[Federal Register Volume 71, Number 154 (Thursday, August 10, 2006)]
[Proposed Rules]
[Pages 45749-45752]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-13112]



[[Page 45749]]

=======================================================================
-----------------------------------------------------------------------

LIBRARY OF CONGRESS

Copyright Office

37 CFR Part 201

[Docket No. RM-2005-6]


Cable Compulsory License Reporting Practices

AGENCY: Copyright Office, Library of Congress.

ACTION: Notice of inquiry.

-----------------------------------------------------------------------

SUMMARY: The Copyright Office is seeking input on possible rules 
governing the reporting practices of cable operators under the 
Copyright Act.

DATES: Written comments are due September 25, 2006. Reply comments are 
due October 24, 2006. August 10, 2006.

ADDRESSES: If hand delivered by a private party, an original and five 
copies of a comment or reply comment should be brought to Library of 
Congress, U.S. Copyright Office, 2221 S. Clark Street, 11th Floor, 
Arlington, Va. 22202, between 8:30 a.m. and 5 p.m. and the envelope 
should be addressed as follows: Office of the General Counsel, U.S. 
Copyright Office.
    If delivered by a local commercial courier, an original and five 
copies of a comment or reply comment must be delivered to the 
Congressional Courier Acceptance Site located at 2nd and D Streets, NE, 
between 8:30 a.m. and 4 p.m. The envelope should be addressed as 
follows: Office of the General Counsel, U.S. Copyright Office, LM 430, 
James Madison Building, 101 Independence Avenue, SE, Washington, DC. 
Please note that CCAS will not accept delivery by means of overnight 
delivery services such as Federal Express, United Parcel Service and 
DHL.
    If sent by mail (including overnight delivery using U.S. Postal 
Service Express Mail), an original and five copies of a comment or 
reply comment should be addressed to U.S. Copyright Office, Copyright 
GC/I&R, P.O. Box 70400, Southwest Station, Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: Ben Golant, Senior Attorney, and Tanya 
M. Sandros, Associate General Counsel, Copyright GC/I&R, P.O. Box 
70400, Southwest Station, Washington, DC 20024. Telephone: (202) 707-
8380. Telefax: (202) 707-8366.

SUPPLEMENTARY INFORMATION: Cable systems that retransmit broadcast 
signals in accordance with the provision governing the statutory 
license set forth in Section 111 of the Copyright Act, title 17 of the 
United States Code (``Section 111''), are required to deposit royalty 
fees with the Copyright Office. Payments made under the cable statutory 
license are remitted semiannually to the Copyright Office. The 
Copyright Office invests the royalties in United States Treasury 
securities pending distribution of these funds to those copyright 
owners who are entitled to receive a share of the fees.

I. Introduction

    The Motion Picture Association of America, Inc. (``MPAA''), on 
behalf of its member companies and other producers and/or distributors 
of movies, series and specials (``Program Suppliers''), has petitioned 
the Copyright Office to commence a rulemaking proceeding addressing 
several issues related to the reporting practices of cable operators 
under Section 111. First, Program Suppliers request that the Copyright 
Office require additional information to be reported on the cable 
operators' Statement of Accounts (``SOAs''), particularly information 
relating to gross receipts, service tiers, subscribers, headend 
locations, and cable communities. Second, Program Suppliers request 
regulatory clarification regarding the effect of cable operators' 
interest payments that accompany late-filed SOAs or amended SOAs, 
specifically, that payment of such interest does not impair the ability 
of copyright owners to bring infringement actions against cable 
operators that fail to pay the full amount of the royalties they owe on 
a timely basis. Finally, Program Suppliers request that the Copyright 
Office clarify the definition of the term cable ``community'' in its 
regulations to comport with the meaning of ``cable system'' as defined 
in Section 111.
    The regulatory actions requested by Program Suppliers are properly 
within the authority of the Copyright Office. 17 U.S.C. 111(d) and 702. 
However, we find it necessary to establish a full record on the need 
for the changes suggested by Program Suppliers before deciding whether 
to propose rules. We therefore initiate this Notice of Inquiry to 
address the various issues raised by Program Suppliers in their 
Petition for Rulemaking.

II. Changes to Information Reported on Cable SOAs

    1.Verifying Gross Receipts Using Subscriber and Rate Information
    Section 111 requires cable operators to report both the ``total 
number of subscribers'' to their system and the ``the gross amounts 
paid to the cable system for the basic service of providing secondary 
transmissions of primary broadcast transmitters . . . .'' 17 U.S.C. 
111(d)(1)(A). Consistent with Section 111, the Copyright Office's 
regulations require cable operators to report ``the gross amount paid 
to the cable system by subscribers for the basic service of providing 
secondary transmissions of primary broadcast transmissions . . . .'' 37 
CFR 201.17(e)(7). This regulation is implemented by Space E (titled 
``Secondary Transmission Service: Subscribers and Rates'') and Space K 
(titled ``Gross Receipts'') of the SOAs. According to the instructions 
for Space E, the information provided therein ``should cover all 
categories of 'secondary transmission service' of the cable system'' 
including the number of subscribers and the rate applicable to each 
category of subscribers. Forms SA1-2 (``Short Form'') and SA3 (``Long 
Form''), p. 2, Space E. Instructions for completing Space K require 
cable operators to ``[e]nter the total of all amounts ('gross 
receipts') paid to [their] cable system by subscribers for the system's 
'secondary transmission service' (as identified in space E)[.]'' Forms 
SA1-2 and SA3, p. 7, Space K. The total amount obtained by multiplying 
the number of subscribers identified in each category in Space E by the 
applicable rate should approximate the cable operators' gross receipts 
in Space K. See Compulsory License for Cable Systems, 43 FR 958, 959 
(Jan. 5, 1978).
    The Copyright Office's regulations require cable operators to 
provide ``[a] brief description of each subscriber category for which a 
charge is made by the cable system for the basic service of providing 
secondary transmissions of primary broadcast transmitters,'' as well as 
``the number of subscribers to the cable system in each subscriber 
category,'' and the ``charge or charges made per subscriber to each 
subscriber category.'' 37 CFR 201.17(d)(6)(i)-(iii). The regulations 
state that for these purposes, ``[e]ach entity (for example, the owner 
of a private home, the resident of an apartment, the owner of a motel, 
or the owner of an apartment house) which is charged by the cable 
system for the basic service of providing secondary transmissions shall 
be considered one subscriber.'' 37 CFR 201.17(e)(6)(iii)(B). Space E of 
the SOA does not instruct cable operators to provide information on 
subscriber categories. Rather, Space E directs cable operators to 
report the number of subscribers in each ``Category of Service,'' a 
phrase which many cable operators may construe as relating to

[[Page 45750]]

tiers of service. Forms SA1-2 and SA3, p.2, Space E, Blocks 1 and 2.
    Program Suppliers request that the Copyright Office revise the SOAs 
to require greater congruity between the ``gross receipts'' information 
and the subscriber and rate information provided on the SOAs as well as 
greater detail concerning the nature of the revenues that a cable 
operator includes and excludes in its ``gross receipts.'' Specifically, 
Program Suppliers request that the Copyright Office: (1) Revise Space E 
of the SOAs to solicit information on ``subscriber categories'' rather 
than ``categories of service;'' (2) revise Space K of the SOAs to 
include instructions specifying that the gross receipts reported in 
Space K should approximate calculated gross receipts (i.e., the sum of 
the number of subscribers in each category identified in Space E, 
multiplied by the applicable rate), and (3) require the cable operator 
to briefly explain in Space K any variation of more than 10% between 
these calculated gross receipts and reported gross receipts.
    Program Suppliers state that these revisions are necessary because 
they frequently find substantial variance in the Space E and Space K 
data. In addition, they assert that the changes will: (1) Reduce 
confusion among operators about whether to report subscriber categories 
or service categories; (2) mitigate inconsistent reporting practices; 
and (3) make compliance review more meaningful.
    On a separate issue, Program Suppliers state that cable operators 
do not report multiple dwelling unit (``MDU'') subscriber data, for 
entities such as hotels, motels, and apartments, in a consistent 
manner. They assert that some cable operators report the total 
subscriber counts for each of the MDUs they serve while others report 
each MDU simply as one subscriber. Program Suppliers also state that 
some cable operators leave their SOAs blank regarding their service to 
MDUs. In those cases, Program Suppliers assert that they are unable to 
determine whether the blank area on the form indicates zero (meaning no 
MDU subscribers), whether the referenced question is not applicable 
(``N/A'') to that particular system, or whether the system simply has 
failed to provide the pertinent information. See Form SA1-2, p. 2; Form 
SA3, p.2, Space E (providing subscriber blanks for ``Motel, Hotel'' and 
``Commercial,'' but offering no specific formula for how subscribership 
data should be tabulated other than the general direction that the 
cable operator should ``compute the number of 'subscribers' in each 
category by counting the number of billings in that category'' rather 
than ``the number of sets receiving service'').
    Program Suppliers maintain that subscriber and rate information 
reported on SOAs should reflect the specific rate arrangement the cable 
operator has with the MDU. Program Suppliers specifically state that 
the figure in the Rate column in Space E of the SOA should be the rate 
(or range of rates) that the cable operator actually charged each of 
the subscribers included in the ``No. of Subscribers'' column on the 
last day of the accounting period. To address these issues, Program 
Suppliers request that the Copyright Office: (1) Revise the 
instructions for Space E to specify that the ``rate'' reported on the 
SOA for MDUs must reflect the specific rate arrangement the cable 
operator holds with the MDU (flat rate or per unit), as well as the 
amount billed for providing cable service pursuant to that arrangement, 
and (2) include an instruction that cable operators are not to leave 
spaces blank, but rather are to fill in each area with a zero or the 
designation ``N/A'' if a particular category does not apply to their 
system.
    We seek comment on the need to revise Spaces E and K of the SOAs, 
and if so, whether Program Suppliers' suggestions are appropriate.
    2. Reporting Tiers of Service on Cable SOAs
    Currently, the ``Category of Service'' designation in Space E of 
the SOAs requires cable operators to report secondary transmission 
service for each service category provided. But, Copyright Office 
regulations require ``a brief description of each subscriber category 
for which a charge is made by a cable system for the basic service of 
providing secondary transmissions of primary broadcast transmitters.'' 
37 CFR 201.17(e)(6)(i).
    Program Suppliers claim that there is scant information about the 
tiers of service (i.e., basic, expanded, digital, etc.) offered by 
cable operators, particularly about whether cable operators accurately 
include gross receipts for all tiers of service containing broadcast 
signals. See 37 CFR 201.17(e)(7); Forms SA1-2 (p. 6) and SA3 (p. 7) 
Section K.
    Program Suppliers request that the Copyright Office revise its SOAs 
to include a new ``Space'' between existing Space E and Space F. 
Program Suppliers propose that this new Space would require cable 
operators to identify and describe (1) each tier of service they 
provide for a separate fee, noting which tiers contain broadcast 
signals, (2) the rates associated with each service tier, and whether 
the fees collected for each package are included or excluded from their 
gross receipts calculation, (3) the number of subscribers receiving 
each service tier, (4) the lowest tier of service including secondary 
broadcast transmissions that is available for independent subscription, 
and (5) any tier of service or equipment for which purchase is required 
as a prerequisite to obtaining another tier of service. Program 
Suppliers state that the proposed amendments will assist in verifying 
that cable operators are including, in their reported gross receipts, 
gross receipts from all tiers of service containing broadcast signals 
that are offered to subscribers for a separate fee.
    We also note that over the past few years, cable operators have 
sold at least two new types of tiers other than the mandated analog 
basic service tier that contain broadcast signals. For example, several 
cable operators now market ``family friendly'' tiers to customers 
wanting to avoid content deemed inappropriate for children. Either 
these tiers include broadcast signals or the basic service tier must be 
purchased, along with a digital set top box, to access the desired 
programming. See Family Packages From Major Pay TV Providers, http://www.usatoday.com/money/media/2006-03-02-familytier-cht.htm (noting that 
Comcast, Time Warner, and Cox offer family tiers for about $32.00 that 
include broadcast signals and about 15 cable programming channels).
    Should the Copyright Office amend Section 201.17 of its 
regulations, or revise the SOAs, to recognize the availability of 
family friendly tiers, and are the MPAA proposed revisions to the forms 
necessary? If so, would clarifying language in the SOA instructions 
further the same purposes?
    3. Specific Location of Cable Headend
    Section 111(f) of the Copyright Act states in relevant part that: 
``For purposes of determining royalty fees under subsection (d)(1), two 
or more cable systems in contiguous communities under common ownership 
or control or operating from one headend shall be considered as one 
system.'' 17 U.S.C. 111(f). See also 37 CFR 201.17(b)(2). Moreover, two 
cable systems operating from the same headend are considered to be one 
system for purposes of calculating the Section 111 royalties ``even if 
they are owned by different entities.'' General Instructions, Form SA3, 
p. ii; General Instructions, Form SA1-2, p. ii; see Compulsory License 
for Cable Systems, 43 FR 958 (Jan. 5, 1978). Currently, cable operators 
are required to identify on the SOA only the community(ies) in

[[Page 45751]]

which they operate and not the location of the headend(s) serving those 
communities. See 37 CFR 201.17(e)(4), Form SA1-2, p. 1, Section D; Form 
SA3, p. 1, Section D.
    Program Suppliers request that the Copyright Office revise Space D 
of Forms SA1-2 and SA3 and require each cable operator to identify on 
its SOA the location of each of its headends and the specific 
communities served from that headend. Program Suppliers imply that 
information on headend locations will help them determine whether cable 
operators are in fact complying with the Section 111(f) requirement to 
treat all cable systems operating from a common headend as a single 
cable system. We seek comment on whether the suggested changes are 
necessary and appropriate. In the case where a cable system utilizes 
multiple headends, which headend should be identified for purposes of 
Section 111?
    4. Identity of the County in Which the Reported Cable Community is 
Located
    The Copyright Office's regulations currently require cable systems 
to report ``the name of the community or communities served by the 
[cable] system.'' 37 CFR 201.17(e)(4). The SOAs also require cable 
operators to identify the cable communities they serve, including 
requiring them to provide information as to the ``city or town'' and 
``state'' served. Forms SA1-2 and SA3, p.1, Space D. However, the SOAs 
do not currently require cable operators to identify the county in 
which the given community is located.
    Program Suppliers request that the Copyright Office amend Space D 
of Forms SA1-2 and SA3 to require cable operators to identify the 
county where each cable community is located, in addition to the 
requirement to identify the city and state. They comment that having 
information on each cable community's county would help clarify whether 
a signal is local, distant, or partially distant (i.e., distant to some 
subscribers but local to others) for cable compulsory license purposes. 
We seek comment on this proposed amendment and the rationale for 
implementing such a change to the SOAs.

III. Interest Payments to the Copyright Office and Copyright 
Infringement Liability

    The Copyright Office's regulations require cable operators to pay 
interest on any royalties ``submitted as a result of a late payment or 
underpayment.'' See 37 CFR 201.17(i)(2); see also Form SA1-2, p.8, 
Space Q; SA3, p. 9, Space Q. Program Suppliers assert that any such 
payments do not preclude copyright owners from bringing an action 
against cable operators for copyright infringement and seeking remedies 
pursuant to 17 U.S.C. 502-506 and 509 for the time period for which the 
cable operators' royalty payments were not properly remitted, citing 17 
U.S.C. 111(c)(2) (``[T]he willful or repeated secondary transmission to 
the public by a cable system of a primary transmission made by a 
broadcast station * * * is actionable as an act of infringement * * * 
(B) where the cable system has not deposited the statement of account 
and royalty fee required by [Section 111](d).''). According to Program 
Suppliers, neither the Copyright Office's SOAs, nor its regulations, 
clearly specify that the payment of interest to the Copyright Office 
for overdue and underpaid compulsory license fees does not shield a 
cable operator from liability for copyright infringement for unpaid 
royalty fees. Program Suppliers state that this ambiguity has resulted 
in cable operators suggesting that the payment of interest on late 
royalty payments and underpayments, regardless of how long overdue, 
absolves them from any other liability for copyright infringement.
    Program Suppliers request that the Copyright Office amend its 
regulations and SOAs to include language clarifying that the Office's 
assessment of interest in Space Q of the SOA does not absolve cable 
operators from copyright infringement liability, pursuant to 17 U.S.C. 
501-506 and 509, for the failure to make timely royalty payments. 
Program Suppliers note that in the recently enacted Copyright Royalty 
and Distribution Reform Act of 2004 (``CRDRA''), Congress made it clear 
that the terms set by Copyright Royalty Judges (``CRJs''), including 
late payment terms, shall not ``prevent the copyright holder from 
asserting other rights and remedies provided under this title.'' 17 
U.S.C. 803(c)(7). Program Suppliers argue that there is no reason that 
the regulation adopted by the Copyright Office concerning late payments 
and underpayments should have a different effect. We seek comment on 
the proposed rule and form amendments.

IV. Definition of ``Community'' for Traditional Cable Systems and for 
Satellite Master Antenna Television Systems

    As noted above, two or more cable systems constitute a single cable 
system for purposes of Section 111 if they are under common ownership 
or control and are located in the same or ``contiguous communities.'' 
17 U.S.C. 111(f); 37 CFR 201.17(b)(2). Where common ownership of cable 
systems is established, defining the ``community'' served is important 
for the purpose of ascertaining whether two or more cable facilities 
operate in ``contiguous communities,'' and whether those facilities 
should file as a single cable system. The pertinent statutory and 
regulatory provisions are intended to prevent the artificial 
fragmentation of large cable systems into multiple smaller systems to 
avoid royalty payments properly due under Section 111. See Compulsory 
License for Cable Systems, 43 FR at 958 (`` `[T]he legislative history 
of the Act indicates that the purpose of this sentence [in Section 
111(f)] is to avoid the artificial fragmentation of cable systems''').
    The Copyright Office's regulations currently state that the term 
``community,'' for purposes of Section 111, has the same meaning as a 
``community unit'' as defined in the Federal Communications 
Commission's (``FCC '') rules and regulations. 37 CFR 201.17(e)(4). FCC 
regulations define ``community unit'' as a ``cable television system, 
or portion of a cable television system, that operates or will operate 
within a separate and distinct community or municipal entity (including 
unincorporated communities within unincorporated areas and including 
single, discrete unincorporated areas).'' 47 CFR 76.5(dd). The SOAs 
also set forth this FCC-based definition of ``community unit'' 
(although it incorrectly cites 47 CFR 76.5(mm)). See Forms SA1-2 and 
SA3, p.1, Space D.
    Program Suppliers request that the Copyright Office clarify the 
regulatory definition of community. They proffer that the cable 
operator's ``franchise area'' should be the appropriate boundary 
distinction for defining cable communities. For Satellite Master 
Antenna Television Systems (``SMATV'') and other Private Cable 
Operators (``PCOs'') subject to Section 111, Program Suppliers assert 
that the term ``community'' should correspond to the ``community'' of 
the traditional cable systems serving the area within which the SMATV 
facility is located.
    Program Suppliers imply that its proposed amendment would lessen 
the number of disputes with cable operators over what constitutes a 
cable ``community'' for reporting purposes under the copyright 
compulsory license. They assert that many cable operators operating 
over a large geographic area are attempting to artificially separate 
their systems into multiple smaller systems to reduce their royalty 
obligations under Section 111. They also assert that, in most cases, 
cable operators disaggregate cable systems in contiguous cable 
communities that

[[Page 45752]]

should be reported on a single Form SA3 and report these systems 
separately as multiple Forms SA1 and SA2 systems, the effect of which 
is the reduction of the royalty fees due and the elimination of the 
systems' 3.75% fees obligations.
    We note, however, that the FCC has stated that community units are 
not equivalent to franchise areas for communications law purposes. See 
Implementation of Sections of the Cable Television Consumer Protection 
and Competition Act of 1992: Rate Regulation, 8 FCC Rcd 510, 515, fn 34 
(1992) (noting that a cable franchise may span more than one community 
unit operating within a distinct geographic franchise area). We also 
note that the FCC has recently questioned whether cable system 
boundaries are coterminous with franchise area boundaries. See 
Implementation of Section 621(a)(1) of the Cable Communications Policy 
Act of 1984 as amended by the Cable Television Consumer Protection and 
Competition Act of 1992, 20 FCC Rcd 18581, 18588 (2005) (in seeking 
comment on the efficacy of the local cable franchising process under 
Section 621 of the Communications Act, the FCC asked, inter alia: ``Are 
cable systems generally equivalent to franchise areas?'').
    In responding to MPAA's proposal to amend its rule, commenters 
should consider whether there is a general pattern of disaggregation by 
cable operators to support a rule change, and if so, is it reasonable 
to equate the term ``community'' with a cable operator's ``franchise 
area'' as defined by the Federal Communication Commission? What would 
be the advantages and disadvantages of defining community in this 
manner? We also seek comment on the impact such definitional changes 
may have on copyright royalty payments, and whether and to what extent 
the FCC's statements would affect the definitions and policies we may 
adopt in this proceeding.

V. Conclusion

    We hereby seek comment from the public on the issues raised by the 
Program Suppliers in their Petition for Rulemaking. The petition and 
the attachments may be viewed on the Copyright Office website at: 
www.copyright.gov/docs/cable/soa-petition-attachment-a.pdf and 
www.copyright.gov/docs/cable/soa-attachments-b-c.pdf. If there are any 
other issues not raised or identified in this NOI related to the 
requested changes, interested parties may address those matters in 
their comments.

    Dated: August 4, 2006
Tanya M. Sandros,
Associate General Counsel.
[FR Doc. E6-13112 Filed 8-9-06; 8:45 am]
BILLING CODE 1410-30-S