[Federal Register Volume 62, Number 208 (Tuesday, October 28, 1997)]
[Rules and Regulations]
[Pages 55742-55759]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-28543]


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LIBRARY OF CONGRESS

Copyright Office

37 CFR Part 258

[Docket No. 96-3 CARP SRA]


Rate Adjustment for the Satellite Carrier Compulsory License

AGENCY: Copyright Office, Library of Congress.

ACTION: Final rule and order.

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SUMMARY: The Librarian of Congress, upon recommendation of the Register 
of Copyrights, is announcing the adjustment of the royalty rates for 
superstation and network signals under the satellite carrier compulsory 
license, 17 U.S.C. 119.

EFFECTIVE DATE: January 1, 1998.

ADDRESSES: The full text of the CARP's report to the Librarian of 
Congress is available for inspection and copying during normal business 
hours in the Office of the General Counsel, James Madison Memorial 
Building, Room LM-403, First and Independence Avenue, S.E., Washington, 
D.C. 20540.

FOR FURTHER INFORMATION CONTACT: David O. Carson, General Counsel, 
William J. Roberts, Jr., Senior Attorney for Compulsory Licenses, or 
Tanya M. Sandros, Attorney Advisor, P.O. Box

[[Page 55743]]

70977, Southwest Station, Washington, D.C. 20024. Telephone (202) 707-
8380.

SUPPLEMENTARY INFORMATION: 

Recommendation of the Register of Copyrights

I. Background

    Congress passed the Satellite Home Viewer Act of 1988 to create a 
compulsory copyright license, codified at section 119 of the Copyright 
Act, for the retransmission of over-the-air television broadcast 
signals. 17 U.S.C. 119. Similar in many ways to the cable compulsory 
license enacted by Congress in 1976, the satellite carrier compulsory 
license permits satellite carriers to retransmit TV signals to their 
subscribers upon semiannual submission of royalty fees and statements 
of account to the Copyright Office. The royalty fees collected by the 
Copyright Office are deposited with the United States Treasury for 
subsequent distribution to copyright owners of programming 
retransmitted by the satellite carriers.
    Section 119 identifies two types of television broadcast signals 
that are subject to compulsory licensing: superstations and network 
signals. A superstation is the signal of any commercial independent 
television station licensed by the Federal Communications Commission. 
Examples of superstations retransmitted by satellite carriers under 
section 119 are WTBS, Atlanta and WGN, Chicago. A network station is 
defined as follows:

    (A) A television broadcast station, including any translator 
station or terrestrial satellite station that rebroadcasts all or 
substantially all of the programming broadcast by a network station, 
that is owned or operated by, or affiliated with, one or more of the 
television networks in the United States which offer an 
interconnected program service on a regular basis for 15 or more 
hours per week to at least 25 of its affiliated television licensees 
in 10 or more States; or
    (B) A noncommercial educational broadcast station (as defined in 
section 397 of the Communications Act of 1934). \1\

    \1\ This is the definition of a network signal after the 1994 
amendments to section 119. The earlier definition was the same one 
appearing in section 111 of the Copyright Act.
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17 U.S.C. 119(d)(2). Examples of network signals carried by satellite 
carriers are ABC, CBS, and NBC. A station of the Public Broadcasting 
Service (PBS) would also be considered a network signal under the 
statute.

    Under the section 119 license, satellite carriers can retransmit 
any superstation they choose to any subscriber located anywhere in the 
United States. However, such is not the case with the retransmission of 
network signals. Satellite carriers may only make use of the license to 
retransmit a network signal to a subscriber who resides in an 
``unserved household.'' An ``unserved household'' is defined as a 
household that:

    (A) Cannot receive through the use of a conventional outdoor 
rooftop receiving antenna, an over-the-air signal of grade B 
intensity (as defined by the Federal Communications Commission) of a 
primary network station affiliated with that network, and
    (B) Has not, within 90 days before the date on which that 
household subscribes, either initially or on renewal, to receive 
secondary transmissions by a satellite carrier of a network station 
affiliated with that network, subscribed to a cable system that 
provides the signal of a primary network station affiliated with 
that network.

17 U.S.C. 119(d)(10). Service of network signals to subscribers who do 
not reside in unserved households is an act of copyright infringement, 
subject to the remedies of chapter 5 of the Copyright Act, unless the 
carrier is able to negotiate a private agreement with copyright owners 
to license all the copyrighted works on those network signals.

    In creating the section 119 license in 1988, Congress established 
different royalty rates for superstation and network signals, based 
upon approximations of what cable paid for such signals under the 
section 111 cable compulsory license. 17 U.S.C. 111. The original rate 
for a superstation was 12 cents per subscriber per month. The original 
rate for a network was 3 cents per subscriber per month. Congress, 
however, authorized a rate adjustment procedure to change these rates 
in 1992.

II. The 1992 Rate Adjustment

    At the time of passage of section 119, the Copyright Royalty 
Tribunal was still in existence. However, rather than invest the 
Tribunal with authority to adjust the section 119 rates, as was the 
case for all other compulsory licenses in the Copyright Act, Congress 
instead gave the task to an ad hoc arbitration panel assembled solely 
for that purpose. The Tribunal was given authority to review the 
decision of the arbitration panel, as is the Librarian in this 
proceeding, but under a different standard of review.
    Congress also established a number of factors for the arbitration 
panel to consider in reaching its determination. The statute provided:

    In determining royalty fees under this paragraph, the 
Arbitration Panel shall consider the approximate average cost to a 
cable system for the right to secondarily transmit to the public a 
primary transmission made by a broadcast station, the fee 
established under any voluntary agreement filed with the Copyright 
Office in accordance with paragraph (2),\2\ and the last fee 
proposed by the parties, before proceedings under this paragraph, 
for the secondary transmission of superstations or network stations 
for private home viewing. The fee shall also be calculated to 
achieve the following objectives:
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    \2\ No such voluntary agreements were reached.
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    (i) To maximize the availability of creative works to the 
public.
    (ii) To afford the copyright owner a fair return for his or her 
creative work and the copyright user a fair income under existing 
economic conditions.
    (iii) To reflect the relative roles of the copyright owner and 
the copyright user in the product made available to the public with 
respect to relative creative contribution, technological 
contribution, capital investment, cost, risk, and contribution to 
the opening of new markets for creative expression and media for 
their communication.
    (iv) To minimize any disruptive impact on the structure of the 
industries involved and on generally prevailing industry practices.

17 U.S.C. 119(c)(3)(B) (1988).

    The arbitration panel was given 60 days to reach its determination; 
it delivered its report to the Copyright Royalty Tribunal on March 2, 
1992. The panel recommended that the royalty fee for network signals be 
raised from 3 cents to 6 cents per subscriber. 57 FR 19061 (May 1, 
1992). For superstations, the panel recommended a two-tiered rate 
structure. The panel was impressed with Congress' consideration of the 
application of syndicated exclusivity protection on the satellite 
industry. With respect to cable retransmissions of broadcast signals, 
broadcasters may purchase exclusive rights to broadcast programming 
within their local market, and any cable operator importing the same 
programming into the broadcaster's local market is required to black it 
out. Congress directed the FCC in 1988 to consider adopting syndicated 
exclusivity rules for the satellite industry, but the Commission 
ultimately determined that it was not technically feasible for 
satellite carriers to black-out programming. See 6 FCC Rcd. 725 (1991). 
To make up for this technological deficiency, the panel imposed a 
higher royalty rate to compensate for the loss of exclusivity 
protection.
    For superstations, if they had been retransmitted by a cable system 
rather than a satellite carrier and would have been subject to the 
FCC's syndicated exclusivity rules, the panel adopted a rate of 17.5 
cents per subscriber per month. 57 FR at 19061 (1992). For

[[Page 55744]]

signals that would not have been subject to the syndicated exclusivity 
rules for cable (known as ``syndex proof'' signals), the panel adopted 
a rate of 14 cents per subscriber per month. id.
    The Copyright Royalty Tribunal, reviewing the panel's decision only 
under a contrary to law standard, adopted the rates recommended by the 
arbitration panel. 57 FR 19052 (1992). The Tribunal did, however, 
substitute a new effective date for the rates, because it determined 
that the panel misapplied the statute. Id. at 19053 (rates effective on 
date of issuance of Tribunal's order, May 1, 1992, not January 1, 1993 
date recommended by panel). No appeal of the Tribunal's order was 
taken.

III. Satellite Home Viewer Act of 1994

    The rates adopted by the Tribunal in 1992 were to last only until 
the end of 1994, when the section 119 license was slated to expire. 
However, in 1994, Congress passed the Satellite Home Viewer Act of 
1994, which extended the section 119 license another 5 years. In 
reauthorizing the license, Congress made several changes to its 
provisions. Another rate adjustment--this proceeding--was scheduled to 
take place, and the duty of conducting the proceeding was given to a 
copyright arbitration royalty panel (CARP), with review by the 
Librarian of Congress.
    The most significant change to section 119 made by the 1994 
amendments, for purposes of this proceeding, was a change in the 
factors to be applied by the CARP to determine the new royalty rates. 
Rather than focus on the price paid by the cable industry for similar 
retransmissions, Congress required that the royalty fees for 
superstations and network signals represent the fair market value. 17 
U.S.C. 119(c)(3)(D) (1994).
    Although Congress intended to replace the statutory criteria for 
adjusting the royalty rates from the 1988 Act with the new ``fair 
market value'' standard, a scrivener's error was made in the 1994 Act. 
The result was that the original provisions of section 119(c)(3)(B) 
remained, and the new provisions inadvertently replaced the 
subparagraph determining those parties subject to pay the section 119 
royalty fees. Certain copyright owners to this proceeding requested 
clarification of the statute, and the Library issued an order prior to 
commencement of the CARP instructing the CARP to apply only the new 
fair market value provisions, and to disregard the old criteria of 
section 119(c)(3)(B). Order in Docket No. 96-3 CARP SRA (January 6, 
1997).
    The royalty rates adopted in the 1992 rate adjustment were 
incorporated into the 1994 Act, subject to adjustment in this 
proceeding. The rates adopted in this Order shall remain effective 
until December 31, 1999, the current date for the section 119 
compulsory license.

IV. This Proceeding

    Pursuant to section 119(c)(2), the Librarian of Congress initiated 
this proceeding with publication of a Federal Register notice on June 
11, 1996, establishing a voluntary negotiation period and a 
precontroversy discovery schedule.\3\ 61 FR 29573 (June 11, 1996). The 
schedule was vacated on September 19, 1996, at the request of certain 
copyright owner parties, Order in Docket No. 96-3 CARP SRA (September 
19, 1996), and rescheduled on October 29, 1996. Order in Docket No. 96-
3 CARP SRA (October 29, 1996). The CARP was convened on March 3, 1997.
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    \3\ The voluntary negotiation period proved unsuccessful as no 
agreements were reached.
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    The following parties submitted written direct cases to the CARP: 
(1) Joint Sports Claimants (``JSC''), representing national sports 
associations including Major League Baseball, the National Basketball 
Association, the National Hockey League, and the National Collegiate 
Athletic Association; (2) the Public Broadcasting Service (``PBS''); 
(3) the Commercial Network Claimants (``Commercial Networks''), 
representing the National Broadcasting Co., Inc., Capital Cities/ABC, 
Inc. and CBS, Inc.; (4) the Broadcaster Claimants Group (``Broadcaster 
Claimants Group''), representing certain commercial television stations 
whose signals are retransmitted by satellite carriers; (5) the Program 
Supplier Claimants (``Program Suppliers''), representing various 
copyright owners of motion pictures, television series and specials; 
(6) the Music Claimants (``Music Claimants''), representing the 
American Society of Composers, Authors and Publishers, Broadcast Music, 
Inc., and SESAC, Inc.; (7) the Devotional Claimants (``Devotional 
Claimants''), representing various copyright owners of religious 
programming; (8) the Satellite Broadcasting & Communications 
Association (``SBCA''), representing AlphaStar Television, Inc., 
BosCom, Inc., Consumer Satellite Systems, DirecTV, Inc., EchoStar 
Communications Corp., Netlink USA, PrimeStar Partners L.P., Prime Time 
24 Joint Venture, Southern Satellite Systems, Inc., and Superstar 
Satellite Entertainment; and (9) American Sky Broadcasting L.L.C. 
(``ASkyB'').
    The CARP held oral hearings on the written cases and evidence, and 
oral argument on the proposed findings of fact and conclusions of law. 
The CARP submitted its report to the Librarian on August 29, 1997.
    The CARP concluded that rates for both networks signals and 
superstations should be adjusted upwards to 27 cents per subscriber per 
month. In addition, the Panel determined that no royalty fee should be 
paid for the retransmission of superstations within the superstations' 
local markets, and that it had no authority to set a royalty rate for 
retransmissions of network signals within their local markets. The 
Panel recommended July 1, 1997, as the effective date for the new 
rates.
    Section 802(f) of the Copyright Act provides that [w]ithin 60 days 
after receiving the report of a copyright arbitration royalty panel * * 
*, the Librarian of Congress, upon the recommendation of the Register 
of Copyrights shall adopt or reject the determination of the panel.'' 
17 U.S.C. 802(f). Today's order of the Librarian fulfills this 
statutory obligation.

V. The Librarian's Scope of Review

    The Librarian of Congress has, in previous proceedings, discussed 
his narrow scope of review of CARP determinations. See 52 FR 6558 
(February 12, 1997) (DART distribution order); 61 FR 55653 (October 26, 
1996) (cable distribution order). The salient points regarding the 
scope of review, however, merit repeating.
    The Copyright Royalty Tribunal Reform Act of 1993 created a unique 
system of review of a CARP's determination. Typically, an arbitrator's 
decision is not reviewable, but the Reform Act created two layers of 
review: the Librarian and the Court of Appeals for the District of 
Columbia Circuit. Section 802(f) directs the Librarian to either accept 
the decision of the CARP or reject it. If the Librarian rejects it, he 
must substitute his own determination ``after full examination of the 
record created in the arbitration proceeding.'' Id. If the Librarian 
accepts it, then the determination of the CARP has become the 
determination of the Librarian. In either case, through issuance of the 
Librarian's Order, it is his decision that will be subject to review by 
the Court of Appeals.
    Section 802(f) of the Copyright Act directs that the Librarian 
shall adopt the report of the CARP ``unless the Librarian finds that 
the determination is arbitrary or contrary to the provisions of this 
title.'' Neither the Reform Act nor its legislative history indicates 
what is meant specifically by ``arbitrary,'' but

[[Page 55745]]

there is no reason to conclude that the use of the term is any 
different than the ``arbitrary'' standard described in the 
Administrative Procedure Act (APA), 5 U.S.C. 706(2)(A).
    Review of the caselaw applying the APA ``arbitrary'' standard 
reveals six factors or circumstances under which a court is likely to 
find that an agency acted arbitrarily. An agency is generally 
considered to be arbitrary when it:
    (1) Relies on factors that Congress did not intend it to consider;
    (2) Fails to consider entirely an important aspect of the problem 
that it was solving;
    (3) Offers an explanation for its decision that runs counter to the 
evidence presented before it;
    (4) Issues a decision that is so implausible that it cannot be 
explained as a product of agency expertise or a difference of 
viewpoint;
    (5) Fails to examine the data and articulate a satisfactory 
explanation for its action including a rational connection between the 
facts found and the choice made; and
    (6) When the agency's action entails the unexplained discrimination 
or disparate treatment of similarly situated parties.

Motor Vehicle Manufacturers Ass'n v. State Farm Mutual Insurance Co., 
463 U.S. 29 (1983); Celcom Comm. Corp. v. FCC, 789 F.2d 67 (D.C. Cir. 
1986); Airmark Corp v. FAA, 758 F2d 685 (D.C. Cir. 1985).

    Given these guidelines for determining when a determination is 
``arbitrary,'' prior decisions of the courts reviewing the 
determinations of the former Copyright Royalty Tribunal have been 
consulted. The decisions of the Tribunal were reviewed under the 
``arbitrary and capricious'' standard of 5 U.S.C. 706(2)(A) which, as 
noted above, appears to be applicable to the Librarian's review of the 
CARP's decision.
    Review of judicial decisions regarding Tribunal actions reveals a 
consistent theme: provided that the Tribunal adequately articulated the 
reasons for its decision, specific determinations were granted a 
relatively wide ``zone of reasonableness.'' See National Ass'n of 
Broadcasters v. CRT, 772 F.2d 922 (D.C. Cir. 1985); Christian 
Broadcasting Network v. CRT, 720 F.2d 1295 (D.C. Cir. 1983); National 
Cable Television Ass'n v. CRT, 689 F.2d 1077 (D.C. Cir. 1982); 
Recording Industry Ass'n of America v. CRT, 662 F.2d 1 (D.C. Cir. 
1981). As one panel of the D.C. Circuit succinctly noted:

    To the extent that the statutory objectives determine a range of 
reasonable royalty rates that would serve all these objectives 
adequately but to differing degrees, the Tribunal is free to choose 
among those rates, and courts are without authority to set aside the 
particular rate chosen by the Tribunal if it lies within a ``zone of 
reasonableness.''

Recording Industry Ass'n of America v. CRT, 662 F.2d 1, 9 (D.C. Cir. 
1981). Because the Librarian is reviewing the CARP decision under the 
same ``arbitrary'' standard used by the courts to review the Tribunal, 
he must be presented with a detailed rational analysis of the CARP's 
decision, setting forth specific findings of fact and conclusions of 
law. This requirement of every CARP report is confirmed by the 
legislative history to the Reform Act which notes that a ``clear report 
setting forth the panel's reasoning and findings will greatly assist 
the Librarian of Congress.'' H.R. Rep. No. 103-286, 103 Cong., 1st 
Sess. 13 (1993). Thus, to engage in reasoned decisionmaking, the CARP 
must ``weigh all the relevant considerations and * * * set out its 
conclusions in a form that permits [a determination of] whether it has 
exercised its responsibilities lawfully.'' National Cable Television 
Ass'n v. CRT, 689 F.2d 1077, 1091 (D.C. Cir. 1982). This goal cannot be 
reached by ``attempt[ing] to distinguished apparently inconsistent 
awards with simple, undifferentiated allusions to a 10,000 page 
record.'' Christian Broadcasting Network, Inc. v. CRT, 720 F.2d 1295, 
1319 (D.C. Cir. 1983).

    It is the task of the Register to review the report and make her 
recommendation to the Librarian as to whether it is arbitrary or 
contrary to the provisions of the Copyright Act and, if so, whether, 
and in what manner, the Librarian should substitute his own 
determination.

VI. Review of the CARP Report

    Section 251.55(a) of the rules provides that ``[a]ny party to the 
proceeding may file with the Librarian of Congress a petition to modify 
or set aside the determination of a Copyright Arbitration Royalty Panel 
within 14 days of the Librarian's receipt of the panel's report of its 
determination. 37 CFR 251.55(a). Replies to petitions to modify are due 
14 days after the filing of the petitions. 37 CFR 251.55(b).
    The following parties filed petitions to modify: SBCA, EchoStar 
Communications Corp. (``EchoStar''), and commercial Networks. Replies 
were filed by JSC, Broadcaster Claimants Group, PBS, Program Suppliers, 
Commercial Networks, Music Claimants and Devotional Claimants 
(collectively, ``Copyright Owners''), PBS, JSC and Broadcaster 
Claimants Group (collective, ``Certain Copyright Owners''), and 
EchoStar.
    Satellite carriers oppose the decision of the CARP, while copyright 
owners are generally supportive of it. SBCA offers numerous reasons 
why, in its view, the Panel's decision is arbitrary and contrary to 
law. EchoStar confines its comments to the Panel's decision not to 
establish a royalty rate for the local retransmission of network 
signals by satellite carriers, and Commercial Networks request a 
``clarification'' of the Panel's ruling in order to construe it to mean 
that the 27 cent fee for network signals applies to any local 
retransmission of network stations to subscribers in unserved 
households. Certain Copyright Owners challenge EchoStar's standing to 
file a Sec. 251.55 petition to modify in this proceeding.
    Section 251.55 of the rules assists the Register of Copyrights in 
making her recommendation to the Librarian, and the Librarian in 
conducting his review of the CARP's decision by allowing the parties to 
the proceeding to raise specific objections to a CARP's determination. 
As required by section 802(f) of the Copyright Act, if the Librarian 
determines that the Panel in this proceeding has acted arbitrarily or 
contrary to the provisions of the Copyright Act, he must ``after full 
examination of the record created in the arbitration proceeding, issue 
an order setting the royalty fee * * *.'' 17 U.S.C. 802(f).

VII. Review and Recommendation of the Register

    As discussed above, the parties to this proceeding submitted 
petitions to the Librarian to modify the Panel's determination based on 
their assertions that the Panel acted arbitrarily or contrary to the 
applicable provisions of the Copyright Act. These petitions have 
assisted the Register in identifying what evidence and issues in this 
large proceeding, in the eyes of the petitioners, are areas where the 
Panel may have acted improperly, thereby requiring the Librarian to 
substitute his own determination. The law gives the Register the 
responsibility to make recommendations to the Librarian regarding the 
Panel's determination, 17 U.S.C. 802(f), and in so doing she must 
conduct a thorough review.
    After reviewing the Panel's report and the record in this 
proceeding, the Register has determined that there are 6 primary 
aspects of the Panel's decision that warrant detailed discussion and 
analysis:

    (1) Whether the Panel correctly interpreted and applied the 
statutory standard for determining royalty fees;

[[Page 55746]]

    (2) Whether the Panel acted arbitrarily in adopting the license 
fees paid by cable networks as the benchmark for determining section 
119 fees;
    (3) Whether the Panel should have made certain adjustments in 
the benchmark rates it adopted;
    (4) Whether it was permissible for the Panel to adopt the same 
rate for superstations and network signals;
    (5) Whether the Panel correctly declined to adopt a royalty rate 
for local retransmission of network signals by satellite carriers; 
and
    (6) Whether the Panel supplied the appropriate effective date 
for the newly established royalty fees.

    SBCA has made additional arguments in its petition to modify as to 
why the Panel's decision should be set aside. These arguments, which 
primarily involve evaluation of the evidence and allege deficiencies in 
the discovery rules for CARP proceedings, are addressed at the end of 
this section.

A. Determination of Fair Market Value

1. Action of the Panel
    A fundamental dispute between satellite carriers and copyright 
owners in this proceeding is the meaning of the term ``fair market 
value'' as used in section 119(c)(3)(D) of the Copyright Act. That 
section provides: \4\

    \4\ As discussed above, section 119(c)(3)(D) is the appropriate 
statutory provision governing the adjustment of royalty rates. 
Section 119(c)(3)(B), which also prescribes royalty adjustment 
factors, was inadvertently left in the statute after the 1994 
amendments.
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    In determining royalty fees under this paragraph, the Copyright 
Arbitration Panel shall establish fees for the retransmission of 
network stations and superstations that most clearly represent the 
fair market value of secondary transmissions. In determining the 
fair market value, the Panel shall base its decision on economic, 
competitive, and programming information presented by the parties, 
including--
    (i) The competitive environment in which such programming is 
distributed, the cost for similar signals in similar private and 
compulsory license marketplaces, and any special features and 
conditions of the retransmission marketplace;
    (ii) The economic impact of such fees on copyright owners and 
satellite carriers; and
    (iii) The impact on the continued availability of secondary 
transmissions to the public.

17 U.S.C. 119(c)(3)(D).
    The Panel examined this provision, and the legislative history, and 
determined that fair market value meant the prize that would be 
negotiated in a free market setting as compensation for the satellite 
carriers' right to retransmit network and superstation signals 
containing the copyright owners' copyrighted programming. The Panel 
stated that:

    [T]he language, structure, and legislative history of the 1994 
amendments to section 119 suggest the Panel is directed to determine 
actual fair market value and ``in determining the fair market value 
* * * base its decision * * *'' upon the non-exhaustive list of 
considerations. We interpret the phrase ``base its decision'' to 
require the Panel to consider each enumerated type of information 
but, the weight to be accorded each consideration must necessarily 
depend upon the quality and quantity of the evidence adduced and its 
relative significance to a determination of actual fair market 
value. All evidence falling within the enumerated types of 
information must be considered but the evidence which is more 
probative of fair market value must be accorded greater weight than 
less probative evidence * * *. The Panel agrees that the fair market 
value rate is that which most closely approximates the rate that 
would be negotiated in a free market between a willing buyer and a 
willing seller.

Panel Report at 17 (emphasis in original).
2. Arguments of the Parties
    SBCA asserts that the Panel misapprehended the meaning of ``fair 
market value,'' and that it should have determined the section 119 fees 
in accordance with what cable operators pay for distant signals under 
the section 111 cable compulsory license. SBCA Petition to Modify at 
12. ``Fair market value is a Congressionally defined term, and thus 
cannot be considered under the `traditional' sense, as urged by the 
[Copyright] Owners.'' Id. at 14. SBCA cites certain 1994 floor 
statements at length as evidence that Congress intended that section 
119 royalty rates be set on a parity with cable rates.

    DeConcini: Copyright license parity with cable is the central 
feature of the fair market standard articulated in this legislation. 
The inclusion of specific guidance to the arbitration panel to take 
into consideration the competitive environment in which satellite 
programming is distributed is essential to ensure that satellite 
carriers are not required to pay higher royalty fees than cable 
operators * * * I am confident that the arbitration panel will take 
steps to ensure that the royalty fee paid by satellite carriers are 
on par with those paid by cable operators. The guiding criteria for 
the arbitration panel to establish fair market value in this 
legislation will accomplish that objective.
    * * * The fact that the Senate agrees with the House on this 
compromise language is due to the criteria that defines fair market 
value in the bill. I have long opposed the imposition of royalty 
fees based simply on the mechanical application of some conceptual 
fair market value formula * * * The arbitration panel will take 
steps to ensure that the royalty fees paid by satellite carriers are 
on par to those paid by cable operators. The guiding criteria for 
the arbitration panel to establish fair market value will accomplish 
this objective.

140 Cong. Rec. S14105, 14106 (daily ed. Oct. 4, 1994).

    Brooks: In the hard-fought compromise reached on this bill, the 
factors to be considered under the bill's ``fair market value'' 
determination have been made more specific. I would note that in 
determining fair market value, we intend that the copyright 
arbitration panel consider all the factors raised by the parties, 
including cable rates.

140 Cong. Rec. H9270 (daily ed. Sept. 20, 1994).

    Hughes: [L]egislation contemplates that the panel will look to 
the competitive environment in which section 119 retransmissions are 
distributed as well as the costs of distribution of similar signals 
in similar private and compulsory license marketplaces, including 
the cable copyright fees under section 111. This will help ensure 
that there is vigorous competition and diversity in the video 
programming distribution industry.

140 Cong. Rec. H9271 (daily ed. Sept. 20, 1994).

    Synar: I am also hopeful that any fee resulting from the fair 
market value standard does not disadvantage the delivery of 
satellite transmissions vis-a-vis the delivery of cable 
retransmission under the section 111 compulsory license * * * It is 
my hope that the fees set for satellite retransmissions under the 
fair market value standard will, among other things, reflect the 
competitive environment in which those retransmissions are 
distributed. There is little question that Congress would like to 
ensure that there is vigorous competition and diversity in the 
distribution of video programming and the determination of fair 
market value fees should reflect that intent.

140 Cong. Rec. H9272 (daily ed. Sept. 20, 1994).

    According to SBCA, these floor statements provide clear 
Congressional direction that the royalty fees for section 119 are to be 
either identical or substantially similar to those paid by cable 
operators under section111. SBCA provided testimony demonstrating that 
cable operators pay 9.8 cents per subscriber per month for 
superstations, and 2.45 cents per subscriber per month for network 
signals, and submits that the Librarian should adopt these rates. SBCA 
Petition to Modify at 18.
    Copyright Owners contend that the Panel acted correctly in 
attributing the plain meaning to the term ``fair market value,'' and 
properly rejected SBCA's position that the rates paid by cable under 
section 111 is the governing factor in determining fair market value. 
Copyright Owners Reply at 12. Copyright Owners' note further that even 
one of SBCA's own expert witnesses, Mr. Harry Shooshan, conceded at the 
hearing that Congress intended to accord the conventional meaning to 
``fair market value.'' Id.

[[Page 55747]]

    Copyright Owners also submit that portions of floor statements 
delivered at the time of passage of the 1994 Satellite Home Viewer Act 
are not proper legislative history and must be given little, if any, 
weight. Id. at 14-15 (citing Overseas Educ. Ass'n, Inc. v. FLRA, 876 
F.2d 960 (D.C. Cir. 1989); In the Matter of Sinclair, 870 F.2d 1340 
(7th Cir. 1989)). Rather, the text of the statute is the principle 
source for determining its meaning. Id. at 15 (citing West Virginia 
Hosp. v. Casey, 499 U.S. 83 (1991).
3. Recommendation of the Register
    The Panel determined that the term ``fair market value'' should be 
accorded its plain meaning--i.e., the price a willing buyer and a 
willing seller would negotiate in a free marketplace--and that the 
economic, competitive, and programming information presented by the 
parties provided the evidence to determine what fair market value 
royalty rates would be under the satellite carrier compulsory license. 
The Register concludes that this decision is not arbitrary, nor is it 
contrary to law.
    Both SBCA and Copyright Owners contend that the meaning of ``fair 
market value'' is a matter of statutory interpretation. Moreover, it is 
a well-established principle that, in interpreting the meaning of a 
statute, the language of the law is the best evidence of its meaning. 
Sutherland Stat. Const. Sec. 46.01 (5th Ed.).
    The express words of the statute charge the Panel with determining 
the fair market value of retransmitted broadcast signals by satellite 
carriers. Id. (plain meaning of the statute governs its 
interpretation). The Panel determined that ``fair market value'' meant 
the price that would be negotiated between a willing buyer and a 
willing seller in a free marketplace. Panel Report at 17. The Register 
determines that this is not an arbitrary interpretation of the meaning 
of ``fair market value,'' nor is it contrary to law. See Black's Law 
Dictionary 537 (5th Ed. 1989) (definition of ``fair market value'').
    In the 1994 amendments Congress stated that ``[i]n determining the 
fair market value, the Panel shall base its decision on economic, 
competitive, and programming information presented by the parties * * 
*'' 119 U.S.C. 119(c)(3)(d). Congress then included in that amendment a 
nonexhaustive list of the types of ``economic, competitive, and 
programming information'' that the Panel must consider in fashioning 
royalty rates that represent fair market value. That the list is 
nonexhaustive is significant, for there may be other types of 
information presented by the parties that, while not falling within one 
of the enumerated categories, is nevertheless relevant to the issue of 
what the fair market value royalty rates should be. The Panel would be 
responsible for considering this type of information as well, if it 
were relevant to determining fair market value.
    The Register does not interpret the enumerated categories of 
``economic, competitive, and programming information'' (for example, 
costs in similar private and compulsory license marketplaces) as 
establishing criteria that define the meaning of ``fair market value.'' 
To do so would, in the Register's view, run contrary to the plain 
meaning of the statute. Sutherland Stat. Const. Sec. 47.07 (5th Ed.). 
Likewise, the Register does not see any support for the argument that 
one of the enumerated categories of information, such as the compulsory 
license fee paid by cable under 17 U.S.C. 111, must be accorded more 
weight than another. The House Committee Report to the 1994 amendments 
makes it clear that this should not be the case. See H.R. Rep. No. 703, 
103d Cong., 2d Sess. 10 (1994) (``In order to aid the panel, the 
Committee adopted an amendment offered by Mr. Hughes directing the 
panel to consider economic, competitive, and programming information 
presented by the parties as well as the competitive environment in 
which such programming is distributed. This would, of course, include 
cable rates, but those rates are not to be a benchmark for setting 
rates under section 119; they are only one potentially [sic] piece of 
evidence in reaching the objective fair market value.''). The Register, 
therefore, determines that the Panel did not act arbitrarily or 
contrary to law in determining the meaning of fair market value.
    Although the Panel determined that its plain meaning of fair market 
value controlled their interpretation, the Panel nevertheless consulted 
the legislative history to the 1994 amendments and concluded that 
``[w]e find no support for the proposition that Congress did not mean 
what it said. The legislative history reveals no intent to attach a 
unique meaning to the commonly understood and well-established `fair 
market value' term.'' Panel Report at 16.
    A review of all floor statements offered at the time of passage of 
the 1994 amendments reveals considerable differences between the views 
of the two Chairmen and some of the members. These differences are 
accentuated by a later floor statement offered by Chairman Hughes when 
he introduced a bill that would make technical corrections to the 1994 
Satellite Home Viewer Act. 140 Cong. Rec. E2290 (daily ed. November 29, 
1994) (statement of Rep. Hughes).
    The statement of Chairman DeConcini offers the greatest support to 
the argument that the rates established in this proceeding should 
approximate what cable pays under the cable compulsory license. 140 
Cong. Rec. S14105 (daily ed. Oct. 4, 1994) (``I am confident that the 
arbitration panel will take steps to ensure that the royalty fee paid 
by satellite carriers are on par with those paid by cable operators''). 
Representative Synar's comments suggest his desire that a satellite 
rate adjustment produce rates comparable to the cable compulsory 
license, but he does not state that application of the fair market 
value standard should or must produce such comparability. The 
statements of Representative Brooks and Hughes provide that cable 
compulsory license rates are one of the factors to be considered by the 
Panel, but they do not indicate that they are the only or controlling 
factor.
    The Register has consulted the caselaw in determining the weight to 
be accorded floor statements made by Congressmen during the passage of 
legislation. The caselaw provides that floor statements of legislators 
are to be given little weight Garcia v. U.S., 469 U.S. 70, 78, (1984); 
Zuber v. Allen, 396 U.S. 168, 186 (1969) (``Floor debates reflect at 
best the understanding of individual Congressmen''). The reasoning 
behind this principle was aptly described by the Federal Circuit Court 
for the District of Columbia:

    [I]t is necessary for judges to exercise extreme caution before 
concluding that statement made in floor debate, or at a hearing, or 
printed in a committee document may be taken as statutory gospel. 
Otherwise, they run the risk of reading authentic insight into 
remarks intended to serve quite different purposes. Furthermore, to 
the degree that judges are perceived as grasping any fragment of 
legislative history for insights into congressional intent, to that 
degree will legislators be encouraged to salt the legislative record 
with unilateral interpretations of statutory provisions they were 
unable to persuade their colleagues to except * * *.

Int. Broth. of Elec. Wkrs. Loc. U. 474 v. NLRB, 814 F.2d 697 (D.C. Cir. 
1987) (Buckley, concurring); see also Overseas Educ. Ass'n. Inc. v. 
FLRA, 876 F.2d 960, 975 (D.C. Cir. 1989) (``While a sponsor's 
statements may reveal his understanding and intentions, they hardly 
provide definitive insights into Congress' understanding of the meaning 
of a particular provision'') (emphasis in original).
    Of greater importance in discerning the intent of Congress, as 
opposed to the

[[Page 55748]]

statements of individual Members, is the fact that Congress changed the 
statute in 1994. When Congress decides to change a statute, the 
decision to do so signifies that it intended to change the meaning. 
Brewster v. Gage, 280 U.S. 327, 338 (1932); United States v. NEC Corp., 
931 F.2d 1493, 1502 (11th Cir. 1991); In re Request for Assistance, 848 
F.2d 1151, 1154 (11th Cir. 1988), cert. denied sub. nom., Azar v. 
Minister of Legal Affairs, 488 U.S. 1005 (1989). That is what occurred 
here. If Congress had truly intended cable compulsory license rates to 
govern the adjustment of fees in this proceeding, then it would not 
have amended the statute in1994 to provide for a fair market value 
determination.\5\
---------------------------------------------------------------------------

    \5\ There is no question that the principal factor for 
determining rates under the 1988 legislation was the rates paid by 
cable. 17 U.S.C. 119(c)(3)(B) (1988) (the Panel ``shall consider the 
approximate average cost to a cable system for the right to 
secondarily transmit to the public a primary transmission made by a 
broadcast station * * *.'').
---------------------------------------------------------------------------

    In sum, while floor statements by some Members indicate an intent 
that fair market value be determined in various ways, by looking at the 
statute, committee reports, floor statements and colloquies the 
Register does not find any special meaning or limitation attached to 
the term ``fair market value'' and, therefore, must rely on the plain 
language of the statute and the plain meaning of the term. The Panel, 
in the view of the Register, therefore, did not act arbitrarily, or 
contrary to law in its interpretation of the meaning of ``fair market 
value.''

B. The Cable Network Fee Benchmark

1. Action of the Panel
    In order to determine fair market value royalty rates as required 
by section 119(c)(3)(D), the Panel considered the voluminous testimony 
and exhibits presented by the parties. Witnesses for PBS, JSC, the 
Commercial Networks, SBCA, and ASkyB sponsored economic analyses and 
testified as to their calculation of fair market value. The copyright 
owners used empirical data of license fees paid to certain cable 
networks by multichannel video programming distributors (principally 
cable operators), while satellite carriers focused primarily on the 
license fees paid by cable operators under section 111.
    The Panel specifically endorsed the approach taken by PBS, and its 
principal witness, Ms. Linda McLaughlin. Using data supplied by an 
industry survey group,\6\ Ms. McLaughlin examined the license fees paid 
by multichannel video programming distributors (``MVPDs'') to license 
the viewing rights to 12 popular basic cable networks. These networks 
are A&E, CNN, Headline News, Discovery, ESPN, the Family Channel, 
Lifetime, MTV, Nickelodeon, TNN, TNT, and USA. Ms. McLaughlin testified 
that these basic cable networks represented the closest alternative 
programming to broadcast programming for satellite homes, and that 
studies indicated that consumers value networks and superstations as 
least as highly as popular basic cable networks. Direct Testimony of 
Linda McLaughlin at 2-5. She then calculated a ``benchmark'' rate for 
these networks to be used by the Panel as representative of the fair 
market value of broadcast signals retransmitted by satellite carriers:

    \6\ The data was supplied by Paul Kagan Associates, a leading 
information and data company in the video industry.
---------------------------------------------------------------------------

* * * I have calculated a basic cable network benchmark price and 
used it to estimate a minimum compulsory license fee for satellite-
retransmitted broadcast stations. The average license fee of the 12 
popular basic cable networks was 18 cents in 1992--when the maximum 
satellite compulsory rate was 17.5 cents--and has risen to 24 cents 
in 1995, an annual increase of ten percent per year. The license 
fees for these 12 basic cable networks are forecast to increase to 
an average of 26 cents in 1997, 27 cents in 1998 and 28 cents in 
1999. This suggests that the compulsory rate for satellite 
retransmitted stations should increase at least correspondingly with 
the average prices for basic cable networks, to an average at least 
27 cents for the 1997-99 period.

Id. at 7.

    The Panel endorsed Ms. McLaughlin's approach because it determined 
that it represented the closest model, of those presented, to a free 
market negotiation for satellite carriage of broadcast signals, and 
because it was the most conservative approach offered by the copyright 
owners. Panel Report at 29-30. The Panel rejected the analysis of JSC 
(Testimony of Mr. Larry Gerbrandt) as too narrow,\7\ and the analysis 
of the Commercial Networks (testimony of Mr. Bruce Owen) as too 
speculative.\8\ The Panel also rejected the analyses of SBCA and ASkyB 
because it determined that their analyses did not comport with the 
plain statutory meaning of the term ``fair market value.'' Id. at 29-
30.
---------------------------------------------------------------------------

    \7\ Mr. Gerbrandt isolated the license fees paid for two basic 
cable networks: TNT and USA. Tr. 2025-2026.
    \8\ Mr. Owen used regression analysis in an attempt to 
demonstrate that MVPDs are willing to pay proportionally higher 
license fees for network signals which contain more expensive 
programming. Direct Testimony of Bruce Owen at 7-10.
---------------------------------------------------------------------------

2. Arguments of the Parties
    SBCA contends that cable network license fees are not an 
appropriate benchmark because cable networks are fundamentally 
different from retransmission of broadcast signals. It asserts that 
``[e]xtracting an accurate, or even representative license fee per 
subscriber is basically impossible because multiple programming 
services are included within contracts, there are ceilings on aggregate 
license fees for MVPDs in some cases, free subscriptions in others, 
marketing and launch support provided by the cable networks, purchases 
of advertising time by the cable networks from MVPDs, and equity 
investments by each in the other.'' SBCA Petition to Modify at 20-21.
    In reply, Copyright Owners assert that the Panel acted properly by 
utilizing cable networks as the benchmark of fair market value, and 
accepting the analysis of Ms. McLaughlin. Copyright Owners not that 
they wished to examine the license fees paid by satellite carriers to 
cable networks in particular, as opposed to the fee paid by all MVPDs 
in general, but SBCA refused to disclose through discovery the amounts 
that satellite carriers paid. Copyright Owners Reply at 17. They 
further note that while SBCA's witness, Mr. Jerry L. Parker, stated 
that a meaningful license fee could not be determined from satellite/
cable network contracts, SBCA never produced the documents to support 
that assertion. Id. at 18. Copyright Owners assert that Ms. McLaughlin 
testified that the license fees presented by her analysis demonstrated 
at least the minimum amount that satellite carriers would pay for cable 
networks, and that her analysis offered the best evidence that was 
properly accepted by the Panel. Id.
3. Recommendation of the Register
    In the Register's view, the Panel's decision to use cable network 
license fees as a benchmark for establishing the fair market value of 
section 119 rates was the product of rational decisionmaking, and its 
decision to use the PBS/McLaughlin approach was not improper.
    Having determined that ``fair market value'' meant the price that 
would be paid by a willing buyer and seller in a free marketplace, it 
was not illogical for the Panel to give careful consideration to 
evidence of markets that most closely resembled the licensing of 
signals under section 119. In fact, section 119(c)(3)(D)(i) requires 
that the Panel consider ``the cost for similar signals in similar 
private * * * marketplaces.'' 17 U.S.C. 119(c)(3)(D).
    All three of the evidentiary presentations of the copyright 
owners--PBS, JSC, and Commercial Networks--

[[Page 55749]]

 focused upon the fees paid to cable networks by MVPDs. SBCA's evidence 
of fair market value, the cable license fees paid under section 111, 
was less relevant to the Panel's determination because the Panel had 
rejected the notion that cable fees equaled fair market value. Panel 
Report at 29-30. The Panel's adoption of cable network fees as the 
benchmark was not unqualified, however, because it stated that ``we 
agree with the satellite carriers that the economic model governing 
cable networks varies markedly from the economic model governing 
broadcasters.'' Id. at 29. Nevertheless, the Panel ``adopt[ed] the 
copyright owners' general approach using the most similar free market 
we can observe.'' Id. at 30. After reviewing the record, the Register 
has determined that the Panel's conclusion is not ``arbitrary'' within 
the meaning of 17 U.S.C. 802(f).
    SBCA contends that cable network fees are not a useful benchmark 
because the economics of cable networks are fundamentally different 
from those of broadcast networks and superstations. SBCA Petition to 
Modify at 20 (citing testimony of Mr. Harry Shooshan, Mr. John Haring 
and Mr. Edwin Desser). The testimony of Mr. Shooshan and Mr. Haring, in 
particular, suggest that there are some marked differences between the 
licensing of cable networks and broadcast signals. The Panel, however, 
took account of that. Panel Report at 29. Nevertheless, there was ample 
testimony that the two markets were also quite similar. Tr. 1202-04 
(Mr. Robert Crandall); Tr. 1609 (Ms. McLaughlin); Tr. 1284 (Mr. Owen). 
The Panel weighed the evidence and accepted the copyright owners' 
approach using cable network fees because it was ``the most similar 
free market we can observe.'' Panel Report at 30 (emphasis in 
original). Because this conclusion is grounded in the record, it is not 
arbitrary. National Cable Television Ass'n, Inc. v. CRT, 724 F.2d 176, 
189 (D.C. Cir. 1983) (decisions grounded in the record within the zone 
of reasonableness).
    Likewise, the Panel's decision to rely on the PBS/McLaughlin 
testimony to establish the cable network benchmark was adequately 
grounded in the record. Panel Report at 18-20. Again, the Panel stated 
that use of cable networks was by no means flawless and, to account for 
this, the Panel was adopting the ``conservative'' approach offered in 
Ms. McLaughlin's analysis. Id. at 31. The Register determines that the 
Panel's decision to accord the PBS/McLaughlin testimony controlling 
weight is consistent with its determination to utilize the plain 
meaning of ``fair market value'' as the proper standard for setting 
royalty fees. Further, it is well established that using evidence of 
analogous markets is the best evidence in determining market price. See 
National Cable Television, 724 F.2d at 187. For these reasons, the 
Register determines that the Panel did not act arbitrarily or contrary 
to the Copyright Act.

C. Adjustments to the Cable Network Fee Benchmark

1. Adjustment to the Benchmark for Delivery Costs
    a. Action of the Panel. After establishing cable network license 
fees, as presented by Ms. McLaughlin, as the benchmark for determining 
the section 119 royalty rates, the Panel examined, inter alia, the 
special features and conditions of the retransmission marketplace to 
determine if an upward, or downward, adjustment in the benchmark was 
appropriate. One of the aspects of satellite retransmission of 
broadcast signals that differ significantly from the transmission of 
cable networks involved the costs of delivering the signals to the 
MVPDs. The Panel found this issue, along with that of advertising 
inserts (discussed infra), as being ``among the most challenging issues 
for the Panel to resolve.'' Panel Report at 43.
    The Panel found that the license fees charged for cable networks 
included the cost of delivering the cable network to the MPVD--i.e., 
making the signal readily available for reception by the MVPD for 
subsequent distribution to subscribers. Id. at 45. With satellite 
retransmission of broadcast signals, however, the satellite carriers 
absorb the costs of getting the broadcast signal from its geographic 
point of origin, and then delivering it to its subscribers. Id. The 
Panel considered whether the cost of delivering the signals should, 
therefore, be deducted from the benchmark.
    The Panel declined to make such a deduction. The Panel found that 
there was no evidence presented to suggest that if satellite carriers 
and copyright owners negotiated in a free marketplace for the 
retransmission of broadcast signals, the copyright owners would offer 
satellite carriers a discount on license fees to accommodate delivery 
costs. The Panel discussed the testimony of Mr. Jerry L. Parker, an 
SBCA witness who offered testimony as to the history, nature and 
operation of the satellite industry:

    Mr. Parker was invited to demonstrate whether carrier costs 
impacted the rates negotiated between satellite carriers and cable 
networks. He could not. Indeed, Mr. Parker conceded, for example, 
that despite additional costs incurred by DBS \9\ carriers (beyond 
those of HSD \10\ carriers), DBS operators were unable to negotiate 
lower rates on that basis. Moreover, he declined to urge the Panel 
to set a discounted rate for DBS carriers to account for their 
higher costs than HSD carriers. We must similarly decline to 
discount the cable network benchmark to account for higher delivery 
costs of broadcast signals.

    \9\ ``DBS'' stands for Direct Broadcast Service, and is 
associated with high powered, high frequency direct broadcast 
satellite services. An example of a DBS operator is DirecTV.
    \10\ ``HSD'' stands for ``Home Satellite Dish,'' and typically 
refers to satellite providers who operate at lower frequencies than 
DBS providers.
---------------------------------------------------------------------------

Panel Report at 45-46 (citations omitted).
    b. Arguments of the Parties. SBCA vigorously contests the Panel's 
resistance to deducting delivery costs from the 27 cent benchmark 
figure, stating that ``it must be recognized that all cable networks 
that are charging and receiving 27 cents have made the necessary 
investment and expense in distributing the signal * * *. None of the 
[c]opyright [o]wners or broadcasters in this proceeding incurred this 
necessary expense for satellite distribution of superstations or 
network stations.'' SBCA Petition to Modify at 22. SBCA cites the 
testimony of Ms. McLaughlin, who acknowledged that broadcast stations 
are not responsible, and do not incur the cost of, delivering their 
signal to satellite carriers for subsequent retransmission. Id. at 22-
23. SBCA submits that ``[t]he error in Ms. McLaughlin's analysis, 
implicitly accepted by the Panel, is that these expenses were basically 
the cost of the [s]atellite [c]arriers in distributing their own 
product.'' Id. at 23. SBCA asserts that the Panel understood that 
satellite carriers bore the cost of delivery, but then mistakenly 
categorized it as a ``discount'' to compensate carriers for their 
costs, when in fact it is a cost that must be borne by the copyright 
owners. Id. at 25-26.
    SBCA submits that it demonstrated that the average delivery cost 
per signal, per subscriber, per month is 10 cents, and 6.5 cents for 
volume discounts. SBCA, therefore, contends that the 27 cent benchmark 
rate must be adjusted downward to between 17 and 21.5 cents. Id. at 23, 
f.n. 53.
    In reply, Copyright Owners assert that SBCA mischaracterizes the 
transmission cost issue by suggesting that the major focus should be 
the structural nature of such costs, rather than whether they would 
result in any marketplace price adjustments. Copyright Owners Reply at 
22. Copyright Owners cite Mr. Larry Gerbrandt's testimony that 
transmission

[[Page 55750]]

costs do not yield different cable network license fees in the 
marketplace, and note that Mr. Jerry Parker was unable to demonstrate 
otherwise. Id. at 22-23.
    c. Recommendation of the Register. The Panel discussed the issue of 
transmission costs quite extensively, finding that the record was 
devoid of credible evidence demonstrating that transmission costs of 
satellite carriers affected the rates negotiated between satellite 
carriers and cable networks. Panel Report at 45-46. The Panel expressly 
found that SBCA's witness. Mr. Parker, could not offer evidence of such 
an impact, and conceded that despite additional costs incurred by DBS 
carriers, DBS operators were unable to negotiate lower rates on that 
basis. Tr. 2528. The Panel grounded its determination in the record 
evidence, which is the hallmark of rational decision making. National 
Cable Television Ass'n. v. CRT, 724 F.2d 176 (D.C. Cir. 1983).
    SBCA's discussion of transmission costs fails to focus on what 
impact, if any, they would have on negotiated license fees, and instead 
relates to which party should bear the cost. Costs can be shifted 
between parties in a business relationship, and SBCA asserts that their 
costs, when comparing delivery of broadcast signals with delivery of 
cable networks, must be shifted to copyright owners to prevent a 
windfall. However, costs can also be absorbed by a party as part and 
parcel of doing business, and must be when one party cannot shift the 
costs (or a portion thereof) to the other. Where there is no credible 
evidence demonstrating a party's ability to shift a cost, no change in 
the negotiated price should occur. The Panel found that to be the 
situation with transmission costs, and the Register has no grounds on 
which to reject that finding.
2. Adjustment to the Benchmark for Advertising Inserts
    a. Action of the Panel. In addition to delivery costs, the Panel 
considered the issue of advertising inserts very significant. Cable 
networks typically grant MVPD's a certain number of time slots during 
the programming provided--known as advertising inserts--for the MVPDs 
to sell to advertisers. The monies raised from these inserts are 
retained by the MVPD, and can defray the cost of the license fee for 
the cable network approximately 8 cents per subscriber per month. Panel 
Report at 43-44. The Panel found, however, that because section 
119(a)(4) requires satellite carriers to retransmit the signals of 
broadcast stations intact, they do not receive any advertising inserts 
for the retransmission of broadcast signals. Id. at 44. The Panel 
considered whether this should result in a downward adjustment of the 
benchmark rate.
    The Panel declined to make an adjustment:

    [T]he satellite carriers naturally argue that because the 
benchmark is based upon the rate paid by multichannel distributors 
to cable networks, we must deduct $0.08 to obtain the `real cost' of 
cable networks. The copyright owners counter that most satellite 
carriers don't insert advertising into cable network signals anyway. 
Indeed, HSD carriers don't possess the technology to insert 
advertising. Moreover, multichannel distributors appear to pay the 
same cable network license fee regardless of whether they insert 
advertising.
    If this last assertion is accurate, one would expect that in a 
hypothetical free market negotiation, broadcasters would similarly 
decline to reduce their license fees to satellite carriers for their 
lack of advertising availabilities and no benchmark adjustment would 
be appropriate. Both Ms. McLaughlin and Mr. Gerbrandt opined that, 
based upon their knowledge and experience, neither the availability 
of advertising inserts, nor the carriers [sic] ability to insert, 
affects the prices that cable networks charge. They did not support 
this opinion with any documentary evidence or empirical data. 
However, the satellite carriers allowed this testimony to stand 
essentially unrefuted. Indeed, Dr. Haring was explicitly invited to 
render an opposing opinion but forthrightly declined. In the final 
analysis, we accept the copyright owners' expert testimony and 
decline to deduct $0.08 from the benchmark as advocated by the 
satellite carriers.

Panel Report at 44-45 (citations omitted).
    b. Arguments of the Parties. SBCA alleges that the Panel 
``completely misconceived the adjustment necessary to reflect the value 
for insertable advertising.'' SBCA Petition to Modify at 26. They note 
that the arbitration panel in the 1992 rate adjustment made a downward 
adjustment for advertising inserts. 57 FR 19058 (May 1, 1992). SBCA 
asserts that the ``value of insertable advertising is significant,'' 
and that its value is ``no less than 7.5 cents'' per subscriber per 
month. Id. at 27.
    As a ``variation'' on the advertising insert issue, SBCA offers 
that the increased national exposure of broadcast stations offered by 
satellite retransmissions increases the amount of revenue that 
copyright owners receive for the advertising slots that they retain. 
Id. at 28. SBCA submits that the Panel should have further adjusted 
downward for this value, and argues that it could not quantify the 
value because the necessary information was in the possession of the 
copyright owners who were not required to disclose it through the CARP 
discovery rules.\11\
---------------------------------------------------------------------------

    \11\ SBCA alleges throughout its Petition to Modify that the 
CARP discovery rules, and particularly the Panel's application of 
the rule, precluded it from obtaining vital information from 
copyright owners to support its case, which resulted in negative 
inferences by the Panel as to the sufficiency of its presentation. 
This argument is addressed, infra in subsection G.
---------------------------------------------------------------------------

    In reply, Copyright Owners assert that the Panel fully considered 
the arguments of SBCA, and correctly rejected any downward adjustments 
for advertising inserts. Copyright Owners Reply at 23-24.
    c. Recommendation of the Register. The Panel fully discussed what 
effect, if any, advertising inserts might have on the negotiated fee 
for retransmission of broadcast signals. Panel Report at 43-45. The 
Panel cited the testimony of Ms. McLaughlin and Mr. Gerbrandt that 
``based upon their knowledge and experience, neither the availability 
of advertising inserts, nor the carriers ability [sic] to insert, 
affects the prices that cable networks charge * * *. The satellite 
carriers allowed this testimony to stand essentially unrefuted. Indeed, 
Dr. Haring was explicitly invited to render an opposing opinion but 
forthrightly declined.'' Id. at 44. SBCA did not offer any testimony 
which incontrovertibly rebuts the testimony of Ms. McLaughlin and Mr. 
Gerbrandt. Consequently, the Panel's determination that no adjustment 
should be made is not arbitrary because it is grounded in the record.

D. Equality Between Superstation and Network Signal Rates

1. Action of the Panel
    As discussed above, Congress established different royalty rates 
for superstation and network signals when it created the section 119 
license. The initial rate for superstations was 12 cents per subscriber 
per month, and 3 cents per subscriber per month for network signals. 
This 4 to 1 ratio reflected the payment of royalties under the section 
111 license. Under section 111, only copyright owners of nonnetwork 
programming are allowed to share in the royalty funds. Cable operators 
pay full value for retransmitting independent broadcast stations (of 
which superstations are a subset), and only one-quarter value for 
retransmission of network signals. 17 U.S.C. 11(f). The one-quarter 
value reflects Congress' determination in 1976 that approximately 25 
percent of the programming on network signals is compensable nonnetwork 
programming, while the remainder is not. Congress

[[Page 55751]]

carried over this 4 to 1 ratio in the 1988 Satellite Home Viewer Act 
when it set the 12 cent and 3 cent rates in the statute.
    The 1992 arbitration panel that adjusted the section 119 rates took 
into account the 4 to 1 ratio, but found that the amount of network 
programming on network stations had declined to approximately 50 
percent, down from the 75 percent contemplated by section 111. That 
panel, however, set the network station rate at 6 cents, which 
represented roughly a 3 to 1 ratio to the superstation rate it set, 
because it was concerned with disruption in the satellite industry of 
carriage of network signals if it established a network signal rate at 
half (a 2 to 1 ratio) that of the superstation rate. 57 FR 19052, 19060 
(May 1, 1992). The Copyright Royalty Tribunal, in reviewing the panel's 
decision on this matter, stated that:

    The Tribunal believes that the Panel was not bound by either a 
4:1 ratio or a 1:1 ratio. When the Tribunal issued its declaratory 
ruling concerning network copyright owners, we did not intend to 
prejudge any future ratesetting. We noted that in cable and 
satellite, the pay-in may not necessarily correlate to the pay-out. 
Therefore, a 1:1 ratio is not required. However, we do believe the 
Panel had the authority to take our declaratory ruling into account, 
so that it was entitled to adjust the 4:1 ratio downward to reflect 
that network copyright owners are entitled to receive satellite 
royalties.

Id. at 19052.
    The Panel in this proceeding rejected the notion that it was 
required to set different royalty rates for superstations and network 
signals, respectively, because it was seeking the fair market value of 
these signals. The Panel stated:

    We find no credible evidence that retransmitted network stations 
are worth less than retransmitted superstations. Indeed, even 
assuming arguendo, we were to conclude that network programming is 
worth less, or even wholly uncompensable, we find no record support 
for any particular ratio--no evidence was adduced as to the present 
day average proportion of network to non-network programming. And 
imposition of the original 4 to 1 ratio by rote, merely to replicate 
section 111 rates, would not be consistent with a fair market value 
analysis.

Panel Report at 40.
2. Arguments of the Parties
    SBCA challenges the Panel's refusal to apply the 4 to 1 ratio, 
asserting that such ratio is binding precedent upon the Panel. SBCA 
Petition to Modify at 38. SBCA contends that Congress determined, under 
section 111, that network programming is not compensable, and carried 
this rationale into the rate structure of section 119. The fact that 
networks are allowed to share in the section 119 royalties, but not the 
section 111 royalties, ``does not mean that the network signals are to 
be paid for any differently under the satellite license than under the 
cable license * * * '' Id. at 39. Furthermore, SBCA submits that 
satellite carriers give added value to network signals by carrying them 
to unserved households who would not otherwise receive such signals. 
Id. at 41. SBCA contends that, if anything, there should be no fee for 
network signals. Id. at 40.
    Finally, SBCA argues that the Panel erred by creating a 27 cent 
royalty rate applicable to PBS (defined under the statute as a network) 
because ``PBS signals are free on the satellite by law.'' Id. at 41. 
These signals, SBCA contends, cannot possibly have a market value, and 
there should be no royalty fee for PBS signals. Id.
    Copyright Owners contend that the Panel correctly rejected the 4 to 
1 ratio because the new law requires a determination of fair market 
value. Copyright Owners Reply at 32. Copyright Owners note that the 
binding precedent referred to by SBCA was an interpretation of the 1988 
Satellite Home Viewer Act, not the 1994 Act, and that nothing in the 
1994 Act requires assignment of different rates for superstation and 
network signals. Id. at 33-34.
    With regard to SBCA's contention that retransmission of PBS signals 
should not be compensated at the 27 cent level, Copyright Owners argue 
that such a contention ``flies in the face of the fair market value 
evidence,'' and that the PBS signal available for free on the satellite 
is not the signal of the member stations that are at issue in this 
proceeding. Id. at 35.
3. Recommendation of the Register
    The Panel did not err by rejecting the 4 to 1 ratio and adopting a 
network signal rate that was equal to the value of the superstation 
rate. The Panel correctly observed that while the 1992 arbitration 
panel generally followed the ratio set by Congress in the 1988 Act, the 
1994 amendments changed any reliance upon a pre-set ratio by directing 
the Panel to determine only the fair market value for network and 
superstation signals. Panel Report at 40. There is not evidence in the 
1994 Act, or its legislative history, that Congress intended the Panel 
to set a rate for network signals that is one-fourth of that for 
superstations (or any other ratio, for that matter) if that rate did 
not represent the fair market value of network signals.
    SBCA asserts that the 1994 amendments contemplate a CARP 
establishing two rates--one for network signals, and another for 
superstations--thereby inferring that Congress contemplated rate 
differentiation (i.e. that one rate would be less than the other). Such 
an inference is belied by language in the House Report, however, which 
states that the rates set by the CARP in this proceeding ``should 
reflect the fair market value of satellite carriers' secondary 
transmissions of superstations and network stations.'' H.R. Rep. No. 
703, 102d Cong., 2d Sess. 7 (1994). The statute does not require or 
suggest that the rate for network signals, or superstations, be set at 
anything less than fair market value.
    There is no binding precedent that required the Panel to apply a 
ratio in value between network signals and superstations, and set 
network signal rates lower than superstation rates. The 1992 
arbitration panel applied a different criterion (rates paid by cable 
under section 111) to determine section 119 rates, and its decision 
therefore does not serve as precedent for this proceeding. Furthermore, 
even if the 1992 arbitration were binding precedent, the final order of 
the Copyright Royalty Tribunal (which constituted the final agency 
action in that proceeding) clearly stated that no differentiation 
between network and superstation rates was required. 57 FR 19052 (May 
1, 1992) (``The Tribunal believes the Panel was not bound by either a 
4:1 ratio or a 1:1 ratio.''). The Panel, therefore, did not act 
arbitrarily by rejecting application of the 4 to 1 ratio.
    The Register has also examined the record to determine whether, 
under a fair market value analysis and regardless of application of a 
pre-set ratio, the evidence required a differentiation in network and 
superstation rates. The Panel determined that there was ``no credible 
evidence that retransmitted network stations are worth less than 
retransmitted superstations.'' Panel Report at 40. It was wholly within 
the Panel's discretion to arrive at such a determination. SBCA 
presented evidence demonstrating that network viewer ratings have 
declined, SBCA Proposed Findings of Fact and Conclusion of Law at 39, 
but it did not offer evidence as to what impact such a decline had 
relative to superstations, nor did it quantify the difference in value 
between network signals and superstations under a fair market value 
analysis, except to insist that all signals should be free. See SBCA 
Reply Findings of Fact and Conclusions of Law at 7. The Panel, 
consequently, did not act arbitrarily by adopting the same royalty rate 
for both network signals and superstations.

[[Page 55752]]

    Finally, SBCA argues that because the Panel failed to take account 
of the fact that PBS signals are free on the satellite by law, it was 
error to accord them the same royalty rate as other network 
signals.\12\ Section 605(c) of the Communications Act, 47 U.S.C., 
prohibits encryption of programs included in the National Program 
Service of the Public Broadcasting Service, essentially making the 
National Program Service free to all satellite home dish owners. Member 
stations of PBS, however, are not subject to 47 U.S.C. 605(c), and 
satellite carriers may charge their subscribers for retransmission of 
these stations. Furthermore, the National Program Service is not a 
network signal as defined under section 119(d)(2). Member stations of 
PBS are network signals under section 119(d)(2). Presumably, there are 
PBS programs available on the National Program Service that are the 
same programs available from PBS stations, although no such evidence 
was adduced in this proceeding. There are also likely to be different 
programs, particularly those produced by member stations. SBCA did not 
quantify by how much, under a fair market value analysis, the same 
programs on the National Program Service and PBS stations should reduce 
the royalty fee for PBS stations, beyond a blanket assertion that all 
PBS stations should be free. SBCA Reply Findings of Fact and 
Conclusions of Law at 68-69. The Panel concluded that there was ``no 
credible evidence'' warranting a conclusion that network signals were 
worth less, which would include PBS stations. The Register cannot find 
credible evidence to the contrary, and therefore the Panel's 
determination must be affirmed.
---------------------------------------------------------------------------

    \12\ PBS signals are defined as network stations under section 
119(d)(2).
---------------------------------------------------------------------------

E. Local Retransmission of Network Signals

1. Action of the Panel
    In setting the satellite carrier compulsory license royalty rates 
for networks and superstations, the Panel was asked to distinguish 
between satellite retransmission of ``distant'' broadcast signals, and 
satellite retransmissions of ``local'' broadcast signals. The Panel did 
make this distinction, setting a royalty rate of 27 cents for distant 
retransmission of superstations, and zero cents for local 
retransmission of superstations. Panel Report at 54.
    While the Panel adopted a 27 cent rate for retransmission of 
distant network signals, id., it declined to adopt a rate for local 
retransmission of network signals because it determined that it lacked 
subject matter jurisdiction to do so. Id. at 48. The Panel considered 
section 119(a)(2)(B), which provides that the satellite compulsory 
license is ``limited to secondary transmissions to persons who reside 
in unserved households,'' and examined the section 119(d)(10) 
definition of an unserved household. The Panel concluded that:

    [N]etwork signals generally may not retransmitted to the local 
coverage area of local network signals. The separate rate request of 
ASkyB is explicitly intended to apply to retransmission of network 
signals to served households. Section 119 does not provide a 
compulsory license for these retransmissions. Hence, we lack subject 
matter jurisdiction to set a rate for local retransmissions of local 
network signals.

Panel Report at 48 (emphasis in original).
    The Panel did acknowledge in a footnote that there may be ``rare 
instances'' where a household located within the local market of a 
network signal was, indeed, an unserved household within the meaning of 
section 119(d)(10). Id. at 48, f.n. 62. The Panel stated that ``[t]hese 
households qualify as unserved but, under section 119, ASkyB would pay 
the conventional `rate for non-local signals.' '' Id.
2. Arguments of the Parties
    EchoStar contends that the Panel committed reversible error in 
determining that it has no jurisdiction to set a royalty rate for local 
retransmission of network signals, and that the rate should be zero. 
EchoStar Petition to Modify at 1. According to EchoStar, the language 
of section 119 regarding the permissibility of local retransmission of 
network signals is nuclear, and the Panel should therefore have 
consulted the legislative history, rather than decide the matter on the 
basis of the statutory language. Id. at 7-8. EchoStar submits that the 
Congressional intent behind the unserved household restriction of 
section 119(a)(2)(B) was to protect the network-affiliate relationship 
from importation of distant signals of the same network, citing the 
recent Copyright Office Report on revision of the cable and satellite 
carrier compulsory licenses. Id. at 4. Because local retransmissions do 
not harm the network-affiliate relationship, EchoStar asserts that 
``[i]n light of the intent behind the compulsory license, therefore, 
the `unserved household' limitation should be read as not precluding 
such local-into-local retransmissions--a form of retransmission which 
required technologies not in existence at the time of the 
legislation.'' Id. at 5.
    In addition, EchoStar submits that the Panel should have 
interpreted section 119 flexibly enough to allow local retransmission 
of network signals, citing Sony Corp. of America v. Universal City 
Studios, Inc., 464 U.S. 417 (1984) and Twentieth Century Music Corp. v. 
Aiken, 422 U.S. 151 (1975). Id. at 10. Finally, EchoStar argues that, 
since the section 119 license was modeled after the section 111 
license, and local retransmission of network signals is permitted under 
section 111, the two statutes should be interpreted similarly. Id. at 
11 (citing Northcross v. Board of Education, 412 U.S. 427 (1973).
    Commercial Networks seek a clarification of the Panel's ruling on 
local retransmission of network signals, albeit from a completely 
different perspective. Commercial Networks request the Librarian to 
make clear that where local retransmission of a network signal does not 
violate the unserved household restriction (a circumstance acknowledged 
by the Panel likely to be rare), the rate for such retransmission is 27 
cents per subscriber per month. Commercial Networks Petition to Modify 
at 1.
    In reply, EchoStar opposes Commercial Networks position, and argues 
that the same rationale that the Panel used in adopting the zero rate 
for superstations applies with equal force to network stations that are 
locally retransmitted to unserved households. EchoStar Reply at 2.
    Certain Copyright Owners object to EchoStar's position, and contend 
that EchoStar does not have standing under the rules to file a petition 
to modify the Librarian's decision when it was not an active party in 
this proceeding. Certain Copyright Owners Reply at 1. Certain Copyright 
Owners contend that the Panel correctly interpreted section 119 as 
preventing retransmission of local network signals to served 
households, and that the legislative history does not warrant a 
different conclusion. Id. at 3-6.
3. Recommendation of the Register
    Two separate issues are presented by the local retransmission of 
network signals. First, there is the retransmission of a network 
station within that station's local market. The Panel categorized this 
as local retransmission to served households, and concluded that 
section 119 did not permit such retransmissions. Second, there is 
retransmission of a network station within that station's local market 
to subscribers who satisfy the definition of an ``unserved household'' 
in section

[[Page 55753]]

119(d)(10). The Panel acknowledged that such retransmissions were 
permissible under section 119, though likely to occur in ``rare 
instances,'' but was unclear as to what the proper royalty rate should 
be.
    Local retransmission of network signals to served households 
presents a challenging issue. The Copyright Office declined to issue a 
declaratory ruling that such retransmissions are permissible, though it 
did not preclude addressing such a matter through a rulemaking 
procedure. Letter of the Acting General Counsel to William Reyner, 
August 15, 1996. Moreover, the Office has, in its recent report to the 
Senate on revision of the satellite and cable compulsory licenses, 
expressly endorsed the permissibility of such retransmissions, and 
requested Congress to ``clarify'' the statute on the matter. ``A Review 
of the Copyright Licensing Regimes Covering Retransmission of Broadcast 
Signals,'' Report of the Register of Copyrights at xx (1997) 
(hereinafter ``Register's Report''). As the agency responsible for 
administering the Copyright Act, the Office believes that it retains 
the authority to conduct a rulemaking proceeding to determine the 
permissibility of local retransmission of network signals to served 
households, regardless of the Panel's determination in this proceeding.
    Nevertheless, the Register must determine whether the Panel's 
decision that such retransmissions are not permitted under section 119 
is contrary to the provisions of the Copying Act.\13\ The Register 
reviewed the language of section 119, and its legislative history, both 
in the context of this proceeding, and in her report to the Senate. 
Such review confirmed the Register's belief that Congress simply did 
not consider the issue of local retransmission of network signals to 
served households at the time of passage of section 119, principally 
because the technology to make such local retransmission did not 
commercially exist. It is evident from the history surrounding adoption 
of the unserved household restriction in 1998 that adoption of the 
restriction was motivated by concerns expressed by network affiliate 
stations that importation of distant network stations affiliated with 
the same network would erode their over-the-air viewership. Register's 
Report at 103-104. This suggests that if Congress had considered the 
issue, it might have condoned local retransmissions to served 
households. On the other hand, the section 119(d)(10)(A) portion of the 
definition of an ``unserved household'' does not specify receipt of 
what network signal over-the-air triggers the prohibition in making 
retransmissions of network signals. The language of section 
119(d)(10)(A) could easily be read to prohibit retransmission by 
satellite whenever the subscriber receives an over-the-air signal of 
Grade B intensity from any network affiliate, including the local 
network affiliate that the satellite carrier intends to retransmit to 
the subscriber. This is the position that the Panel took.
---------------------------------------------------------------------------

    \13\ Because the Panel's decision on this point is a conclusion 
of law, the arbitrary standard is not applicable.
---------------------------------------------------------------------------

    In sum, the Register determines that the law is silent on this 
issue. Consequently, the Register cannot unequivocally say that the 
Panel's decision is arbitrary or contrary to law.
    The second issue is the local retransmission of network signals to 
unserved households. The Panel appears to have presumed that such 
retransmissions are permissible. Panel Report at 48. The Register 
determines that they are permissible, as provided by the express terms 
of section 119. The Panel failed to articulate what royalty rate would 
be applicable to such local retransmissions. It mentioned, in a 
footnote, that the number of unserved households within a network 
station's local market were likely to be few, and cited the testimony 
of ASkyB's witness, Preston Padden, that ASkyB would, in those 
instances, ``pay the conventional `rate for non-local signals.' '' Id. 
at 48, f.n. 62 (quoting written direct testimony of Mr. Padden). The 
Panel did not expressly state what the rate should be for all carriers 
making local retransmissions of network signals to unserved households.
    Commerical Networks urge that the rate for such retransmissions 
should be 27 cents. EchoStar \14\ argues that the rate should be zero, 
consistent with the Panel's adopted rate for local retransmissions of 
superstations. To the extent that the Panel sought to impose the 27 
cent rate on local retransmissions of network signals to unserved 
households, the Register determines that such action is arbitrary. The 
Register cannot find testimony in the record that supports the 
conclusion that local retransimssion of network signals to unserved 
households has a fair market value rate of 27 cents, particularly where 
the Panel determined that the fair market value of local 
retransmissions of superstations was zero. Panel Report at 52. 
Likewise, the record does not support a conclusion that there is any 
differentiation between the fair market value of local retransimssions 
of network signals vis-a-vis superstations. Commercial Networks do not 
cite any testimony to the contrary in their petition to modify.
---------------------------------------------------------------------------

    \14\ The Register agrees with Copyright Owners that EchoStar 
lacks standing to file a petition to modify the Panel's 
determination, and recommends dismissal of the petition. Section 
251.55(a) of the rules, 37 CFR provides that only parties to the 
proceeding may file petitions to modify, and makes no provision for 
nonparties. EchoStar, though a member of, and represented by SBCA, 
was not a party to this proceeding because it did not file a Notice 
of Intent to Participate as required by the rules. See 37 CFR 
251.45(a).
    Dismissal of EchoStar's petition, however, does not preclude 
consideration of the issues surrounding local retransmissions of 
network signals, and the Register has considered these as required 
by section 802(g).
---------------------------------------------------------------------------

    To the extent that the Panel failed to adopt a rate for local 
retransmissions of network signals to unserved households, the Register 
determines that such action is inconsistent with its task in this 
proceeding, and recommends that the Librarian substitute his own 
determination. 17 U.S.C. 802(g). The dearth of testimony on this issue 
and, for that matter, the Panel's cursory discussion of it, is not 
surprising because local retransmission of network signals to unserved 
households, and served households as well, is undoubtedly an 
unattractive business proposition to satellite carriers. Nevertheless, 
the issue was before the CARP, and requires a resolution.
    The Register recommends that the Librarian adopt a zero rate for 
local retransmissions of network signals to unserved households because 
the Register is persuaded that the Panel's conclusions with respect to 
local retransmissions of superstations are equally applicable to local 
retransmissions of network signals to unserved households. Panel Report 
at 52-53. As noted above, there is no conclusive evidence to suggest 
that locally retransmitted network signals are of greater fair market 
value than locally retransmitted superstations. Accordingly, the 
Register recommends adoption of a zero rate for local retransmission of 
network signals to unserved households.

F. Effective Date of the New Rates

1. Action of the Panel
    In announcing the royalty rate of 27 cents for distant 
retransmission of network and superstation signals, and zero cents for 
local retransmission of superstations, the Panel stated that the time 
period for payment of the rates would be from July 1, 1997, through 
December 31, 1999. Panel Report at 54.
2. Arguments of the Parties
    SBCA contends that the Panel acted contrary to law by setting an 
effective

[[Page 55754]]

date of July 1, 1997, for the new rates. SBCA states that the Panel did 
not have any authority to set an effective date because section 
119(c)(3)(C) states that the rates become effective as set forth in the 
Librarian's order. SBCA Petition to Modify at 46. Further, SBCA argues 
that the effective date of the new rates must be prospective only. Id. 
at 47. It notes that section 119 contemplates prospective application 
by discussing the rates ``to be paid.'' Id. at 48-49 (citing section 
119(c)(3)(A) and the 1988 House Report to the Satellite Home Viewer 
Act). SBCA argues that the caselaw prevents retroactive application of 
agency rulemaking unless the enabling statute expressly states 
otherwise, and submits that the Librarian's order in this proceeding 
effectively constitutes a rulemaking because the Copyright Office's 
rules are being amended to reflect the new rates. Id. at 50-51.
    Additionally, SBCA argues that applying the July 1, 1997, effective 
date would cause substantial harm to the satellite industry. Id. at 55. 
SBCA submits affidavits of representatives of the satellite industry 
discussing their inability to adequately inform their subscribers on a 
timely basis of the rate increase, and the difficulty of adjusting 
distribution contracts to accommodate fee increases. Id. at attachment 
A.
    Finally, SBCA takes the Librarian to task for not complying 
precisely with the procedural schedule established in the statute for 
this proceeding. Specifically, SBCA contests the Library's decision to 
temporarily suspend the schedule to address issues raised by ASkyB, so 
that the CARP was initiated on March 3, 1997, as opposed to January 1, 
1997, as contemplated in section 119(c)(3)(A). SBCA argues that because 
the Library violated the time requirement of section 119(c)(3)(A), and 
such delay caused substantial harm to satellite carriers, ``the Panel's 
report should be invalidated on due process grounds, particularly with 
respect to the prejudicial effective date directly resulting from the 
Librarian's failure to comply with a critically important statutory 
requirement.'' Id. at 55 (citing Baumgardner v. Secretary, Dept. of 
Housing and Urban Development, 960 F.2d 572 (6th Cir. 1992).
    Copyright Owners assert that they have interpreted section 119 from 
the beginning of this proceeding as requiring an effective date of July 
1, 1997, for the new rates, and that SBCA never challenged that 
position until now, thereby estopping SBCA from raising the issue. 
Copyright Owners Reply at 42-43. Copyright Owners also argue that the 
Librarian's good cause delay in commencing this proceeding does not 
invalidate it, and that the cases cited by SBCA are inapposite. Id. at 
44-45. Copyright Owners also attach an accompanying motion to strike 
the affidavits offered by SBCA to corroborate its argument that the 
July 1 effective date will cause undue hardship on satellite carriers. 
SBCA opposes this motion.
3. Recommendation of the Register
    Section 119(c)(3)(C) provides that:

    The obligation to pay the royalty fee established under a 
determination which--
    (i) is made by a copyright arbitration royalty panel in an 
arbitration proceeding under this paragraph and is adopted by the 
Librarian of Congress under section 802(f), or
    (ii) is established by the Librarian of Congress under section 
802(f) shall become effective as provided in section 802(g) or July 
1, 1997, whichever is later. 17 U.S.C. 119(c)(3)(C). Clause (i) of 
section 119(c)(3)(C) described the situation where the Librarian 
adopts the decision of the CARP, while clause (ii) describes the 
situation where the Librarian has rejected the CARP's decision and 
substituted his own determination.\15\ The effective date of the 
established rates is either July 1, 1997, or the date set pursuant 
to section 802(g), whichever date is later.

    \15\ Interestingly, the statute does not address the situation, 
as in this proceeding, where the Panel's decision is accepted in 
part and rejected in part. Subclause (ii) most likely applies to 
this proceeding because the Librarian has established one of the 
royalty rates (the rate for local retransmission of network signals 
to unserved households).

    Section 802(g) governs judicial review of the Librarian's decision 
in this proceeding. The section gives ``any aggrieved party who would 
be bound by the [Librarian's] determination,'' 30 days in which to 
notice an appeal with the United States Court of Appeals for the 
District of Columbia Circuit. The section then provides that ``[i]f no 
appeal is brought within such 30-day period, the decision of the 
Librarian is final, and the royalty fee * * * shall take effect as set 
forth in the decision.'' (emphasis added). Section 802(g) then provides 
that if an appeal is taken, ``[t]he pendency of an appeal under this 
paragraph shall not relieve persons obligated to make royalty payments 
under section ( ) * * * 119 * * *'' Nothing else is said in section 
802(g) with regard to the possible effective date of royalty rates.
    SBCA and Copyright Owners strongly disagree over the effective 
dates of the royalty rates established in this proceeding. SBCA 
believes that the effective date can be no sooner than 30 days after 
the Librarian's decision (i.e. November 26, 1997) at which time it will 
be known whether or not the Librarian's decision is final, while the 
Copyright Owners maintain that July 1, 1997, is the proper effective 
date. The Register has examined the governing language of sections 
119(c)(3)(C) and 802(f), and notes an incongruity with respect to the 
July 1, 1997, date.
    Section 119(c)(3)(A) provides that this proceeding was supposed to 
have started on January 1, 1997. Given the 180-day arbitration period, 
as provided by section 802(e), the latest the Panel could have 
delivered its report would have been June 29, 1997. The Librarian would 
then have the 60-day review period in which to either accept or reject 
the Panel's decision, which would place the date of final agency action 
at no later than August 28, 1997. This is almost two months after July 
1, 1997. While Congress could have contemplated the Librarian 
completing his review in less than 60 days, it is hard to imagine that 
Congress could have expected him to complete it in just one day: the 
time period from delivery of the Panel's report on June 29 to the 
issuance of the Librarian's decision on July 1, 1997. The more likely 
explanation is that Congress envisioned the CARP delivering its report 
well before--at least two months--the 180-day deadline. Only in this 
manner could the Librarian have issued a decision that was before July 
1, 1997, thereby justifying inclusion of the language ``July 1, 1997,'' 
and ``whichever date is later'' in section 119(c)(3)(C).
    Contrary to the assertions of the Copyright Owners, July 1, 1997, 
is not the statutorily prescribed effective date for the new royalty 
rates announced in today's decision. July 1, 1997, is only a 
contingency date in the event that this proceeding had ended before 
July 1, 1997, which it clearly did not. Rather, the Register must look 
to section 802(g), which provides that the effective date of the new 
rates is ``as set forth in the decision.'' 17 U.S.C. 802(g). The 
Register interprets ``decision'' to mean the decision of the Librarian, 
and not the decision of the CARP, since section 802(g) only refers to 
the decision of the Librarian. Consequently, the Register concludes 
that only the Librarian of Congress has the authority to set the 
effective dates of the royalty rates in this proceeding, and it was 
contrary to law for the Panel to announce an effective date. See Panel 
Report at 54. The Register recommends that the Librarian reject the 
Panel's determination of an effective date.
    The remaining issue is, if the Panel had no authority to set the 
effective date, what is the correct effective date for the Librarian to 
establish? Neither the statute, nor the legislative history, offers any 
guidance on this point.

[[Page 55755]]

Copyright Owners urge the July 1, 1997 date, and submit that SBCA is 
estopped from arguing for a later date since SBCA did not object to 
Copyright Owners' request to the Panel for a July 1, 1997, effective 
date. Copyright Owners Reply at 43-44. The Register recommends 
rejecting Copyright Owners' estoppel argument because the Panel did not 
have authority to set the effective date, and the matter is now being 
properly raised before the Librarian for the first time.
    Copyright Owners also contend that July 1, 1997, must be the date 
because the evidence it presented to the Panel, particularly the PBS/
McLaughlin testimony, was premised on a July 1, 1997, date. Id. at 42. 
According to Copyright Owners, if the Librarian adopts an effective 
date of January 1, 1998, he would have to increase the 27 cent fee to 
reflect the Panel's understanding of a thirty-month effective period 
for the new rates. Id. at 42-43.
    The Register recommends rejection of Copyright Owner's contention 
for two reasons. First, the Panel accepts Ms. McLaughlin's testimony as 
a general matter to establish a workable benchmark. Panel Report at 31. 
The Panel did not accept her testimony, and its accompanying premises 
and assumptions, as the precise analysis of what the royalty rates 
should be. Id. Furthermore, although the Panel stated that ``Ms. 
McLaughlin's analysis yielded a rate of $0.27 per subscriber per month 
averaged over the three year statutory period,'' Panel Report at 30, a 
July 1 effective date accounts for only half of the year, and Ms. 
McLaughlin did not so limit her testimony. PBS Proposed Findings of 
Fact and Conclusions of Law at 18-19.\16\
---------------------------------------------------------------------------

    \16\ Ms. McLaughlin's testimony was based upon her projection of 
what the average cable network license fees would be for 1997 (26 
cents), 1998 (27 cents) and 1999 (28 cents), not the actual figures. 
Id. at 19.
---------------------------------------------------------------------------

    In the Register's view, an effective date later than July 1, 1997, 
does not significantly undermine the Panel's use of the 27 cent 
benchmark generally, or its later decision to adopt that figure 
specifically, nor does a later effective date require an upward 
adjustment.
    The second, and most significant, reason for not setting the 
effective date at July 1, 1997, involves the issue of retroactive 
rulemaking. Although the Librarian's decision today involves review of 
the Panel's determination, it is also a final rule with respect to 
setting the rates. The Copyright Office has previously determined that 
it lacks the authority to engage in retroactive rulemaking. 54 FR 14217 
(1989). The United States Court of Appeals for the District of Columbia 
Circuit, the only court with jurisdiction to consider an appeal of 
today's decision, has expressly held that the Copyright Act does not 
confer retroactive rulemaking authority. Motion Picture Ass'n of 
America, Inc. v. Oman, 696 F.2d 1154, 1156 (D.C. Cir. 1992). The 
Register does not believe that the Librarian has the authority to set 
an effective date for the new royalty rates which is prior to the 
issuance of today's decision.
    Given this limitation, the issue still remains regarding the proper 
effective date. Copyright owners obviously desire an effective date as 
soon as possible, so that they may reap the benefits of the higher 
rates. There are, however, significant administrative considerations 
surrounding implementation of the new rates. Satellite royalty rates 
are calculated on a monthly basis, so that an effective date other than 
the first day of a month will require application of two sets of 
royalty rates (the old rates and the new rates) to one monthly 
calculation. The Register finds this not only burdensome to satellite 
carriers calculating the rates, but to the Copyright Office as well in 
administering the section 119 license and examining the statement of 
account. The Register, therefore, counsels against adopting an 
effective date that is other than the first day of a month.
    Also, there are significant costs to the Copyright Office 
associated with implementing the new rates. New statement of account 
forms must be created and sent to satellite carriers, and staff must be 
trained to examine for application of the new rates. The Register notes 
that satellite statements of account for the second accounting period 
of 1997 are due to be filed no later than January 30, 1998. 27 CFR 
201.11(c). An effective date in the second accounting period of 1997 
would cause significant burden and hardship to the Copyright Office to 
prepare to collect royalties and issue and process statements of 
account generated by the new royalty fees by the January 30, 1998, due 
date. Consequently, the Register recommends that the new royalty rates, 
adopted in today's decision, not be effective until January 1, 1998.
    In recommending a January 1, 1998, effective date, the Register 
draws support from section 119(c)(3)(C). As discussed above, Congress 
apparently contemplated the possibility of the issuance of a final 
decision in this proceeding before (perhaps even well before) July 1, 
1997. Congress could have chosen simply to make the decision effective 
on the date of adoption, but instead chose July 1, 1997, as the later 
effective date. July 1 is the first day of an accounting period which, 
has the final decision issued on or before that date, would have 
allowed the Copyright Office ample time to prepare for implementation 
of the new rates. Because today's decision is issuing only two months 
from the end of the 1997/2 accounting period, a January 1, 1998, 
effective date is consistent with Congressional intent.
    The parties have raised two other issues, discussed above, which 
the Register briefly addresses. First, SBCA alleges that because 
initiation of the CARP was delayed 2 months to enable the Librarian to 
rule on the matter of whether local retransmissions should be a part of 
this proceeding, the entire proceeding is invalid. The Register agrees 
with Copyright Owners that the cases cited by SBCA for this rather 
remarkable contention are inapposite. United States v. Amdahl Corp., 
786 F.2d 387 (Fed. Cir. 1986) involved a contract entered into by the 
Treasury Department that was statutorily outside the scope of its 
authority. Contracting outside the scope of authority differs 
significantly from postponing procedural dates for good cause. Albenga 
v. Ward, 635 F. Supp. 660 (S.D.N.Y. 1986) involved an agency that 
created rules beyond its authority. Again, this is significantly 
different. Finally, Baumgardner v. Secretary, Dept. of Housing and 
Urban Development, 960 F.2d 572 (6th Cir. 1992) involved the failure of 
an agency to timely deliver an accurate complaint. As SBCA notes, the 
court in this case did not find the agency action invalidated because 
the delay was not sufficiently prejudicial. The Register cannot find 
any convincing evidence of irreparable prejudice incurred by SBCA as a 
result of the brief delay, particularly where the Register is 
recommending a January 1, 1998, effective date.
    Furthermore, the Register notes that the same claim of invalidity 
has been raised in a Copyright Royalty Tribunal proceeding, and 
expressly rejected by the D.C. Circuit. The Court stated: ``It would be 
irrational and wholly unprecedented for a court to direct an agency to 
scrap a year's hearings and decisionmaking effort and start over 
because its proceeding did not conclude precisely on time.'' National 
Cable Television Ass'n, Inc. v. CRT, 724 F.2d 176, 189 n. 23 (D.C. Cir. 
1983). The Register agrees with this view, and recommends rejection of 
SBCA's argument.
    Second, in support of its position that satellite carriers would be 
unduly harmed by a July 1, 1997, effective date, SBCA submitted 
affidavits of satellite

[[Page 55756]]

representatives. Copyright Owners moved to strike these affidavits, and 
SBCA opposed. The Register's recommendation of a January 1, 1998, 
effective date has mooted the issue. The Register does recommend, 
however, that the affidavits be stricken. The record is closed in this 
proceeding by order of August 14, 1997, section 251.55 does not permit 
submission of additional evidence. Although the matter of the effective 
date is for the Librarian, and not the CARP, to decide, such affidavits 
could only be accepted if the Librarian determined that the record 
needed to be reopened to take additional testimony. Since the matters 
discussed in SBCA's affidavits are moot, the Register recommends that 
they be stricken.

G. Additional Issues Raised by SBCA

    SBCA raises several additional issues in its Petition to Modify. 
Because these issues all relate to evidence not adduced during the 
course of the proceeding, and the weight to be accorded evidence that 
was adduced, they are addressed together.
    1. The first issue involves the history of retransmission consent 
negotiations under the communications law. Under retransmission 
consent, an MVPD must obtain the permission of a broadcaster before the 
MVPD can retransmit the broadcaster's signal to the MVPD's subscribers. 
Retransmission consent negotiations took place between the cable 
industry and broadcasters in 1993 and 1996. SBCA attempted to show that 
little compensation was obtained by broadcasters for permission to 
retransmit their signals in an effort to prove that the fees under the 
section 111 license represent actual fair market value. The Panel 
stated that ``[w]e agree that these retransmission consent negotiations 
are relevant to a determination of fair market value and represent 
potentially probative evidence. Unfortunately, the evidence adduced is 
so vague and replete with qualifiers as to provide little guidance.'' 
Panel Report at 34. The Panel noted cross-examination testimony of Ms. 
McLaughlin and Mr. Gerbrandt indicating that some compensation was 
paid, but also noted that Mr. Shooshan's and Mr. Haring's testimony 
discussed retransmission consent negotiations only in the context of 
local, and not distant, retransmissions. Id. at 35. The Panel concluded 
that the ``testimony upon which SBCA relies lacks sufficient scope and 
specificity to rebut or modify the PBS-McLaughlin analysis.'' Id.
    SBCA submits that it could not present further evidence on the 
compensation received by copyright owners and broadcasters for 
retransmission consent negotiations because ``discovery procedures do 
not allow the Carriers to determine those amounts.'' SBCA Petition to 
Modify at 35. SBCA asserts that the failure to present such information 
``should not be then turned against the Carriers to say that the 
retransmission consent negotiations cannot be properly quantified.'' 
Id.
    Copyright Owners contend that the Panel correctly evaluated the 
evidence of retransmission consent negotiations and found it unavailing 
in making an adjustment to the benchmark. Copyright Owners Reply at 27-
31.
    2. The second issue involves the issue of the costs incurred by 
cable networks in assembling the clearances for their programming. SBCA 
attempted to show at hearing that copyright owners do not have costs in 
the broadcast signal retransmission context, and therefore an 
appropriate downward adjustment of the benchmark must be made. The 
Panel stated that the clearance costs in the cable network arena are 
unknown, but did not agree that a downward adjustment of the benchmark 
was required:

    In a hypothetical free market, it is quite conceivable that the 
higher the costs broadcasters must pay to clear their signals for 
DTH\17\ distribution, the higher the royalty rates they would charge 
satellite carriers. Accordingly, the impact of high clearance costs 
on fair market value (based upon a hypothetical free market 
analysis) could be positive rather than negative. No adjustment to 
the cable network benchmark is required.

    \17\ ``DTH'' stands for ``direct to home.''

---------------------------------------------------------------------------
Panel Report at 41.

    SBCA argues that it could not determine the costs to copyright 
owners for clearances of cable networks since such information was not 
within the scope of discovery, and therefore one should not assume, as 
the Panel did, that such costs could automatically be shifted to 
satellite carriers. SBCA Petition to Modify at 30.
    Likewise, SBCA argues that it could not quantify at hearing the 
added benefit that satellite retransmission gives copyrighted 
programming (digital picture quality, inclusion in electronic guides) 
because of ``the absence of any ability to take discovery.'' Id. at 31-
32. The Panel determined that ``no quantifiable benefit was identified 
and no evidence adduced'' to demonstrate added value by satellite 
retransmission.'' Panel Report at 40. SBCA asserts that ``the Panel 
held the Carriers to an unworkable standard of proof.'' SBCA Petition 
to Modify at 32.
    In reply, Copyright Owners contend that the Panel acted correctly. 
Copyright Owners Reply at 24-27.
    3. A third issue involves quantifying the effect on advertising 
revenues and superstation fees of satellite retransmissions of 
broadcast signals. SBCA asserts that they quantified ``as well as could 
be in a regime which denies discovery'' that advertising revenues are 
higher because copyright owners known that their programming reaches a 
wider audience due to satellite retransmission. SBCA Petition to Modify 
at 36. Likewise, SBCA asserts that ``superstation taxes''--the amounts 
charged to broadcasters by copyright owners--are greater, particularly 
in the sports context, because copyright owners know that satellite 
retransmissions result in greater viewership. Id. at 37-38. SBCA 
presented evidence that both the professional baseball and basketball 
leagues extracted additional compensation from WGN in Chicago and WTBS 
in Atlanta--both superstations known to be widely distributed on 
satellite--though the amount was not quantified. SBCA Proposed Findings 
of Fact and Conclusions of Law at 72-73.
    The Panel addressed the potential for increased advertising revenue 
due to satellite retransmissions, stating:

    The fundamental mission of broadcasters is to expand their 
audiences to maximize advertising revenues. At their own expense and 
risk, the satellite carriers developed a DTH market which expands 
the broadcasters [sic] reach at no cost to the broadcasters. 
However, we agree that no empirical evidence demonstrating an 
increase in advertising revenues was adduced. Though the 
broadcasters (and hence the copyright owners) clearly benefit from 
expanded reach, these benefits may not be amenable to measurement 
and quantification. The copyright owners further argue that because 
most basic cable networks also advertise, to the extent that 
broadcasters to benefit from expanded reach, the benefit is already 
reflected in the cable network benchmark. We agree to a point. 
Broadcast stations rely upon advertising revenue to a much greater 
extent than do cable networks (excepting those cable networks which 
command very low or even negative royalty fees). It naturally 
follows that the benefits which accrue to broadcasters have not been 
fully reflected in the cable network benchmark price. Though some 
downward adjustment from the copyright owners general approach seems 
appropriate, we are unable to quantify such an adjustment. However, 
our decision to adopt the most conservative approach (PBS-
McLaughlin) reflects this consideration.

Panel Report at 36-37. The Panel did not use the term ``superstation 
tax'' in its discussion.

[[Page 55757]]

    SBCA complains that the Panel ignored its evidence of increased 
revenues from satellite retransmissions, and that it is ``no excuse 
that the [o]wners refused to divulge the extent of the compensation.'' 
SBCA Petition to Modify at 38. SBCA asserts that not subtracting this 
added value from the benchmark would result in ``vastly 
overcompensat[ing]'' copyright owners. Id.
    In reply, Copyright Owners assert that the Panel correctly 
determined that, while such revenues might conceptually result in a 
downward adjustment, SBCA failed to quantify such an adjustment. 
Copyright Owners Reply at 31.
    4. The fourth issue concerns the impact of increased royalty fees 
on the satellite industry and the continued availability of 
retransmitted broadcast signals. The Panel accepted Ms. McLaughlin's 
testimony that the 27 cent fee would not significantly adversely impact 
satellite:

    Although Ms McLaughlin did not perform a demand elasticity 
study, she testified that after the 1992 rate increases, the number 
of broadcast stations retransmitted and the percentage of satellite 
subscribers to retransmitted broadcast signals remained constant. 
She concluded that despite an increase in the compulsory license 
rate to $0.27 per subscriber per month, the number of subscribers to 
retransmitted broadcast stations would continue to grow at 
substantially the same rate as the number of satellite subscribers 
generally. Ms. McLaughlin also examined the retail prices charged by 
satellite distributors and concluded that if the rates for 
retransmitted broadcast signals were increased to $0.27 per 
subscriber per month and not passed on to subscribers, those rates 
would constitute only 30% of the average retail prices charged to 
subscribers leaving sufficient profit margin for the satellite 
carriers to avoid significant adverse impact to them or their 
subscribers.
    Again, we recognize that any rate increase, particularly if 
rates are set above those paid by their entrenched competitor, tends 
to adversely impact the satellite carriers. However, the satellite 
carriers did not attempt to quantify the impact of increased rates 
and adduced no credible evidence that the availability of secondary 
transmissions would be interrupted. Accordingly, we conclude that a 
rate increase to $0.27 per subscriber per month would have no 
significant adverse impact upon the satellite carriers or the 
availability of secondary transmissions to the public.

Panel Report at 46-47 (citations omitted).
    SBCA contends that the Panel had no evidence upon which to base its 
conclusion that a dramatic rate increase would not adversely affect 
satellite carriers and their subscribers. SBCA Petition to Modify at 
42. Rather, SBCA asserts, the evidence, including that relied upon by 
Ms. McLaughlin, ``shows that satellite carriers have yet to earn a 
profit, especially in the DBS market, and that the C-Band market is 
waning.'' Id. SBCA notes that Ms. McLaughlin did not perform a demand 
elasticity analysis for increased rates, and that her testimony that 
the 1992 rate increase did not impact subscriptions or the number of 
signals carried was not based upon anything in the record. Id. at 42-
43. SBCA also mentions that the 1992 panel reduced its initial rate 
increase because of a concern for disruptive impact. 57 FR 19061.
    SBCA also charges that the Panel ignored its evidence regarding the 
disruptive impact of a rate increase. It points to the testimony of Mr. 
Parker who stated that there is a limit on the package rate to be 
charged consumers, and that satellite carriers have traditionally gone 
back to cable networks to demand concessions in order to keep prices 
down. SBCA Petition to Modify at 44. SBCA argues that any increases in 
the rates should be examined in light of the impact lower fees would 
have on copyright owners. According to SBCA, there is no evidence that 
suggests that the current fees of section 119 have any adverse impact 
on the copyright and broadcast industries. Id. at 45.\18\
---------------------------------------------------------------------------

    \18\ Regarding the economic impact of royalty fees on copyright 
owners, the Panel stated that ``[t]he parties devoted little hearing 
time to this issue.'' Panel Report at 46. The Panel did ``accept the 
obvious, general notion that higher royalty rates provide greater 
incentive to copyright owners while lower rates would render 
broadcast stations a ` * * * less attractive vehicle at the margin 
for program supplies.' '' Id. (citation omitted).
---------------------------------------------------------------------------

    In reply, Copyright Owners assert that it was completely within the 
discretion of the Panel to accord weight to Ms. McLaughlin's testimony 
that satellite carriers would not be adversely impacted by the 
increased royalty rates. Copyright Owners Reply at 36. Copyright Owners 
argue that Mr. Parker's testimony is nonspecific, and that the 
testimony of Mr. Edwin Desser and Mr. James Trautman show that 
satellite carriers are owned by large corporate enterprises that can 
well afford the proposed rate increase. Id. at 39-40.

Recommendation of the Register

    The Register is addressing these four arguments presented by SBCA 
together because they contain a common thread: the absence of evidence 
adduced before the Panel and, where evidence was produced, the weight 
and sufficiency to be accorded it.
    Given the limited scope of the Librarian's review in this 
proceeding, ``the Librarian will not second guess a CARP's balance and 
consideration of the evidence, unless its decision runs completely 
counter to the evidence presented to it.'' 61 FR 55663 (Oct. 28, 1996) 
(citing Motor Vehicle Manufacturers Ass'n v. State Farm Mutual Auto 
Insurance Co., 463 U.S. 29, 43 (1983). In the case of the impact of a 
rate increase on the satellite industry, the Panel chose to accord 
weight to Ms. McLaughlin's testimony that her proposed rate increase 
would not adversely affect the satellite industry, rather than Mr. 
Parker's testimony. It was clearly within the Panel's discretion to do 
so. There is record testimony that supports the Panel's conclusion, and 
the Librarian's review need go no further. Recording Industry Ass'n of 
America, Inc. v. CRT, 662 F.2d 1, 14 (D.C. Cir. 1981) (decision must be 
upheld where decisionmaker's path may reasonably be discerned).
    The remaining issues contested by SBCA--the impact of 
retransmission consent negotiations, added value from digital picture/
electronic guides and avoidance of clearance costs, and increased 
advertiser revenue and compensation from expanded markets--
predominately involve the matter of evidence not presented to the CARP. 
In essence, SBCA contends that if the discovery rule of 37 CFR 
251.45(c)(1) were broader, if could have presented evidence to the 
Panel on these issues that would have caused the Panel to reduce the 27 
cent royalty fee. Instead, according to SBCA, the Panel punished it for 
failure to present the necessary evidence to quantify the reductions, 
and the 27 cent rate, consequently, is unfairly high.
    Section 251.45(c)(1) of the rules provides that, after the exchange 
of the written direct cases, a party ``may request of an opposing party 
nonprivileged underlying documents related to the written exhibits and 
testimony.'' 37 CFR 251.45(c)(1). The Librarian has clarified that 
discovery is limited in CARP proceedings:

    Discovery in CARP proceedings is intended to produce only the 
documents that underlie the witness' factual assertions. It is not 
intended to augment the record with what the witness might have said 
or put forward, or to range beyond what the witness said. Any 
augmentation of the record is the prerogative of the arbitrators, 
not the parties.

Order in Docket No. 94-3 CARP CD 90-92, 1-2 (October 30, 1995). There 
are several reasons for the limited discovery practice. CARP 
proceedings are relatively short in duration (180 days) and, like this 
proceeding, begin and end according to statutorily specified deadlines. 
There is not sufficient time to conduct wide-ranging discovery,

[[Page 55758]]

particularly where, as in the case, the litigation is quite complex and 
involves the technically-oriented testimony of numerous witnesses. 
There are also cost considerations. Broad discovery rules would 
considerably increase the cost of CARP proceedings, without necessarily 
producing a corresponding increase in the quality of the evidentiary 
presentations. The parties may, therefore, as of right only request 
documents which underlie a witness's factual assertions.
    The rules do not, however, prohibit a party, once the CARP has 
begun, from petitioning the Panel to take discovery on an issue or 
issues that it believes are critical to the resolution of the 
proceeding. As noted above, augmentation of the record is the 
prerogative of the CARP, and the Panel has the discretion to decide 
whether or not to allow additional discovery beyond that of section 
251.45(c)(1). See 37 C.F.R. 251.42 (CARP may waive the rules upon a 
showing of good cause). SBCA complains that the Panel might have 
reduced the royalty rates based on the issues it raised had it allowed 
additional discovery. Yet, SBCA never petitioned the Panel to take such 
discovery. The Panel cannot be faulted for not reopening the record and 
allowing additional discovery when it was asked to do so. See National 
Ass'n of Broadcasters v. CRT, 772 F.2d 922, 936-937 (D.C. Cir. 1985) 
(claimant failed to petition Tribunal to allow it to adduce additional 
evidence regarding opposing party's alleged lack of copyright 
ownership).
    The issue remains as to whether the Panel should have reopened the 
record, on its own motion, and allowed SBCA to take discovery on the 
issues it rates: i.e. whether it was arbitrary for the Panel not to do 
so. In the Register's view, the Panel did not act arbitrarily. 
Regarding the value of retransmission consent negotiations, the Panel 
found that Ms. McLaughin, and Messrs. Gerbrandt, Shooshan and Harin 
offered testimony regarding the probative value of retransmission 
consent negotiations on the fair market value of retransmitted 
broadcast signals. Panel Report at 34-35. The Panel found this 
testimony to be unsupportive of the proposition that retransmission 
consent negotiations affected the fair market value analysis. Id. at 
35. Because there is record evidence to support the Panel's 
determination, the Panel did not act arbitrarily.
    With regard to the purported added value to broadcast signals by 
satellite retransmission in digital format, and attractive electronic 
guides provided the subscribers, the Panel determined that ``no 
quantifiable benefit was identified and no evidence adduced that this 
benefit would materially affect fair market value * * *.'' Panel Report 
at 40. As the Copyright Owners correctly point out, any added value 
from digital picture quality and electronic guides would occur for both 
broadcast and cable network programming. Copyright Owners Reply at 25. 
SBCA could have presented evidence that demonstrated that satellite 
carriers pay a lower fee for licensing cable networks as a result of 
digital picture quality and electronic guides provided by the carriers. 
Such evidence, if it exists, is in the sole possession of the satellite 
carriers. SBCA presented no such evidence. The Panel, therefore, cannot 
be faulted from finding no evidence to support added value from these 
items.
    Regarding clearance costs saved by broadcasters and copyright 
owners from satellite retransmissions, the Panel stated:

    SBCA further argues that in a free market, it would be virtually 
impossible for satellite carriers to negotiate directly with every 
copyright owner of every program contained in each day's signal they 
retransmit. Accordingly, they reason, broadcasters would invariably 
by compelled by market forces to clear all rights and negotiate with 
satellite carriers for retransmission of their entire signals. Those 
costs which the broadcasters would incur in purchasing the 
clearances are unknown. Hence, SBCA concludes that the section 119 
rates should not be raised without considering the broadcasters' 
cost savings. We tend to agree with both of SBCA's premises but not 
its conclusion. In a hypothetical free market, it is quite 
conceivable that the higher the costs broadcasters must pay to clear 
their signals for DTH distribution, the higher the royalty rates 
they would charge satellite carriers. Accordingly, the impact of 
higher clearance costs on the fair market value (based upon a 
hypothetical free market analysis) could be positive rather than 
negative. No adjustment to the cable network benchmark is required.

Panel Report at 41.
    SBCA contends that Copyright Owners never put on any evidence 
demonstrating their cost savings, and it should not therefore be 
presumed that clearance costs would be passed on to satellite carriers. 
SBCA Petition to Modify at 30. SBCA's argument, however, is one of 
emphasis rather than evidence. SBCA asked the Panel to quantify what 
the average cost might be, in a hypothetical market, for clearance 
costs, and how satellite carriers and broadcasters might allocate such 
costs. Not surprisingly, SBCA does not indicate what, if any evidence, 
would conclusively demonstrate what such costs might be, or who might 
bear them.\10\ It is not reversible error for the Panel to reason that 
in a marketplace which does not exist, clearance costs might have a 
positive effect on the cable network benchmark, rather than a negative 
one.\20\
---------------------------------------------------------------------------

    \19\ SBCA does cite a statement of FCC Commissioner Dennis that 
broadcasters might have to bear these costs. SBCA Petition to Modify 
at 30 (citing ``In re Compulsory Copyright License for Cable 
Retransmissions,'' 4 FCC Rcd. 6711 (1989) (Commissioner Dennis, 
concurring). However, Commissioner Dennis' statement is speculative, 
describing what might happen to broadcasters ``in some cases,'' 4 
FCC Rcd. at 6711, and is far from conclusive evidence.
    \20\ In fact, the Panel did not make any change to the benchmark 
for clearance costs.
---------------------------------------------------------------------------

    Finally, with regard to the purported increase in advertising 
revenues and compensation from expanding coverage of broadcast signals 
by satellite retransmission, the Panel found that it could not quantify 
any potential reductions of the cable network benchmark. Panel Report 
at 37. While allowing SBCA expanded discovery on these points might 
have assisted the Panel in quantifying a downward adjustment to the 
cable network benchmark, the Register cannot determine anything in the 
record that compelled it. Furthermore, the Panel did conclude that its 
choice of the ``conservative'' PBS/McLaughlin cable network benchmark 
reflected its inability to quantify any increased advertising revenues 
that copyright owners might receive from expanded markets through 
satellite retransmission. Id. In the Register's view, the Panel's 
action was the product of rational decisionmaking.

H. Conclusion

    Having fully analyzed the record in this proceeding and considered 
the contentions of the parties, the Register recommends that the 
Librarian of Congress adopt the royalty rate, effective January 1, 
1998, of 27 cents per subscriber per month for retransmission of any 
distant superstation and network signals by satellite carriers to 
subscribers for private home viewing.
    In addition, the Register recommends that the Librarian not adopt 
any royalty fee for the local retransmission of superstation signals, 
as defined under 17 U.S.C. 119(d)(11), and for the local retransmission 
of a network signal, as defined under Sec. 119(d)(11), to any 
subscriber residing in an unserved household, as defined in 
Sec. 119(d)(10).
    Finally, the Register recommends that the petition to modify the 
Panel's decision filed by EchoStar be dismissed, and the motion of 
Copyright Owners to dismiss attachment A of SBCA's petition to modify 
(and the

[[Page 55759]]

accompanying argument and discussion) be granted.

Order of the Librarian

    Having duly considered the recommendation of the Register of 
Copyrights regarding the Report of the Copyright Arbitration Royalty 
Panel in the matter of the adjustment of the royalty rates for the 
satellite carrier compulsory license, 17 U.S.C. 119, the Librarian of 
Congress fully endorses and adopts here recommendation to accept the 
Panel's decision in part and reject it in part. For the reasons stated 
in the Register's recommendation, the Librarian is exercising his 
authority under 17 U.S.C. 802(f) and is issuing this order, and 
amending the rules of the Library and the Copyright Office, announcing 
the new royalty rates for the section 119 compulsory license.
    The Librarian is also dismissing the petition to modify filed by 
EchoStar, and is dismissing the affidavits contained in attachment A of 
SBCA's petition to modify, and the accompanying discussion and 
argument.

List of Subjects in 37 CFR Part 258

    Copyright, Satellites, Television.

Final Regulation

    In consideration of the foregoing, the Library of Congress amends 
part 258 of 37 CFR as follows:

PART 258--ADJUSTMENT OF ROYALTY FEE FOR SECONDARY TRANSMISSIONS BY 
SATELLITE CARRIERS

    1. The authority citation for part 258 continues to read as 
follows:

    Authority: 17 U.S.C. 702, 802.

    2. Section 258.3 is revised to read as follows:


Sec. 258.3  Royalty fee for secondary transmission of broadcast 
stations by satellite carriers.

    (a) Commencing May 1, 1992, the royalty rate for the secondary 
transmission of broadcast stations for private home viewing by 
satellite carriers shall be as follows:
    (1) 17.5 cents per subscriber per month for superstations.
    (2) 14 cents per subscriber per month for superstations whose 
signals are syndex-proof, as defined in Sec. 258.2.
    (3) 6 cents per subscriber per month for network stations and 
noncommercial educational stations.
    (b) Commencing January 1, 1998, the royalty fee for secondary 
transmission of broadcast stations for private home viewing by 
satellite carriers shall be as follows:
    (1) 27 cents per subscriber per month for distant superstations.
    (2) 27 cents per subscriber per month for distant network stations.
    (3) No royalty rate (zero) for a superstation secondarily 
transmitted within the station's local market, as defined in 17 U.S.C. 
119(d)(11).
    (4) No royalty rate (zero) for a network station secondarily 
transmitted within the station's local market, as defined in 17 U.S.C. 
119(d)(11), to subscribers residing in unserved households, as defined 
in 17 U.S.C. 119(d)(10).

    Dated: October 23, 1997.
    So Ordered.

James H. Billington,
The Librarian of Congress.
[FR Doc. 97-28543 Filed 10-27-97; 8:45 am]
BILLING CODE 1410-33-M