Petition for Writ of Certiorari — Hubbard Broadcasting, Inc. v. Southern Satellite System, Inc.

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| 85°1524 FILED

: MAR_15 (999

JOSEPH F. SPANIOL, JR,

IN THE CLERK

Supreme Court of the Gnited States

October Term, 1985

HUBBARD BROADCASTING, INC.,

Petitioner,

VS.

SOUTHERN SATELLITE SYSTEMS, INC., and

TURNER BROADCASTING SYSTEM, INC.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

*SIDNEY BARROWS

BYRON E. STARNS

M. PATRICIA SCHAFFER

Suite 1500

100 South Fifth Street

Minneapolis, Minnesota 55402

(612) 337-1500

Counsel for Petitioner

Of Counsel:

LEONARD, STREET AND DEINARD

Minneapolis, Minnesota

*Counsel of record

1986—Northwest Printing Co., 3010 2nd St. No., Minneapolis, MN 55411—588-7506

EDITOR'S NOTE

THE FOLLOWING PAGES WERE POOR HARD COPY

AT THE TIME OF FILMING. IF AND WHEN A

BETTER COPY CAN BE OBTAINED, A NEW FICHE

WILL BE ISSUED.

QUESTIONS PRESENTED FOR REVIEW

1. The 1976 Copyright Act made retransmissions of

television broadcast signals infringement for the first time

and Section 111 of the Act exempted only cable systems

which meet the specific requirements of the compulsory

licensing system, and carriers of those signals which are

entirely passive. The question presented is whether this

statute permits a local broadcaster, having neither copy-

right license nor statutory exemption, to collaborate with

an active and knowing satellite carrier to exploit the eco-

nomic benefits of distant cable markets through commer-

cial substitution.

2. Was it error for the Court of Appeals to refuse to

consider whether Turner Broadcasting System, Inc. (“Tur-

ner”) was liable for copyright infringement independently

of its codefendant Southern Satellite Systems, Inc. (“South-

ern”), for the sole reason that the question allegedly had

not been raised below, when in fact the lower court had

found, on the basis of plaintiffs arguments, all the ele-

ments of copyright infringement, and plaintiff had argued

explicitly in its summary judgment memorandum, inter

alia, that “Turner and Southern each are contributorily

and jointly and severally liable” for the alleged infringe-

ment?

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED FOR REVIEW ....... : i

cass Gh ed eens eck se¢ ees 1

EN 2

STATUTORY PROVISIONS INVOLVED ........ 2

STATEMENT OF THE CASE ................. 2

Ee ee ee 2

ES 4

Turner Broadcasting System, Inc. .............. 5

Southern Satellite Systems, Inc. ............... 6

PC Ss tee b ov seseveseecesns 8

REASONS FOR GRANTING THE WRIT ........ 8

I. The Decision Of The Court Of Appeals For The

Eighth Circuit Conflicts With The Principles

Articulated By The Other Two Circuits Which

Have Interpreted Section 111 .............. 10

II. The Ruling Of The Court Of Appeals Will

Change The Conduct Of An Entire Industry,

To The Loss Of Copyright Owners .......... 13

III. The Ruling Below Conflicts With Supreme Court

Teaching On Contributory Infringement And The

Ee ere eee 14

IV. Nothing In The Language Or Legislative History

Of The Copyright Act Justifies The Ruling Be-

ee ea eo 6 yas 2 Oso 0.5 #0 6 0 18

V. The Court Below Erred In Holding That Turner’s

Direct Infringement Was Not Raised Below Sole-

ly Because Plaintiff Characterized Turner As A

“Contributory” Rather Than “Direct” Infringer 22

CONCLUSION ......... 2 ES eae 27

APPENDIX INDEX

Page

tered December 17, 1985 ............<...... A-59

Excerpts from the 1976 Copyright Act, 17 U.S.C. §§

WE Ss oo ss ds os eee. oo es et A-59

ies Bic ban ig ogi ERE OR COED Lp ee ee A-87

Excerpts from Plaintiff's Reply Memorandum [to the

District Court] dated June CG i | A-93

TABLE OF AUTHORITIES

Page

Statutes:

See ee OES vo os. os ore oocaecc. es , i a

(17 U.S.C. § 111) 2, 3, 4, 10, 11, 12, 15, 18. io; 25, 28

SA Bre map i Ea! SEO ete ee eae 8

oe es Fo es oS eee isa fk ek s =

BO mee WUD 6 oon io be US evi. 2

oe Wes FOOD oi twee eee 2

Legislative History Materials:

H.R. Report No. 94-1476, 94th Cong., 2nd Sess.

(EE 6 case OURAN es theese aes eae s 3, 18,

Supplementary Report of the Registrar of Copyrights

on the General Revision of the U.S. Copyright Law:

1965 Revision Bill (Comm. Print, pt. 6 (1965)) ....

vases:

Capital Cities Cable, Inc. v. Crisp, — U.S. —, 81 L.Ed.

Be NS isc vci soy onesie 3,

Daitom, Inc. v. Pennwalt Corp., 741 F.2d 1569 (10th

+ ee error rrrr rere rr rors. ee eee

Dreamland Ball Room, Inc. v. Shapiro, Bernstein &

Coa... 36 F.28 354 C7Gs Ce, BRR) een vv vvcsaess

Eastern Microwave, Inc. v. Doubleday Sports, Inc., 691

F.2d 125 (2d Cir. 1982), cert. den. 459 U.S. 1226

i: Seren weer rere rere re ee 10, 11,

Famous Music Corp. v. Bay State Harness Horse Rac-

ing & Breeding Ass., Inc., 554 F.2d 1213 (lst Cir.

Le) a rrr errr rey. ree eee

Fortnightly Corp. v. United Artists Television, Inc..

392 U.S. 390 (1968), reh. den. 393 U.S. 902 (1968)

Fritiofson v. Alexander, 772 F.2d 1225 (Sth Cir. 1985)

Gershwin Publishing Corp. v. Columbia Artists Man-

agement, Inc., 443 F.2d 1159 (2nd Cir. 1971) ...

Herbert v. Shanley Co., 242 U.S. 591 (1917) .......

lowa State University Research Foundation, Inc. v.

American Broadcasting Cos., Inc., 621 F.2d 57 (2nd

og. eopero re sr r ee sy Par ere eye

Kalem Company v. Harper Brothers, 222 U.S. 55

PEPERE feed EC sees dhe pee reees eae 17, 24,

KECA MUSIC, Inc. v. Dingus McGee’s Co., 432 F.

oe ee) rr rrr 14

Koshatka v. Philadelphia Newspapers, Inc., 762 F.2d

Fe Cs TEE Bk pte 5b 942 RK cx 26

Kriegesmann v. Barry-Wehmiller Co., 739 F.2d 357

(8th Cir.), cert. den. 83 L.Ed.2d 402 (1984) .... 23

Liberty Lobby, Inc. v. Anderson, 746 F.2d 1563 (D.C.

Cir. 1984), cert. granted 86 L.Ed.2d 691 (1985) .. 26

Lojek v. Thomas, 716 F.2d 675 (9th Cir. 1983) .... 26

Mills Music, Inc. v. Snyder, — U.S. —-, 83 L.Ed.2d

Se CE neo 0'0 A ae kk s eee ee 20

Screen Gems-Columbia Music, Inc. v. Mark-Fi Rec-

ords, Inc., 256 F.Supp. 399 (S.D.N.Y. 1966) ..... 14

Shapiro, Bernstein & Co., Inc. v. H. L. Green Co., Inc.,

S80 FAG Pew Ce Ge. LOOOD iv os Kak veeda uae 14

Sony Corporation of America v. Universal Studios, Inc.,

464 U.S. 417 (1984) ...... om, 20,. 17, 21, 23, 25

Teleprompter Corp. v. Columbia Broadcasting System,

aG,, AE Wa. SOO CRIED 5 ica nave nie ba ks 2

WGN Continental Broadcasting Company v. United

Video, Inc., 693 F.2d 622 (7th Cir. 1982) ..10-11, 13

IN THE

Supreme Court of the Gnited States

October Term, 1985

No.

HUBBARD BROADCASTING, INC.,

Petitioner,

VS.

SOUTHERN SATELLITE SYSTEMS, INC., and

TURNER BROADCASTING SYSTEM, INC.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

OPINIONS BELOW

The opinion of the United States Court of Appeals for

the Eighth Circuit, 777 F.2d 393 (8th Cir. 1985) is re-

produced at A-34-59. The decision of the United States

District Court for the District of Minnesota, 593 F.Supp.

808 (D. Minn. 1984) is reproduced at A-1-34. The order

of the United States Court of Appeals for the Eighth Cir-

cuit denying the petition for a rehearing is reproduced at

A-59.

JURISDICTION

The judgment of the Court of Appeals for the Eighth

Circuit in this case was entered November 13, 1985, and

a timely petition for rehearing was denied December 17,

1985. This case arises under the Copyright Act of 1976,

17 U.S.C. § 101 et seg. Federal jurisdiction is founded

upon 28 U.S.C. § 1338(a). This Court has jurisdiction

pursuant to 28 U.S.C. § 1254(1) and 2101(c) to review

the decision of the Court of Appeals.

STATUTORY PROVISIONS INVOLVED

The pertinent provisions of the Copyright Act of 1976,

17 U.S.C. § 101 et seq. are set forth at A-59-78.

STATEMENT OF THE CASE

Statutory Framework

In 1976 Congress passed a new Copyright Act. One cf

the most hard-fought issues of the new act was § 111,

which governs the retransmission of television and radio

signals by cable companies. Prior to the passage of the

1976 Act two Supreme Court cases had held that the re-

transmission of television signals by cable companies did

not constitute a “performance” of the copyrighted works

contained on the signal, and therefore the cable com-

panies could not be held liable for copyright infringement.

Fortnightly Corp. v. United Artists Television, Inc., 392

U.S. 390 (1968), reh. den. 392 U.S. 902 (1968) and Tel-

eprompter Corp. v. Columbia Broadcasting System, Inc.,

415 U.S. 394 (1974).

Congress disagreed. In the 1976 revision to the Copy-

right Act, it redefined “public performance” to include

such retransmissions, thus making cable companies sub-

ject to prima facie copyright liability. 17 U.S.C. § 101.

Congress believed, however, that it would be impracticable

and unduly costly to require the hundreds of small cable

systems around the country to negotiate with the thousands

of copyright owners for rights to the programs transmitted

in the first instance by the local broadcasters whose sig-

nals were being retransmitted. H.R. Report No. 94-1476,

94th Cong. 2d Sess. (1976) (hereinafter “House Report”)

at 89, A-81: Capital Cities Cable, Inc. v. Crisp, 81 L.Ed.2d

580, 595 (1984). For this reason, Congress adopted a

compromise which had been negotiated among the three

main industries affected by the situation, the program sup-

pliers (or syndicators), the local broadcasters, and the

cable companies. Section 111 is the result.

Section 111 instituted a compulsory licensing system for

cable companies. By its provisions, cable companies are

exempt from liability for retransmitting television broad-

cast signals if they comply with the requirements of the

compulsory license. Two of the main requirements are

that they pay a compulsory license fee to the Copyright

Royalty Tribunal for eventual distribution to copyright

owners, and that they retransmit the signal exactly as it is

originally broadcast by the television station. In particular,

no commercials are to be deleted. Section 17 U.S.C. § 111

(c)(3). Capital Cities Cable, Inc. v. Crisp, supra, at 598.

Because the retransmission of television signals usually

involves the intermediary of a common carrier, historical-

ly the telephone company. which provides the wires on

which the signal travels, Congress added § 111(a)(3) to

exempt carriers from liability if they were truly passive.

In particular, the language of § 111(a)(3) specifically lim-

its the exemption to carriers which have “no direct or in-

direct control over the content or selection of the primary

transmission... .”

No compulsory license nor exemption was created for

the local broadcaster whose signal was retransmitted. In

the system envisaged by Congress, the local broadcaster

had no control over the retransmission of its signal. Once

the primary transmission was broadcast over the air, it

was technologically available for retransmission by third

parties without the participation of the originating broad-

caster. Nor did the local broadcaster exploit the economic

benefits of the new market into which its signal was taken.

It broadcast its signal only to the local area for which it

was licensed by the Federal Communications Commission

purchased local copyright licenses for its programming,

and sold commercial time for this programming to a single

set of advertisers. Under general copyright principles em-

bodied in other sections of the Act, if the local broadcaster

had no control over or profit from the extension of its

signal into distant unlicensed markets, it could not be held

liable for infringement. Neither compulsory license nor

exemption under § 111 was necessary.

Hubbard Broadcasting, Inc.

Hubbard Broadcasting, Inc. (“Hubbard”)' is a local

broadcaster with television stations in Minneapolis/St.

Paul, Minnesota; Tampa/St. Petersburg, Florida; and Al-

buquerque, New Mexico. Opinion, A-43. Hubbard pur-

chases from syndicators exclusive local licenses to copy

‘Supreme Court Rule 28.1 listing: Hubbard has no parent company,

nonwholly-owned subsidiaries or affiliates. Hubbard has a number

of wholly-owned subsidiaries, ¢.g., KSTP-TV, Inc.

righted works (such as old movies and television serials)

for broadcasting in its market areas. A number of the

works for which Hubbard has purchased exclusive local

area licenses are also licensed to Turner for its local At-

janta market area. Opinion, A-43.

Turner Broadcasting System, Inc.

Turner is a local broadcaster, owner of television sta-

tion WTBS which is licensed by the Federal Communica-

tions Commission to broadcast to Atlanta, Georgia.

Opinion, A-39.

In 1975 Turner conceived the idea of arranging for the

retransmission of its local Atlanta signal by satellite to

cable systems throughout the country. Joint Appendix

filed in the Court of Appeals (hereinafter “Jt. App.”)

176-183. It established Southern for this purpose. /d.

Turner sold Southern to the current owners for the sum of

$1 when it learned that the FCC required the carrier to be

separately owned. Jt. App. 263.

Shortly after the satellite transmission was in operation,

Turner began arrangements for a direct link, by cable and

microwave, between its studios and Southern’s uplink

facility.” Jt. App. 270-271.

The purpose of the direct link was to enable Turner to

deliver a television signal to Southern for retransmission

to cable systems which differed in commercial content

*In contrast to this, in the retransmission of broadcast signals, the over-

the-air signal is normally picked up by an antenna at the carrier's

“uplink” facility, converted into a microwave signal and beamed to

a satellite . The transponder sends the signal back to earth

where it is ed up by receiving antennae, usually owned by cable

systems, hw deliver the signal by cable to subscribers for a fee.

Because of its distance from the earth, a communications satellite

transponder transmits a signal which can be received over a wide

area——here the entire continental United States.

from that broadcast to the Atlanta audience. Opinion, A-

40-41. This system is generally referred to herein as com-

mercial substitution.

Thus, since 1979 Turner has consistently generated

two signals from its WTBS studios, one “broadcast,” or

sent over the air by its normal UHF transmitter to tele-

vision viewers in Atlanta, and another signal, directed

spcifically to the cable market, delivered by wire and micro-

wave link to Southern and only Southern. Opinion, A-42.

The programming content of the two signals is identical.

The commercial content is not, Opinion, A-40-41.

This commercial substitution system permits Turner to

sell advertising for the copyrighted programs it broadcasts

twice, once to the Atlanta market and again to advertisers

wishing to reach the national cable market. At the time

the record was made in this case, some 40% of the non-

programming content of the microwave signal differed

from that seen on the over-the-air signal. Opinion, A-40-41.

Turner does not deny, however, that ultimately it hopes to

be able to sell 100% of its commercial time twice. Alone in

the broadcast industry, Turner exploits the economic po-

tential of copyrighted programs in the national cable mar-

ket, while purchasing licenses from program suppliers

only for the Atlanta market. This activity is the basis of

Hubbard’s claim against Turner.

Southern Satellite Systems, Inc.

Southern is a resale common carrier licensed by the

Federal Communications Commission to pick up Turner’s

signal and retransmit it to cable systems throughout the

country in return for a fee from those systems. Opinion,

A-39-40.

—

In addition, Southern is an active, knowing, and essen-

tial participant in Turner’s commercial substitution. South-

ern participated in the planning which established the

microwave link, knowing that Turner’s intent was to

make commercial substitution possible. Jt. App. 270-271.

Southern asked for and received from Turner a commit-

ment to indemnify it from any legal liability which might

flow from its participation in the project. Jt. App. 277-

278. Southern owns the microwave equipment which de-

livers the altered signal from Turner’s transmitting tower

to Southern’s uplink facility. Opinion, A-42. Southern

claims an independent benefit from the microwave link to

the extent that the signa' delivered by microwave is tech-

nically superior to the signal it receives off the air at its

uplink facility. Opinion, A-40. There is a factual dis-

pute as to the true motivation of Southern. Hubbard con-

tends that the record supports the conclusion that South-

ern’s participation was in fact motivated solely by its de-

sire to assist its partner Turner in commercial substitution.

In its application to the Federal Communications Commis-

sion for permission to establish the microwave link, South-

ern did not divulge the fact that the microwave signal

would not be identical to the over-the-air signal it was li-

censed to retransmit. Jt. App. 170, 275-6, 468-9.

At the present time, Southern regularly receives two

different signals at its uplink facility, Turner’s local At-

lanta signal received over the air, and Turner’s altered

microwave signal delivered directly and solely to Southern

for retransmission to cable systems. Southern has pro-

grammed a machine known as the Lenco video pres-

ence detector always to select the microwave signal in

preference to the over-the-air signal, unless the quality of

the microwave signal falls below a certain level or disap-

pears entirely, Opinion, A-42. Should Turner fail to

generate the microwave signal, Southern would automati-

cally retransmit the over-the-air signal which remained.

Proceedings Below

In 1981 Hubbard brought an action for copyright in-

fringement against Southern, charging it with having in-

fringed Hubbard’s exclusive copyright licenses in five

separate copyrighted programs. The complaint was later

amended to add Turner as a defendant, and to include

counts for contributory and vicarious infringement and

for conspiracy to infringe. Federal jurisdiction was based

on 28 U.S.C. § 1338(a).

The District Court for the District of Minnesota, on

cross-motions for summary judgment, granted defendants’

motion for summary judgment and dismissed Hubbard’s

complaint for copyright infringement against both Tur-

ner and Southern.

On appeal, the Eighth Circuit Court of Appeals upheld

the decision below, holding that neither Turner nor

Southern was liable for copyright infringement.

The Court of Appeals concluded that “section 111 con-

tains no provision under which Southern Satellite or Turner

is liable for copyright infringement.” A-58. It refused to

rule on the question of whether Turner alone was “directly

liable” for copyright infringement because it found that

that question had not been raised below. A-58.

REASONS FOR GRANTING THE WRIT

In the Copyright Act of 1976 Congress strengthened the

rights of copyright owners’ of television programs against

*As the owner of exclusive rights in the television programs at issue in

this case, Hubbard is a “copyright owner” under the Act, 17 U.S.C.

§ 101, and has standing to sue for infringement under § 17 U.S.C.

§ 501(b). District Court Opinion, A-3-4.

the exploitation of their works by cable companies in dis-

tant markets. Section 111 permits cable companies and

their passive carriers to import copyrighted television pro-

grams from outside the local area of the station where

they were originally broadcast only if the specific require-

ments of the compulsory licensing system are met. One of

these requirements is that they shall not exploit the com-

mercial value of those programs by substituting commer-

cials.

The decision below has turned the intent of Congress on

its head. It has permitted the local broadcaster whose sig-

nals are picked up to exploit the commercial value of the

national cable market through the same commercial sub-

stitution that Congress explicitly forbade to cable com-

panies and their carriers. The ruling below permits a local

broadcaster to purchase local licenses for copyrighted

programs, and exploit those programs twice, once in the

local area for which it is licensed, and again in the nation-

al market to which it has no license. The ruling below

cites no language in the Copyright Act which gives the

local broadcaster this right.

The ruling below permits the satellite carrier to be a

knowing and active participant in the substitution of com-

mercials, despite the express statutory prohibition against

direct or indirect control by the carrier over the content

of the signal it carries. The ruling below permits the car-

rier to select between two different signals received from

the same broadcaster, despite the express statutory pro-

hibition against selection, and permits the carrier to avoid

responsibility for that selection because the carrier pro-

grams a machine to do the selection for it. The basis for

this ruling is that the carrier should be able to make use

of “available and affordable technology,” without regard

to the effect of that technology on economic and legal re-

lationships.

The ruling below conflicts in principle with the other

two circuit court decisions interpreting § 111; it conflicts

with established Supreme Court and common law prece-

dent on contributory infringement; it overturns a con-

sidered and hardfought compromise by Congress in a key

section of the Copyright Act; and it will have consequences

far beyond the parties to this case.

Finally, because of the Court of Appeals’ failure to

rule on the issue of “direct” infringement, the ruling be-

low not only deprives the parties to this case of a final de-

cision on an issue that was consistently raised below, but

it introduces an element of uncertainty into the eatire

cable industry, to the detrimcut not only of the industry

but of the court system whicii wili likely be burdened

with another expensive and time consuming case raising

the same issue.

THE DECISION OF THE COURT OF APPEALS FOR THE

EIGHTH CIRCUIT CONFLICTS WITH THE PRINCIPLES

ARTICULATED BY THE OTHER TWO CIRCUITS WHICH

HAVE INTERPRETED SECTION 111

Two other Courts of Appeals, for the Second and the

Seventh Circuits, have considered section 111 of the Copy-

right Act, and in particular, the carrier exemption of §

111(a)(3). Eastern Microwave, Inc. v. Doubleday Sports,

Inc., 691 F.2d 125 (2d Cir. 1982), cert. den. 459 U.S.

1226 (1983) (“EMI”) and WGN Continental Broadcast-

ing Company v. United Video, Inc., 693 F.2d 622 (7th

Cir. 1982) (“WGN”). All three decisions have concerned

the application of § 111 to satellite carriers which re-

transmit television signals to cable companies on a na-

tion-wide basis. Because each case involved a slightly dif-

ferent fact situation, the holdings of these cases are not

directly in conflict. The reasoning of the Second and

Seventh Circuits in reaching their decisions, however, is

directly contrary to the holding of the Eighth Circuit.

In the WGN case Judge Posner held that a satellite

resale carrier which stripped certain copyrighted material

carried in the vertical blanking interval of a television sig-

nal was not a “passive carrier” qualifying for the exemp-

tion of § 111(a)(3).

“. . . United Video cannot avail itself of the passive

carrier exemption, because it was not passive—it

did not retransmit WGN’s signal intact.”

693 F.2d at 625.

According to the WGN opinion, the carrier must be

passive to qualify for the § 111(a)(3) exemption.

“The exemption thus allows carriers such as United

Video to act as purely passive intermediaries be-

tween broadcasters and the cable systems that carry

the broadcast signals into the home, without incur-

ring any copyright liability. ... The intermediate carrier

pays the copyright owner nothing, provided it really

is passive in relation to what it transmits, like a tele-

phone company. See S. Rep. No. 473, 94th Cong.

Ist Sess. 78 (1975). It may not even delete commer-

cials. ...”

693 F.2d at 624.

In EMI the Second Circuit was asked to determine

whether § 111(a)(3) was meant to apply to satellite car-

riers, which by their nature retransmit only one television

signal and thus engage in at least an initial selection of

which signal to transmit. Judge Markey, writing for

the Second Circuit, also emphasized that the carrier must

be passive. “[T]echnical restrictions which forced EMI

to make an initial one-time determination to retransmit

the signals of a particular station, . . .” do not constitute

the type of “selection” forbidden by § 111(a)(3), as long

as the carrier delivers the signal which is demanded by

the cable systems.

“In meeting that demand ... EMI does so passively,

retransmitting exactly what it receives and the en-

tirety of what it receives. ... To do otherwise could be

perceived as the carrier’s making the transmission

its own.”

691 F.2d at 130.

The Eighth Circuit has essentially rejected the passivity

requirement that both the Second and the Seventh Cir-

cuits have found to be essential for carriers to qualify for

the § 111(a)(3) exemption. The ruling below permits a

carrier actively and knowingly to collaborate with a local

broadcaster in substituting commercials. It permits a car-

rier to make a continuous, rather than one-time, selection

between two differing signals from one broadcast station,

although such selection is neither technologically required,

nor demanded by its cable customers.

A satellite carrier by its nature beams television signals

into all of the continental United States. Whether a copy-

right owner could prevail in an infringement action against

a non-passive carrier such as Southern may now depend

on the circuit in which the copyright owner brings its suit.

This Court should resolve this difference between the cir-

cuits to eliminate the uncertainty for an entire industry.

THE RULING OF THE COURT OF APPEALS WILL CHANGE

THE CONDUCT OF AN ENTIRE INDUSTRY, TO THE

LOSS OF COPYRIGHT OWNERS

At the present time there are at least three satellite car-

riers which retransmit the television signals of local broad-

casters, including the carriers who were parties to the

WGN and EMI cases. Of these only Southern has agreed

to facilitate the substitution of commercials by the local

broadcaster. Only Turner, of all the local broadcasters

whose signals are being retransmitted, has chosen to create

a dual signal, microwave delivery system, and to substi-

tute commercials, thereby exploiting its licensed programs

beyond the market to which it is licensed.

The Eighth Circuit has row given carte blanche to this

unique system. If this decision is allowed to stand, it is

highly likely that these other carriers and local broad-

casters will engage in the same process. The legal right to

exploit the national market for copyrighted works will be

handed over to any local broadcaster which can arrange

for a satellite pick-up of its signal, despite the fact that it

purchases only local licenses from the copyright owners.

Because the copyright owners will be deprived of their

legal right to prevent this infringement. their bargaining

power will be diminished. and the market value of their

creative efforts will be appropriated in part by the local

broadcasters, without any statutory authority from Con-

gress.“

“The Eighth Circuit sidestepped this problem by making a finding of

fact-—that commercial substitution has no adverse impact on copy-

right holders. A-57-58. Besides ignoring the distorting effect that the

refusal to enforce the copyright monopoly will have on the market.

this factual finding was not addressed by the district court and is

unsupported by the record.

The legal and economic ramifications of this ruling go

far beyond the parties to this suit, and involve a restruc-

turing of an entire industry. It is difficult to estimate the

amount of money which will be affected by this ruling,

because it will involve the value of copyrighted television

programming nationwide for the foreseeable future. This

is an important issue on which the guidance of the Su-

preme Court is needed.

THE RULING BELOW CONFLICTS WITH SUPREME

COURT TEACHING ON CONTRIBUTORY INFRINGE-

MENT AND THE ROLE OF TECHNOLOGY

The Supreme Court, in Sony Corporation of America v.

Universal Studios, Inc., 464 U.S. 417 (1984) recently re-

stated the established principles of contributory infringe-

ment. Citing the so-called “dance hall cases,’” the court

stated:

“In such cases, as in other situations in which the im-

position of vicarious liability is manifestly just, the

“contributory” infringer was in a position to control

the use of copyrighted works by others and had auth-

orized the use without permission from the copyright

owner.”

*Famous Music Corp. v. Bay State Harness Horse Racing & Breeding

Ass., Inc., 554 F.2d 1213 {1st Cir. 1977) (racetrack retained in-

fringer to supply music to paying customers); KECA MUSIC, Inc. v.

Dingus McGee’s Co., 432 F. Supp. 72 (WD Mo. 1977) (cocktail

lounge hired musicians to supply music to paying customers); Dream-

land Ball Room, Inc. v. Shapiro, Bernstein & Co., 36 F.2d 354 (7th

Cir, 1929) (dance hall hired orchestra to supply music to paying cus-

tomers), Shapiro, Bernstein & Co. v. H.L. Green Co., 316 F.2d 304

(2nd Cir. 1963); Gershwin Publishing Corp. v. Columbia Artists Man-

agement, Inc., 443 F.2d 1159 (2nd Cir. 1971); Screen Gems-Columbia

Music, Inc. v. Mark-Fi Records, Inc., 256 F. Supp. 399 (SDNY 1966).

464 US. at 437.

Southern, through its collaboration in delivering the al-

tered signal, is in a position to control Turner’s unauthor-

ized performance of copyrighted works and is providing

the means whereby these works are being performed.

Nevertheless, the Eighth Circuit absolved Southern of all

liability, because it found, as a matter of fact, that South-

ern had a legitimate business purpose for establishing the

microwave link,—to improve the quality of the picture it

retransmits.” A-52 and A-54. In short, an entity may

knowingly assist in the trarsmission of infringing works

if its motive is to ensure the infringing works can be more

clearly seen on arrival.

The Eighth Circuit comes to this conclusion, not in the

explicit context of the doctrine of contributory infringe-

ment, but through the statutory embodiment of that doc-

trine in § 111(a)(3), which, inter alia, specifically forbids

a carrier from exercising “direct or indirect control over

the content . . . of the primary transmission”, This statu-

tory language, with its emphasis on control, is simply a

restatement of the principle of contributory infringement

cited above.’

Nothing in the language of § 111(a)(3) or in the case

law concerning contributory infringement supports the

Eighth Circuit’s judicially created exemption for partici-

pants in copyright infringement which have a “legitimate

*The motivation of Southern for collaborating in the commercial substi-

tution scheme is a matter of dispute between the parties and was not

addressed by the district court.

"The Registrar of Copyright, discussing an early version of § 111(a)(3),

expressed the opinion that an exemption for purely intermediate carri-

ers was not necessary, because by already established principles they

would be excluded from liability. Supplementary Report of the Recis-

trar of Copyrights on the General Revision of the U.S. Copvright

Law: 1965 Revision Bill (Comm. Print, pt. 6 (1965)) at 25. A-85-86.

business interest” in facilitating the infringement. In fact,

under normal analysis, Southern’s “legitimate business in-

terest” would be understood as the profit Southern reaps

from its participation in the infringing enterprise. Turner

does not pay Southern directly for its participation in the

microwave link, but neither is Southern’s participation

eleemosynary. Southern profits through the improved pic-

ture quality it can sell to its customers. But as long ago as

Herbert v. Shanley Co., 242 U.S. 591 (1917), Justice

Holmes recognized that such indirect benefits, such as

those a restaurant keeper receives from providing orches-

tra music on its premises, are profits arising from the in-

fringing performance. The Eighth Circuit has now turned

this doctrine upside down and held that the substantial ben-

efits that Turner’s collaborator receives from the enter-

prise is a “legitimate business interest” which, instead of

tying it more closely to the infringement, actually exempts

it from liability.

This Court in Sony held that the sale of a particular

technology will not be enjoined despite the fact that it can

be used for copyright infringement, if that technology “is

capable of substantial non-infringing uses.” 464 U.S. at

442. The Eighth Circuit has gone beyond this principle,

and held that a particular technology may be actually

used for the purposes of infringement as long as the user

can point to a legitimate business interest arising from the

infringement.

Unlike the Sony plaintiffs, Hubbard is not seeking to

enjoin the sale of microwave equipment, only its use in

the facilitation of infringement. Unlike the defendants in

Sony, Southern is an active. ongoing, and knowledgeable

participant in the infringing activity. Like the equipment

in Sony, the microwave link is capable of being used for

legitimate, non-infringing purposes, but unlike Sony, an

injunction in this case would not, as the Eighth Circuit

mistakenly believed, require “Southern . . . [to] purposely

forgo available and affordable technology. . . .”” Unlike the

defendants in Sony, Southern does exercise direct and im-

mediate control over how the microwave link is used. This

closely coordinated effort between a carrier and the primary

transmitter to affect the content of the primary transmis-

sion certainly constitutes the indirect exercise of control

over the content of that signal.

The issue here is not whether Southern should be able to

employ beneficial and affordable technology, but whether

it may assist in employing that technology for wrongful

ends. As Justice Holmes stated in Kalem Company v.

Harper Brothers, 222 U.S. 55, 62 (1911):

“The essence of the matter ... is not the mechanism

employed, but that we see the event or story lived. ...

The most innocent objects, ... may be used for un-

lawful purposes.”

In permitting this activity by Southern, the Eighth Cir-

cuit has seriously altered the scope of this Court’s opinion

in Sony and deviated from what up to now has been an

unbroken line of authority defining the conditions under

which it is just to hold a participant in an enterprise

liable for the wrongs of that enterprise, irrespective of the

technological “mirrors” employed.

‘Southern could use the microwave link to transmit the over-the-air

signal rather than the altered signal and thereby receive all the bene-

fits in terms of picture quality that the microwave link now affords,

without participating in any infringing activity. Instead, however,

Southern, knowingly employs this technology to assist Turner in chang-

ing the content of the cable signal.

IV.

NOTHING IN THE LANGUAGE OR LEGISLATIVE HIS-

TORY OF THE COPYRIGHT ACT JUSTIFIES THE RUL-

ING BELOW

The use of a direct link between the primary transmitter

and the carrier for the purpose of commercial substitu-

tion was not specifically contemplated by Congress when

it enacted the Copyright Act of 1976. When § 111 is read

as a whole, however, and in the context of the substantial

legislative history that accompanies that section, it is

clear that the retransmission of a non-broadcast signal

intended for the cable market lies entirely outside the

compulsory licensing system.

Congress intended the compulsory licensing system to

apply only to television signals broadcast over the air to

the general public in the primary transmitter’s loca] area.

The language of the statute bears this out. See e.g., Section

111(c)—compulsory licensing shall apply to the “. . . pri-

mary transmission made by a broadcast station licensed

by the Federal Communications Commission . . .” (em-

phasis added); § 111(b)—no carrier exemption or com-

pulsory license “. . . if the primary transmission is not

made for reception by the public at large, but is con-

trolled and limited to reception by particular members of

the public ...”. The legislative history of § 111 similarly

demonstrates that Congress was aware of the important

d'stinction between over-the-air broadcast signals and non-

broadcast signals destined for the cable market. See, ¢.g..

House Report at 93, A-83.

The compulsory license applies. therefore, to the car-

riage of over-the-air broadcast signals and is inap-

plicable to the secondary transmission of any non-

broadcast primary transmission such as a program

Originated by a cable system or a cable network.

The latter would be subject to full copyright liability

under other sections of the legislation.

(emphasis added).”

The rulings below are in agreement on the technological

fact that the signal transmitted by Turner to Southern for

retransmission to cable systems is not broadcast over the

air, but is delivered directly and solely to Southern for re-

transmission to the cable market. There is also agreement

that the content of the over-the-air broadcast signal dif-

fers from that of the microwave signal. There is also

agreement that commercial substitution is only tech-

nologically possible because the microwave signal is not

broadcast over the air. Nevertheless, the Eighth Circuit,

and the District Court ruled that the method of delivery

of a signal was irrelevant to the Copyright Act. The rul-

ings below ignore the language of the statute, the legisla-

tive history, and the plain fact that the “method of de-

livery” in this case is more than a technological improve-

ment, but constitutes the means by which the defendants

are able to commercially exploit distant markets, a right

which Congress carefully limited to the explicit parameters

of the compulsory license.

In addition, the rulings below construe the explicit lan-

guage of section 111(a)(3) effectively to read a word out

of the statute. Section 111(a)(3) exempts a carrier from

*C.f. Capital Cities Cable, Inc. v. Crisp, supra, 81 L.Ed.2d at 593-4 and

596 for an explanation of the distinction between broadcast signals

covered by compulsory license, and non-broadcast cable services which

may be either subscription or advertiser-supported.

indirect control over the content or selection of the primary

transmission. . . .” Southern consistently has available to

it from its own receiving equipment two differing signals

generated by Turner. It consistently selects between them

one signal to retransmit. The Court below held that this

“selection” was not “selection” because Southern pro-

grammed a machine to make the selection for it, and be-

cause Turner, as well as the carrier, has power over which

signal is retransmitted.” A-54. The Court’s decision flies

in the face of this Court’s admonition in Mills Music, Inc.

v. Snyder, 83 L.Ed.2d 556, 566 (1985) that

“(ijn construing a federal statute it is appropriate

to assume that the ordinary meaning of the language

that Congress employed ‘accurately expresses the

legislative purpose.’ ”

Finally, the rulings below ignore the legislative history

of § 111 which make clear that the section was meant to

protect the interests of local broadcasters in the distant

markets from commercial substitution.

“On a “distant” signal, the placement of substitute

advertising harms the local broadcaster in the distant

market because the cable system is then competing

for local advertising dollars without having compara-

ble program costs.”

House Report at 93-94, A-84. It is irrelevant to the

local broadcaster whether the commercial substitution is

“If Turner chooses to generate only one signal, which it does on rare

occasions, Southern obviously must retransmit the only one left. If

Southern had a person, rather than a machine, select between the

two signals, the “selection” would be obvious. There is no logical

difference in this case between instructing an employee and program-

ming a machine.

done by the cable company itself or by the entity which

supplies the cable company. In both instances, the local

broadcaster is forced to compete for advertising dollars

with an entity which does not pay to transmit the program

into the local broadcaster’s market. The Eighth Circuit

distinguished this legislative intent by making a factual

finding—that Turner does not compete with Hubbard for

local advertising dollars. A-57. There is nothing in

the record or in the district court opinion which supports

or even addresses this factual issue, which is a matter of

dispute between the parties.

This Court has consistently emphasized that Congress,

rather than the courts, is in the best position to “accommo-

date fully the varied permutations of competing interests

that are inevitably implicated by such new technology.”

Sony, at 431. Here, Congress has already accommo-

dated the competing interests implicated in cable technol-

ogy. Congress has already made clear in § 111 that the

local broadcaster is to be protected against commercial

substitution in the cable retransmission process. The use

of a microwave system to permit commercial substitution

by the primary transmitter is not so innovative a technique

that the courts should close their eyes to the plain fact

that it is being used to accomplish the very harm Congress

meant to prevent. The Eighth Circuit’s ruling effectively

destroys the balance of interests that Congress laboured

for so long to achieve.

By taking a myopic and erroneous interpretation of

§ 111 and the Copyright Act as a whole, the Court of Ap-

peals for the Eighth Circuit has sarctioned a commercial

substitution scheme which subverts the purpose of the

Be 2

of their creativity, distorts a careful compromise e¢s-

tablished by Congress between the interests of program

suppliers, cable systems, and local broadcasters, permits

through indirection the commercial substitution that Con-

gress explicitly forbade be done directly, and elevates tech-

nology to a unique position in the law where its benefits

are protected without regard to its costs.

Vv.

THE COURT BELOW ERRED IN HOLDING THAT TURN-

ER’S DIRECT INFRINGEMENT WAS NOT RAISED BE-

LOW SOLELY BECAUSE PLAINTIFF CHARACTERIZED

TURNER AS A “CONTRIBUTORY” RATHER THAN

‘“‘DIRECT”’ INFRINGER

In its motion for summary judgment and in its support-

ing briefs Hubbard moved for judgment of infringement

against both Southern and Turner, as jointly and severally

liable for the public performance of copyrighted works

for profit beyond the area for which either had a license

or an exemption. Because both parties were technological-

ly necessary to the delivery of the infringing signa), Hub-

bard characterized them as contributory infringers. The

opinion of the District Court found, as Hubbard had ar-

gued, that all of the elements of infringement were present,

but held, contrary to Hubbard’s argument, that Southern

qualified for an exemption from liability under § 111.

On appeal, Hubbard pointed out that the implication

of the lower court’s findings was that Turner was liable

for infringement irrespective of Southern’s exemption. The

Eighth Circuit refused to rule on that question, on the

theory that it had not been raised below. A-58. In fact.

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however, both the factual elements necessary to establish

infringement by Turner and the legal analysis establishing

its prima facie liability were before the trial court.”

Hubbard’s memoranda in support of its summary judg-

ment motion clearly raised the theory of Turner’s inde-

pendent liability. Pertinent excerpts from these memor-

anda", some of which were contained in the Supplementary

Appendix, pp. 1-12 below, are reproduced at A-87-92.

This Court, in Sony, pointed out that:

“the lines between direct infringement, contributory

infringement and vicarious liability are not clearly

drawn. ... The lack of clarity in this area may, in

part, be attributable to the fact that an infringer is

not merely one who uses a work without authorization

by the copyright owner, but also one who authorizes

the use of a copyrighted work without actual au-

thority from the copyright owner.”

454 U.S. at 435, n.17. In the same decision, the Court

pointed out that despite the fact that the question of pe-

titioners’ liability under the “doctrines” of “direct infringe-

"The authority cited by the Eighth Circuit, Kriegesmann v. Barry-Weh-

miller Co., 739 F.2d 357 (8th Cir. 1984) is thus inapposite. In Krieges-

mann the appellant had ar an entirely new legal theory based on

new facts, none of which had been raised below. Here both the legal

and the factual underpinning were presented to the trial court.

“*E.g., Hubbard argued to the trial court that:

(1) “As an active and willful participant in the “WTBS Satellite

Cable Network” Turner must bear its share of responsibility

for the consequences of the network’s public performance of

copyrighted works.” A-90.

(2) “Turner and Southern are Each Liable for Copyright Infringe-

ment.” A-90.

(3) “Turner and Southern are Each Contributorily and Jointly

and Severally Liable.” /d.

(4) “{I}t is not necessary to attach specific labels to each partici-

pant;” and “Turner and Southern’s activities are so closely

tied that they are iointly responsible for copyright infringe-

ment, whatever label is used.” A-95.

ment” and “vicarious liability” were not nominally before

the Court, analysis of the contributory infringement claim

necessarily entailed consideration of arguments which

might also be forwarded under other labels. Jd. The issue

of Turner’s liability for its part in the collaborative effort

to exploit copyrighted works in unlicensed markets could

equally well be labelled either “direct” or “contributory”

infringement, as well as “vicarious liability”. The same

arguments are equally applicable.

In fact, long-standing precedent in the Supreme Court

indicates that the liability of a collaborator in the position

of Turner should be considered under the label of “con-

tributory” infringement. Kalem Co. v. Harper Brothers,

222 U.S. 20 (1911). In Kalem the “contributory infringer”

was the one who prepared the film version of Ben Hur

and provided it to the jobbers who in fact performed the

work. Similarly here, Turner prepared the altered signal

for the purpose of exploiting the works in cable markets

and sent it to Southern for performance in those markets.

Both the defendant in Kalem and Turner advertised the

works for use in unauthorized markets. Jt. Ap. 274. Jus-

tice Holmes wrote:

The defendant not only expected but invoked by ad-

vertisement the use of its films for dramatic repro-

duction of the story. That was the most conspicuous

purpose for which they could be used, and the one

for which especially they were made. If the defend-

ant did not contribute to the infringement it is im-

possible to do so except by taking part in the final

act. It is liable on principles recognized in every part

of the law.”

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222 U.S. at 62-63.

Similarly in Sony, this Court stated with regard to con-

tributory infringement,

“We recognize there are substantial differences be-

tween the patent and copyright laws. But in both

areas the contributory infringement doctrine is

grounded on the recognition that adequate protection

of a monopoly may require the courts to look beyond

actual duplication of a device or publication to the

products or activities that make such duplication pos-

sible.”

464 US. at 442.

Hubbard has consistently argued that Turner’s role in

providing an altered signal makes Southern’s public per-

formance possible. By the reasoning of both Kalem and

Sony, therefore, Turner’s activities can properly be desig-

nated as “contributing” to the infringement. Hubbard’s

claim against Turner for ‘contributory infringement’

should have been ruled upon by the lower courts, irres-

pective of whether a claim of ‘direct infringement’ was or

was not advanced.

Furthermore, the Kalem case shows that the contribu-

tory infringer’s liability does not turn on whether or not

the “direct infringers” are found guilty of infringement.

In fact, the “direct infringers” were not even parties to the

Kalem case. Irrespective of whether Southern enjoys an

exemption, therefore, Turner can be liable for its part in

the enterprise as a “contributory infringer.” Despite this,

the Eighth Circuit refused to rule on Turner’s liability,

because the term “contributory” rather than “direct” was

used.

It is true that the district court opinion did not address

the logical consequence of its own finding that Turner

was liable for prima facie infringement while its partner

alone was exempt.” The Eighth Circuit could properly have

conducted its own independent review of the trial court’s

legal analysis,” or remanded the case to the district court

for a finding on that issue, but it was error to rule that it

was never raised below.

By avoiding the issue in this way, the courts below have

penalized not only Hubbard, but the entire industry. On

one hand. the Eighth Circuit opinion appears to give carte

blanche to all local broadcasters to engage in commercial

substitution similar to Turner’s. On the other hand, its re-

fusal to rule on the “direct liability” issue results in an un-

certainty which affects the entire industry. In the interests

of judicial economy this issue, which has been argued be-

fore two courts, and fully briefed by both parties at all

stages, should be ruled upon.

‘The trial court failed to grasp the point made clear by Justice Black-

mun’s dissent in Sony, supra, that “the fact that a given market for a

copyrighted work would not be available to the copyright holder

were it not for the infringer’s activities does not permit the infringer

to exploit that market without compensating the copyright holder.

See lowa State University Research Foundation, Inc. v. American

Broadcasting Cos., Inc., 621 F.2d 57 (CA 2 1980).” 464 U.S. at 485,

78 L.Ed.2d at 618. Here, the fact that neither the copyright owner nor

Hubbard could prevent the work from being shown on cable systems

in Hubbard’s markets because of the compulsory license does not

entitle Turner to exploit that market. Thus, exemptions for Southern

and its cable system customers do not constitute a franchise for Turn-

er to reap economic benefits properly belonging to the copyright

owner and its affected licensees.

Fritiofson v. Alexander, 772 F.2d 1225, 1239 (Sth Cir. 1985); Koshat-

ka v. Philadelphia Newspapers, Inc., 762 F.2d 329, 333 (3rd Cir.

1985): Liberty Lobby, Inc. v. Anderson, 746 F.2d 1563, 1571-2 (D.C.

Cir. 1984); Lojyek v. Thomas, 716 F.2d 675, 677(9th Cir. 1983);

Daitom, Inc. v. Pennwalt Corp., 741 F.2d 1569, 1574 (10th Cir.

1984).

CONCLUSION

For the foregoing reasons, the petition for a writ of cer-

tiorari to the Court of Appeals for the Eighth Circuit

should be granted.

Respectfully submitted,

. Sidney Barrows

j Byron E. Starns

M. Patricia Schaffer

Suite 1500

100 South Fifth Street

. Minneapolis, Minnesota 55402

Telephone: (612) 337-1500

Attorneys for Petitioner

Of Counsel:

Leonard, Street and Deinard

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A etn Beads

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APPENDIX

“ene

APPENDIX

HUBBARD BROADCASTING,

INC., Plaintiff,

¥.

SOUTHERN SATELLITE SYSTEMS,

INC. and Turner Broadcasting

System, Inc., Defendants.

No. 3-81 Civ. 330.

United States District Court,

D. Minnesota,

Third Division.

Aug. 23, 1984.

% Ae *

Leonard, Street & Deinard by Sidney Barrows, Byron

Starns, and Patricia Schaffer, Minneapolis, Minn., for

plaintiff.

Faegre & Benson by Duane Krohnke, Minneapolis,

Minn., Pepper & Corazzini by Robert Corazzine, Wash-

ington, D.C., and Jerry Reed, Tulsa, Okl., for defendant

Southern Satellite Systems, Inc.

Popham, Haik, Schnobrich, Kaufman & Doty, Ltd. by

Thomas K. Berg, Minneapolis, Minn., Troutman, Sanders,

Lockerman & Ashmore by Tench C. Coxe and Hugh M.

Davenport, Atlanta, Ga., for defendant Turner Broad-

casting System, Inc.,

A-Z

MEMORANDUM ORDER

ALSOP, District Judge.

This matter comes before the court upon cross-motions

for summary judgment. All parties agree that there are no

genuine issues of material fact in dispute and that the

question whether or not defendants are liable to plaintiff

for copyright infringement is purely a question of law. The

parties have submitted a joint stipulation of facts I and II,

joint exhibits, volumes of separate exhibits, affidavits, a

compendium of legal authorities, individual statements of

facts and a number of briefs. The issues have been well pre-

sented by able counsel! on all sides.

I. Standing

[1] Plaintiff claims standing under 17 U.S.C. § 501

(b), which provides that “the legal or beneficial owner of

an exclusive right under a copyright is entitled ... to insti-

tute an action for any infringement of that particular right

committed while he or she is the owner if it.” Hubbard

claims it has standing if (1) it is the owner of an exclusive

right and (2) Turner & Southern infringed the particular

right that Hubbard owns. Hubbard says the first require-

ment is met because all of the licenses for the five works in

issue contain two provisions, a granting provision and an

exclusivity provision, which together convey to Hubbard

the exclusive right to transmit the works to television (TV)

viewers in Hubbard’s broadcast areas. “Plaintiffs Reply

Memo” at 3-10. Hubbard claims the second requirement

is met because Hubbard’s exclusive right to exhibit the

works to the television viewing audience in particular ter-

ritories is the precise right allegedly infringed by Turner/

A-3

Southern’s cable transmissions of the works within Hub-

bard’s exclusive zone. /d. at 11-16.

Defendants contend plaintiff lacks standing because,

first, it is not the owner of any exclusive rights. Defend-

ants claim the licenses do not affirmatively grant Hubbard

a portion of the owner’s exclusive rights, but instead mere-

ly contain promises by the owners that they will not license

certain conduct by other entities. Those promises may

give Hubbard a breach of contract claim, but do not con-

stitute the transfer of part of the copyright owners’ ex-

clusive rights. “Defendants’ Joint Memo” at 61-63. Further-

more, any exclusivity rights stemming from Hubbard's

form exclusivity rider were directly dependent upon the

FCC’s syndicated program exclusively rules. Once the

FCC :epealed those rules, after execution of these license

agreements, Hubbard's exclusivity rights terminated. Sec-

ond, defendants say, their activities have not interfered

with Hubbard’s copyright interests because the transmis-

sions were not broadcast to TV viewers but occurred on a

nationwide basis to cable TV systems. /d. at 63.

The court finds that plaintiff is the owner of exclusive

rights in the five works and that plaintiff alleges that de-

fendants’ acts infringed the particular rights plaintiff owns.

The court finds it is not necessary to repeat the parties’

analysis except to note that it agrees that the granting and

exclusivity provisions construed together give plaintiff ex-

clusive rights to the works in particular geographic areas

and that while repeal of the FCC synd'cated programming

exclusivity rules may have removed one basis of ex-

clusivity, passage of the Copyright Act of 1976, 17 U.S.C.

§§ 101 ef seqg., gave plaintiff another basis. Contrary to

defendants’ assertions. it seems very clear the the acts com-

A-4

plained of allegedly infringed the particular rights plaintiff

owns—plaintiff claims the exclusive right to televise par-

ticular works in particular geographic areas and defend-

ants allegedly showed the same works in the same areas.

The court basically agrees with plaintiff's assessment of

its 501(b) standing found in its reply brief, at 1-16.

The plaintiff also claims standing under 17 U.S.C. §

501(c) and defendants challenge that standing as well.

Plaintiff concedes, however, that § 501(c) standing is su-

perfluous because it already has § 501(b) standing. The

court agrees that it is unnecessary to decide the scope of

§ 501(c) standing since the court has found plaintiff has

standing under § 501(b).

II. Prima Facie Copyright Liability

[2] Plaintiff must establish five elements to make a

prima facie showing of copyright infringement. Those ele-

ments are:

1. The originality and authorship of the compositions

involved;

2. Compliance with all formalities required to secure

a copyright under 17 U.S.C. § 101 et seq.;

3. That plaintiff is the proprietor of the copyrights

of the compositions involved;

4. That the compositions were publicly performed for

profit; and

5. That the defendants have not received permission

from plaintiff or its representatives for such performance.

George Simon, Inc. v. Spatz, 492 F Supp. 836, 838 (W.D.

Wisc. 1980). The first three elements are not in dispute

A-5

and are covered by Joint Stipulation II of the parties. In

response to the fifth element, defendants in effect say

that they do not need plaintiff's permission because of var-

ious exemptions and licensing systems established by 17

U.S.C. § 111. Those sections will be discussed in parts

IlIC and IID, infra. In response to the fourth element,

defendants say that the works were not publicly performed.

Plaintiff contends that the works were publicly performed

by both Turner and Southern.

[3] Section 101 of the Copyright Act says:

To perform or display a work “publicly” means—

to transmit or otherwise communicate a performance

or display of the work ... to the public, by means of

any device or process, whether the members of the

public capable of receiving the performance or dis-

play receive it in the same place or in separate places

and at the same time or at different times.

To “perform” a work “means ... in the case of a motion

picture or other audiovisual work, to show its images in

any sequence or to make the sounds accompanying it

audible.” Id. To “transmit” a performance or display is

“to communicate it by any device or process whereby im-

ages or sounds are received beyond the place from wh‘ch

they are sent.” Jd. Plaintiff claims that Congress intended

these definitions to be construed broadly and points to

House Report 63, U.S.Code Cong. & Admin. News 1976,

pp. 5659, 5676 which says, “The concepts of public

performance and public display cover not only the initial

rendition or showing, but also any further act by which

that rendition or showing is transmitted or communicated

“A-6

to the public.” Congress intended to cover all transmission

activity in its broad definition of transmit. The House Re-

port explains that “any device or process” is “broad enough

to include all conceivable forms and combinations of wired

or wireless communications media, including but by no

means limited to radio and television broadcasting as we

know them.” Jd. at 64, U.S.Code Cong. & Admin.News

1976, p. 5678. That report also states that:

Each and every method by which images or sounds com-

prising a performance or display are picked up and con-

veyed is a “transmission,” and if the transmission reaches

the public in any form, the case comes with the scope of

clauses (4) or (5) of Section 106.

Id. at 64, U.S.Code Cong. & Admin.News 1976, p.

5678. [Section 106 defines exclusive rights and says the

thorize, among other things, public performance of the

work (clause 4) and public display of the work (clause 5).]

It is thus clear, plaintiff says, that the Act was intended

to cover indirect as well as direct transmissions to the pub-

lic. Even a performance to a selected group is stil! a public

performance, plaintiff says, citing authority at “Plaintiff's

Memo” at 11-12. Turner originates performance of the

works and Southern’s retransmission is independently a

public performance. Plaintiff notes that § 111(a), which

exempts certain retransmission activity from copyright lia-

bility, would be unnecessary if retransmission activity were

not a public performance.

Plaintiff relies on WGN Continental Broadcasting Co.

v. United Video, Inc., 693 F.2d 622, 625 (7th Cir. 1982).

WGN, like Turner’s station WTBS. is a “superstat‘on,”

A-7

i.e., its programs are carried outside its local broadcast

area by cable TV systems. Its signals were transmitted by

an intermediate carrier, United Video, to the cable sys-

tems. The court noted that United Video could not be im-

mune from copyright liability just because it did not re-

transmit WGN’s signal directly to the public, that is to

the cable subscriber, but instead transmitted tie signal to

the cable systems who retransmitted it to their subscribers.

The court said:

The passive carrier exemption [§ 111(a)(3) ]

would be superfluous if intermediate carriers such as

United Video could never be infringers anyway be-

cause they did not transmit directly to the public. And

the scheme in section 111 [§ 111(c) ] for compensat-

ing copyright owners would be disrupted....United

Video could mutilate to its heart’s content the broad-

cast signal it picked up and the copyright owner

would have no recourse against it. His only recourse

would be against the cable systems ... that were re-

transmitting the multilated signals: a thousand or

more copyright infringement suits instead of one.

... [T]he Copyright Act defines “perform or dis-

play ... publicly” broadly enough to encompass in-

direct transmission to the ultimate public ....

Id. at 625 (emphasis added). Thus, plaintiff says, both

Turner and Southern publicly performed the works. Since

there is no doubt the activities were engaged in for profit,

plaintiff claims it has established the fourth element of its

prima facie case.

Defendants contend that the works were not publ’c’y

A-8

performed because Southern’s transmissions were not “to

the public.” “Defendants Joint Memo, Appendix B” at 2.

Defendants argue that the cable subscribers, not the cable

systems, constitute the public. In support they cite legisla-

tive history that predates the 1976 Copyright Act and cite

the district court opinion in WGN. They concede that

opinion was reversed by the circuit court, but disagree

with the circuit court’s reasoning. “Joint Memo, Appendix

B” at 3-11.

The court has considered defendants’ arguments and

finds them unpersuasive. The legislative history, as

plaintiff notes, must be addressed to the enacted definition

and exemption, not to one of the many varying versions

that were discussed during the eleven years it took Congress

to pass the 1976 Copyright Act. See “Plaintiff's Reply

Memo” at 26 and 27. Similarly, defendants’ reliance on

the overruled WGN district court opinion is misplaced.

This court agrees with the Seventh Circuit’s analysis that

a construction of public performance as including only

direct performances to the public and excluding indirect

transmissions would render the passive carrier exemption

of § 111(a)(3) superfluous and would wreak havoc with

the compulsory licensing system of § 111(c). See “Plaintiff's

Reply Memo” at 25. The court agrees that under the

broad definitions found in § 101 of the Act, a transmission

is a public performance whether made directly or indirect-

ly to the public and whether the transmitter originates,

concludes or simply carries the signal. There is simply no

practical basis for excluding certain transmitters from copy-

right liability based solely on their position in the distribu-

tion chain. The court finds that the works were publicly

performed for profit by both Turner and Southern and that

A-9

plaintiff has met its burden of proving the fourth element

of a prima facie case.

Ill. Section Ill

Defendants agree that they did not seek or receive per-

mission from plaintiff before they showed the works at is-

sue. They argue, however, that they did not need such

permission and raise several subparts of § 111 as, in ef-

fect, justifying their actions.

A. Purposes of § 111

Prior to the Copyright Act of 1976, copyright law did

not restrict the retransmission by carriers or cable sys-

tems of copyrighted works embodied in the programming

of distant or local broadcast stations. The Supreme Court

had ruled that mere retransmission did not constitute a new

“performance” of the work. Therefore, carriers and cable

companies could not be liable for infringement. Tele-

prompter Corp. v. Columbia Broadcasting System, 415

U.S. 394, 94 S.Ct. 1129, 39 L.Ed.2d 415 (1974); Fort-

nightly Corp. v. United Artists Television, Inc., 392 U.S.

390, 88 S.Ct. 2084, 20 L.Ed.2d 1176 (1968). Treatment

of the burgeoning cable TV industry under copyright law

proved controversial and delayed passage of the 1976 Act

for eleven years. Eventually a compromise was reached

and enacted as § 111 of the Act. H.R.Rep. No. 94-1476,

94th Cong., 2d Sess. 47-49, reprinted in [1976] US.

Code Cong. & Ad.News 5659, 5660-62.

In the 1976 Act, Congress redefined the term perform-

ance to include such secondary transmissions, creating po-

tential copyright liability for cable systems and carriers in-

volved in such retransmissions. At the same time, however,

A-10

Congress provided complete exemption for certain second-

ary transmissions, such as those by a passive carrier under

§ 111(a)(3), and created a compulsory licensing system

in § 111(c) allowing cable TV systems to retransmit the

copyrighted programming of distant broadcast stations in

return for certain royalty payments.

The compromise was intended to implement two diver-

gent national policies. On che one hand, Congress wished to

expand the public’s access to diverse programming by en-

couraging development of the cable TV industry. See, e.z.,

Capital Cities Cable Inc. v. Crisp, USS. , 104

S.Ct. 2694, 2703, 2706, 81 L.Ed.2d 580 (1984); Soy

Corp. of America v. Universal City Studios, Inc.,

US. , 104 S.Ct. 774, 775, 78 L.Ed.2n 574 (1984).

On the other hand, Congress clearly sought to protect

local broadcasters and to further the purpose in the Copy-

right Clause, U.S. Const., Art. I, § 8, of rewarding the

creators of copyrighted works. The whole rationale for

the compulsory licensing system of § 111(c) and the royal-

ty schedules of § 111(d) is that the market mechanism that

compensates copyright owners through the sale of adver-

tising by local independent broadcasters is disrupted by

the free importation of these signals into distant areas.

The market does not, however, as naturally compensate

the owners of syndicated programming initially broad-

cast in communities remote from the cable system. Such

programming is generally sponsored by local advertisers

with little or no interest in the distant cable audience.

Consequently, the Copyright Act requires cable oper-

ators to pay royalties as a function of the “distant signal

equivalents“ (DSEs) they carry.

A-11

National Cable Television Assoc. v. Copyright Royalty

Tribunal, 689 F.2d 1077, 1079-80 (D.C.Cir. 1982) (foot-

notes omitted).

The Supreme Court recently reaffirmed the dual goals

of § 111 when it said: “Compulsory licensing not only pro-

tects the commercial value of copyrighted works but also

enhances the ability of cable systems to retransmit such

programs carried on distant broadcast signals, thereby

allowing the public to benefit by the wider dissemination

of works carried on television broadcast signals.” Capital

Cities Cable, Inc., 104 §.Ct. at 2706. With these purposes

of § 111 in mind, the court now turns to the specific sub-

sections the parties invoke and considers their applica-

tion to the facts of this case.

B. Section 111](b)

Before considering whether or not Southern qualifies for

the passive carrier exemption of § 111(a)(3) and whether

or not its customers qualify for the compulsory licensing

system of § 111(c), the court wi!l consider whether or not

the transmissions involved here fall within 17 U.S.C. §

111(b). Plaintiff claims that the secondary transmissions

that occurred here are actionable as acts of infringement

under § 111(b); secondary transmissions that fall within

§ 111(b), plaintiff says, are precluded from qualifying for

the exemptions of § 111(a) or (c).

[4] Section 111(b) provides that certain secondary

transmissions are actionable based upon the nature of the

primary transmission. If the primary transmission is not

made for reception by the public at large but is controlled

and limited to reception by particular members of the pub-

A-12

lic, then the secondary transmission to the public of the

primary transmission embodying a performance or display

of a work is actionable. Plaintiff contends that the Turn-

er/Southern cable transmission comes within this express

language because of defendant Turner’s practice of com-

mercial substitution.

The parties have explained in great detail the technical

process by which WTBS, Turner’s Atlanta television

station, transmits both a UHF or “off-the-air” signal and a

microwave signal. They have also explained how Southern

receives by direct microfeed link the microwave signal and

how Southern’s Lenco Video Detector is programmed to

receive the microwave signal unless that signal is inter-

rupted, in which case Southern picks up the over the air

signal. See, e.g., Affidavit of Gary W. Stanton; Affidav't

of Jack D. Verner, Sr.: “Hubbard’s Statement of Facts” V.

At WTBS’s studios, the UHF and the direct interconnection

video switches select identical and simultaneous signals

when embodying what the lay person would term a “pro-

gram,” for example, a segment of the TV show “I Dream

of Jeannie” or a segment of a movie like “The Man Who

Wouldn’t Talk.” Upon completion of such a segment, how-

ever, technicians operating the switches can select different

commercial or other nonprogramming material. The UHF

signal, for example, may carry a commercial for a local

Atlanta supermarket. The microwave signal, however,

could carry an advertisement of more national interest to

the nationwide cable audience of Southern’s cable company

customers. Plaintiff terms this practice commercial sub-

stitution and contends that these changes may result in a

variance of 40% in the nonprogramming content of the

two signals. This altered microwave transmission is,

A-13

plaintiff says, a specialized cable-casted or pay-cable-type

signal governed by § 111(b) as a “primary transmission ...

not made for reception by the public at large but ... con-

trolled and limited to reception by particular members of

the public.” 17 U.S.C. § 111(b).

Defendants contend that § 111(b) has no application to

this case. Congress’ purpose in enacting that section was to

protect against unauthorized retransmissions of transmis-

sions not intended for the general public, for example, of

MUZAK. Turner’s transmissions, defendants say, were in-

tended for the general public. The focus of the Copyright

Act is upon protection of rights in particular works, de-

fendants explain, and not upon “signals” or technological

means of signal delivery. Hubbard has no copyright interest

in any of the commercial material broadcast by Turner

and the signal sent to Southern embodying the five works

that Hubbard bases its claims on was identical to, simulta-

neous with and originated from the same source as the

signal embodying those works broadcast over the air. Com-

mercial substitution does not create a separate primary

transmission. In retransmitting the works, Southern was

retransmitting programs broadcast to the general pub-

lic by WIBS. See “Defendants’ Joint Memo” at 48-52. Thus,

defendants say, § 111(b) does not apply.

Plaintiff argues that the term transmission refers to the

overall output of a transmitter and includes programs,

commercials, station breaks and other non-programming

material. Section 111(b) does not, plaintiff says, apply on

a work-for-work basis. Plaintiff relies on the definitions in

§ 101, the prohibition on alteration of commercials by

cable systems under the compulsory licensing scheme of §

111(c)(3) and various language in §§ 111(d)-(4) and 111

‘A-14

(f). See “Plaintiffs Reply Memo” at 38-43. In plaintiff's

view, commercial substitution results in the creation of two

transmissions, one of which falls within § 111(b).

The Copyright Act of 1976 unfortunately does not de-

fine the word transmission. Section 111(b) defines a primary

transmission as “a transmission made to the public by the

transmitting facility whose signals are being received and

further transmitted by the secondary transmission service,

regardless of where or when the performance or display was

first transmitted.” Section 101 says “To ‘transmit’ a per-

formance or display is to communicate it by any device or

process whereby images or sounds are received beyond the

place from which they are sent.” (Emphasis added.) Per-

formance and display are not defined, but the act ties their

meaning to a work nonetheless. Section 101 says “To “dis-

play’ a work means ...”; “To ‘perform’ a work means ...”

(emphasis added). Finally, § 111(b) itself makes actionable

the secondary transmission of “a primary transmission em-

bodying a performance or display of a work....” (Em-

phasis added.)

The language of those sections seems to indicate that §

111(b) was intended to apply on a work-for-work basis.

Viewed in that light, transmission of the five works to

Southern was identical to the signal embodying those

worns broadcast over the air.

Even if “primary transmission” is read broadly to in-

clude commercials, station breaks and other nonprogram-

ming material, it is not clear that the practice of commercial

substitution results in the creation of two separate primary

transmissions. Southern only receives and further transmits

one signal, either the microwave or UHF signal. The prac-

tice of commercial substitution does not convert the entire

A-15

primary transmission into one “not made for reception by

the public at large but ... controlled and limited to recep-

tion by particular members of the public” as required by §

111(b). Assuming plaintiff’s figures are accurate, 100% of

the programming content and 60% of the nonprogram-

ming content of the two signals are identical. Of course, if

none of WTBS’s primary transmissions sent to Southern

were identical to the over-the-air signal, in other words if

WTBS created two entirely different signals with one for

the public over the air and with another for Southern,

then the court would be presented with a very different

question. In the circumstances of this case, however, the

court cannot say that the practice of commercial substitu-

tion requires application of § 111(b).

Plaintiff claims that it is not trying to impose § 111(c)

(3)’s prohibition on commercial substitution by cable sys-

tems on Turner, the primary transmitter. See “Plaintiff's

Reply Memo” at 42, n. 26. In effect, though, that is exactly

what plaintiff seeks: plaintiff's argument is that any com-

mercial substitution or any change in the “overall output of

a transmiss‘on” results in application of § 111(b) because

the primary transmission is no longer made for reception by

the public at large. Application of § 111(b), plaintiff agrees,

affects eligibility for the compulsory license of § 111(c) by

the cable systems and eligibility for the pass‘ve carrier ex-

emption of § 111(a)(3) by the carrier. “Plaintiff's Reply

Memo” at 43. The court is net persuaded that Congress,

if it had considered commercial substitution, would have in-

tended such drastic consequences to flow from application

of its adm‘ttedly unartful language in § 111(b). The court

finds that § 111(b) does not apply to the transmissions in-

volved in this case.

A-16

C. Section 111(a) The Carrier Exemption

Defendants contend they are entitled to summary judg-

ment because Southern qualifies for the exemption of §

111(a)(3). That section provides that the secondary trans-

mission of a primary transmission embodying a perform-

ance or display of a work is not an infringement of copy-

right if:

[T]he secondary transmission is made by any car-

rier who has no direct or indirect control over the con-

tent or selection of the primary transmission or over

the particular recipients of the secondary transmis-

sion, and whose activities with respect to the secondary

transmission consist solely of providing wires, cables,

or other communications channels for the use of

others ....

Defendants note that the distribution of the program-

ming of distant broadcast stations, which lies at the heart

of the compulsory licensing system, depends upon the ac-

tivities of carriers, whether satellite resale common carriers

like Southern or terrestrial microwave carriers. Without

such carriers, cable systems could obtain only the pro-

gramming of broastcast stations that could be received off

the air, effectively eliminating carriage of distant stations.

Eligibility of the carrier for the § 111(a)(3) exemption is

thus important to the functioning of the compulsory licens-

ing system.

Plaintiffs agrees that § 111(a)(3) reflects Congress’ con-

cern that a truly passive carrier that merely supplies techni-

cal facilities for use of its customers be exempt from copy-

right liability. At the same time, plaintiff says that Congress

A-17

was also concerned that such an exemption not be mis-

used to provide a loophole for commercial transmitters to

the public. The exemption was carefully drawn and not

meant to be construed expansively.

Section 111(a)(3) identifies five elements of an exempt

transmission: (1) the transmission must be made by a car-

rier; (2) the transmission must be a secondary transmission

of a primary transmission embodying a performance or

display of a work [from § 111(a) ]; (3) the carrier cannot

have direct or indirect control over the content or selection

of the primary trznsmission: (4) nor over the particular re-

cipients of the secondary transmission; and (5) the carrier's

activities with respect to the secondary transmission must

consist solely of providirg wires, cables or other communi-

cations channels for the use of others. Defendants contend

that Southern meets all of these requirements. Plaintiff

contends Southern does not.

The court is aware that this case reauires interpretation

of a statute enacted before development of the communica-

tions arrangements involved. As another court faced with a

similar situation said:

This case ... has its genesis in the burgeoning tech-

nological advances of the communications industry ....

Confronted with the need to divine and apply the

intent of Congress, and with a statute enacted in the

technological milleau of an earlier time, we “look to

the ‘common sense’ of the statute ..., to its purpose,

[and] to the practical consequences of the suggested

interpretations ... for what light each inquiry might

shed.”

Eastern Microwave, Inc. v. Doubleday Sports, Inc., 691

A-18

F.2d 125, 127 (2d Cir. 1982), cert denied, 459 U.S. 1226,

103 S.Ct. 1232, 75 L.Ed.2d 467 (1983). The Supreme

Court has advocated a cautious approach in dealing with

new technologies under the copyright laws. That Court has

said:

The judiciary’s reluctance to expand the protections

afforded by the copyright without explicit legislative

guidance is a recurring theme.... Sound policy, as well

as history supports our consistent deference to Congres

when major technological innovations alter the market

for copyrighted materials....

In a case like this, in which Congress has not plainly

marked our course, we must be circumspect in con-

struing the scope of rights created by a legislative

enactment which never contemplated such a calculus

of interests...

Sony Corporation of America v. Universal City Studios,

inc., US. " , 104 S.Ct. 774, 783, 78 L.Ed.

2d 574 (1984).

Defendants say the first element is met because Southern

is a carrier. Southern has been licensed by the FCC as a re-

sale common carrier. In re Application of Southern Satel-

lite Systems, Inc., 62 F.C.C.2d 153 (1976). The Second Cir-

cuit in Eastern Microwave, Inc. v. Doubheday Sports, Inc.,

691 F.2d 125, at 129 n. 10, (1982), cert denied, 459 U.S.

1226, 103 S.Ct. 1232, 75 L.Ed.2d 467 (1983), found that

EMI, licensed pursuant to the same authority as Southern,

47 U.S.C. § 214, was a carrier for purposes of § 111(a)

(3). Furthermore, Congress in the 1976 Act intended to

expand the coverage of the exemption beyond the tradition-

A-19

al common carrier concept, rather than limit it as plaintiff

suggests. While the exemption was originally for “common

carriers,” it was later expanded to cover new types of car-

riers such as “a common, contract or special carrier” and

finally broadened in the 1976 Act to “any carrier,” evi-

dencing Congress’ intent not to limit the class to a particular

type of carrier. See “Defendants’ Joint Memo” at 21-22, n.

7 and authority cited therein.

Plaintiff argues that Southern is not a carrier as that

term was used in § 111(a)(3). Passivity is the sine qua non

for the exemption, plaintiff says. The term carrier had an

accepted meaning when the 1976 Act was passed and

that meaning was limited to traditional common carriers

like the phone company. Such passive carriers generally

provided facilities for customers who chose the intelligence

to be transmitted over the channel. Southern, in contrast,

reversed this accepted meaning of the term by itself select-

ing the signal to transm't to the customer who became a

passive recipient. Congress’ use of the term carrier in §

111 (a)(3) was not intended to include the radically new

meaning given it by the FCC when it licensed Southern

and others as resale common “carriers” after the Act was

passed, plaintiff claims.

[5] The court finds that Southern is a carrier for pur-

poses of § 111(a)(3). Congress clearly intended that term

to be construed broadly when it saic “any carrier.” While

the status of Southern as a resale common carrier with the

FCC is not dispositive and while the court js mindful that

communications policy and copyright policy may diverge,

nonetheless the court finds that Southern’s FCC licensing

status is entitled to some weight. The court is not per-

A-20

suaded that Congress intended to restrict the exemption to

traditional carriers or even to new types of carriers only if

they exhibited the total passivity historically associated with

traditional carriers. A similar argument was made and re-

jected in Eastern Microwave, 691 F.2d at 129, n. 10

where the Second Circuit said, “Though Doubleday in-

sists on comparing EMI with the telephone company, the

statute speaks in terms of ‘any carrier’ ...and EMI is li-

censed by the FCC as a common carrier ....” The court

concludes that Southern is a carrier for purposes of § 111

(a)(3).

[6] Section 111(a)’s carrier exemption requires in ad-

dition to carrier status that the transmission be a secondary

transmission of a primary transmission embodying a per-

formance or display of a work. Defendants contend that

this requirement is met. See “Defendants’ Joint Memo” at

22-38. Many of these arguments have already been dis-

cussed in part IIIB supra. Essentially, defendants argue

that the retransmissions were secondary transmissions of

primary transmissions of the works and that the direct

microwave feed is a technological improvement that im-

proves signal quality but does not alter the nature of the

retransmissions, “Defendants’ Joint Memo” at 23 and 24.

The process of commercial substitution, discussed in part

IIIB, supra, does not alter the nature of the retransmissions.

See “Defendants’ Joint Memo” at 25-27. Nowhere, defen-

dants say, is there a requirement that a secondary transmit-

ter must pick up the primary transmission “off-the-air.”

FCC rules and regulations permit the direct interconnec-

tion and Southern is not the first or only intermediate carri-

er to interconnect with the studios of the TV stations whose

signal it delivers. Jd. at 30, n. 10.

A-21

Plaintiff contends that Southern’s retransmission may

not constitute the “secondary transmission of a primary

transmission” for the same reasons it advanced regarding

§ 111(b). See “Plaintiff's Reply Brief’ at 34-35 and

“Plaintiffs Letter Brief’ at 3. Plaintiff appeared to con-

cede at oral argument that, if defendants sent identical

transmissions either over the air or by direct microfeed or

both, plaintiff would have no complaint. Thus, the heart

of plaintiff's complaint is the commercial substitution prac-

tice.

For the reasons discussed in part IIIB supra regarding

§ 111(b), the court finds that defendant Southern’s re-

transmissions are the “secondary transmission of a primary

transmission embodying a performance or display of a

work” for purpose of § 111(a)(3).

[7] The third requirement of § 111(a)(3) is that the

carrier have no direct or indirect control over the content

or selection of the primary transmission. This requirement

has two aspects: control over content and control over

selection. Defendants argue that Southern exercises no con-

trol over the content of the transmissions. The direct in-

terconnection does not result in control—Southern simply

retransmits without alteration the signal it receives from

WTBS. WTBS alone determines the contents of that signal.

Hubbard's allegation that Southern contacted personnel at

WTBS with programming ideas and put people with

programming ideas in touch with personnel at WTBS does

not amount to control over programming. The Second Cir-

cuit in Eastern Microwave, 691 F.2d at 130, found that

this requirement means that “a carrier-retransmitter must

avoid content control by retransmitting exactly what and

all of what it receives, as EMI does here.” Defendants ar-

gue that Southern, just like EMI, meets that test.

A-22

Defendants also say that Southern exercises no control

over selection of the transmission. Southern’s decision to

act as a carrier for WTBS’s transmissions does not con-

stitute such control. At the time of its application to the

FCC for certification as 2 communications carrier, Southern

had to select the broadcast station whose signal it would

retransmit. The FCC’s initial authorization limited South-

ern to distributing WTBS’s signal, although the restriction

has been lifted. Technologically, RCA had only a limited

number of satellite transponders available and the cost of

leasing additional transponders was prohibitive. The defend-

ant in Eastern Microwave asserted that plaintiff EMI's de-

cision to retransmit WOR-TV amounted to selection of the

primary transmission, disqualifying it for the carrier ex-

emption. Noting that only one satellite transponder was

available to EMI, the court reasoned:

Technical restrictions which forced EMI to make

an initial one-time determination to retransmit the

signals of a particular station, whatever the content of

those signals, do not evidence the “control over the

content and selection of the primary transmission”

intended to be precluded under Section 111(a)(3). In

the ordinary common carrier context, the carrier must

render its service to all comers, denying it to none on

the basis of content, and must not select or choose

among those who seek to use its service, on any

basis other than a legitimate business reason. When

the communication service is technologically limited

to one sender, however, a type of “selection” is im-

pelled. That type of forced “selection” cannot be the

type precluded by the statute in the context here pre-

sented, for to so hold would be to require that ex-

A-23

emption be denied to any carrier that did not re-

stransmit every television broadcast of every tele-

vision station in the country.

Id. at 130. Defendants say that Southern is no different

from EMI and that the reasoning of the Second Circuit

applies with equal force to the circumstances of this case.

Plaintiff contends that Southern exercised control over

both the content and selection of the primary transmission.

Southern staff have suggested programming ideas to

Turner’s programming specialists and have played an ac-

tive role in televising away-from-home sports events. South-

ern actively participates in the commercial substitution that

affects 40% of the nonprogramming content, thus exerting

control over content. In addition, plaintiff argues that

Southern “selected” the primary transmission to transmit,

just as the cable companies select the broadcaster(s) to

whom their antennas wil] be tuned. That selection disqual-

ifies cable companies from the exemption and should dis-

qualify Southern as well. Defendants’ interpretation that the

technologically mandated choice of stations to be retrans-

mitted does not constitute selection would read the word

“selection” out of the Act. All cable systems carrying TV

signals rather than their own programming would qualify

for the § 111(a) exemption and the § 111(c) compulsory

licensing system would not be used. Furthermore, plaintiff

says, Southern selects the primary transmission by pro-

gramming its Lenco video presence detector switch to select

the microwave transmission over the UHF transmission.

If the two signals were identical, Southern might be able

to argue that no selection takes place. but because the trans-

missions differ due to commercial substitution. plaintiff

A-24

maintains that Southern clearly selects the primary trans-

mission to retransmit.

The court finds that Southern did not exercise direct or

indirect control over the content or selection of the primary

transmission. There is no evidence that Southern exercised

control over the content of the primary transmission, other

than via the commercial substitution practice, discussed

infra. Southern also did not exercise control over the selec-

tion of the primary transmission. The court agrees with the

Second Circuit in Eastern Microwave that the technologi-

cally mandated initial choice of the broadcaster’s signal] to

retransmit does not constitute “selection” for purpose of §

111(a)(3). Except for the practice of commercial substitu-

tion, Southern is indistinguishable from EMI. This inter-

pretation of “selection” does not result in all cable com-

panies qualifying for the exemption, as plaintiff fears, be-

cause those companies would still have to meet the other

requirements of § 111(a)(3).

[8] The practice of commercial substitution also does

not result in Southern exercising control over content or

selection. WTBS, not Southern, changes the content of com-

mercial and other nonprogramming material on the direct

miscrofeed signal. Southern retransmits without alteration

the signal it receives from WTBS. Southern always re-

transmits the signal received by direct interconnection and

only when that signal is interrupted by WTBS or fails

does Southern retransmit the off-the-air signal. See “Affida-

vit of Gary W. Stanton” at 4. Plaintiff's counsel at oral

argument agreed that WTBS owns and operates the

switch that can interrupt and stop the transmission of

the microwave signal causing the Lenco video presence de-

tector to choose the UHF signal. See “Hubbard’s Statement

A-25

of Facts” and authority cited therein at 27. In fact, during

broadcast of the Atlanta Braves games, Turner activates a

switch at WTBS during the play-by-play that causes the

video detector to switch to the UHF signal. At the com-

mercial breaks, Turner switches the switch back to rees-

tablish the microwave signal containing national commer-

cials. This procedure demonstrates that Turner, not South-

ern, exercises the control over the selection of primary

transmission.

[9] The fourth requirement of § 111(a)(2) is that the

carrier exercise no direct or indirect control over the par-

ticular recipients of the secondary transmission. Defendants

contend that Southern exercises no more control over the

recipients of its transmissions than did EMI. The recipients

are cable systems that comply with the provisions of South-

ern’s FCC tariff, sign a written contract to receive the ser-

vice, and pay the applicable rates. Southern has FCC

authority to act as a resale common carrier and has com-

plied with the legal requirements imposed upon it, includ-

ing the requirement that it not refuse reasonable requests

for service. The Second Circuit in Eastern Microwave con-

cluded that the fact that EMI operated under FCC ap-

proved tariffs, which a particular cable TV system might

not meet, did not mean EMI exercised control over its

recipients, nor did EMI’s status as a resale carrier serving

the receiver rather than the sender of the communication

change that conclusion.

Plaintiff does not appear to address the fourth element

of § 111(a)(3). The court finds that Southern exercises no

control over its recipients and is indistinguishable in that

respect from EMI. This court agrees with the reasoning of

the Second Circuit and concludes that Southern meets the

fourth requirement of § 111(a)(3).

A-26

[10] The fifth requirement is that the carrier’s ac-

tivities with respect to the secondary transmission consist

solely of providing wires, cables or other communications

channels for the use of others. Defendants say that this

passivity requirement applies to the carrier’s conduct with

respect to the secondary transmission. This section does

not require total passivity but allows the carrier to engage

in normal business activities such as marketing and pro-

motional efforts. Prohibiting promotional activity would

be contrary to the FCC policy of promoting entry into the

resale common carrier field, would hinder the public’s ac-

cess to diverse programming and would not protect any

rights that copyright owners might have in those trans-

missions. In Eastern Microwave, the defendant “complained

bitterly” of EMI’s promotional and marketing activities.

Defendant argued that EMI provided wires, etc. for its

own use because it was “selling” the Mets games. The

court said, “Engaging in those normal business activities

does not, however, constitute doing ‘more than’ providing

wires, etc. Compliance with the ... requirement is met if a

carrier does no more than provide wires, etc., ‘with respect

to the secondary transmission.’ ” Jd., 691 F.2d at 131, n.

15 and accompanying text. Similarly, defendants say

Southern’s activities with respect to the secondary trans-

mission are limited to providing wires, cables and other

communications channels for the use of others.

Plaintiff says that Southern does not meet this require-

ment, first, because Southern is not passive with respect to

the secondary transmission, but instead actively manipulates

that transmission by adding its own material to the “vertical

blanking interval” (VBI).’ Second, plaintiff says, Southern

— Statement of Facts” VI for technical explanation of

A-27

fails to meet the rsquirement because it “sells” WTBS, not

just a communications channel. Plaintiffs argument is that

Southern’s financial success depends upon the marketa- ,

bility of the content of Turner’s transmission. Southern’s

income depends not only on the number of cable systems

that desire the WTBS signal, but also on the number of

subscribers each cable system attracts because Southern

contracts with the cable systems to provide the WTBS sig-

nal for 10¢ per subscription per month. “Hubbard State-

ment of Facts” VII at 30 and sources cited therein. Thus,

plaintiff says, Southern is vitally interested in the content

of Turner’s signal because the signal is what Southern is sell-

ing, not just a communications channel. Southern’s ac-

tivities, therefore, do not consist solely of providing wires,

cables and other communication channels for the use of

others.

The court finds that Southern’s activities with respect to

the secondary transmission consist solely of providing wires,

cables or other communications channels for the use of

others. The court agrees that this section does not prohibit

normal business activities such as marketing and promo-

tional efforts. Southern does not “sell” WTBS and violate

the exemption merely because demand for its services from

cable companies is dependent upon demand for the WTBS

signal from cable subscribers. While Southern recognizes

this relationship in its fee arrangements and is “vitally in-

terested” in the quality of WTBS’s signal, those interests

do not rise to the level of activities inconsistent with the

passive carrier role.

[11] The court also agrees with defendants that

Southern’s use of the VBI is not re'evant to a consideration

of Southern’s activities with respect to the retransmission

A-28.

of WTBS’s signal. Hubbard has no copyright interest in

the material inserted in the empty space of Turner’s video

signai. The VBI is a means of communication totally

distinct from the TV signal itself. “Defendant’s Joint Me-

mo” at 46, n. 19 and authority therein. The case of WGN

Continental Broadcasting Co. v. United Video, Inc., 693

F.2d 622 (7th Cir. 1982) is easily distinguishable because

in that case the material inserted by the broadcaster, WGN,

in the VBI and wrongfully deleted by the carrier, United

Video, was sufficiently related to the news programs to

comprise a single copyrighted audiovisual work. United

Video lost the passive carrier exemption because it did not

retransmit WGN’s signal intact but instead deleted the

broadcaster’s information in the VBI and substituted its

own. /d. at 624 and 625. That situation is very different

from Southern’s insertion of material in an otherwise

blank spot on the signal. Such use of the VBI does not dis-

qualify Southern from exemption.

The court has concluded that Southern meets each of

the requirements of § 111(a)(3)’s carrier exemption. Con-

sequently, Southern’s secondary transmissions in this case

cannot form the basis for liability for copyright infringe-

ment.

D. Section 111(c) The Compulsory License

[12] Section 111(c) embodies the compulsory licens-

ing scheme central to enactment of Congress’ compromise

in the Copyright Act of 1976. See discussion of purposes

of § 111 in part IITA, supra. Although plaintiff initially

seemed to argue that Turner and Southern together had

created a cable network or system ineligible for the com-

A-29

pulsory license of § 111(c)(1), mostly because of the com-

mercial substitution practice, see “Plaintiff's Memo” at 22-

32, Hubbard apparently now concedes that § 111(c) is

largely relevant as an aid to the court in interpreting §

111(a). See Statements at Oral Argument and “Plaintiff's

Letter Brief.”

Plaintiff's main argument is that $ 111(c) and, in par-

ticular the prohibition on commercial substitution by cable

companies found in § 111(c)(3), evidences a congressional

intent to protect the local broadcaster. Plaintiff also argues

that commercial substitution prevents application of the

§ 111(c) compulsory license to Southern’s cable system

customers. Section 111(c)(1) applies to “secondary trans-

mission to the public by a cable system of a primary trans-

mission made by a broadcast station.” The legislative his-

tory of § 111(c) states:

The compulsory license applies, therefore, to the carri-

age of the over-the-air broadcast signals and is in-

applicable to the secondary transmission of any non-

broadcast primary transmission such as a program

originated by a cable system or a cable network. The

later would be subject to full copyright liability under

other sections of the legislation.

House Report at 93, U.S.Code Cong. & Admin.News

1976, p. 5707. Since Southern’s cable customers are not

carrying the over-the-air signal broadcast to the Atlanta

market but instead carry a nonbroadcast signal with sub-

stituted national commercials sent by direct interconnec-

tion, plaintiff claims that Southern’s customers do not

qualify for the compulsory license. If a cable system does

not have a compulsory license, plaintiff maintains, all par-

A-30

ties in the transmission chain are liable for contributory in-

fringement if they possess knowledge or control of, or ben-

efit from, the infringement. See “Plaintiff's Letter Brief”

at 1,2 and 4.

Defendants claim that Turner and Southern operate

completely within the parameters of the compulsory licens-

ing system established in § 111. Defendants argue that

Hubbard improperly seeks to alter the congressional and

regulatory balancing of complex competing interests em-

bodied in § 111 by this action. See “Defendants Joint

Memo” at 52-59; “Defendants’ Joint Reply Memo” at

4-6, and at 17-21. The compulsory licensing system is

not, as plaintiff suggests, a narrow exception to normal

rules of copyright liability. Instead, it constitutes a con-

gressionally mandated grant of a broad copyright license

to the cable industry to retransmit copyrighted works em-

bodied in the programming of broadcast stations. A find-

ing that Southern is entitled to the § 111(a) exemption,

defendants say. facilitates the workings of the § 111(c)

compulsory licensing scheme, thus promoting the policies

and purposes Congress hoped to achieve in § 111.

The court agrees that an understanding of § 111(c) is

important to a proper interpretation of § 111(a), While

the court has examined the availability of the § 111(a) ex-

emption to Southern in part ITIC, supra by analyzing the

five specific requirements of that section, it is true that the

applicability of § 111(a) should not be determined without

considering the effect of an exemption on the compulsory

licensing scheme of § 111(c) and on attainment of the

dual goals of § 111 as a whole. The Second Circuit in

Eastern Microwave, after concluding that EMI met the

specitic requirements of § 111(a), also considered the im-

A-31

pact imposition of liability would have on the compulsory

licensing scheme. The court explained:

Interpretation of the Act must occur in the real

world of telecommunications, not in a vacuum, The

center-piece of the compromise reflected in the Act is

the compulsory licensing scheme. That scheme is pre-

dicated on and presupposes a continuing ability of

CATV systems to receive signals for distribution to

their subscribers ....

Congress drew a careful balance between the rights

of copyright owners and those of CATV systems,

providing for payments to the former and a compul-

sory licensing program to insure that the latter could

continue bringing a diversity of broadcasted signals

to their subscribers. The public interest thus lies in a

continuing supply of varied programming to viewers.

Because CATV systems served by intermediate car-

riers cannot provide their full current programming

to their subscribers without the services of those car-

riers, imposition of individual copvright owner ne-

gotiations on intermediate carriers would strangle

CATV systems by choking off their life line to their

supply of programs, ... and. most importantly, would

frustrate the congressional intent reflected in the

Act by denying CATV systems the opportunity to

participate in the compulsory licensing.

Eastern M'crowave, 691 F.2d at 132-33 (footnotes omit-

ted). This court concurs in that analysis.

The practice of commercial substitution by WTBS, as

opposed to substitution by the cable company itself, does

A-32

not violate § 111(c)(3) and result in loss of the compul-

sory license for Southern’s cable customers. That practice

does not change the nature of the secondary transmissions

by the cable systems “of a primary transmission made by

a broadcast station.” The transmission, whether by UHF

or direct interconnection, still meets the definition of pri-

mary transmission in § 111(f), and is still made by a

broadcast station. The House Report that distinguishes

between over-the-air broadcast signals and nonbroadcast

cable-originated transmission predated the advent of th’s

technology and does not compel the conclusion that only

“over the air” signals and their retransmission qual fy for

the compulsory licensing scheme of § 111(c)(1). Much of

plaintiff's argument here is really a variation of its argu-

ment that § 111(b) applies to these transmissions, dis-

cussed ir § IIIB, supra, and the court rejects that argu-

ment. Southern’s cable customers qualify for the § 111(c)

(1) compulsory licensing scheme.

The court is persuaded that application of the § 111(a)

carrier exemption to Southern is compatible with applica-

tion of the § 111(c) compulsory license to Southern’s cus-

tomers and, in fact, furthers the dual goals embodied in

§ 111.

IV. Conclusion

[13] The court has concluded that Southern is en-

titled to the carrier exemption of § 111(a)(3) and its cable

customers fit within the compulsory licensing scheme of §

111(c). Thus, Southern as a matter of law is not liable for

works at issue. Accordingly, Turner as a matter of law can-

not be liable as a contributory infringer. In addition, there

A-33

has obviously as a matter of law been no conspiracy to in-

fringe Hubbard’s copyrights.

On a motion for summary judgment, the court must

view all the evidence in the light most favorable to the non-

moving party. Jackson v. Star Sprinkler Corp. of Fla., 575

F.2d 1223, 1226 (8th Cir. 1978). Summary judgment may

only be granted when the pleadings, depositions, interroga-

tory answers, admissions, and affidavits show there is no

genuine issue as to any material fact and that the moving

party is entitled to judgment as a matter of law. Scherr

Construction Co. v. Greater Huron Development Corp.,

700 F.2d 463. 465 (8th Cir. 1983). Only if “the moving

party has established [the] right to a judgment with such

clarity as to leave no room for controversy and the non-

moving party is not entitled to recover under any dis-

cernible circumstances” is summary judgment appropriate.

Butler v. MFA Life Ins. Co., 591 F.2d 448, 451 (&th Cir.

1979). :

The court finds that there are no genuine issues of ma-

terial fact in dispute and that the entire record, viewed in

the light most favorable to plaintiff, establishes that plain-

tiff is not entitled to recover as a matter of law under any

discernible circumstances. Accordingly. defendants’ mo-

tion for summary judgment will be granted and plaintiff's

motion for summary judgment will be denied.

Upon the foregoing.

IT IS ORDERED That defendant Turner Broadcasting

System, Inc.’s and Southern Satellite System, Inc.’s joint

motion for summary judgment be and hereby is granted.

IT IS FURTHER ORDERED That plaintiff Hubbard

Broadcasting. Inc.’s motion for summary judgment be and

hereby is denied.

A-34

IT IS FURTHER ORDERED That plaintiff's com-

plaint be and hereby is dismissed with prejudice.

IT IS FINALLY ORDERED That the Clerk enter

judgment as follows:

IT IS ORDERED, ADJUDGED AND DECREED

That defendants’ motion for summary judgment is granted

and plaintiff's complaint is dismissed with prejudice.

HUBBARD BROADCASTING, INC., a Minnesota cor-

poration, Appellant,

Vv.

SOUTHERN SATELLITE SYSTEMS, INC., a Georgia

corporation, Turner Broadcasting System, Inc., a Geor-

gia corporation, Appellees.

No, 84-5173.

United States Court of Appeals,

Eighth Circuit.

Submitted Feb. 11, 1985.

Decided Nov. 13, 1985.

” a” ”

Sidney Barrows, Minneapolis, Minn., for appellant.

Duane W. Krohnke, Minneapolis, Minn., for appellees.

Before LAY, Chief Judge, and HEANEY and FAGG,

Circuit Judges.

FAGG, Circuit Judge.

Hubbard Broadcasting, Inc. (Hubbard) appeals the dis-

missal of its copyright infringement action. That action,

A-35

brought against Southern Satellite Systems, Inc. (Southern

or Southern Satellite) and Turner Broadcasting System,

Inc. (Turner or Turner Broadcasting), involves the inter-

pretation and application of various provisions of section

111 of the Copyright Act of 1976, 17 U.S.C. § 111. The

district court, after examining the relevant provisions of

section 111, concluded that neither Southern Satellite nor

Turner was guilty of copyright infringement. Hubbard

Broadcasting, Inc. v. Southern Satellite Systems, Inc., 593

F.Supp. 808, 823 (D.Minn. 1984). We agree and affirm the

district court’s dismissal of Hubbard’s action.

Legislative and Factual Background

Section 111 of the Copyright Act of 1976 provides for

a compulsory copyright licensing program applicable to

cable systems that retransmit television signals containing

copyrighted programming material. See 17 U.S.C. § 111

(c)-(d). Prior to the enactment of this licensing program,

cable systems, unlike television broadcast stations, paid no

vision stations, transmitted copyrighted material to the gen-

eral public. This situation was in large part the result of

two Supreme Court decisions in which the Court con-

cluded that the retransmission of television signals by cable

systems did not constitute a “performance” under the

Broadcasting System, Inc., 415 U.S. 394, 94 S.Ct. 1129,

39 L.Ed.2d 415 (1974): Fortnightly Corp. v. United Art-

ists Television, Inc., 392 U.S. 390, 88 S.Ct. 2084, 20 L.Ed.

2d 1176 (1968): see also Capital Cities Cable, Inc. v.

Crisp. —— US. , 104 S.Ct. 2694. 2705, 81 L.Ed.

2d 580 (1984).

A-36

In revising the Copyright Act, however, Congress de-

termined that cable systems should, in some instances, be

required to pay copyright royalties to the creators of copy-

righted programs. See H.R.Rep. No. 1476, 94th Cong., 2d

Sess. 89, reprinted in 1976 U.S.Code Cong. & Ad.News

5659, 5704. At the same time, Congress “recognized that

‘it would be impractical and unduly burdensome to require

every cable system to negotiate [appropriate royalty pay-

ments] with every copyright owner’ in order to secure con-

sent for such retransmissions.” Capital Cities Cable, Inc.,

104 S.Ct. at 2706 (quoting H.R.Rep. No. 1476, 94th

Cong., 2d Sess. 89, reprivted in 1976 U.S.Code Cong. &

Ad.News at 5704): see also National Cable Television As-

sociation, Inc. v. Copyright Royalty Tribunal, 724 F.2d

176, 179 (D.C.Cir. 1983) (“Individual marketplace ne-

gitiations * * * would entail inordinately high transaction

costs.”).

As a result, rather than require cable systems to con-

tract with each program creator individually, Congress es-

tablished a compulsory licensing program for qualifying

cable systems. See 17 U.S.C. § 111(c)-(d). Under this pro-

gram, cable television systems pay a semiannual fee into

the Register of Copyrights. Jd. § 111(d)(2). In return,

cable systems receive a license entitling them to retransmit

to their subscribers certain television signals containing

copyrighted programming. See id. § 111(c)-(d). The fees

deposited by the cable systems are subsequently distributed

to eligible copyright owners by the Copyright Royalty Tri-

bunal. See id. §§ 111(d) (5), 801(b)(3).

While determining that cable systems should be required

to pay licensing fees for the retransmission of copyrighted

programming, Congre:. also concluded that the compul-

A-37

sory licensing program would not be applicable in all in-

stances. Specifically, Congress rejected application of the

compulsory license to a cable system’s rebroadcast of local

television signals because Congress found “no evidence

that the retransmissions of ‘local’ broadcast signals by a

cable operator threaten[ed] the existing market for copy-

right program owners.” H.R.Rep. No. 1476, 94th Cong.,

2d Sess. 90, reprinted in 1976 U.S.Code Cong. & Ad.

News at 5704. Congress further concluded that “the re-

transmission of network programming, including network

programming which is broadcast in ‘distant’ markets, does

not injure the copyright owner [since] [t]he copyright

owner contracts with the network on the basis of his pro-

gramming reaching all markets served by the network and

is compensated accordingly.” Jd.

With ‘espect to the retransmission of distant non-network

programming, however, Congress determined that the

retransmission of distant non-network programming by

cable systems causes damage to the copyright owner by

distributing the program in an area beyond which it has

‘ been licensed. Such retransmission adversely affects the

ability of the copyright owner to exploit the work in

the distant market. It is also of direct benefit to the

cable system by enhancing its ability to attract sub-

scribers and increase revenues.

Id. at 90, reprinted in 1976 U.S.Code Cong. & Ad.News

at 5704-05. On the basis of these various determinations,

Congress “concluded that the copyright liability of cable

television systems under the compulsory license should be

limited to the retransmission of distant non-network pro-

gramming.” Id. at 92. reprinted in 1976 U.S.Code Cong.

A-38

& Ad.News at 5705; see 17 U.S.C. § 111(d)(2)(A) and

(d)(4); see also Christian Broadasting Network, Inc. v.

Cir. 1983).

By specifically limiting the copyright liability of cable

systems to the retransmission of distant non-network pro-

gramming, Congress clearly anticipated that television sig-

nals carrying this type of programming would be readily

available to cable systems and their subscribers. See Eastern

Microwave, Inc, v. Doubleday Sports, Inc., 691 F.2d 125,

132 (2d Cir. 1982), cert. denied, 459 U.S. 1226, 103 S.Ct.

1232, 75 L.Ed.2d 467 (1983). One part’cularly important

provision of the Copyright Act intended by Congress to

help accomplish this goal is the carrier exemption of sec-

tion 111(a)(3). This exemption protects from copyright

liability communications carriers (here Southern) that

retransmit secondarily the “primary transmission” of a li-

censed television broadcast station (here Turner or WTBS)

to cable systems. See 17 U.S.C. § 111(a), (f). This exemp-

tion is applicable, however, only if:

the secondary transmission [of the primary trans-

mission] is made by a [ ] carrier who has no direct

or indirect control over the content or selection of the

primary transmission or over the particular recipients

of the secondary transmission, and whose activities

with respect to the secondary transmission consist

solely of providing wires, cables, or other communica-

tions channels for the use of others * * *

Id. § 111(a)(3). In other words, communications carriers

that are sufficiently passive with respect to the actual re-

transmission of television signals incur no copyright liabil-

st Aa clil

4 hind eadith RS a

A-39

ity when acting as a communications conduit between the

distant broadcast station and interested cable systems.

At the core of the relatively complex statutory scheme

of section 111 is an attempt by Congress “to further the

important public purposes framed in the Copyright

Clause, U.S. Const. Art. I, § 8, of rewarding the creators

of copyrighted works and of ‘promoting broad public

availability of literature, music, and the other arts.’ ” Capi-

tal Cities Cable, Inc., 104 S.Ct. at 2706 (citations omit-

ted). By enacting compulsory licensing provisions, Congress

“not only [sought to] protect[ ] the commercial value of

copyrighted works but also enhance[d] the ability of cable

systems to retransmit such programs carried on distant

broadcast signals, thereby allowing the public to benefit

by the wider dissemination of works carried on television

broadcast signals.” Id. (footnote omitted); see also Eastern

Microwave, Inc., 691 F.2d at 132 (emphasizing Con-

gress’ intent to ensure a diversity of broadcast signals). With

this general legislative framework in mind, we turn to the

actions that gave rise to Hubbard Broadcasting’s complaint.

Southern Satellite is licensed by the Federal Communi-

cations Commission (FCC) to provide services as a com-

munications common carrier. At issue here is Southern

Satellite’s retransmission of WTBS, an Atlanta based tele-

vision station owned and operated by Turner Broadcast-

ing. WTBS is licensed by the FCC as a television broad-

cast station. Like other commercial television stations,

Turner transmits the WTBS video signal to the viewing

public free of charge and generates WTBS’ income princi-

pally from advertising revenues. See Capita! Cities Cable,

Inc., 104 S.Ct. at 2701.

In December of 1976. after receiving FCC approval,

A-40

Southern Satellite began to retransmit the WTBS signal

to cable systems around the nation. At that time, Southern

Satellite received the WTBS signal over the air by means

of a UHF receiving antenna. After reception by Southern,

the WTBS signal was retransmitted in its entirety and with-

out modification to a satellite transponder leased by

Southern from RCA. From there the WTBS signal was

relayed by the satellite back to receiving antennae on

earth. These antennae are normally owned by cable sys-

tems. After reception by a cable system, the WTBS signal

was relayed to the system’s headend and from this point

was distributed by wire to individual cable subscribers.

Between 1976 and Apri! of 1979, the WTBS video sig-

nal retransmitted by Southern Satellite was broadcast by

WTBS over the air (UHF signal). The UHF signal was the

only video signal generated by WTBS at that time. Dur-

ing that period, Southern received various complaints con-

cerning the overall quality of the WTBS picture. In re-

sponse, Southern Satellite began to explore the possibility

of receiving the WTBS signal by means of a direct micro-

wave connection between WTBS and Southern Satellite.

If such a connection could be established, both the quality

and the reliability of the WTBS picture would be improved.

Turner, for separate and distinct business reasons, was

also interested in developing a direct microwave connec-

tion with Southern Satellite. The establishment of such a

connection would enable Turner to generate two video sig-

nals; one signal that would be transmitted over the air to

the Atlanta area and a second signal that would be trans-

mitted directly to Southern Satellite by microwave connec-

tion. Both of the WTBS signals would be generated sim-

ultaneously and would be identical with respect to all pro-

A-41

gramming material and with respect to most nonprogram-

ming material (approximately 60 percent). However,

rather than transmit local Atlanta area advertising on both

signals, local advertising made available to the Atlanta

audience on the UHF signal would be substituted with

national advertising on the microwave signa'.-This technical

process would allow Turner to take full economic ad-

vantage of WTBS’ nationwide exposure while at the same

time and at lower rates still provide local advertising to

the Atlanta area.

Turner had significant economic iacentive to take ad-

vantage of the nationwide exposure resulting from South-

ern’s retransmission of WTBS. Although Southern’s re-

transmission of WTBS made that signal available to cable

systems and their subscribers nationwide, Turner itself

received no licensing fees or other payments from either

Southern Satellite or the cable systems that received

WTBS. In fact. even if Turner had wished to do so, it

could not legally have prevented or controlled the retrans-

mission of WTBS by Southern Satellite or any other com-

munications carrier. Thus, because Turner could not p.'e-

vent nationwide distribution of its signal, it understandably

sought to take economic advantage of that distrubition.

In October of 1978, Southern Satellite applied to the

FCC for permission to develop the microwave facilities

necessary to create a direct microwave connection between

itself and WTBS, Turner, of course, consented to the es-

tablishment of this direct connection. Southern Satellite re-

ceived permission from the FCC in March of 1979. By

mid-April, in addition to receiving the WTBS UHF signal.

Southern Satellite began receiving a second WTBS signal

by direct microwave connection. In July, Southern Satellite

A-42

notified the FCC that it was receiving the WTBS signal by

direct microwave connection.

Since April of 1979, WTBS has transmitted two signals,

both of which are received by Southern. One signal is

transmitted over the air. The other is transmitted by direct

microwave connection.

The UHF signal created by WTBS is first transmitted

to a UHF transmitter owned by Turner. From there, the

signal is transmitted over the air to the local Atlanta

market. The WTBS UHF signal is received by Scuthern

over the air on its own UHF antenna. The WTBS micro-

wave signal is transmitted to a microwave transmission

antenna that is located on a WTBS tower. The microwave

transmitter and the transmission antenna are owned and

maintained by Southern Satellite. After transmission from

this antenna, the microwave signal is received by Southern

Satellite’s microwave receiver antenna.

Upon receipt by Southern Satellite, both WTBS signals

are sent through a device known as a lenco video presence

detector (presence detector). The presence detector is

owned by Southern-and is programmed to select autoznat-

ically and without comparison one of the two incoming

WTBS signals. In this case, the presence detector auto-

matically and at all times selects the WTBS micro-

wave signal unless that signal is interrupted or is sub-

stantially degraded in quality. If this should occur, the

presence detector, again automatically, shifts to the UHF

signal. This shift assures that Southern’s retransmis-

sion of WTBS to subscribing cable systems will not be in-

terrupted. Regardless of which WTBS signal emerges

from the presence detector, it is then retransmitted by

Southern Satellite in its entirety and without editing or

modification.

< we ne ee eee

A-43

In addition to shifting automatically if the microwave

signal is impaired, a switch does exist that can be used to

shift the presence detector from one signal to the other if

necessary. This switch is owned and operated by Turner

and is located in the WTBS studio. Southern has no inter-

est in and no control over the use of this switch.

Today, Southern Satellite’s retransmission of WTBS is

received by several thousand cable television systems

throughout the country. As a result, the copyrighted pro-

gramming embodied in the WTBS signal is available to

approximately 30,000,000 cable subscribers. Cable sys-

tems receiving the WTBS signal pay Southern Satellite a

fee for its services. These cable systems are also subject to

the compulsory licensing program and pay a percentage of

their gross receipts into the Register of Copyrights for the

right to show the copyrighted works contained in the

WTBS signal. Southern Satellite pays no copyright fees to

Turner, to the Copyright Royalty Tribunal, or to the crea-

tors of the copyrighted programming.

Hubbard Broadcasting operates local television stations

in three markets reached by the WTBS signal (Minne-

apolis-St. Paul, Minnesota: Albuquerque, New Mexico;

and St. Petersburg. Florida), Hubbard, like WTBS sub-

sists almost entirely from money generated by the sale of

advertising. Also like WTBS. Hubbard pays licensing fees

to copyright owners for the right to show much of the pro-

eramming made available by its stations. Several prosrams

licensed by Hubbard were also licensed by Turner, and as

a consequence of Southern’s retransmission of WTBS,

on several occasions, programs shown bv Hubbard also

appeared as part of the WTBS signal available to cable

subscribers in Hubbard’s markets. It is this overlapping

A-44

programming which initially gave rise to the present ac-

tion.

In this action, Hubbard raises several claims. Each

claim generally involves the interpretation and application

of section 111 of the Copyright Act. The district court re-

jected Hubbard’s contentions and on a largely stipulated

record granted Southern’s/Turner’s motion for summary

judgement. Hubbard, 593 F.Supp. at 823. After our own

plenary consideration of the legal issues here involved,

see Eastern Microwave, Inc., 691 F.2d at 127, we con-

clude the district court correctly rejected Hubbard's claims,

and thus we affirm the dismissal of Hubbard's complaint.

On appea!. Hubbard, with the exception of one issue.

raises the same contentions rejected by the district court.

First, Hubbard argues that the provisions of section !11

(b), of the Copyright Act, 17 U.S.C. § 111(b), places

Southern’s activities outside the scope of the com-

pulsory licensing program in general and specifically

outside the scope of the carrier exemption. Second, Hub-

bard asserts that regardless of whether section 111(b)

is applicable to this action, Southern’s actions are

inconsistent with the requirements of and thus Southern

cannot qualify for the carrier exemption. Third. Hubbard

contends that the purpose and policy underlyine the com-

pulsory licensing provisions of section 111 do not support a

compulsory license for cable stations carrying the WTBS

signal and in fact implicitly prohibit Turner’s commercial

substitution process. Finally, Hubbard argues that by im-

plication the district court found Turner directly liable for

{1] In addressing the issues presented. we must con-

stantly bear in mind the underlying goals of the Copy-

right Act. see ante at 397. This is particularly true here be-

A-45

cause the issues presented arise in large part from the use

of technology perfected after the enactment of the Copy-

right Act. In such a situation, we “look to the ‘common

sense’ of the statute ..., to its purpose, [and] to the practi-

cal consequences of the suggested interpretations ... for

what light each inquiry might shed.’ ” Eastern Microwave,

Inc., 691 F.2d at 127 (quoting New York State Commis-

sion on Cable Television v. Federal Communications Com-

mission, 571 F.2d 95, 98 (2d Cir.), cert. denied, 439 US.

820, 99 S.Ct. 85, 58 L.Ed.2d 112 (1978). As the Su-

preme Court recently stated: “When technological change

has rendered its literal terms ambiguous, the Copyright

Act must be construed in light of [its] basic purpose

[, which is to stimulate artistic creativity for the general

public good].” Sony Corp. of America v, Universal City

Studios, 464 U.S. 417, 104 S.Ct. 774, 783-84, 78 L.Ed.

2d 574 (1984) (quoting Twentieth Century Music Corp.

v. Aiken, 422 U.S. 151, 156, 95 S.Ct. 2040, 2043-44, 45

L.Ed.2d 84 (1975) (footnote omitted) ). With this back-

ground in mind, we move to the specific contentions raised

by Hubbard.

Applicability of Section 111(b)

As an initial argument, Hubbard contends that the car-

rier exemption of section 111(a)(3) and the compulsory

licensing provisions of section 111(c)(1) are inapplicable

in this case due to the operation of section 111(b). This

section provides that

{njotwithstanding the provisions of subsections (a)

and (c), the secondary transmission to the public of a

primary transmission embodying a performance or

A-46

display of a work is actionable as an act of infringe-

ment * * * if the primary transmission is not made

for reception by the public at large but is controlled

and limited to reception by particular members of the

public * * *,

17 U.S.C. § 111(b). At issue here is whether the WTBS

microwave signal “is not made for reception by the public

at large but is controlled and limited to reception by par-

ticular members of the public * * *” Jd.

Hubbard, in urging the applicability of this section,

focuses largely on the method by which the WTBS micro-

wave signal is transmitted. Hubbard argues that because

the microwave signal is not transmitted over the air like

the UHF signal but rather is transmitted directly to South-

ern, the microwave transmission by its very nature is not

“made for reception by the public at large.” Id. In so do-

ing, we believe Hubbard misperceives the focus and pur-

pose of section 111(b).

[2] In our view, section 111(b) is not intended to reg-

ulate the method of transmission but rather is intended to

apply in those situations in which the primary transmitter

itself seeks to limit the reception of its signal to “particular

members of the public.” /d. Examples of situations in which

section 111(b) would be applicable include among others,

closed circuit television, pay television, and pay cable. See

H.R.Rep. No. 1476, 94th Cong., 2d Sess. 92. reprinted in

1976 U.S.Code Cong. & Ad.News at 5707. Central to

each of these examples is the primary transmitter’s specific

intent and actual attempt to narrow the reception of its

signal to an identifiable and distinct segment of the gen-

eral public who generally will either subscribe to or pur-

A-47

chase the service provided. Thus, if a secondary transmit-

ter picks up this type of “controlled” signal, section 111(b)

protects the primary transmitter and provides it with a

remedy against the secondary transmitter even though the

secondary transmitter might otherwise fit within the car-

rier exemption of section 111(a)(3) or the compulsory li-

censing provision of section 111(c)(1).

{3} Here, Turner's microwave signal, although not

available over the air, is in no way controlled or limited by

Turner to specific, identifiable recipients. In fact, Turner

has no desire to limit the eventual reception of its signal

and intends the signal to be available to the general pub-

lic as a whole. This intent is largely evidenced by the fact

that Turner’s simultaneously generated UHF signal, which

is available over the air and which Hubbard concedes is

neither “controlled” nor “limited,” contains without ex-

ception the identical copyrighted programming material

as the WTBS microwave signal. Further, unlike other sub-

scription services, Turner receives no payments either from

Southern or from the individual cable television systems.

As has always been true, Turner’s microwave signal like

its UHF signal is transmitted free of charge with Turner

deriving its income primarily from the sale of advertising.

We reject the applicability of section 111(b) in the present

action.

[4] Ina related technologically based argument, Hub-

bard contends that the WTBS microwave signal (retrans-

mitted by Southern and the cable svstems) is not protected

by the compulsory licensing provisions of section 111 since

in its view these provisions are applicable only in situa-

tions in which the secondarily transmitted television signal

is initially broadcast over the air. In advancing this argu-

A-48

ment, Hubbard forgets that “[iJnterpretation of the

[Copyright] Act must occur in the real world of telecom-

munications, not in a vacuum.” Eastern Microwave, Inc.,

691 F.2d at 132. Hubard’s view, if accepted, would largely

freeze for section 111 purposes both technological devel-

opment and implementation. And, by consequence, it

would force both primary and secondary transmitters

alike to forego available, economically feasible technology.

We reject this stand still status quo oriented view of the

compulsory licensing provisions.

Sections 111(c) and 111(d) of the Copyright Act pro-

vide for the genera! applicability of the compulsory licens-

ing systems, 17 U.S.C. § 111(c)(1), subject to certain ex-

ceptions, id. § 111(c)(2)-(4), and compliance requirements,

id. § 111(d)(1)-(2). At issue in th’s instance is the general

applicability of the compulsory licensing system. The spe-

cific exceptions and compliance requirements are not in-

volved.

The general compulsory licensing provision provides that

secondary transmissions to the public by a cable system

of a primary transmission made by a broadcast station

licensed by the Federal Communications Commission

* * * shall be subject to compulsory licensing * * *.

Id. § 111(c)(1). Here, it is undisputed that WTBS is a

“broadcast station licensed by the [FCC].” Jd. Further,

if the microwave signal is a “primary transmission,” there

is nO question that its retransmission by cable systems is a

“secondary transmission to the public.” /d.; See also id. §

111(f) (defining “secondary transmission” in terms of the

“further transmitting of a primary transmission”); id. §

101 (defining “publicly” in terms of transmitting copy-

A-49

righted works “to the public”). Rather, the issue in this case

is whether the WTBS microwave signal constitutes a “pri-

mary transmission.”

The Copyright Act defines a primary transmission as a

“transmission made to the public * * * [that is] further

transmitted by the secondary transmission service * * *”

Id. § 111(f). The resulting question then becomes whether

the WTBS microwave signal is a “transmission made to the

public.” While the term “transmission” is not itself defined

in the Copyright Act, the term “transmit” is defined. /d.

§ 101. And, with respect to this definition, Congress has

expressly stated that

(t]he definition of “transmit”—to communicate a per-

formance or display “by any device or process whereby

images or sound[{s] are received beyond the place from

which they are sent”—is broad enough to include all

conceivable forms and combinations of wired or wire-

less communications media, including but by no means

limited to radio and television broadcasting as we know

them. Each and every method by which the images or

sounds comprising a performance or display are picked

up and conveyed is a “transmission,” and if the trans-

mission reaches the public in any form, [that transmis-

sion constitutes a public performance or display] within

the scope of clauses (4) or (5) of section 106.

H.R.Rep. No. 1476, 94th Cong., 2d Sess. 64, reprinted in

1976 U.S.Code Cong. & Ad. News at 5678 (quoting 17

U.S.C. § 101) (emphasis added). Further, Congress spe-

cifically anticipated the transmission of other than over the

air signals when it defined the term “cable system” (the

A-50

very entity subject to the compulsory licensing provisions)

as a “facility * * * that * * * receives signals transmitted

or programs broadcast by * * * television broadcast stations

* * * and makes secondary transmissions of such signals

or programs * * * to subscribing members of the public

***” 17U.S.C. § 111(f) (emphasis added).

[5] These and other congressional statements, see, ¢.g.,

H.R.Rep. No. 1476, 94th Cong., 2d Sess. 62-65, reprinted

in 1976 U.S.Code Cong. & Ad.News at 5676-78, convince

us that the WTBS microwave signal, like its UHF sig-

nal, constitutes a “transmission made to the public,” 17

U.S.C. § 111(f), as intended by Congress, Thus, stated

differently, the WTBS microwave signal constitutes a “pri-

mary transmission.” Consequently, the compulsory licens'ng

system is generally applicable to the WTBS microwave sig-

nal and the fact that this signal is not broadcasit over the

air is of no consequence.

Availability of the Section 1 11(a)(3) Carrier Exemption

We next address the issue of whether Southerm qualifies

for the carrier exemption of section 111, 17 U.S.C. § 111

(a)(3). To qualify for the exemption, five element's must be

established:

1. There must be a “secondary transmission of a

primary transmission”;

2. made by a “carrier”:

3. that has no “direct or indirect contro] over the

content or selection of the primary transmission” ;

4. that has no “direct or indirect control over the

* * * particular recipients of the secondary ‘transmis-

sion”; and

5. “whose activities with respect to the secondary

A-51

transmission consist solely of providing wires, cables, or

other communications channels for the use of others.”

Id. If any of these five elements is not present, Southern

is not exempt and will be liable for the unauthorized pub-

lic performance of copyrighted material. The district court

properly identified these five elements, Hubbard, 593 F.

Supp. at 816. Upon analysis the district court also con-

cluded that Southern met each of the five elements of the

carrier exemption and thus was protected by the carrier

exemption, id. at 816-21.

[6] Given our prior discussion concerning the nature

of the WTBS microwave signal, it is clear that Southern’s

retransmission of the WTBS microwave signal constitutes

the “secondary transmission of a primary transmission.” 17

U.S.C. § 111(a)(3). Thus, the first element of the carrier

exemption has been established. Further, with respect to

elements two. four, and five of the carrier exemption, we

conclude the district court properly addressed these ele-

ments and adopt the well reasoned district court opinion to

that extent. Hubbard, 593 F.Supp. at 817-18, 820-21; see

also Eastern Microwave, Inc., 691 F.2d at 129-32.

We turn then to the third e'ement of the carrier exemp-

tion which requires Southern to exert no “direct or indirect

control over the content or selection of the primary trans-

mission.” Id. We look first to the “content” component of

this third element.

Other than some inconseauentially minor programming

suggestions, it is essentially undisputed that Southern does

not directly control either the programming or nonprogram-

ming content of the WTBS signal. Rather. the focus of

Hubbard’s complaint is on the active cooperation between

A-52

Southern and Turner which Hubbard contends evidences

Southern’s indirect control over the “content” of the

WTBS signal. Specifically, Hubbard argues that the es-

tablishment of a microwave link and the consistent retrans-

mission of the WTBS microwave signal enables Turner to

substitute commercials and constitutes the indirect con-

trol of content by Southern. We disagree.

[7] The microwave link established between Southern

and WTBS certainly facilitates Turner’s commercial] sub-

stitution process. However, from the perspective of South-

ern, the motivating force behind the establishment of the

microwave link was its desire to provide its customers with

a better quality, more reliable WTBS signal. This legitimate

business interest on the part of Southern is entirely con-

sistent with the goa! of the Copyright Act of making broad-

ly available and allowing the public to benefit from the

copyrighted works carried on television signals. See Cap’‘tal

Cities Cables, Inc., 104 S.Ct. at 2706; see a'so Sony Corp.

of America, 104 S.Ct. at 783. The FCC itself approved the

establishment of the direct microwave connection between

Southern and WTBS.

Additionally, it is clear from the record that Southern

exercises no control over the selection and broadcast of

the particular programming or nonprogramming material

transmitted by WTBS. These decisions are made entirely

by Turner. And, to the extent that commercial substitution

does occur, Turner again is entirely responsible for decid-

ing what will be substituted and for making the actual

substitution. Finally, upon receipt of the WTBS signal,

Southern retransmits that signal in its entirety with no de-

letion or modification. We believe Southern exercises neith-

er direct or indirect control over the content of the WTBS

signal.

A-53

[8] We conclude further that Southern Satellite does

not impermissibly control the “selection” of the primary

transmission. See 17 U.S.C. § 111(a)(3). Initially, to the

extent Southern chooses to retransmit the WTBS signal

rather than the signal of another broadcast station, this case

is indistinguishable from the Second Circuit’s decision in

Eastern Microwave, Inc., 691 F.2d 125. In that case, the

court concluded that

Technical restrictions which forced EMI to make an

initial, one-time determination to retransmit the signals

of a particular station, whatever the content of those

signals, do not evidence the “control over the * * *

selection of the primary transmission” intended to be

precluded under Section 111(a)(3).

Id. at 130. We agree with and adopt the Second Circuit’s

reasoning on this narrow issue.

Hubbard contends, however, that Eastern Microwave,

Inc. is distinguishable from this case because Southern, in

addition to making the initia! choice to retransmit WTBS,

makes a further choice by then selecting for retransmission

the microwave signal rather than the UHF signal. It is

this second selection that Hubbard asserts removes South-

ern from the protection of the carrier exemption.

In developing its position, Hubbard necessarily focuses

on the operation of the presence detector. As previously

noted, once received by Southern, both the microwave sig-

nal and the UHF signal are sent through the presence de-

tector. The presence detector, however, makes no compari-

son of the two signals but rather automatically and at all

times selects the microwave signal. Only if the microwave

signal is interrupted or becomes undetectable does the pres-

A-54

ence detector, again automatically, select the UHF signal.

The technological ability to shift to the UHF signal if neces-

sary prevents disruption of Southern’s retransmission and

helps insure that the viewing public will at all times receive

WTBS programming.

Further, as Hubbard now concedes, “WTBS [rather than

Southern] owns and operates the switch that can interrupt

and stop the transmission of the microwave signal, causing

the * * * presence detector to choose the UHF signal.”

Hubbard, 593 F.Supp. at 819. Finally, with respect to the

WTBS signal emerging from the presence detector, as pre-

viously stated, it is clear that Southern then retransmits

without deletion or modification exactly what and all of

what it receives.

We conclude no impermissible selection occurs under

the facts of this case. Here, the decision to create a direct

microwave link and employ a presence detector has enabled

Southern to provide a better quality, more dependable te!e-

vision signal to the viewing public. Once set, Southern exer-

cises no control over the operation of the presence de-

tector. The presence detector is self-regulating.

At bottom, with respect to both the “content” and the

“selection” issues, Hubbard contends that to remain ex-

empt, Southern must purposely forego available and af-

fordable technology that, in addition to being economical-

ly beneficial, enables Southern to provide a better quality

product to its customers, While this technology may facili-

tate Turner’s commercial substitution process, this facilita-

tion, in and of itself, is insufficient to disqualify Southern

from the carrier exemption. We believe Southern Satellite

does not impermissibly control the content or selection of

the secondary transmission of the WTBS signal.

A-55

This conclusion, coupled with our adoption of the dis-

trict court’s analysis, places Southern within the scope of

the carrier exemption. Thus, section 111(a)(3) provides

Hubbard with no basis for establishing copyright liabil-

ity on the part of Southern Satellite.

Turner’s Commercial Substitution and the Compulsory

Licensing Program

As a third theory of liability, Hubbard asserts that the

commercial substitution process undertaken by Turner and

facilitated by Southern impermissibly alters the careful bal-

ance achieved by Congress through the compulsory licens-

ing system. Specifically, Hubbard focuses_on section 111

(c)(3) which provides that the compulsory license will not

be applicable if

the content of the particular program * * * or any com-

mercial advertising * * * transmitted by the primary

transmitter * * * is in any way willfully altered by the

cable system * * *

17 U.S.C. § 111(c)(3). Here, Hubbard argues that Turner,

. by substituting commercials at the primary transmission

stage, accomplishes indirectly what Congress has concluded

cable systems cannot do directly. As a result, Hubbard

contends that cable systems carrying WTBS cannot qual-

ify for the compulsory license of section 111(c)(1) with

respect to the WTBS transmission. We disagree.

In adopting section 111(c)(3), Congress concluded that

to allow cable television systems to alter the primary

transmission by substituting commercials would

significantly alter[ ] the basic nature of the cable re-

A-56

transmission service, and make[ ] its function similar to

that of a broadcaster. Further, the placement of substi-

tute advertising in a program by a cable system on a

“local” signal harms the advertiser and, in turn, the

directly related to the size of the audience that the ad-

vertiser’s message is calculated to reach. On a “distant”

signal, the placement of substitute advertising harms

the local broadcaster in the distant market because the

cable system is then competing for local broadcasting

dollars without having comparable programming costs.

H.R.Rep. No. 1476, 94th Cong., 2d Sess. at 93-94. re-

printed in 1976 U.S.Code Cong. & Ad.News at 5708. Con-

sequently, Congress “attempted broadly to proscribe the

ava'lability of the comvulsory license if a cable system sub-

stitutes commercial messages.” Jd. at 94, reprinted in

1976 U.S.Code Cong. & Ad.News at 5708.

[9] Congress, in forbidding commercial substitution

by cable systems. sought to ensure the competitive com-

patibility of the cable system and the local broadcaster.

Cable systems, when retransmitting local signals, would re-

transmit exactly what was received and in so doing would

neither undercut the local broadcaster’s ability to generate

local advertising revenues nor jeopardize the ability of

creators of programming to receive a fair return for their

product based upon the size of the audience that the ad-

vertiser’s message was calculated to reach. Jd. In other

words, the status quo relationship between local broad-

casters and copyright holders would be protected and facil-

itated. With respect to distant signal retransmission, Con-

gress sought to ensure that cable systems were not allowed,

A-57

while claiming protection of the compulsory license, to com-

pete for local advertising dollars without having to bear

comparable programming costs. Jd.

[10] As an initial matter, we emphasize that there has

been no assertion on the part of Hubbard that either

Southern or any cable system carrying the WTBS signal

has ever substituted or in fact has ever attempted to sub-

stitute commercials originally placed on the WTBS signal

by Turner. Rather, both Southern and the cable systems

retransmit intact any commercials they receive from Turner

on the WTBS signal. Thus, under the literal language of

section 111(c)(3), no infringement based upon commercial

substitution has occurred.

[il] Additionally, we conclude that none of the con-

cerns raised by Congress in adopting section 111(c)(3) are

implicated by Turner’s practices. WTBS, in placing only

national advertising on the microwave signal, seeks to and

in fact can economically address only the national adver-

tising market. Turner cannot effectively address the local

advertising markets served by Hubbard. Thus, Turner

does not compete with Hubbard for local advertising dol-

lars.

Further, to the extent Turner and Hubbard compete

for national advertising dollars, that competition will exist

regardless of Turner’s current practices since even absent

the microwave signai, Turner’s UHF signal will continue

to reach a national market and carry national advertis-

ing. And, unlike a cable system that substitutes commer-

cials without bearing programming costs. Turner has the

same types of programming costs as Hubbard.

Finally, we also conclude that Turner’s development of

two separate WTBS signals has no adverse impact on the

‘ A-58

interests of the copyright holders. These individuals or com-

Panies, when contracting with Turner, know that WTBS

signals will be available nationwide as well as locally and

are entirely free to take those steps necessary to assure

that they are compensated accordingly. At bottom, no

market or the commercial content of the signals; no adver-

tiser reaches a smaller market than anticipated; and no

local broadcaster is forced to compete with Turner on any

greater level than would exist absent Turner’s transmis-

sion of two television signals.

Turner’s Direct Liability

[12] As a final matter, we decline to consider Hub-

bard’s contention that the district court by implication

found Turner directly liable for copyright infringement.

The district court did not specifically address this issue, and

a careful review of the district court record reveals that

this theory of liability was not asserted in the district court.

Because no issue of Turner’s direct liability was presented

below, it is not now properly before this court, and we will

not consider it for the first time on appeal. Kriegesmann vy.

Barry-Wehmiller Co., 739 F.2d 357, 358 (8th Cir.), cert.

denied, US. , 105 S.Ct. 512, 83 L.Ed.2d 402

(1984),

Conclusion

We believe section 111 contains no provision under

which Southern Satellite or Turner is liable for copyright

infringement. First, section 111(b) is inapplicable to this

situation. Further, Southern Satellite falls within the car-

A-59

rier exemption of section 111(a)(3). Finally, we conclude

that the policies underlying the Copyright Act, including

compensating copyright holders fairly for the retransmis-

sion of their programs, are not adversely affected by Turn-

er’s commercial substitution process.

We affirm the district court’s dismissal of Hubbard’s ac-

tion.

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

No. 84-5173-MN *

Hubbard Broadcasting, Inc., etc.,

Appellant,

vs.

Southern Satellite Systems, Inc., etc., et al.,

Appellees.

Appeal from the United States District Court for the Dis-

trict of Minnesota

Appellant’s petition for rehearing has been considered

by the Court and is hereby denied.

December 17, 1985

17 US.C.A. § 101. Definitions

“Copyright owner”, with respect to any one of the ex-

clusive rights comprised in a copyright, refers to the owner

of that particular right.

* ad *

A-60

To “perform” a work means to recite, render, play,

dance, or act it, either directly or by means of any device

Or process or, in the case of a motion picture or other au-

diovisual work, to show its images in any sequence or to

make the sounds accompanying it audible.

* * *

To perform or display a work “publicly” means—

(1) to perform or display it at a place open to the

public or at any place where a substantial number of

persons outside of a normal circle of a family and its

social acquaintances is gathered; or

(2) to transmit or otherwise communicate a perform-

ance or display of the work to a place specified by clause

(1) or to the public, by means of any device or process,

whether the members of the public capable of receiving

the performance or display receive it in the same place or

in separate places and at the same time or at different times.

17 U.S.C.A. § 111. Limitations on exclusive rights. Sec-

ondary transmissions.

(a) Certain Secondary Transmissions Exempted. The

secondary transmission of a primary transmission embody-

ing a performance or display of a work is not an in-

fringement of copyright if

(1) the secondary transmission is not made by a

cable system, and consists entirely of the relaying, by

the management of a hotel, apartment house, or sim-

ilar establishment, of signals transmitted by a broad-

cast station licensed by the Federal Communications

Commission, within the local service area of such

A-61

station, to the private lodgings of guests or residents

of such establishment, and no direct charge is made to

see or hear ihe ~*condary transmission; or

(2) The secondary transmission is made solely

for the purpose and under the conditions specified

by clause (2) of section 110; or

(3) The secondary transmission is made by any

carrier who has no direct or indirect control over

the content or selection of the primary transmission

or over the particular recipients of the secondary

transmission, and whose activities with respect to

the secondary transmission consist solely of providing

wires, cables, or other communications channels for

the use of others: Provided, That the provisions of

this clause extend only to the activities of said car-

rier with respect to secondary transmissions and do

not exempt from liability the activities of others with

respect to their own primary or secondary transmis-

sions; or

(4) The secondary transmission is not made by

a cable system but is made by a governmental body,

or other nonprofit organization, without any purpose

of direct of indirect commercial advantage, and with-

out charge to the recipients of the secondary trans-

mission other than assessments necessary to defray

the actual and reasonable costs of maintaining and

operating the secondary transmission service.

(b) Secondary Transmission of Primary Transmission

to Controlled Group. Notwithstanding the provisions of

subsections (a) and (c). the secondary transmission to the

A-62

public of a primary transmission embodying a performance

or display of a work is actionable as an act of infringe-

ment under section 501, and is fully subject to the remedies

provided by sections 502 through 506 and 509: if the

primary transmission is not made for reception by the pub-

lic at large but is controlled and limited to reception by

particular members of the public. Provided, however. That

such secondary transmission is not actionable as an act of

infringement if

(1) the primary transmission is made by a broadcast

station licensed by the Federal Communications Commis-

sion; and

(2) the carriage of the signals comprising the secondary

transmission is required under the rules. regulations, or

authorizations of the Federal Communications Commis-

sion; and

(3) the signal of the primary transmitter is not altered

or changed in any way by the secondary transmitter. 3

(1) Subject io the provisions of clauses (2), (3), and

(4) of this subsection, secondary transmissions to the pub-

lic by a cable system of a primary transmission made by a

broadcast station licensed by the Federal Communica-

tions Commission or by an appropriate governmental au-

thority of Canada or Mexico and embodying a perform-

ance or display of a work shall be subject to compulsory

licensing upon compliance with the requirements of sub-

section (d) where the carriage of the signals comprising

the secondary transmission is permissible under the rules,

A-63

regulations, or authorizations of the Federal Communica-

tions Commission.

(2) Notwithstanding the provisions of clause (1) of

this subsection, the willful or repeated secondary trans-

mission to the public by a cable system of a primary

transmission made by a broadcast station licensed by the

Federal Communications Commission or by an appro-

priate governmental authority of Canada or Mexico and

embodying a performance or display of a work is action-

able as an act of infringement under section 501, and is

fully subject to the remedies provided by sections 502

through 506 and 509, in the following cases:

(A) where the carriage of the signals comprising

the secondary transmission is not permissible under

the rules, regulations, or authorizations of the Federal

Communications Commission; or

(B) where the cable system has not recorded the

notice specified by subsection (d) and deposited the

statement of account and royalty fee required by

subsection (d).

Notwithstanding the provisions of clause (1) of this sub-

section and subject to the provisions of subsection (e) of

this section, the secondary transmission to the public by a

cable system of a primary transmission made by a broad-

cast station licensed by the Federal Communications Com-

mission or by an appropriate governmental authority of

Canada or Mexico and embodying a performance or dis-

play of a work is actionable as an act of infringement

under section 501. and is fully subiect to the remedies pro-

vided by sections 502 through 506 and sections 509 and

A-64

510, if the content of the particular program in which the

performance or display is embodied, or any commercial

advertising or station announcements transmitted by the

primary transmitter during, or immediately before or af-

ter, the transmission of such program, is in any way will-

fully altered by the cable system through changes, dele-

tions, or additions, except for the alteration, deletion, or

substitution of commercial advertisements performed by

those engaged in television commercial advertising market

research: Provided, That the research company has ob-

tained the prior consent of the advertiser who has pur-

chased the original commercial advertisement, the tele-

vision station broadcasting that commercial advertisement,

and the cable system performing the secondary transmis-

sions: And provided further, That such commercial alter-

ation, de'etion, or substitution is not performed for the pur-

pose of deriving income from the sale of that commercial

time.

(4) Notwithstanding the provisions of clause (1) of

this subsection, the secondary transmission to the public

by a cable system of a primary transmission made by a

broadcast station licensed by an appropriate governmental

authority of Canada or Mexico and embodying a per-

formance or display of a work is actionable as an act of

infringement under section 501, and is fully subject to the

remedies provided by sections 502 through 506 and sec-

tion 509, if (A) with respect to Canadian signals, the com-

munity of the cable system is located more than 150 miles

from the United States-Canadian border and is also lo-

cated south of the forty-second parallel of l

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