers also state that some cableoperators leave their SOAs blankregarding their service to MDUs. Inthose cases, Program Suppliers assertthat they are unable to determinewhether the blank area on the formindicates zero (meaning no MDUsubscribers), whether the referencedquestion is not applicable (

‘‘

N/A

’’

) tothat particular system, or whether thesystem simply has failed to provide thepertinent information. See Form SA1

–

2,p. 2; Form SA3, p.2, Space E (providingsubscriber blanks for

‘‘

Motel, Hotel

’’

and

‘‘

Commercial,

’’

but offering no specificformula for how subscribership datashould be tabulated other than thegeneral direction that the cable operatorshould

‘‘

compute the number of

’

subscribers

’

in each category bycounting the number of billings in thatcategory

’’

rather than

‘‘

the number of sets receiving service

’’

).Program Suppliers maintain thatsubscriber and rate information reportedon SOAs should reflect the specific ratearrangement the cable operator has withthe MDU. Program Suppliersspecifically state that the figure in theRate column in Space E of the SOAshould be the rate (or range of rates) thatthe cable operator actually charged eachof the subscribers included in the

‘‘

No.of Subscribers

’’

column on the last dayof the accounting period. To addressthese issues, Program Suppliers requestthat the Copyright Office: (1) Revise theinstructions for Space E to specify thatthe

‘‘

rate

’’

reported on the SOA forMDUs must reflect the specific ratearrangement the cable operator holdswith the MDU (flat rate or per unit), aswell as the amount billed for providingcable service pursuant to thatarrangement, and (2) include aninstruction that cable operators are notto leave spaces blank, but rather are tofill in each area with a zero or thedesignation

‘‘

N/A

’’

if a particularcategory does not apply to their system.We seek comment on the need torevise Spaces E and K of the SOAs, andif so, whether Program Suppliers

’

suggestions are appropriate.2.

Reporting Tiers of Service on CableSOAs

Currently, the

‘‘

Category of Service

’’

designation in Space E of the SOAsrequires cable operators to reportsecondary transmission service for eachservice category provided. But,Copyright Office regulations require

‘‘

a brief description of each subscribercategory for which a charge is made bya cable system for the basic service of providing secondary transmissions of primary broadcast transmitters.

’’

37 CFR201.17(e)(6)(i).Program Suppliers claim that there isscant information about the tiers of service (

i.e.

, basic, expanded, digital,etc.) offered by cable operators,particularly about whether cableoperators accurately include grossreceipts for all tiers of servicecontaining broadcast signals.

See

37CFR 201.17(e)(7); Forms SA1

–

2 (p. 6)and SA3 (p. 7) Section K.Program Suppliers request that theCopyright Office revise its SOAs toinclude a new

‘‘

Space

’’

between existingSpace E and Space F. Program Supplierspropose that this new Space wouldrequire cable operators to identify anddescribe (1) each tier of service theyprovide for a separate fee, noting whichtiers contain broadcast signals, (2) therates associated with each service tier,and whether the fees collected for eachpackage are included or excluded fromtheir gross receipts calculation, (3) thenumber of subscribers receiving eachservice tier, (4) the lowest tier of serviceincluding secondary broadcasttransmissions that is available forindependent subscription, and (5) anytier of service or equipment for whichpurchase is required as a prerequisite toobtaining another tier of service.Program Suppliers state that theproposed amendments will assist inverifying that cable operators areincluding, in their reported grossreceipts, gross receipts from all tiers of service containing broadcast signals thatare offered to subscribers for a separatefee.We also note that over the past fewyears, cable operators have sold at leasttwo new types of tiers other than themandated analog basic service tier thatcontain broadcast signals. For example,several cable operators now market

‘‘

family friendly

’’

tiers to customerswanting to avoid content deemedinappropriate for children. Either thesetiers include broadcast signals or the basic service tier must be purchased,along with a digital set top box, toaccess the desired programming.

SeeFamily Packages From Major Pay TV Providers

, http://www.usatoday.com/money/media/2006

–

familytier

–

cht.htm (noting that Comcast, TimeWarner, and Cox offer family tiers forabout $32.00 that include broadcastsignals and about 15 cable programmingchannels).Should the Copyright Office amendSection 201.17 of its regulations, orrevise the SOAs, to recognize theavailability of family friendly tiers, andare the MPAA proposed revisions to theforms necessary? If so, would clarifyinglanguage in the SOA instructions furtherthe same purposes?3.

Specific Location of Cable Headend

Section 111(f) of the Copyright Actstates in relevant part that:

‘‘

Forpurposes of determining royalty feesunder subsection (d)(1), two or morecable systems in contiguouscommunities under common ownershipor control or operating from oneheadend shall be considered as onesystem.

’’

17 U.S.C. 111(f).

see also

FormSA1

–

2, p.8, Space Q; SA3, p. 9, SpaceQ. Program Suppliers assert that anysuch payments do not precludecopyright owners from bringing anaction against cable operators forcopyright infringement and seekingremedies pursuant to 17 U.S.C. 502

–

506and 509 for the time period for whichthe cable operators

’

royalty paymentswere not properly remitted, citing 17U.S.C. 111(c)(2) (

‘‘

[T]he willful orrepeated secondary transmission to thepublic by a cable system of a primarytransmission made by a broadcaststation *** is actionable as an act of infringement *** (B) where the cablesystem has not deposited the statementof account and royalty fee required by[Section 111](d).

’’

). According toProgram Suppliers, neither theCopyright Office

’

s SOAs, nor itsregulations, clearly specify that thepayment of interest to the CopyrightOffice for overdue and underpaidcompulsory license fees does not shielda cable operator from liability forcopyright infringement for unpaidroyalty fees. Program Suppliers statethat this ambiguity has resulted in cableoperators suggesting that the payment of interest on late royalty payments andunderpayments, regardless of how longoverdue, absolves them from any otherliability for copyright infringement.Program Suppliers request that theCopyright Office amend its regulationsand SOAs to include language clarifyingthat the Office

’

s assessment of interestin Space Q of the SOA does not absolvecable operators from copyrightinfringement liability, pursuant to 17U.S.C. 501

–

506 and 509, for the failureto make timely royalty payments.Program Suppliers note that in therecently enacted Copyright Royalty andDistribution Reform Act of 2004(

‘‘

CRDRA

’’

), Congress made it clear thatthe terms set by Copyright Royalty Judges (

‘‘

CRJs

’’

), including late paymentterms, shall not

‘‘

prevent the copyrightholder from asserting other rights andremedies provided under this title.

’’

17U.S.C. 803(c)(7). Program Suppliersargue that there is no reason that theregulation adopted by the CopyrightOffice concerning late payments andunderpayments should have a differenteffect. We seek comment on theproposed rule and form amendments.

IV. Definition of

‘‘

Community

’’

forTraditional Cable Systems and forSatellite Master Antenna TelevisionSystems

As noted above, two or more cablesystems constitute a single cable systemfor purposes of Section 111 if they areunder common ownership or controland are located in the same or

‘‘

contiguous communities.

’’

17 U.S.C.111(f); 37 CFR 201.17(b)(2). Wherecommon ownership of cable systems isestablished, defining the

‘‘

community

’’

served is important for the purpose of ascertaining whether two or more cablefacilities operate in

‘‘

contiguouscommunities,

’’

and whether thosefacilities should file as a single cablesystem. The pertinent statutory andregulatory provisions are intended toprevent the artificial fragmentation of large cable systems into multiplesmaller systems to avoid royaltypayments properly due under Section111.

See Compulsory License for CableSystems

, 43 FR at 958 (

‘‘ ‘

[T]helegislative history of the Act indicatesthat the purpose of this sentence [inSection 111(f)] is to avoid the artificialfragmentation of cable systems

’’’

).The Copyright Office

’

s regulationscurrently state that the term

‘‘

community,

’’

for purposes of Section111, has the same meaning as a

‘‘

community unit

’’

as defined in theFederal Communications Commission

’

‘‘

FCC

’’

) rules and regulations. 37 CFR201.17(e)(4). FCC regulations define

‘‘

community unit

’’

as a

‘‘

cable televisionsystem, or portion of a cable televisionsystem, that operates or will operatewithin a separate and distinctcommunity or municipal entity(including unincorporated communitieswithin unincorporated areas andincluding single, discreteunincorporated areas).

’’

47 CFR76.5(dd). The SOAs also set forth thisFCC

–

based definition of

‘‘

communityunit

’’

(although it incorrectly cites 47CFR 76.5(mm)). See Forms SA1

–

2 andSA3, p.1, Space D.Program Suppliers request that theCopyright Office clarify the regulatorydefinition of community. They profferthat the cable operator

’

‘‘

franchisearea

’’

should be the appropriate boundary distinction for defining cablecommunities. For Satellite MasterAntenna Television Systems(

‘‘

SMATV

’’

) and other Private CableOperators (

‘‘

PCOs

’’

) subject to Section111, Program Suppliers assert that theterm

‘‘

community

’’

should correspondto the

‘‘

community

’’

of the traditionalcable systems serving the area withinwhich the SMATV facility is located.Program Suppliers imply that itsproposed amendment would lessen thenumber of disputes with cable operatorsover what constitutes a cable

‘‘

community

’’

for reporting purposesunder the copyright compulsory license.They assert that many cable operatorsoperating over a large geographic areaare attempting to artificially separatetheir systems into multiple smallersystems to reduce their royaltyobligations under Section 111. Theyalso assert that, in most cases, cableoperators disaggregate cable systems incontiguous cable communities that

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