Petition for Writ of Certiorari — Cablevision Co. v. Motion Picture Ass'n of America, Inc.

Supreme Court brief1988

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' SUPREME COURT, Ug FY = i '@ 4Z ae

WASHINGTON, D.C, 094s 1908

¥OSEPH F. SPANIOL, up.

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1987

CABLEVISION COMPANY,

Petitioner,

Motion PICTURE ASSOCIATION OF AMERICA, INC., et al.,

U.S. CopyRIGHT OFFICE AND ITS REGISTER,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

DISTRICT OF COLUMBIA CIRCUIT

MARK J. TAUBER

Counsel of Record

Nora E. GARROTE

PIPER & MARBURY

1200 19th Street, N.W.

Washington, D.C. 20036

(202) 861-3900

MICHAEL A. SCHLANGER

SHAW, PITTMAN, Potts &

TROWBRIDGE

2300 N Street, N.W.

Washington, D.C. 20037

(202) 663-8000

Counsel to Petitioner

April 4, 1988

PRESS OF BYRON S. ADAMS, WASHINGTON, D.C. (202) 347-8203

ee eal

MO NT

QUESTIONS PRESENTED

1. Whether the U.S. Copyright Office (the ‘‘Co-

pyright Office’), a division of the Library of Con-

gress, in light of its lack of statutory power to enforce

the provisions of the Copyright Act of 1976, 17 U.S.C.

§§ 101 et seg. (the ‘“‘Act’’), its lack of exnertise in

applying traditional copyright principles to cable tel-

evision, and its limited statutory mandate to imple-

ment the provisions of the Act, has the authority to

promulgate a binding regulation on the first impres-

sion question of the proper construction of Section

111(d) of the Act, which creates a copyright compul-

sory license for cable television.

2. Whether 37 C.F.R. § 201.17(b)(1), the regulation

promulgated by the Copyright Office, is entitled to

judicial deference under the principles of Chevron

U.S.A. Inc. v. Natural Resources Defense Council, 467

U.S. 837 (1984) (‘‘Chevron’’), in circumstances where

the regulation extends the reach of the statutory.

scheme beyond that intended by Congress.

LIST OF PARTIES AND RULE 28.1 STATEMENT

The parties to the proceedings below were the

petitioner Cablevision Company (plaintiff/anpellant/

cross-appellee below); the respondent Motion Picture

Association of America, Inc. and its member com-

panies Columbia Picture Industries, Inc., Embassy

Communications, MGM/UA Entertainment Co., Orion

Pictures Corporation, Paramount Pictures Corpora-

tion, Twentieth Century-Fox Film Corporation, Turner

Entertainment Company, Universal Pictures, and

Warner Bros. Inc. (defendants/appellants below); the

respondents Register of Copyrights and the Copyright

Office of the United States Library of Congress (nec-

essary party defendants/appe!lants below); and the

National Cable Television Association, Inc., (plaintiff/

appellee below). The following Amici supported the

position of the respondents in the court below:

Major League Baseball

National Basketball Association

National Hockey League

National Collegiate Athletic Association

National Association of Broadcasters

American Society of Composers, \uthors and

Publishers

Broadcast Music, Inc.

Old-Time Gospel Hour

Public Broadcasting Service

National Public Radio

Canadian Broadcasting Corporation

Cablevision Systems Corporation is the parent com-

pany of petitioner Cablevision Company. A list of

petitioner’s subsidiaries and affiliates pursuant to Rule

28.1 of this Court is included in the Appendix hereto,

pp. 84a-86a, infra.

ne Bs PE one vee

ill

TABLE OF CONTENTS

Page

I oc cnsucedaeennenosens i

LisT OF PARTIES AND RULE 28.1 STATEMENT ....... il

MEETUP EUINETIEED .......cocodnccccvascacasenceddsccseoecs iv

Nee csuuabunsunl 1

et istshaeaben l

STATUTE AND REGULATIONS INVOLVED ...0.........000-- 1

I I cin ashowneomanans 2

REASONS FOR GRANTING THE WRIT ceeccccececcececeeeeees 11

I. The Decision of the D.C. Circuit is Incon-

sistent in Principle With Decisions of This

Court and Another Circuit Regarding the De-

i to Which the Copyright Office Is En-

NSCS ETERS CRANE Rea eee 12

II. Congress Did Not Charge the Copyright Of-

fice With Other Than Ministerial Duties Un-

der Section 111 and, Thus, the D.C. Circuit

Erred in Deferring to It. ..............ccccccccccsses 14

III. The Decision of the D.C. Circuit Raises Sig-

nificant Questions Regarding the Scope of

This Court’s Decision in Chevron and the Role

of Courts in Giving Effect to Congressional

isles sini i crtisnin edinnetinidiesabtatenbinanes 20

IV. The Decision of the D.C. Circuit Dramatically

Enhances the Imbalance Between Cable and

tration of Section 111 of the Copyright

RIN Belsieo Uisdesiptisstahapiansinabetadessobéaciocetenseusoncusens 27

TABLE OF AUTHORITIES

CASEs: Page

Atkins v. Rivera, 477 U.S. 154 (1986) «0... 20

Barlow v. Collins, 397 U.S. 159 (1970) ................. 21

Bartok v. Boosey & Hawkes, Inc., 523-F.2d 941

PIED ichnatienepicinininsadiislsibubiouniadilenslinenammenteuinals 13, 14, 20

Bethlehem Steel Corp. v. E.P.A., 723 F.2d 1303 (7th

pen: MUU scbaidinsichnecouicesichalitaceieiatisin aati decodes 18

Bowen v. American Hospital Ass'n, 476 U.S. 610

CRIN: sesacdininasepennsdumhadbiedsschuscemmsouisuguecuaanesieaaaids 20

Board of Governors v. Dimension Financial Corp.,

CE Seas, Se CAD nthaciaschcccenuhicenestidtoouctbentbons 20

Boston Sand & Gravel Co. v. United States, 278

Sie ee EE ie canna ioe Googe nee een 24

Chevron U.S.A. Inc. v. Natural Resources Defense

Counctl, 467 U.S. 837 (1964) ....ccccccccccrsssesseses passim

Connecticut Dept. of Income Maintenance v. Heckler,

a Ere ee CD da taeicdencaesishcin sckcecbnionaabae 20

Corning Glass Works v. Brennan, 417 U.S. 188

PIED daniecenccmansanicaeierectnenatbascicacke neuen ceiaahessoe 25

DeSylva v. Ballentine, 351 U.S. 570

2 REARS ASIESADSIS EES Pee ETA LR ARRAS ates aS a 13, 14, 20

District of Columbia v. Carter, 409 U.S. 418

I saiielik ce icelednsecistintes isda ain ree cetera dln 26

Eltra Corp. v. Ringer, 579 F.2d 294 (4th Cir.

BIPM cai didsiasidthcscsbaleiasalsaatoninanmetvslamialsnisasiiaiak 13

Esquire v.-Ringer, 591 F.2d 796 (D.C. Cir.), cert.

denied, 440 U.S. 908 (1978) ..............ccccccereeeees 13

Federal Deposit Ins. Corp. v. Philadelphia Gear

eo WR Ra Re 20

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

ee Rg I EE ic dcinienentanababbadedstadininaties 3

INS v. Cardoza-Fonseca, 107 S. Ct. 1207 (1987) .. 21

Klein v. Republic Steel Corp., 435 F.2d 762 (3rd

Se re Acne dalcanhicevancscbasasidunsndeledtectinnaianees 26

Table of Authorities Continued

Page

Louisiana Public Service Comm'n v. FCC, 106 S.

CR Te Ce hesiasitnasintatnasntincancemnerteras 26

Lyng v. Payne, 106 S. Ct. 2333 (1986) ................. 26

Mazer v. Stein, 347 U.S. 201 (1954) .................0006 13

Miller v. Butterfield, 125 U.S. 70 (1988) «0... 25

Miller v. United States, 294 U.S. 435 (1935) ........ 26

National Cable Television Ass'n v. Copyright Roy-

alty Tribunal, 689 F.2d 1077 (D.C. Cir.

SOIED cicacsstianncccscasicciotaisianusanseamaademien 5, 10

NLRB v. United Food and Commercial Workers

Union, Local 23, 108 S. Ct. 413 (1987) ......... 21

Norris Industries v. ITT, 696 F.2d 918 (11th Cir.

BOI cieisnsinssnintsieisscsaceksnsscsacaeiaeammasaie 13

Oscar Mayer & Co. v. Evans, 441 U.S. 750

CTT GD cicsscnincatatessctiesiansthidpuiandicnaimmapmnna santas 24

Office of Consumers’ Counsel v. FERC, 635 F.2d

RiSS GO. Cie. SORE eicknceeeeiene 26

O'Hara v. Luckenback S.S. Co., 269 U.S. 364

(ROIS acividscccciinodinseistiienGthicsimaupeetianaaeamaae 25

Rockbridge v. Lincoln, 449 F.2d 567 (9th Cir.

SFE) cicivecnsnnnéacucsannictmadiieiaaaneeasa apaceaa 26

Schnapper v. Foley, 667 F.2d 102 (D.C. Cir. 1981),

cert. denied, 455 U.S. 948 (1982) ................66 13

Securities Industry Ass'n v. Board of Governors

of Federal Reserve System, 468 U.S. 137

CRED gisccssccncssscneanscessnetecepacetadn iat anenmadaatasaaanias 20, 21

Seeberger v. Cahn, 137 U.S. 95 (1980) ........ ee. 25

Skidmore v. Swift & Co., 323 U.S. 134 (1944) ..... 17

Teleprompter Corp. v. CBS, Inc., 415 U.S. 394

CLTEY ciiccidiicsesctspcesetaeemennaasiavdadoameatak

Tyng v. Grinnell, 92 U.S. 467 (1876) ....... ee 25

United States v. City of Fulton, 475 U.S. 657

CHEIGD scsnccscsstssankacicdpnidaheitecsinaunaaliendiaanionetind 20

Table of Authorities Continued

BOG CEDEED ccccosccnsscocccesccsnsdutconnnseusoneciasbeniivtnninen:

United States v. Riverside Bayview Homes, 474 U.S.

BBE CRIED cccosssscssshetsntnssipesbisaenaiaaninie

a v. Smith, 553 F.2d 1239 (10th Cir.

FED cnucvneciblcusecesiasaldhncenabeae aati

CRGIETD cnscincatsicntecenscnassabicidiaiaaneeee

BEE CEDUED covccnesnsecscovessssinseciausnnstnonabenaiusaiians

Worthington rv. Abbott, 124 U.S. 434 (1888)

Young vr. Community Nutrition Inst., 476 U.S. 974

CREBED . cccocecconsruosisesnbiconeiiasennthieeiensiaastaneasicamaane

STATUTES AND REGULATIONS:

ET OBC. & DOD cccsncessininncsicnnnnemanaaiel

RT UG. & BOD ccccsrcsesinnssinisvsmmnnasaenanalaaie

RF WBA & BED ccccscnncnseesensitannialanaae

RF UBC. B BEB accerccsecocsesscnisecsennsemenmaatannidiandionn

AT Wei Re & UD scecacessessccesectsoniassepnmaianee

BT UK. & TBD cccccssccnnincissssinictsignsipienaaiaiaa

UT CL. & GRD ccrcccssesseessnsntvnsieanneitnempinaianinnaa

AT DBL. © BBD cncccssssscersensstsiassonnieneniaamanaaats

BT WK © GB accccrsosessscnscsetasssnnsvnicnsbensmnmmeaigulsais

RT UG. © ORG ceccccssersmasiisnssaninciinnnaeeiaaed

RT UBL. BR GOTEL ccecesssntasecessintmrenssmiontansintaanann

AT UBAN § OOD nnmnircnvernnnaiiae

AT WBA. TOD ccccescsncnctsssttenencsenntesentininnnnninnians

BT UBC. GB TOG TED cccecsceccsncsscssosssepevenseseinesinsevenis

RT UBC. OG GOR GID sniccsscitctenniniinnidiana

se & & S &

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oor or

—_

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vil

: Table of Authorities Continued

Page

OO) OG Be iccsecsacersscnnsicocieeensiniinines l

Oe Oe 0 Fe ccenicicesccetettidnmnniinitainaciiamnianten l

Op PE OE ccttncetarseeniccenintsninnincdontinseieninain 1

, SIR | 1,2

Oy UE AID ccicerecsicenidternevensiianiigubindaiiaaa 1, 2

OS TE 0 BE canicteehvieunnmendnas 1, 2

BB UBC. 6 BBB cecccccrecccscnscccccsccesscccsececscsssscnsssssssocess 1,2

BT UBC. BB UBL, 66 B06. cceccerecsccscccscsssscscsccccesssssess 27

Tyme (ot oe 27

fot J Tf 2 eae eee 8

BT CPR. © BORAT ccceccssccscccsccccsscscesescscsscsscosesseees 2. 9. 16

Be OTe 6 PI vicceccntaissinscisnrtntesntetsictsnteiaiaieain 15

LEGISLATIVE MATERIALS:

H.R. Rep. No. 1476, 94th Cong., 2d Sess. 47, re-

rinted in 1976 U.S. Code Cong. & Admin.

NewS SEBO .....cccccccceccsccccscccscscssscncscooscesssscosooses passim

Cable Antenna Television (CATV): Hearings Before

the Subcomm. on Communications and Power

of the House Comm. on Interstate and Foreign

Commerce, 92nd Cong., 1st Sess. 7 (1971) ..... 5

fore the Subcomm. on Courts, Civil Liberties

and the Administration of Justice of the House

Comm. on the Judiciary, 94th Cong., 1st Sess.

4D1 (1DTS) ..ncccccscccccccecccscscrccsccsccccccsccscccsccooccsesees 6, 17

Hearings on S.1361 Before the Senate Subcomm. on

Patents, Trademarks and Copyrights, 93d

Cong., Ist Sess. 312 (1973) ........-.ccsceeeeeeeeens 24

The Communications Act of 1979: Hearings on

H.R.3333 Before the Subcomm. on Communi-

cations of the House Comm. on Interstate and

Foreign Commerce, 96th Cong., Ist Sess. 684

CRO GD Saccenesssinasctsninnsassansncuisnanseresapeseniousanenatenannte 4, 5. 6

Vill

Table of Authorities Continued

Page

Oversight of the Copyright Act of 1976: Cable Tel-

evision Hearings Before the Senate Comm. on

the Judiciary 97th Cong., 1st Sess. 111

UTI ssciecehnssencchctapheebinenaiiiesamiadnaeinenipiinaiunntiaiadaiabsicisseinnits 4, 18

Oversight Hearings on Cable Television Before the

Subcomm. on Communications of the Senate

Com. on Commerce. Science and Transporta-

tion, 95th Cong., 1st Sess. 104 (1977) ........... 5

B. Ringer, Second Supplementary Report to Con-

MOPUEEL, Sas. W ‘sicssiuchiiisinaphaiattinidaphsattunibintesddddcamslinenkaamssses 4

ADMINISTRATIVE REPORTS AND PROCEEDINGS:

Cable Proposals, 31 FCC 2d 115 (1971) ................ 24

Cable Television Report and Order, 36 FCC 2d 143

GREED stesictondanionis slaildtneadiiiasibentdnibligibcodamaduamtauniebiaias 24

Cable Television Syndicated Program Exclusivity

Rules, 79 FCC 2d 633 (1980) .....................00... 5, 24

Community Cable TV, Inc., 95 FCC 2d 1204 (1983),

aff'd, 98 FCC 2d 1180 (1984) .................0000000. 7

Establishment of Domestic Communications Satellite

Facilities, 35 FCC 2d 844 (1972) ................... 5

First Report and Order in Dockets 14895 and 15233,

ee ee Ce ED cacensthericeectsstaichaapitibicbeitanieteel 24

Notice of Final Regulations in Docket RM 79-4, 45

Fed. Reg. 45270 (1980) .......cccccccccssesssesesesees 8, 15, 16

Notice of Interim Regulations in Docket RM 80-2, 47

i es Se IIE incr stsncuicsnichtanenbacinionndes 16

Notice of Final Regulations in Docket RM 80-2, 49

SS PRE see passim

Notice of Proposed Rule Making and Notice of In-

quiry in Docket 18397, 15 FCC 2d 417

RR aS LAE Raat a cook te eee 24

Second Report and Order, 2 FCC 2d 725 (1966) .. 24

Table of Authorities Continued

Page

MISCELLANEOUS:

= Talks Flounder on Compulsory License

ssue,"’ Cablevision, March 10, 1986 ............... 4

8 Communications Daily No. 4 (March 7,

IED icasecibicihicdisdineiendinabseasiedinnitsackinnigentanteacimiabsoncsee 4, 27

Ladd, Schrader, Leibowitz, and Oler, “Copyright.

Cable, the Compulsory License: A Second

Chance,"’ Communications and the Law, Sum-

I TI cthcccsanncsncndasscandeneerasiacases Re ne 16

‘

The petitioner Cablevision Company (‘‘Cablevision’’) re-

spectfully prays that a writ of certiorari issue to review

the judgment and opinion of the United States Court of

Appeals for the District of Columbia Circuit (the ‘D.C.

Circuit’) entered in the above-captioned proceeding on

January 5, 1988.

OPINIONS BELOW

The opinion of the D.C. Circuit is reported at 836 F.2d

599 (pp. la-35a, infra).

The opinion of the United States District Court for the

District of Columbia (Green, J.L.) (the ‘‘district court’’) is

reported at 641 F. Supp. 1154 (pp. 36a-59a, infra).

JURISDICTION

The consolidated actions of Cablevision and the National

Cable Television Association, Inc. (‘“‘NCTA’’)! in the district

court arose under 28 U.S.C. §§ 1338, 1400, 2201 and 2202.

The counterclaims of the Motion Picture Association of

America, Inc., et al. (“MPAA”), against Cablevision arose

under 28 U.S.C. §§ 1331(a) and 1338(a). Review by the

D.C. Circuit was sought pursuant to 28 U.S.C. § 1291.

The decision of the D.C. Circuit was filed on January 5,

1988. The jurisdiction of this Court to review the judgment

of the D.C. Circuit arises under 28 U.S.C. § 1254(1).

STATUTES AND REGULATIONS INVOLVED

This case of first impression involves the construction

of the phrase ‘“‘gross receipts from subscribers to the cable

service ... for the basic service of providing secondary

transmissions of primary broadcast transmitters’ found in

NCTA also intends to file a petition for a writ of certiorari in

this case. Pursuant to an Order signed by the Chief Justice on March

22, 1988, NCTA’s time was extended to May 4, 1988.

Section 111(d\2) of the Act, 17 U.S.C. § 111(d\2) (Section

111 is at pp. 59a-73a, infra). The Copyright Office’s con-

struction of Section 111(dX2) is found at 37 C.F.R. §

201.17(bX1) (pp. 82a-83a, infra).”

STATEMENT OF THE CASE

In 1983 and 1984, Cablevision, an operator of cable tel-

evision systems in New York and New Jersey, instituted

two actions for declaratory and other relief in the district

court, under 28 U.S.C. §§ 1338, 1400, 2201 and 2202,

seeking judicial resolution of a dispute of first impression

concerning the proper construction of Section 111(d\2) of

the Act. That section grants a compulsory license to cable

operators for the carriage of television broadcast signals

upon the semi-annual payment of royalties calculated pur-

suant to a statutorily-provided formula. The royalties, paid

to the Copyright Office, are distributed each year by the

ers filing claims. 17 U.S.C. §§ 111(d\2), (4) and (5), and

801-810 (pp. 63a, 66a, 73a-81la, infra). In particular, Ca-

blevision sought the district court’s guidance to determine

the revenue base against which this statutorily-provided

formula is to be applied.

Both complaints alleged that Cablevision had been

threatened with copyright infringement litigation by

MPAA, one of the largest groups of copyright owners and

recipient of a substantial portion of the royalties collected

under Section 111(dX2), on the ground that Cablevision

was underpaying copyright royalty fees for the retrans-

mission of broadcast signals and had, therefore, not qual-

ified for the compulsory license. Under Section 111(d\2\B),

the compulsory license fee paid by a cable system is cal-

culated as a percentage of the system’s “gross receipts

- All unpublished legislative and administrative materials cited in

this petition were reproduced in the Joint Appendix submitted to the

D.C. Circuit.

from subscribers ... for the basic service of providing

secondary transmissions of primary broadcast transmit-

ters.”

Cablevision calculated and paid its semi-annual royalty

fees on the belief that the ‘‘gross receipts’’ revenue base

upon which the royalty percentage is calculated does not

vary. This belief stemmed from the understanding that,

by its reference to the “‘basic service of providing second-

ary transmissions,’ Congress intended that only revenues

from a cable system's “‘basic service’’ tier, as it was then

known in the trade, the lowest tier of programming pro-

vided to all subscribers, be usedin the computation of the

royalty. MPAA, on the other hand, contended that, when-

ever a cable system places a distant broadcast signal on

a higher, optional tier of service, all revenues from that

tier as well as the basic service tier must be included in

the “gross receipts’’ fee base for calculation of the royalty,

even though non-broadcast programming, for which a cable

system pays copyright royalties outside the purview of the

compulsory licensing scheme, may also be included on the

higher, optional tier. It is the nature of this formula which

has been in dispute in the litigation.

The origin of the controversy dates back to the passage

of the Act in 1976 and the inclusion therein for the first

time ever in a copyright statute of provisions creating a

compulsory licensing system for cable television operators

retransmitting broadcast programming. Prior to 1976, this

Court had ruled, in Fortnightly Corp. v. United Artists

Television, Inc., 392 U.S. 390 (1968), and Teleprompter

Corp. v. CBS, Inc., 415 U.S. 394 (1974), that secondary

transmissions of broadcast signals by cable systems were

not subject to copyright protection.

Although Congress began to consider cable copyright

issues as early as 1967, it did not pass legislation until

1976, after several attempts. One of the greatest difficul-

ties faced by Congress was the impracticability of requiring

cable operators to negotiate directly with each of the thou-

sands of copyright owners whose works were included in

the broadcast signals being retransmitted. H.R. Rep. No.

1476, 94th Cong., 2d Sess. 47, 89, reprinted in 1976 U.S.

Code Cong. & Admin. News 5659, 5703-04 (hereinafter,

“H. Rep. at _____”’). The lengthy legislative debate on

the issue was fueled by extensive lobbying efforts in which

MPAA and NCTA played central roles. Throughout the

years, this debate dealt with the scope of the compulsory

license, the adaptability of the royalty mechanism to future

changes, and how great or small the royalty amount should

be. See B. Ringer, Second Supplementary Report to Con-

gress, Ch. V. The result of the process was a written

compromise agreement between the motion picture and

cable television industries, embodying a compulsory licen-

sing mechanism, which was adopted by Congress as Sec-

tion 111 of the Act’.

The structure of Section 111 reflects the compromise.

Under Section 111(c\1), a cable system may retransmit,

pursuant to a compulsory license, any broadcast signal that

it is otherwise authorized to carry by the rules of the

Federal Communications Commission (‘‘FCC’’), regardless

‘Congress intended a system under which ‘‘payments are modest and

will not retard the orderly development of the cable television industry

or the service it provides to subscribers.” H. Rep. at 91. Congress

predicted, at the time of enactment, that Section 111 would generate

a royalty pool of $8.7 million for the first year. Jd. at 175. Copyright

owners received $12.6 million the first year. See The Communications

Act of 1979: Hearings on H.R.3333 Before the Subcomm. on Commu-

nications of the House Comm. on Interstate and Foreign Commerce,

96th Cong., lst Sess. 684, 693 (1979) (the ‘““H.R.3333 Hearings’). In

1979 and 1980, they received $18,572,623 and $19,532,881, respectively.

Oversight of the Copyright Act of 1976: Cable Television Hearings Before

the Senate Comm. on the Judiciary, 97th Cong., 1st Sess. 111-12 (1981)

(the ‘7981 Oversight’). In 1984, the royalty pool was $86,951,796. ‘‘Co-

pyright Talks Flounder on Compulsory License Issue,’ Cablevision,

March 10, 1986, at 11. In 1987. it exceeded $100 million. 8 Commu-

nications Daily No. 4, p. 3 (March 7, 1988).

OE ee ee Fee en ey

of origin, without copyright liability. Under Section

111(d\2XB), the consideration for the license is payment

of a statutorily-fixed royalty fee for the privilege of car-

rying distant, non-network programming that Congress

recognized could cause harm to copyright owners if it went

uncompensated. H. Rep. at 90. The fee must be paid by

all cable systems regardless of whether they carry any

distant broadcast signals. Sections 111(d\2\(C) and (D); H.

Rep. at 96.

For larger cable systems, such as those owned by Ca-

blevision, Congress inserted into the industry compromise,

at Sections 111(d)(2)(b\ii)-(iv), a mechanism, called ‘‘distant

signal equivalent” or ‘““DSE,” requiring additional royalty

fees for each distant or non-local broadcast signal actually

carried by the system. Depending on the type and number

of distant signals carried, the DSE values differ. At the

time of the enactment of Section 111, even though Con-

gress and the industries were aware that “‘tiering’’ and

other new marketing practices for cable services would

develop,’ all parties agreed that the proposed copyright

royalty schedule did not attempt to approximate the com-

pensation which copyright owners could have obtained had

they negotiated the royalties in the marketplace.*

‘ See, e.g., Cable Television Syndicated Program Erclusivity Rules, 79

FCC 2d 633, 807-08 (1980); Micro Cable Communications Corp., 54

FCC 2d 888 (1975); Establishment of Domestic Communications Satellite

Facilities, 35 FCC 2d 844 (1972): Cable Antenna Television (CATV):

Hearings Before the Subcomm. on Communications and Power of the

House Comm. on Interstate and Foreign Commerce, 92nd Cong., lst

Sess. 7, 21, 27 (1971) (statement of D. Burch, Chairman. FCC) (the

“CATV Hearings’’); H.R.3333 Hearings at 78 (testimony of T. Brennan,

Commissioner, CRT). See also National Cable Television Ass'n v. Co-

pyright Royalty Tribunal, 689 F.2d 1077. 1089 (D.C. Cir. 1982) (agree-

ing ‘‘tiering’’ was contemplated by Congress).

*H. Rep. at 96-97; Oversight Hearings on Cable Television Berore the

Subcomm. on Communications of the Senate Comm. on Commerce, Sci-

ence and Transportation, 95th Cong., 1st Sess. 104 (1977) (statement

Regardless of the number of distant signals carried by

a cable system, Section 111 ties the royalty computation

to the same revenue base: the ‘‘gross receipts from sub-

scribers ... for the basic service of providing secondary

transmissions of primary transmitters.’ This precise lan-

guage was used to describe the revenue base since the

early copyright legislative proposals surfaced in 1969. See

Amended 8.543, 91st Cong., Ist Sess. § 111(d\2)A) (1969);

S.644, 92nd Cong., lst Sess., § 111(d\2)A) (1971); S.1361,

93rd Cong., 2nd Sess., § 111(dX2\B) (1973); S.22, 94th

Cong., Ist Sess., § 111(dX2\B) (1975); H.R. 2223, 94th

Cong., Ist Sess., § 111(d\2\B) (1975). This revenue base

also tracks similar language found in legislative and ad-

ministrative proposals regulating the minimum carriage re-

quirements for broadcast signals on cable television systems

which were contemporaneous with Congress’ consideration

of the cable copyright issue. See n. 18, infra. The revenue

base is expressly tied to the cable operator’s “‘basic ser-

vice.

To implement the compulsory license, Congress created

the CRT (pp. 73a-77a, infra), wholly independent of the

ing to copyright owners the royalties collected and ad-

justing the royalty rates to account for future economic

conditions in the cable industry. See H. Rep. at 173-174.

In determining whether to adjust the royalty rates in Sec-

tion 111(dX2\B) and the ‘gross receipts’ thresholds set

forth in Sections 111(dX2\XC) and (D), Congress directed

the CRT to evaluate, among other things, ‘‘changes in the

average rates charged cable system subscribers for the

of J. Valenti, President, MPAA); H.R.3333 Hearings at 63 (statement

of T. Brennan, Commissioner, CRT); Copyright Law Revision: Hearings

on H.R.2223 Before the Subcomm. on Courts, Civil Liberties and the

Administration of Justice of the House Comm. on the Judiciary, 94th

Cong., Ist Sess. 491-92 (1975) (statement of R. Bradley, Chairman,

NCTA) (the ‘‘H.R.2223 Hearings’’).

basic service of providing secondary transmissions” to the

extent that they result in reduced revenues (emphasis

added).* Sections 801(bX2\A) and (D).

Periodic rate adjustments were to be based on changes

in the average rates charged for ‘‘basic service’’ nation-

wide (Sections 801(b\2\A) and (D)) and could only be trig-

gered by changes in the FCC signal carriage rules.

Congress restricted the CRT’s authority to changes in

rates, and did not empower the CRT to tamper with the

statutorily defined revenue base itself. An earlier version

of Section 801 had contained a provision author‘zing the

CRT to ‘‘change the royalty rate or the basis on which

the royalty fee shall be assessed or both’ but Congress

deleted it prior to final enactment of Section 111. See

S.1361 at Section 801(b\1).

In juxtaposition with the CRT’s authority over rates,

the Copyright Office was given the specific mandate only

to require information from cable operators (Sections

111(dX1), (2A)) and to receive the royalties paid by the

operators (Section 111(d\3)), which are to be deposited,

along with a statement of account, “in accordance with

requirements that the Register shall, after consultation

with the [CRT], prescribe by regulation.”’ Section 111(d)(2).

The Copyright Office’s primary role in connection with

Section 111 has been to receive statements of account and

* Congress gave the CRT these adjustment powers to counteract the

reduction in copyright royalty fees that might result from any decrease

in basic service (i.e., lowest tier) subscriber charges. H. Rep. at 175.

Congress allowed the CRT to consider all factors relating to the main-

tenance of such level of payments including, as an extenuating factor,

whether the cable industry has been restrained by subscriber rate reg-

ulating authorities from increasing the rates for the basic service of

providing secondary transmissions. Section 801(bx2\A). Under well-es-

tablished FCC policy at the time, state and local rate regulating

authorities were not permitted to regulate any rates charged by cable

operators ercept those charged for the first tier. See Community Cable

TV. Inc., 95 FCC 2d 1204 (1983), aff'd, 98 FCC 2d 1180 (1984).

collect royalty payments. Under Section 702 (p. 73a, infra),

the Register has the authority to adopt regulations ‘‘for

the administration of [these] functions and duties.”’ The

laws or to give legal opinions or advice on matters dealing

with the sufficiency, extent or scope of compliance with

the copyright law. Copyright Office Circular Rlb (March

1979); 37 C.F.R. § 201.2(aX31984) (p. 82a, infra); Notice

of Final Regulations in Docket RM 79-4, 45 Fed. Reg.

45270, 45271 (1980).

Relying on the express language of the statute, its leg-

islative history, and contemporaneous regulatory develop-

ments by the FCC affecting cable, Cablevision sought from

the district court a declaration that its construction of the

term “‘basic service’ and, consequently, the statutory rev-

enue base, was proper. The complaint prayed that, without

an adjudication of this issue, Cablevision would be placed

in continued uncertainty as to its obligations under the

Act to its peril. MPAA filed counterclaims against Cable-

vision alleging infringement of thousands of copyrights

owned by its member companies and seeking damages of

up to $50,000 per work infringed. In light of the number

of secondary broadcast transmissions made over a typical

cable system, Cablevision’s potential infringement liability

could be in the range of billions of dollars.

In September, 1983, NCTA, a major trade association

for cable television operators, filed a similar action. Claim-

ing a court adjudication on this issue was necessary to

end the in terrorem effect on the industry of MPAA’s

consistent threats of infringement litigation to operators

who did not acquiesce to MPAA’s construction of the Act,

NCTA took yet a third position on the issue—if a tier of

programming offered by a cable television operator con-

sists of both broadcast and non-broadcast signals, the op-

erator may allocate all of its revenues from that tier among

the various signals and include in its revenue base only

that portion attributable to broadcast signals.

In April, 1984, aware of the pending litigation, without

discussing in any detail the legislative history of Section

111, and willing to allow the courts to be “‘the final ar-

biters of what the law rneans,’’ the Copyright Office pro-

mulgated a self-styled “‘interpretive” regulation, 37 C.F.R.

§201.17(b\1), adopting the MPAA position. Notice of Final

Regulations in Docket RM 80-2, 49 Fed. Reg. 13029, 13031

(1984) (the ‘““NFR’’). The NFR did not directly address

Cablevision’s construction of the Act and, prior to its 1984

pronouncement, there had been no regulation on this issue.

The parties disagree as to whether the Copyright Office

had ever before taken a position on the issue.

The issuance of the regulation, adopted eight years after

the enactment of the Act, six years after it went into

effect and nearly a year after Cablevision sought a judicial

declaration on the proper construction of the Act, caused

the district court, on July 17, 1984, to order the Copyright

Office involuntarily joined as a necessary party defendant

to the NCTA action. The Copyright Office claimed judicial

deference for its 1984 interpretation. Cablevision and

NCTA challenged the Copyright Office’s authority to issue

a binding regulation interpreting the statutory revenue

base. On February 18, 1985, the Cablevision and NCTA

actions were consolidated.

Declining to defer to the Copyright Office’s construction

of the Act on the ground that it did not “‘have a reasonable

basis in law and frustrates the underlying congressional

policy” (p. 48a, infra), the district court adopted NCTA’s

construction of Section 111(d). Of particular importance,

the district court refused to accord any significance to, or

even mention, Cablevision’s submission of 27 industry-

member affidavits offered to establish that the term ‘‘basic

service,’ integral to the statutory phrase in question, had

a specific industry meaning at the time of the passage of

the Act. Nor did the court agree with Cablevision that the

FCC’s regulatory scheme with respect to the provision of

“minimum” or ‘‘adequate’’ service by cable operators, as

that scheme existed in 1976, provided to Congress an

awareness of what was regarded as “‘basic’’ cable service.

See p. 52a, infra. Instead, the district court adopted a

post-enactment definition of “‘basic service’’ developed in

National Cable Television Ass'n v. Copyright Royalty Tri-

bunal, 689 F.2d 1077 (D.C. Cir. 1982), in the unrelated

context of a copyright royalty distribution controversy

not involving the construction of Section 111(d). Jd.

Cablevision, MPAA and the Copyright Office filed

appeals to the D.C. Circuit. At respondents’ urging, the

D.C. Circuit found that the Copyright Office had the au-

thority to issue a regulation interpreting Section 111(d)

and, solely in the context of Section 111, was due judicial

deference under the principles stated by this Court in Cher-

ron. Significantly, the D.C. Circuit agreed that Cablevi-

sion’s understanding of the term “‘basic service’’ was an

understanding shared by Congress in 1976 (p. 10a, infra)

an examination of the reports on the legislation

evokes a fairly sharp image of the model that

Congress had in mind at the time of enactment.

According to that picture, the cable subscriber

had available from the system a single package

for a flat fee containing a number of retrans-

mitted broadcast signals and some channels pro-

duced just for cable—the “basic service’’ that

every subscriber received—and beyond that, in-

dividually priced specialty channels available only

on cable from which the subscriber to the basic

service could pick and choose .... In this par-

adigmatic case, the definition of gross receipts

from basic service was simple; gross receipts were

the flat fee for the initial package ..

The meaning of gross receipts only became problematic,

the court said, after the enactment of the Act “‘as reality

diverged from the model on which the Act was based”’

(>. lla, infra). Despite Cablevision’s submission of leg-

islative, administrative and judicial support for the con-

trary proposition (see n. 4, supra), the D.C. Circuit

concluded that Congress never considered the develop-

ment of “‘tiering’’ practices by cable operators (pp. 27a-

28a, infra).

In light of this, the court ended its analysis under the

first prong of Cherron—whether Congress has spoken on

the precise issue at hand—concluding, without any dis-

cussion or citing any support from the legislative history,

that Congress ‘saw a need for a continuing interpretation

of Section 111 and gave the Copyright Office the sta-

tutory authority to fill that role’ (p. 21a, infra). It then

proceeded to analyze the case under the second prong of

Cherron—is the Copyright Office regulation a reasonable

interpretation of the Act? Finding that “Congress never

contemplated a precise congruence of the royalties paid

and the amount of distant .. . programming actually car-

ried" and that Congress had actually picked a ‘‘conve-

nient revenue base” (p. 23a, infra), the D.C. Circuit

declared the Copyright Office's non-contemporaneous reg-

ulation to be reasonable and entitled to deference (p. 30a,

infra).

REASONS FOR GRANTING THE WRIT

Prior to the D.C. Circuit's decision in this case, no

federal court had given deference to a first impression

statutory interpretation of the Copyright Office in areas

other than the registrability of copyrights. Indeed, in the

two cases discussed by the D.C. Circuit where the issue

of deference was raised, this Court and a circuit court

refused to defer to a Copyright Office interpretation of

the Act for reasons which are quite applicable to this

case. To reach the same result in this case would not

only provide for uniformity in principle of decisions in

this area, but would be the only approach consistent with

this Court's pronouncement in Chevron. This Court’s in-

tervention is also required to ensure that Congress’ intent

at the time of the enactment of Section 111, and not the

later-found accommodation of policies undertaken by the ~

D.C. Circuit, is effectuated.

The decision of the D.C. Circuit has implications which

transcend the interests of the parties to this case. It may

have extended dramatically the Copyright Office's limited

powers to implement the substance of the cable television

compulsory licensing system under the guise of ‘‘con-

struing’’ the terms of the Act. If allowed to stand, this

decision can be expected to result in new, more overt

attempts by the Copyright Office, at the copyright own-

ers’ insistence, to rewrite the 1976 industry compromise

that led to enactment of the Act. While Section 111 was

designed to achieve a compromise between the two in-

dustries and preserve a very delicate balance, the agency

entrusted to administer the cable television compulsory

licensing scheme admits to a belief that it has a near-

constitutional mandate to represent solely the interests

of the copyright owners. The D.C. Circuit’s decision to

vest broad power in a biased agency will create additional

cost and uncertainty to the cable industry. It will both

increase copyright royalty payments on a semi-annual ba-

sis and expose cable operators to copyright infringement

actions by copyright owners who may seek billions of

dollars in statutory damages from any cable system that

advances a construction of its license obligations less

onerous to it than the copyright owners’ interpretation.

I. THE DECISION OF THE D.C. CIRCUIT IS IN-

CONSISTENT IN PRINCIPLE WITH DECISIONS

OF THIS COURT AND ANOTHER CIRCUIT RE-

GARDING THE DEFERENCE TO WHICH THE CO-

PYRIGHT OFFICE IS ENTITLED.

In an unprecedented fashion, the D.C. Circuit has en-

larged the traditionally limited power of the Copyright

Office to construe the Act and issue binding regulations

based on such construction. Until the decision below, there

had been no reported instance where a court has deferred

to the Copyright Office in any matter not involving the

issue of “‘copyrightability.""* On such matters, the Copy-

right Office has always had express enforcement powers

under the copyright laws through its power to refuse reg-

istration. The ruling below, vesting the Copyright Office

with equally broad authority to construe Section 111, con-

flicts in principle with this Court's decision in DeSylva v.

Ballentine, 351 U.S. 570 (1956) and the Second Circuit’s

decision in Bartok v. Boosey & Hawkes, Inc., 523 F.2d 941

(1975).

DeSylva involved the issue of whether the illegitimate

child of a deceased author had any right to renew copy-

rights owned by the author during the lifetime of the

author’s widow. The courts below had disagreed on the

answer to the statutory construction issue of whether both

the widow and the child or only one of them were entitled

to ownership of the copyrights upon the author’s death.

This Court. after acknowledging that the Copyright Office

had a longstanding practice, refused to defer to the Co-

pyright Office’s construction because it was ‘‘more the

result of a decision that there is substantial doubt over

the question, rather than the result of a confident inter-

pretation of the statute.’ 351 U.S. at 572. The Court

proceeded to determine the issue using traditional statu-

tory construction tools.

’ The Copyright Office has sometimes been accorded deference in the

one area over which it has always had unquestioned authority under

both the current and preceding copyright acts: copyrightability. See

Mazer v. Stein, 347 U.S. 201- (1954); Norris Industries v. ITT, 696

F.2d 918 (11th Cir. 1983); Schnapper rv. Foley, 667 F.2d 102 (D.C. Cir.

1981), cert. denied, 455 U.S. 948 (1982); Esquire v. Ringer, 591 F.2d

796 (D.C. Cir.), cert. denied, 440 U.S. 908 (1978); Eltra Corp. v. Ringer,

579 F.2d 294 (4th Cir. 1978). In all of these cases, the courts noted

both the Copyright Office's decades of experience, and the fact that

Congress had approved and ratified the Office's position when it revised

the copyright laws in 1976.

Similarly, in Bartok, the Second Circuit refused to adopt

the Copyright Office’s definition of the statutory term

‘‘posthumous work.”’ Since the Copyright Office itself had

in its regulations recognized that it had no authority to

give legal opinions or define legal terms, the Second Cir-

cuit followed this Court’s decision in DeSylva and held

that the Copyright Office’s interpretation of an issue never

before decided should not be given controlling weight. This

was particularly so since the Copyright Office had pro-

claimed itself to be primarily an office of record; merely

a place where claims to copyrights are registered.

The D.C. Circuit was controlled by DeSylva and should

have been persuaded by Bartok. The D.C. Circuit, in fact,

agreed (p. 20a, infra) that ‘tthe Copyright Office in this

case may have come close to the point of excessive dif-

fidence’’ which had prevented deference to its interpre-

tations in DeSylva. Yet, the D.C. Circuit failed to give

due regard to, or even mention, the substantial record

containing almost every possible indicia that the Copy-

right Office, until it became a party to this litigation, did

not expect and could not have expected judicial deference.

There was no indication in the record before the court

that the Copyright Office’s 1984 regulation construing

Section 111(d) was anything other than the ‘‘result of a

decision that there is substantial doubt over the question,

rather than ... a confident interpretation of the statute”

on an issue ‘‘never before decided.” In refusing to follow

these precedents, the D.C. Circuit created a ‘‘new’’ Co-

pyright Office with broad authority to construe the Act

and, in the process, to modify the compromise embodied

in Section 111.

II. CONGRESS DID NOT CHARGE THE COPYRIGHT

OFFICE WITH OTHER THAN MINISTERIAL DU-

TIES UNDER SECTION 111 AND, THUS, THE

D.C. CIRCUIT ERRED IN DEFERRING TO IT.

The Act confers only the most limited rulemaking power

on the Copyright Office. The Copyright Office is not the

typical administrative agency; it is an ‘‘office’’ within the

Library of Congress, functioning primarily to register and

record copyrighted works, and to administer the clerical

functions of the compulsory license mechanism established

by the Act. While, under Section 702, the Register has

the authority to adopt regulations ‘‘for the administration

of [his] functions and duties,’’ these functions and duties

are specified in detail throughout the Act and are quite

limited and purely ‘‘administrative’ (37 C.F.R. § 701; p.

73a, infra).° As the Copyright Office itself has repeatedly

acknowledged, it has no power to enforce the copyright

laws, or even to issue legal opinions in compliance with

those laws. See p. 8a, supra. The Copyright Office’s ‘‘gen-

eral’ rulemaking powers under Section 702 cannot extend

to a “function[] [or] dut[y]’’ that is explicitly beyond Of-

fice’s authority.

In the compulsory licensing area, the Copyright Office

has equally narrow regulatory powers, enabling it to ad-

minister, but not to alter, the detailed compulsory licen-

sing scheme created by Congress.” The authority

~ See, e.g., 17 U.S.C. §§ 108(d)(2), 108(e%2), 110(4X Bill), 115¢b)1),

203(aW4\B), 304(c 4B), 411(b\1). 302(d), 408(d), 409 (prescribe forms

and the contents of statutory notices); 707(b) (publish brochures and

bibliographies); 708(b) (waive agency fees); 205(b), 302(c) and (d),

304(c 4A), 508(c), 705(a) (record keeping duties); 116(c1), 118(b)2)

and (e), 407(c), 408(c), 704(b), 706(b) (collect and handle royalty and

document deposits); 116(b\1)A) and (B) (handle filing of jukebox li-

cense applications and issue certificates); 115(c3) and (4) (collection

of phonorecord payments and statements of account); and 304(a), 410,

707(a) (issue registrations and catalogue them).

“In the various rulemakings regarding Section 111, the Copyright

Office has concluded that the Act would not permit any adjustments

in the statutory formula other than those expressly provided for. It

has stressed the specificity of the Act, the lack of extensive authority

granted to it, and the underlying assumption of Congress that the

compulsory license royalty is primarily a fee for the privilege of re-

transmitting broadcast signals, not a payment for actual transmis-

sions. Notice of Final Regulations in Docket RM 79-4, 45 Fed. Reg.

conferred on the Copyright Office relates strictly to com-

pulsory license filing procedures and information-gather-

ing.” Senior officials of the Copyright Office have

acknowledged that the Office functions mainly as an of-

fice of record. Ladd, Schrader, Leibowitz, and Oler, ‘*Co-

pyright, Cable, the Compulsory License: A Second

Chance,” Communications and the Law, Summer 1981,

at 3, 14. The Copyright Office’s rules merely govern the

form, content, and timing of filings which the Act re-

quires cable operators to make; the Office has recognized

that its regulatory authority extends no further."

The Office acknowledged the non-binding nature of the

regulation involved in this litigation when it labelled it

45270, 45271-45272 (1980); Notice of Interim Regulations in Docket

RM 80-2, 47 Fed. Reg. 21786, 21788-21789 (1982); NFR at 13035.

Section 111(dX1) requires any cable operator to provide notice

and information to the Copyright Office about secondary transmissions

carried by the system. The operator must also furnish ‘“‘such further

information as the Register of Copyrights, after consultation with the

[CRT] .... shallprescribe by regulation to carry out the purpose of

the clause’. Subsection (d\2) requires the semiannual deposit of a

statement of account and royalty fee ‘in accordance with require-

ments that the Register shall ... prescribe by regulation” after con-

sultation with the CRT. The statute specifies both the royalty fee

formula, and certain information to be provided on the statement of

account. Subsection (d42MA) authorizes the Register to require dis-

closure of ‘‘other data’ on the account form. The royalty fee provision

(subsection (d\(2\8)-(D)) contains no specific reference to rulemaking

power.

‘The Copyright Office has consistently stated that the ‘‘principal

obligation for enforcement of ... Section 111 rests with the affected

lations in Docket RM 79-5, 45 Fed. Reg. 45270, 45271 (1980). Any

enforcement activity, beyond the correction of ‘obvious errors and

omissions’ in submissions by cable systems, ‘“‘would be beyond our

statutory authority."’ Jd. The Copyright Office’s own rules make clear

that acceptance of statement of account filings done by cable oper-

ators ‘‘shall in no case be considered a determination that ... any

.. requirements to qualify for a compulsory license have been sat-

isfied.”” 37 C.F.R. § 201.17(c2) (1987) (p. 83a, infra).

“interpretive” and ‘“‘welcome[d] the guidance of the courts’’

on this issue as “the final arbiters of what the law means.”’

NFR at 13031. Given the undisputed facts that the Co-

pyright Office has no power to enforce its own construc-

tion of Section 111 or to even provide legal advice as to

how compliance with Section 111 may be accomplished,

the attribution by the D.C. Circuit of broad rulemaking

powers under Section 111 is unfounded.

The Copyright Office regulation is also lacking in ‘‘those

factors which give it power to persuade, if lacking power

to control.” Skidmore v. Swift & Co., 323 U.S. 134, 140

(1944). As the then Register of Copyrights, Barbara Ringer.

testified before Congress, the Office is a biased agency—

it represents the interests of copyright owners:

My feeling as the head of the Copyright Office

is that my responsibility is to one group and one

group only, and that is the group that is iden-

tified as the sole and only beneficiary of the co-

pyright law of the United States under the

Constitution, the authors of the so-called writ-

ings. In other words, the creator of copyrighted

works.

H.R. 2223 Hearings at 106.* Its 1984 interpretation is not

a contemporaneous construction of the Act, consistently

It was, thus, the responsibility of the D.C. Circuit to enforce the

industry compromise:

{[Wyhere a statute strikes a political balance but administration of

the statute is entrusted to an agency that may not embody that

balance, it is dangerous to defer automatically to the agency’s view.

An agency that may be dominated by one faction in the legislative

struggle that led to enactment of a compromise is not authorized

to hand that faction a victory that was denied it in the legislative

arena through the efforts of the other faction. The court must

enforce the compromise, not the maximum position of one of the

interest groups among which the compromise was struck.

applied, thoroughly considered, and validly reasoned. The

regulation—promulgated eight years after enactment of the

statute—followed several years during which the Office

either avoided cr expressed contradictory views on the

tiering issue.’ Since the cable television compulsory license

was the result of an industry compromise in a highly tech-

nical area never before regulated by the Office, there is

little support for a finding of agency ‘‘expertise.’’!

Bethlehem Steel Corp. v. EPA, 723 F.2d 1303, 1309 (7th Cir. 1983).

The Copyright Office has shown remarkable consistency in upholding

the positions advanced by MPAA in successive rulemakings involving

Section 111. Cablevision can only note the obvious closeness of interest

and frequency of contact between the Copyright Office and copyright

owner interests over the years. See, e.g., Memorandum from Fritz At-

taway to members of the Cable Copyright Committee (November 30,

1977) (enclosing prepublication copy of Copyright Office Notice of Pro-

posed Rulemaking in Docket No. 77-2, and noting ‘‘private{ ]'’ views

of agency on part of proposal); Memorandum from Becky Raphael,

MPAA, to Jon Baumgarten, et al.. Copyright Office (December 21,

1978) (thanking agency staff for ‘‘consideration and help’’ in making

cable system reporting data available to MPAA). MPAA has frequently

employed departing Copyright Office personnel responsible for cable

matters.

‘’ See Notice of Final Regulations, 45 Fed. Reg. 45270, 45273 (1980).

The Office’s inconsistent understanding of Section 111 was also high-

lighted in 1981 Copyright Office testimony before Congress recom.

mending that Section 111 be abolished or modified—in part because it

did not require cable systems to pay royalties based on revenues from

higher programming tiers that included broadcast signals, the position

taken by Cablevision since 1978 and now disavowed by the Copyright

Office. See 1981 Oversight at 135 (statement of D. Ladd, Register of

Copyrights).

‘* The Office had before it the analysis of its hired consultant. Charles

Woodard, that “‘basic service,’’ as used in Section 111, should be con-

strued ‘‘in accordance with industry practice and FCC rules and reg-

ulations” to include revenues for services provided to all subscribers,

but not other revenues, such as pay cable, which were clearly distin-

guished by FCC rules. Memorandum of Charles Woodard Addressing

Issues in Docket RM 77-2 (Attachment to Memorandum from Joan

The NFR did not discuss the extensive legislative history

surrounding Section 111. It also did not address Cable-

vision’s statutory construction based on the express lan-

guage of the statute or the alleged trade meaning of the

term ‘‘basic service,” evidence of which Cablevision had

submitted to both courts below.'* The Copyright Office has,

in fact, yet to explain what ‘‘basic service’ means in the

statutory context.'* Moreover, while the Copyright Office

found it had authority to construe statutory terms, the

bases for that authority are barely discussed. In the NF'R,

the Copyright Office did not claim any “‘expertise’’ in the

cable copyright field.

Doherty, Head. Task Group on New Functions, to Jon Baumgarten,

General Counsel, Copyright Office (August 1. 1977)) at 31-32. This

analysis, which reflects Cablevision’s position, was unaccountably omit-

ted from the Copyright Office ‘‘record’’ below, and is not discussed in

the Office's decision.

' The rationale of the NFR in adopting the copyright owners’ inter-

pretation was that proration or allocation of gross receipts (the position

espoused by NCTA) is not permitted by Section 111. This rationale has

no applicability to Cablevision’s construction, which is not grounded on

a “proration’’ theory but rather, on the convenience and practicality

that Congress saw in selecting ‘‘basic service’ as the revenue base for

the royalty calculation.

~ Nowhere in the entire record submitted below by the Copyright

Office. or in any of its regulations or comments, is there any indication

that, in its consideration of tiering. it even asked the obvious threshold

question: What did Congress mean by the term “basic service’’? Con-

sidering the importance that the Copyright Office attaches to the plain

language and literal meaning of the Act in other contexts, the failure

to consider this question deserves attention. The lack of discussion is

all the more peculiar in light of the Office’s own use of the term ‘basic

service’’ specifically to refer to the first tier of service. See, e.g., Letter

from Willie A. Adams, Senior Examining & Processing Technician,

(November 5, 1980) (Copyright Office Record at 2033); Letter from

Patricia K. Johnson, Senior Examining & Processing Technician, Co-

pyright Office, to Donna C. Gregg, Dow, Lohnes & Albertson (July 20,

1982) (Copyright Office Record at 2035), which were submitted to both

courts below.

With virtually all the indicia traditionally associated with

judicial deference to an administrative interpretation of a

controlling statute absent, this case falls within the zone

of doubtful, first impression agency interpretations con-

sidered in DeSylva and Bartok. In failing to recognize the

controlling nature of these cases, the decision of the D.C.

Circuit creates irreconcilable tension.

III. THE DECISION OF THE D.C. CIRCUIT RAISES

SIGNIFICANT QUESTIONS REGARDING THE

SCOPE OF THIS COURT’S DECISION IN CHEV-

RON AND THE ROLE OF COURTS IN GIVING

EFFECT TO CONGRESSIONAL INTENT.

In light of the unusual circumstances surrounding the

promulgation of the Copyright Office regulation and the

lack of a persuasive history of deference to such regula-

tions by the courts, the ruling of the D.C. Circuit conflicts

with this Court’s pronouncement in Chevron. Neither Chev-

ron nor any subsequent decision of this Court applying

Chevron has involved a largely clerical ‘‘office,”’ with no

broad statutory delegation of power, no specific statutory

mandate to exercise discretion in the implementation of

the statute, no enforcement powers or substantive exper-

tise on the matters in question, and which issues a non-

contemporaneous, interpretive ruling embodying a policy

that is not the result of consistent agency practice.'’ The

~ This Court's application of Chevron has involved statutes vesting

broad delegation to an agency to implement equally broad and complex

Congressional purposes, where the agency's interpretation has been

longstanding or consistent and it was evident that Congress chose a

regulatory approach to the subject. See, e.g., Atkins v. Rivera, 477 U-S.

154 (1986); Young v. Community Nutrition Inst.. 476 U.S. 974 (1986);

Federal Deposit Ins. Corp. v. Philadelphia Gear Corp., 476 U.S. 426

(1986); United States v. City of Fulton, 475 U.S. 657 (1986): United

States v. Riverside Bayview Homes, 474 U.S. 121 (1985): Connecticut

Dept. of Income Maintenance v. Heckler, 471 U.S. 524 (1985). Cf Bowen

. American Hospital Ass'n, 476 U.S. 610 (1986); Board of Governors

v. Dimension Financial Corp., 474 U.S. 361 (1986), and Securities

D.C. Circuit ruling extends Chevron to the point where it

erases longstanding principles of statutory construction and

deference which Chevron was not meant to disturb.’*

The D.C. Circuit found Congress’ intent at the time of

enactment: to calculate the royalty payments based on rev-

enues collected from the “‘basic’”’ or first tier of service.

See p. 10a, supra. This should have been the end of the

analysis under the first prong of Chevron. The court, in-

stead, considered the argument that the ‘‘marketplace’’ in

which cable systems operate has changed since 1978. See

p. lla, infra. Unable to make Congress’ intent meet the

present ‘‘marketplace,”’ the D.C. Circuit presumed, without

citation to or support in the Act, its legislative history or

case precedent, that Congress must have also intended to

Industry Ass'n v. Board-of Governors of Federal Reserve System, 468

U.S. 137 (1984), where this Court declined to exercise deference to

agency regulations.

~The decision below does not effect the Congressional intent em-

bodied in the term “basic service,”’ fails to ascribe a meaning to each

word in Section 111(d\2). ignores the trade meaning of the critical

statutory terms, and fails to look in pari materia at the interplay

between FCC regulation of cable and the Congressional efforts to pass

cable copyright legislation. Before and after Chevron, statutory con-

struction has always been the ultimate responsibility of the courts and

deference has never been intended to substitute for thorough judicial

review of administrative actions. See Securities Industry Ass'n v. Boa rd

of Governors of the Federal Reserve System, 468 U.S. 137 (1984); Barlow

r. Collins. 397 U.S. 159, 166 (1970); Zuber v. Allen, 396 U.S. 168, 193

(1969). Had the D.C. Circuit undertaken a more searching review, it

would have concluded that Cherron was not meant to require deference

to an agency in a case like this one, which presents a first impression

issue of the proper construction of a statute. In INS v. Cardoza -

Fonseca, 107 S. Ct. 1207, 1220-21 (1987), this Court suggested that,

in such a case. a court, faced with “a pure question of statutory con-

struction,” may substitute its interpretation for that of an agency.

Contrary to the opinion of the D.C. Circuit (pp. 16a-17a, infra), in

NLRB v. United Food and Commercial Workers Union, Local 23, 108

S. Ct. 413. 421 (1987), the majority of this Court did not retreat from

that proposition.

allow the Copyright Office to change the ‘“‘basic service’’

revenue base to reflect marketplace developments.'*

This ruling, which is facially erroneous in light of the

undisputed fact that the political compromise embodied in

Section 111 did not, as it could not, mirror the marketplace

(p. 5 n.5, supra), distorts, to the point of near extinction,

the first prong of Chevron. It sets the precedent that Con-

gress’ intent, once found, need not be effected if the court

or an agency deems such intent to be outmoded. It allows

an agency to modify critical statutory terms, which Con-

gress took great pains to detail, without the delegation of

authority to do so. It permits courts to impute to Congress

an intent to delegate power to an agency without any

evidence in the controlling statute or its legislative history

that Congress intended to do so. This significant extension

of Chevron merits the Court’s attention.

The D.C. Circuit ruling also raises legitimate questions

regarding the propriety of exercising judicial deference in

circumstances where there is substantial indicia that an

agency’s regulation extends the reach of its statutory man-

date beyond that intended by Congress. Cablevision sub-

mitted to both courts below legislative, regulatory and

affidavit evidence supporting the proposition that ‘‘basic

service,’ the crucial term in the statutory description of

the royalty revenue base, had an established meaning dur-

‘One of the justifications for exercising deference under Chevron is

that Congress delegated power to the agency to choose among com-

peting policies. 467 U.S. at 844-845. In this case, Section 111 was the

result of a hard-fought compromise between copyright owners. whom

this Court had said had no copyright protection for cable retransmis-

sions, and cable operators, who were freely retransmitting programming

without compensating the owners. The industry compromise—as any

compromise would do—created the desired balance among these com-

peting interests. To conclude otherwise, as did the-D.C. Circuit, is to

erase the compromise nature of Section 111 and to forget the historical

bargaining positions of the industries involved at the time of the en-

actment.

ing the time Congress was considering Section 111 and

that Congress intended to adopt that meaning. Behind the

shield of Chevron, the D.C. Circuit largely ignored that

evidence.

Despite the multiplicity of viewpoints expressed by in-

terested persons after Cablevision filed suit in the district

court, Cablevision’s construction of Section 111 is fully

supported by both the plain meaning and the legislative

history of the Act.2° As confirmed by 27 affidavits sub-

mitted without disinterested party disputation in the dis-

trict court,2) when Congress used the term ‘“‘basic service”

to define the revenue base, the term and its synonyms

had a universally-accepted meaning within the cable in-

* Even MPAA agreed that, at the time Congress adopted Section

111 in 1976, ‘‘basic service’’ meant what Cablevision said it meant.

[W]hen we reached the famous agreement that eventually led to

the adoption of Section 111, ... there was obviously a discussion

of what revenues constitute basic revenues ... and ... it was

accepted by all of this [sic] at the time that the basic revenues

were the revenues from the so-called basic package of program-

ming.

Deposition of F. Attaway, Vice President, MPAA, May 22, 1986, Tr.

at 152.

2! The industry witnesses testified in almost identical words that:

Between the year 1970 and 1976, the term “‘basic service” had a

recognized meaning within the cable television industry. It was

the lowest tier of service offered by a cable television system, to

which all subscribers were required to subscribe before they were

permitted to subscribe to any additional tiers of service. The term

“basic service’ was synonymous with and used interchangeably by

the industry with such terms as “minimum level of service,” ‘‘in-

itial package’’ and “‘regular subscriber service.”’

See also H. Rep. at 88 (in describing a cable system, Congress ac-

knowledged that ‘‘{iJn addition to an installation charge, the subscribers

pay a monthly charge for the basic service averaging about six dollars.

A large number of these systems provide automated programming .. .

[and] also originate programs ....’’) (emphasis added).

dustry and the FCC, the only federal agency to have and

exercise regulatory and surrogate copyright policy power

during cable’s early development.” In large part taking

the cable marketplace as it found it, Congress structured

the compulsory license provisions of the Act to guarantee

a fixed revenue base from the “basic” tier, with fixed

=The term “basic service," as used by Congress in the copyright

context, dates back to 1969, when S.543, a comprehensive copyright

revision bill, was introduced. Throughout the succession of bills that

followed, up to enactment of the Act in 1976, Congress used the phrase

“basic service of providing secondary transmissions” to describe the

revenue base upon which cable compulsory license fee calculations were

to take place. See p. 6, supra.

The use of this specific language was triggered in part by the devel-

opment during the same time period by the FCC of signal carriage

rules that required or permitted cable operators to provide subscribers

with sufficient television signals to constitute a defined “‘adequate ser-

vice.” This concept was referred to variously as “minimal level of

service,” “initial package’’ and “regular subscriber service,”’ and ulti-

mately became known in the trade as “basic service."’ See Cable Tel-

evision Syndicated Program Exclusivity Rules, 79 FCC 2d 663, 816-26

(Appendix A) (1980); Cable Television Report and Order, 36 FCC 2d

143 (1972); Cable Proposals, 31 FCC 2d at 115, 116, 120 (1971); Notice

of Proposed Rule Making and Notice of Inquiry in Docket 18397, 15

FCC 2d 417, 429, 431-32, Appendix C at 461 (1968); Second Report

and Order, 2 FCC 2d 725 (1966); First Report and Order in Dockets

14895 and 15233, 38 FCC 683 (1965); Hearings on S.1361 Before the

Senate Subcomm. on Patents, Trademarks and Copyrights, 93d Cong.,

Ist Sess. 312 (1973) (statement of J. Valenti, President, MPAA). Ap-

plying the doctrine of in pari materia, it would have been proper for

the D.C. Circuit to consider the interplay between the FCC regulatory

environment and the developing copyright policy. See, e.g., Oscar Mayer

& Co. v. Evans, 441 U.S. 750, 756 (1979); United States v. Congress

of Indus. Orgs., 335 U.S. 106, 112-13 (1948); Boston Sand & Gravel

Co. v. United States, 278 U.S. 41, 47-8 (1928)

Congress was not unaware of the manner in which the FCC had af-

fected the development of the cable television industry and closely

coordinated its statutory language with the FCC’s communications pol-

icies. H. Rep. at 89. In that light, it is not surprising that Congress

based the CRT’s powers to revise rates on FCC regulatory changes

and trends in operators’ “basic service” (p. 7, supra).

adjustments in royalties, through the DSE mechanism, de-

pending on the number of imported signals carried by the

system. To provide for flexibility in the royalty scheme,

it delegated authority to the CRT to adjust royalty rates.

See p. 6, supra. Thus, the characteristics of the Copyright

Office interpretation found persuasive by the D.C. Cir-

cuit—the lack of congruence between signals carried and

royalties paid, and the convenience of a fixed revenue

base—are also integral to Cablevision’s position.

This Court's decisions establish that, absent express leg-

islative intent evidencing another meaning, trade terms are

presumed to be employed in statutory language with the

meaning ascribed to them in trade usage at the time of

the passage of the act. See, e.g., Corning Glass Works v.

Brennan, 417 U.S. 188, 201-02 (1974); United States rv.

Stone & Downer Co., 274 U.S. 225, 239, 247 (1927); O'Hara

rv. Luckenback S. S. Co., 269 U.S. 364 (1926); Seeberger v.

Cahn, 137 U.S. 95, 98 (1890); Worthington v. Abbott, 124

U.S. 434, 436 (1888); Miller v. Butterfield, 125 U.S. 70,

75 (1888); Tyng v. Grinnell, 92 U.S. 467, 469-70 (1876).

The D.C. Circuit erred in not following these precedents.

While technological developments since the enactment

of the Act have made additional programming available

and allowed cable operators flexibility in packaging the

traditional basic tier of service, the statutory scheme, which

Congress and the industries affected took great pains to

delineate to the most minimal detail, continues to tie the

revenue base to “basic service.’ The D.C. Circuit, through

the exercise of deference to the Copyright Office, cannot

* It is unlikely that Congress would have taken the time to delineate

with specificity the extent of the CRT’s powers to increase the amount

of royaities collected and then left it to the Copyright Office to de-

termine the most critical issue of which revenue base would be appli-

cable. This is particularly unlikely in light of the fact that, by rejecting

provisions in previous bills which would have allowed the CRT to revise

the revenue base (p. 7, supra), Congress expressed its intent to retain

full control over the revenue base and account for future changes solely

through rate adjustments.

modify this express statutory mandate and adopt what it

considers to be a more suitable, practical or convenient

revenue base on the ground that changes in the cable

marketplace may have altered the content of the basic

service. The issue in this litigation is not which compen-

sation is adequate, as the decision below suggests, but,

rather, which compensation was intended by Congress. The

D.C. Circuit had no support for allowing the Copyright

Office to write the term “basic service” out of the statute

and adopt a definition of the statutory revenue base which

is inconsistent with the express language of the Act and

its underlying legislative history.

If Section 111 is not a satisfactory answer to the cable

The two industries have, in fact, variously attempted to

do so since 1978. It is, however, beyond the powers of

courts and agencies to rewrite a clear statute because

there may be a better approach to the problem at that

time. See generally Lyng v. Payne, 106 S. Ct. 2333, 2341

(1986); Louisiana Public Service Comm'n v. FCC, 106 S.

Ct. 1890, 1901-02 (1986); District of Columbia v. Carter,

409 U.S. 418 (1973); Miller v. United States, 294 U.S. 435,

439-440 (1935) United States v. United Verde Copper Co..,

196 U.S. 207 (1905); Office of Consumers’ Counsel v. FERC,

655 F.2d 1132, 1152 (D.C. Cir. 1980). This novel reallo-

cation of legislative power sanctioned by the D.C. Circuit

poses an important question, which this Court should ad-

dress.

retain full control over the revenue base and account for future changes

solely through rate adjustments.

«It is a cardinal principle that statutes are to be interpreted so that

no word is rendered superfluous. See. e.g.. United States vr. Smith, 553

F.2d 1239, 1242 (10th Cir. 1977); Rockbridge rv. Lincoln, 449 F.2d 567.

571 (9th Cir. 1971); Klein vr. Republic Steel Corp., 435 F.2d 762, 766

(3rd Cir. 1970).

IV. THE DECISION OF THE D.C. CIRCUIT DRA-

MATICALLY ENHANCES THE IMBALANCE BE-

TWEEN CABLE AND COPYRIGHT INTERESTS

IN THE FUTURE ADMINISTRATION OF SEC-

TION 111.

The definition of the revenue base under Section

111(dX2XB) is key to a determination of cable operators’

liability for royalties under the Act. When Section 111 was

enacted, Congress and the industries affected hoped to

create a modest, affordable pool of $8.7 million in royalties

for distribution among copyright owners. H. Rep. at 91.

Annual copyright royalties collected at the present time

under Section 111 exceed $100 million and all Congres-

sional expectations. The Copyright Office/MPAA construc-

tion of Section 111(d) cost the cable industry an additional

$40 million this past year alone. 8 Communications Daily,

No. 4, p. 3 (March 7, 1988). These windfall payments will

continue to grow, year after year, as the gross receipts

of cable operators increase.

The exorbitant cost of the copyright compulsory license

under Section 111 is becoming a significant factor in cable

operators’ marketing determinations. Excessive copyright

liability is already resulting in decisions by cable operators

to curtail carriage of broadcast signals on their systems

unless the broadcast stations are willing to pay for the

added copyright liability resulting from such carriage. Ex-

cessive royalties will ultimately necessitate higher sub-

scriber fees for cable programming, particularly now that

almost total rate deregulation under the Cable Commu-

nications Policy Act of 1984, 47 U.S.C. § 543, has come

into effect. All these factors adversely affect the goal of

diversity of viewpoints and programming which the FCC,

under the Communications Act of 1934, 47 U.S.C. §§ 151,

et seq., has traditionally undertaken to promote in the pub-

lie interest.

Section 111 was not designed as, but is rapidly becom-

ing, a measure to vest in the Copyright Office the ability

to regulate the development of cable television. The sudden

attribution to the Copyright Office of expansive substan-

tive authority to construe Section 111, and the resulting

judicial deference to it, will create an administrative night-

mare for the cable television industry. MPAA and other

the statutory scheme for their benefit through the issuance

of substantive regulations.

Attempts in that direction were, in fact, quick to follow

the D.C. Circuit’s decision. MPAA asked the Copyright

Office to issue a regulation requiring that any underpay-

ments of cable copyright royalties during the pendency of

this proceeding be made up with interest. The main issue

presented to the Court in this case will again be deter-

minative—even though neither Section 111 nor its legis-

lative history mentions the collection of interest, does the

so as to issue a binding regulation assessing interest on

multimillion dollar payments to be made by cable opera-

tors? Unless the Court settles the matter, the D.C. Cir-

cuit’s decision will provide the bases for the continued and

unwarranted expansion of Copyright Office powers, which

Congress specifically limited in the Act, and will ultimately

provide copyright owners with the tools to unilaterally re-

write the 1976 industry compromise.

Enormous liabilities will flow from the decision below

beyond increased royalty payments. As the Copyright Of-

fice ventures into exercising its newly-found powers, the

exposure of cable operators to infringement actions founded

on Copyright Office interpretations of Section 111 ad-

vanced after infringement litigation has commenced, with

potential resulting liability in the billions of dollars, will

concomittantly escalate. Copyright owners will continue to

threaten cable operators with infringement litigation based .

on new, overreaching interpretations of Section 111. Since

the Copyright Office, by its own regulations, cannot pro-

vide operators with legal advice on how to achieve com-

pliance, cable systems fearful of the exponential monetary

exposure and litigation costs will have to acquiesce to the

higher royalty payments.

CONCLUSION

For the foregoing reasons, this petition for certiorari

should be granted. If Cablevision is ultimately correct in

urging that its construction of Section 111(d) of the Act

is the one which accurately reflects and promotes Con*

gress’ intent, the matter should be remanded to the district

court for appropriate disposition of the MPAA counter-

claims.

Respectfully submitted,

MarRK J. TAUBER

Counsel of Record

Nora E. GARROTE

PIPER & MARBURY

1200 19th Street, N.W.

Washington, D.C. 20036

(202) 861-3900

MICHAEL A. SCHLANGER

SHAW, PITTMAN, Potts &

TROWBRIDGE

2300 N Street, N.W.

Washington, D.C. 20037

(202) 663-8000

Counsel to Petitioner

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 86-5552

CABLEVISION SYSTEMS DEVELOPMENT COMPANY

MOTION PICTURE ASSOCIATION OF AMERICA, INC., et al.,

APPELLANTS

U.S. COPYRIGHT OFFICE AND ITS REGISTER

And Consolidated Case Nos. 86-5553,

86-5554, 86-5597, 86-5635, 86-5636 and 86-5637

Appeals from the United States District Court

for the District of Columbia

(Civil Action Nos. 83-01655, 83-02785 and 84-03097)

Argued October 15, 1987

Decided January 5, 1988

Stuart H. Newberger, Assistant United States Attor-

ney, with whom Joseph E. diGenova, United States Attor-

ney, Dorothy Schrader, General Counsel, United States

Ryan, Assistant United States Attorneys, were on the

brief for federal appellants ‘cross-appellees.

Richard M. Cooper, with whom Edward Bennett Wil-

liams, Robert W. Hamilton, Paul Mogin, Arthur Scheiner

and Dennis Lane were on the brief for appellants cross-

appellees, Motion Picture Association of America, Inc.,

et al.

Jay E. Ricks, with whom David J. Saylor, Gardner F.

Gillespie, Steven J. Horvitz and Brenda L. Fox, were on

the brief for appellee, National Cable Television Associa-

tion, Ine. Michael S. Schooler also entered an appearance

for appellee, National Cable Television Association, Inc.

Mark J. Tauber and Michael A. Schlanger, with whom

Deborah C. Costlow and Nora E. Garrote were on the

brief for appellee cross-appellant, Cablevision Company.

Phillip R. Hochberg, for National Basketball Associa-

tion and National Hockey League, Ritchie T. Thomas and

Judith Jurin Semo, for National Collegiate Athletic Asso-

ciation, David H. Lloyd, Robert Alan Garrett, Terri A.

Southwick, and Edwin M. Durso, for Major League Base-

ball, Victor E. Ferrall, Jr. and John I. Stewart, Jr. for

National Association of Broadcasters, Bernard Korman

and |. Fred Koenigsberg, for American Society of Com-

posers, Authors and Publishers, Charles T. Duncan and

Michael Faber for Broadcast Music, Inc., Nicholas Arco-

mano for SESAC, Inc., Gene A. Bechtel for Public Broad-

casting Service, James S. Gorelick for National Public

Radio, John H. Midlen, Jr. for Old-Time Gospel Hour,

and Douglas G. Thompson, Jr. for Canadian Broadcast-

ing Corp., were on the brief for amici curiae, National

Basketball Association, et al.

Robert W. Coll also entered an appearance for amici

curiae, National Hockey League.

Before: ROBINSON, RUTH B. GIsSBURG and SILBER-

MAN, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBER-

MAN.

SILBERMAN, Circuit Judge: The Copyright Act of

1976, 17 U.S.C. §§ 101 et seg. (1982 & Supp. IV 1986),

grants cable television systems a license to retransmit

copyrighted broadcast ' programming to their subscribers,

id. §111(c) (1), and requires in return that the systems

deposit with the Copyright Office a fee equal to a “spe-

cified percentage[] of the gross receipts from subscribers

to the cable service . . . for the basic service of provid-

ing secondary transmissions of primary broadcast trans-

miiters,” id. § 111(d)(1)(B).2 In a series of complaints

consolidated for trial, a trade association representing

the cable television industry and Cablevision, an individ-

ual cable company, sued several copyright owners seeking

a declaration of the meaning of the above-quoted lan-

guage. The copyright owners filed counterclaims against

Cablevision for copyright infringement, alleging that

Cablevision’s interpretation of the statutory phrase led

to an underpayment of the required fee and thus made

1 Throughout this opinion, a “broadcast” program is one

originally propagated by traditional over-the-air television

signals for receipt by antenna, and a “cable-originated” or

“non-broadcast” program is one produced solely for cable sys-

tems and disseminated only through them. ‘Transmission’

is a general term denoting any means of delivering program-

ming. Thus, a broadcast program could be retransmitted over

cable.

2In 1986, Congress amended 17 U.S.C. § 111(d) by elimi-

nating old § 111(d)(1) and redesignating accordingly. Pub.

L. No. 99-397, §2(a). The subsection at issue here, new

§ 111(d) (1), appears as §111(d)(2) in the district court’s

opinion.

the company an infringer. On the district court’s order,

the trade association joined the Copyright Office as a de-

fendant.

On cross motions for summary judgment, the district

court rejected the Copyright Office’s interpretation of the

statute—that gross receipts “include the full amount of

monthly (or other periodic) service fees for any and all

services or tiers of services which include one or more

secondary transmissions of television or radio broadcast

signals,” 37 C.F.R. § 201.17(b) (1) (1987)—as incon-

sistent with congressional intent and endorsed instead the

position of the trade association. Cablevision Co. v.

Motion Picture Ass’n of Am., 641 F. Supp. 1154, 1161

(D.D.C. 1986). The court ordered the Copyright Office

to modify its regulation to accord with the court’s per-

ception of congressional intent. The district court then

dismissed the counterclaims for infringement on grounds

that there had been no violation of “the spirit of the

law.” Id. at 1163. The copyright owners, the Copyright

Office, and Cablevision appeal, putting forward a wide

variety of arguments for reversal or modification of the

district court’s order. We hold that the Copyright Office

has the authority to issue regulations interpreting the

statutory language at issue and that its interpretation

was a reasonable one. We agree with the district court’s

rejection of Cablevision’s reading of the statutory term

“basic service,” but hold that the district court erred in

declining to defer to the Copyright Office’s regulation

as to what revenues make up “gross receipts.” We

also reverse and remand for further proceedings regard-

ing the counterclaims. The basis for the district court’s

dismissal is unclear, and the record before us is insuffi-

cient to allow us to rule as a matter of law on whether

infringement occurred.

This case presents a dispute over the structure of a

statutory fee that cable television operators must pay for

the right to retransmit broadcast television program-

ming. Those who pay the fee, the cable systems, advocate

a construction that the eventual recipients of the fee, the

because, after governmental intervention designed to cor-

rect a market imperfection, the market evolved in un-

anticipated directions. The disagreement has its roots in

two Supreme Court decisions, Teleprompter Corp. v.

Columbia Broadcasting System, 415 U.S. 394 (1974),

and Fortnightly Corp. v. United Artists Television, 392

U.S. 390 (1968), that held retransmissions by cable tele-

vision systems of broadcast programming, whether of

local or distant origin, did not constitute “performances”

under the copyright law and thus did not give rise to

liability for infringement. The Teleprompter Court con-

cluded that if the Copyright Act of 1909 was inadequate

to govern the commercial relationships that had emerged

in the interim, it was for Congress to create a substitute.

415 US. at 414.

Thus prompted, Congress, as part of its revision of the

“secondary transmissions.”” When a cable system takes

a broadeast signal (“primary transmission”) and de-

livers it to the system’s subscribers (‘“‘secondary trans-

mission”), the system is earning money by selling to its

customers the copyrighted material licensed only for the

primary broadcast transmission. Under Fortnightly and

Teleprompter, the copyright owner was unable to share

directly in those revenues. Congress was of the view that

the copyright holders should receive direct compensation

for the use of their rights. But Congress also recognized

that the transaction costs accompanying the usual

scheme of private negotiation that controls the use of

copyrighted materials could be prohibitively high. H.R.

Rep. No. 1476, 94th Cong., 2d Sess. 89, reprinted in

1976 U.S. CoDE Conc. & ADMIN. NEWS 5659, 5704.

The operator of a small cable system in a rural area, for

instance, might find it more profitable to forgo rebroad-

casting a wide variety of signals rather than to negotiate

with various copyright owners in Atlanta, Chicago, and

Los Angeles; cable operators, subscribers, and copyright

holders would all be worse off under such circumstances

than in a world where the retransmission rights could

change hands at a lower cost. Congress saw that neither

the situation as it existed after Fortnightly and Tele-

prompter nor a replication of classic copyright arrange-

ments would be entirely satisfactory.

The response was a new regime, embodied in section

111 of the revised Act. Congress first abandoned the no-

tion of individual negotiation in favor of a compulsory

license. Under § 111/c) of the Act, a cable system may

retransmit to its customers any primary transmission

made by a broadcast station licensed by the Federal Com-

munications Commission.’ In exchange for this privilege,

however, the cable systems are required to pay a fee, to

be distributed to the copyright owners as surrogate for

the royalties for which they might have negotiated under

a pure market scheme.

In devising that fee, Congress drew a crucial distinc-

tion between local and distant broadcast signals. The

House Judiciary Committee observed that “there was no

evidence that the retransmission of ‘local’ broadcast sig-

nals... threatens the existing market for copyright

program owners.” H.R. Rep. No. 94-1476, supra, at 90.

Because local‘ retransmission does not carry the signal

3 /.e., the familiar network and local programming that can

be received with an antenna. The words “station” and “chan-

nel” are synonymous for purposes of this opinion and refer to

an entity that transmits by broadcast or cable a single regular

schedule of programming. For example, a local affiliate of a

network is a station or channel, as is a cable-originated entity

such as ESPN that offers a single complete bill of fare.

‘The technical definition of local, which appears at 17

U.S.C. §111(f), is not at issue in this case. For conceptual

to households beyond those local acvertisers would be

willing to pay to reach, the advertising revenue base will

be increased by any expansion of the scope of the dis-

semination due to the retransmission, and copyright

owners will be able to negotiate with the broadcaster to

receive appropriate compensation. By the same token,

the retransmission of network signals, from whatever

distance, causes no difficulty. Advertisers on national

network television—such as CBS—expect to reach au-

diences nationwide and pay accordingly. Because na-

tional advertisers will pay to reach any incremental

viewers, networks will be willing and able to pay copy-

right holders the full value placed on the receipt of the

program by viewers (as measured by the willingness of

advertisers to buy time during the program!. /d. Dis-

tant non-network programming is altogether another

matter. Local advertisers will not pay extra to reach

viewers who cannot reasonably be expected to patronize

their businesses, so the revenue base from which to com-

pensate the owners understates the value of the use of

the materials, and the copyright holders would, absent

an adjustment mechanism, be undercompensated. /d.;

see also National Cable Television Ass'n v. Copyright

Royalty Tribunal, 689 F.2d 1077, 1079 (D.C. Cir. 1982).

The Act therefore allows the copyright owners of distant

non-network programs to receive a portion of the fees

paid to the cable systems by subscribers. 17 U.S.C.

§ 111(d) (3) (A)

Congress’ broad purpose was thus to approximate ideal

market conditions more closely than would either the

Teleprompter or individual negotiation models; the com-

pulsory license would allow the retransmission of signals

for which cable systems would not negotiate because of

purposes, a signal is “local,” as opposed to “distant,” if the

subscribers of a particular cable system can receive the broad-

cast signal with an antenna. See, e.g., Teleprompter, 415 U.S.

at 401 & n.7.

high transaction costs, and the owners of copyrights for

non-network programs carried on cable systems far from

the original area of broadcast—who could not receive

full value out of advertising revenues—would receive

compensation out of the fees paid by the systems.

The disputed fee computation comprises two parts and

is deceptively simple in principle. The cable system first

calculates “‘the gross receipts from subscribers to the

cable service during [the applicable] period for the basic

service of providing secondary transmissions of primary

broadcast transmitters.” 17 U.S.C. § 111(d)(1)(B). By

using one of three formulas, selected according to the

amount of gross receipts, the system then determines

what percentage of gross receipts is due as a fee.

For larger cable systems, the percentage of gross

receipts owed depends upon the number of distant signal

equivalents (“DSEs”) carried by the system.’ The DSE

figure is calculated by assigning a value of 1.0 to each

distant independent station carried and 0.25 to each

distant network station or distant noncommercial educa-

tional station, and summing. /d. §111/f). The lower

value is assigned to distant network affiliates because

the bulk of their programming is provided by the net-

works and, as described above, copyright owners of net-

work broadcasts are presumed to be fully compensated

out of revenues from advertisers seeking to reach the

national market. The fee owed rises by a certain per-

* Congress was concerned about the potential impact of the

fees on smaller systems, especially since many such systems

must carry more distant signals to compensate for sparse

local broadcasting, and therefore provided them special relief.

See H.R. Rep. No. 1476, supra, at 96-97; S. Rep. No. 473, 94th

Cong., Ist Sess. 81 (1975). Systems with semiannual gross

receipts of $75,800 or less pay a flat fee of $28. Systems with

semiannual gross receipts of more than $75,800 but less than

$292,000 pay a fee based on set percentages of gross receipts

without regard to DSEs. See 17 U.S.C. § 111(d) (1) (C), (D);

37 C.F.R. § 308.2(b).

centage of gross receipts—which percentage, established

by regulation, declines as the number of DSEs rises—

for each incremental DSE. See id. § 111(d)(1)(B);

37 C.F.R. § 308.2(a).° Thus, a large (gross receipts

greater than $292,000) cable system that carried one

distant signal equivalent would pay 0.893% of gross

receipts, a comparable system with a DSE of 2.0 would

pay 1.4565, and a similar system with a DSE of 5.0

would pay 2.847%. A system with a DSE of less than

one, however, would also pay 0.893%. 37 C.F.R. § 308.2

(a) (1): see also H.R. Rep. No. 94-1476, supra, at 96.

The Act does not require perfect correlation between the

number of distant signals retransmitted and the fee paid,

but it operates roughly to charge systems according to

the number of distant signals they use. See supra note

5 (small systems pay regardless of signal use). Fi-

nally, the fees are distributed to the designated copyright

owners by the Copyright Royalty Tribunal (“CRT”),

a body created by the Copyright Act to administer cer-

tain of its provisions.’

* The declining proportion of gross receipts added to the fee

for each additional DSE is appropriate since, ceteris paribus,

the revenues of a large system, see supra note 5, could be

expected to rise with each new signal. The mechanism pro-

vides for a more uniform dollar-per-subscriber-per-signal fee.

717 U.S.C. § 801. The CRT performs two main tasks rele-

vant here. The first is the quasi-judicial function of distribut-

ing among copyright owners the fees paid to the Copyright

Office under section 111, thus completing the statutory substi-

tute for market transactions. Jd. § 801(b) (3); see also id.

§ 111(d) (3), (4). Second, the CRT has the quasi-legislative

responsibility to adjust the fee rates to reflect inflation or

cable system subscription rate changes in order to maintain

the real per-subscriber royalty fee which existed at the date of

enactment. Jd. § 801(b) (2) (A). The CRT also has the power

to adjust overall rates to maintain reasonableness in the light

of FCC rule changes. 17 U.S.C. § 801(b) (2)(B), (C). The

CRT has no responsibility or authority to define gross receipts

or otherwise to determine the relative share of the total fund

10a

The foregoing description of the-operation of section

111 is common ground for the parties. The dispute cen-

ters on the definition of “gross receipts . . . for the basic

service of providing secondary transmissions,” the base

amount from which the fee is calculated and on which

depends the size of the fund the CRT distributes. Con-

gress did not define “gross receipts” or ‘‘basic service”

in the 1976 Copyright Act, but an examination of the

reports on the legislation evokes a fairly sharp image of

the model that Congress had in mind at the time of en-

actment. According to that picture, the cable subscriber

had available from the system a single package for a flat

fee containing a number of retransmitted broadcast

signals and some channels produced just for cable—the

“basie service” that every subscriber received—and be-

yond that, individually priced specialty channels avail-

able only on cable from which the subscriber to the basic

service could pick and choose—“pay cable.” See, e.g.,

H.R. Rep No. 94-1476, supra, at 88.* In this paradig-

matic case, the definition of gross receipts from basic

service was simple; gross receipts were the flat fee for

the initial package multiplied by the number of sub-

scribers. It was clear from the outset that receipts for

pay cable and other charges unrelated to programming,

such as those for installation, were not to be a part

of gross receipts, see H.R. REP. No. 99-1476, supra,

at 96, and that proposition is undisputed before us.

to be contributed by individual cable systems. See 17 U.S.C.

§ 803 (a).

® The legislative history does not make it absolutely clear

whether Congress understood the term pay cable to encom-

pass only individually priced non-broadcast stations—the

usual content of the term, see Home Box Office, Inc. v. FCC,

567 F.2d 9, 18 & n.8 (D.C. Cir.), cert. denied, 434 U.S. 829

(1977)—or to include the possibility of a package of several

cable-originated channels offered for one price. As the re-

mainder of this opinion will indicate, we need not reach the

question and therefore leave it unanswered.

—

lla

Primarily because of technological constraints, the initial

package consisted largely of the retransmission of local

broadcast signals and of certain rather rudimentary

eable-originated programming—mostly automated time,

weather, and news services and access channels available

to local citizens as an outlet for speech, see 47 C.F.R.

§ 76.254 (1976). As a rule, such cable-originated serv-

ices were not greatly prized by subscribers and whether

they were included in the gross receipts pool was a mat-

ter of negligible concern.

Evolution of the cable industry and its marketing prac-

tices rather quickly made the meaning of gross receipts

problematic, however, as reality diverged from the model

on which the Act was based. As improvements in ter-

restrial technology gave cable systems increased channel

capacity, advanced satellite services allowed cable trans-

missions to be offered nationwide. These developments

ushered in such familiar and popular cable-originated

stations as ESPN and CNN and made possible the de-

velopment of “sunerstations,” stations broadcast in one

location but carried nationwide by cable, such as WTBS

from Atlanta and WGN from Chicago.® Because the

initial package offered to subscribers might now contain,

for one price, local broadcast programming, distant

broadcast programming (e.g., WTBS), and highly de-

sirable cable-originated programming (e.g., FSPN), the

question arose whether cable companies could allocate

part of the initial package’s subscription price to cable-

* As advertisers recognize that the superstations reach na-

tional audiences, one would expect the charges for advertising

time to rise, allowing copyright owners to negotiate appro-

priate royalty fees from superstations as they do from net-

works. The statutory scheme could thus become superfluous

for perhaps the most important category of distant broadcast

programming. See Operators Rate WTBS, ESPN Most Valu-

able Basic Services, Multichannel News, July 4, 1983, at 1

(listing superstation WTBS as one of the most lucrative cable

properties other than pay cable).

12a

originated programming and exclude that amount from

gross receipts. Changes in the marketing of cable serv-

ices added to the confusion. The practice of selling a

single initial package plus individually priced pay cable

stations gave way to tiering: the offering of several

different packages, or tiers, of stations, with each tier

separately priced.’° And each tier might contain both

broadeast_and_ cable-originated stations. The question

soon arose of whether entire tiers could be excluded from

gross receipts as well as whether it was permissible to

exclude revenues from non-broadcast channels within a

“mixed” tier that contained both broadcast and non-

broadcast channels. Because the congressional debates

centerel on a model of the cable industry that omitted

such complexities, no obvious answers were available.

We thus arrive at the crux of this case—whether reve-

nues from all tiers other than pay cable and from all

channels within each included tier must be included in

gross receipts. The cable companies argue that, since the

statute was not meant to reimburse the copyright owners

of non-broadcast programming, and since advertisers buy

time on cable-originated stations that are carried nation-

wide such as CNN and ESPN just as they do on the

broadcast networks, with the desire to address the entire

audience actually reached, there can be no reason to in-

clude receipts for subscriptions to cable-originated chan-

nels in a fund designed to reimburse the owners of copy-

rights on distant broadcast programming. Therefore, the

cable companies reason, revenues from non-broadcast

channels or tiers that do not resemble the initial package

envisioned by Congress should not be included in gross

receipts.

’ For example, tier 1 could offer four local broadcast sta-

tions and an automated weather service plus ESPN and

WTRS for 86, tier 2 could carry WGN and CNN for 83, and

tier 3 could carry eight more cable-originated channels for $5.

13a

The germ of a regulatory answer to these contentions

appeared in 1978 in a revision of the Copyright Office's

regulations implementing section 111. Those regulations

emphasized that gross receipts included “the full amount

of monthly ‘or other periodic) service fees,’ 43 Fed.

Reg. 27,827, 27,832 (1978). The preamble explained

that systems that furnished to subscribers “for a single

monthly fee, a service that includes retransmission of

radio and television signals and local origination (such

as time and weather and automated news services),

id. at 27,828 ‘emphasis added), could not allocate a por-

tion of the fee to the local origination services (and

thereafter exclude that portion from gross receipts) be-

cause the Copyright Office could find “no statutory jus-

tification or basis for allocating” the fee. Jd. The Office

thus determined early on, albeit without considering the

ease of more valuable non-broadcast properties such as

ESPN, that intra-tier allocation was impermissible.

In response to changes in the cable industry, and, most

important for our purposes, to comments from cable sys-

tem operators that a review of the definition of gross

receipts was desirable, the Copyright Office undertook an

exhaustive reevaluation of its regulations in 1981. 46

Fed. Reg. 30,649, 30,650 (1981). Among other items, it

proposed to examine whether gross receipts from a par-

ticular tier could be prorated when that tier contained

non-broadecast components and whether a system that of-

fered tiered service should be required to include any,

all, or part of revenues from tiers not received by all

subserivers in gross receipts from basic service. Id. at

30,651.

In the public hearing, Robert W. Ross, Vice President

for Legal Affairs and Government Relations of the Na-

tional Cable Television Association (‘NCTA’), a trade

association for cable system operators, admitted that at-

tempts to prorate revenues among channels offered on the

same tier “would add an undue complication to the pro-

l4a

cess, and might well be a subject for substantial litigation

and dispute.... [Attempting proration] is not the posi-

tion that reflects the attitude of the Association. . . .

I think vou could create a regulatory monster... .”

Hearings of July 28, 1981, Joint Appendix at 325-27.

The resulting regulation issued some time later, in April

of 1984. 49 Fed. Reg. 13,029 (1984). No doubt in-

fluenced in part by the NCTA’s position, the regulation

provides that “[g]ross receipts for the ‘basic service of

providing secondary transmissions of primary broadcast

transmitters’ include the full amount of monthly (or

other periodic! service fees for any and all services or

tiers of services which include one or more secondary

transmissions of television or radio broadcast signals.”

37 C.F.R. §$ 201.17'b' (1). In short, if a tier contains

a broadcast signal, all subscription revenues from the

tier are to be included in gross receipts.

This lawsuit cannot accurately be styled solely a chal-

lenge to that interpretation, for the first complaint was

filed almost one year before the regulation took effect.

Cablevision, a New York cable system operator, sought a

declaratory judgment regarding the proper definition of

gross receipts from basic service. Cablevision had since

1979, when it moved distant broadcast programming

from the initial tier those channels occupied with local

broadcast programming to an optional, higher tier, in-

terpreted the term to include only those monies received

for subscriptions to the first, or lowest, tier to which

all customers were required to subscribe before electing

higher tiers. Cablevision argued that its interpretation

was correct because its definition of “basic service’’ com-

ported with trade usage of the term and a consistent line

of FCC and congressional use.”

The defendants to that declaratory action, the Motion

Picture Association of America and eight of its member

11 Cablevision later filed a second complaint on behalf of

three of its other systems that engaged in the same reporting

practices.

15a

companies (“Copyright Owners”) filed counterclaims

charging Cablevision with copyright infringement under

section 111 for retransmitting broadcasts without paying

the proper statutory fee. See 17 U.S.C. § 111ic) (2).

The district court bifurcated the case; the first phase

was to deal with the proper definition of gross receipts,

the second, to follow if it was determined that Cable-

vision had not complied with the law, with the question

of what copyrights had been infringed and what reme-

dies were due.

The NCTA entered the battle in September of 1983

by filing a complaint for declaratory judgment regarding

the meaning of the Act against the same defendants. It

was the NCTA’s position that cable systems should be

allowed to attribute a portion of the revenues received as

subscribers’ fees for each tier containing both broadcast

and cable-originated programming to the latter program-

ming and to exclude that amount from gross receipts.

In effect. the NCTA was challenging the decision of the

1978 regulations not to allow allocation and abandoning

—indeed reversing—its posxion in the 1981 hearings be-

fore the Copyright Office. The district court ordered the

NCTA to join the Copyright Office and the Register of

Copyrights as necessary parties and then consolidated the

cases and ruled on motions for summary judgment.

The district court declined to accord deference to the

tion’s definition of gross receipts did “not have a reason-

able basis in law and frustrate[d] the underlying con-

gressional policy.” 641 F. Supp. at 1160. The district

judge concluded that it “seem[ed] unfair” to require a

cable system to pay the section 111 royalty fee on non-

broadeast transmissions for which it had already paid

merely because the channel was in the same tier with

broadcast programming. 7d. The court however rejected

Cablevision’s attempt to equate “basic service” with “first

tier” as also inconsistent with Congress’ purpose and as

16a

inviting manipulation. It instead agreed with the NCTA

that the statute requires revenues attributable to non-

broadeast programming to be excluded from gross re-

ceipts and ordered the Copyright Office to devise a means

of performing this allocation. Jd. at 1162-63. Finally,

the court dismissed the counterclaims, finding that Cable-

vision “did comply with the spirit of the law.” Jd. at

1163. On appeal, all parties but the NCTA attack the

district court’s definition of . oss receipts, and the Copy-

right Owners seek reversal of the dismissal of their

counterclaims.

II.

We agree with government counsel’s statement at

oral argument that, as applied to the cable industry

as now constituted, section 111 is “not a model of clar-

ity.” The statute fails to define the basic terms at

issue here, and the legislative history strongly indicates

that Congress never considered the arguments now be-

fore us. The instant case thus would seem to be con-

trolled by Chevron U.S.A. Inc. v. Natural Resources De-

fense Council, 467 U.S. 837 (1984), in which the Su-

preme Court addressed the “bubble concept” for defining

“stationary source” within the Clean Air Act Amend-

ments of 1977 and concluded that an examination of the

legislation and its history revealed that Congress had no

specific intention regarding the matter. Jd. at 851, 862.

The Court held that, in the face of such legislative

silence, “the question for the court is whether the agen-

cy’s answer is based on a permissible construction of the

statute.” Jd. at 843.'? But before we examine the reason-

12 We are urged to undertake a more searching review on

the strength of language in JNS v. Cardoza-Fonseca, 107 S. Ct.

1207 (1987). Cablevision in particular argues that this case

means that a court owes no deference to an agency whenever

“a pure question of statutory construction,” id. at 1221, is

involved. The Supreme Court has recently confirmed, how-

ever, that the language in Cardoza-Fonseca does not alter the

Chevron test—courts are to use the “traditional tools of statu-

17a

ableness of the Copyright Office's interpretation, we must

first deal with an anterior question: Does the promul-

gating agency, the Copyright Office, have authority to

interpret the statute and are its interpretive regulations

due judicial deference if reasonable?

Cablevision and the NCTA contend that the Copyright

Office’s interpretation is owed no deference because the

Office has no authority to issue such a substantive regula-

tion. The NCTA’s position on this point, however, is

paradoxical; it argues that “the Copyright Office lacks

the legal authority and expertise to issue binding inter-

pretations of the Copyright Act,” yet at the same time

asks us to direct that same Office to issue regulations

(forms) to implement its general intra-tier allocation

proposal. The awkwardness of the NCTA’s position

serves to emphasize that this statute is not self-executing.

Given Congress’ awareness of the rapid changes taking

place in the cable industry, we cannot believe that Con-

gress intended that there be no administrative overseer

of this scheme. The statute’s language is not to the con-

trary. Section 702 of title 17 of the United States Code

authorizes the Register of Copyrights “to establish regu-

lations . . . for the administration of the functions and

duties made the responsibility of the Register under this

title.” More specifically, section 111(d)(1) of that title

directs that cable systems deposit their compulsory li-

cense royalty fees with the Register of Copyrights, “in

accordance with requirements that the Register shall,

after consultation with the Copyright Royalty Tribunal

. ., prescribe by regulation.”

Cablevision and the NCTA resist the obvious import

of these passages by contending that this rulemaking

tory construction” to determine congressional intent, and to

defer to the agency’s permissible construction when the

statute is “silent or ambiguous.” NLRB v. United Food &

Commercial Workers Union, Local 28, 56 U.S.L.W. 4037, 4040-

11 (U.S. Dec. 15, 1987); see also id. at 4043 (Scalia, J.,

concurring).

18a

power is limited to the ministerial task of designing

forms, and they present authority asserted to stand for

the proposition that the Copyright Office is unusual among

government agencies in that its interpretations of the

statutes it administers are due no judicial deference. Of

course, designing forms to implement the NCTA’s pro-

posal has a substantial policy component. But, more to

the point, we observe that this case is fundamentally one

of first impression regarding section 111 and hold that

the cases cited do not, for reasons we will discuss, es-

tablish the general principle that the Copyright Office’s

interpretation of that statute can be ignored. Our hold-

ing on deference due the Office does not extend beyond

the bounds of its interpretation of section ill, but we

do believe the Office’s construction of at least that section

is due deference.

We have emphasized that the compulsory licensing

scheme was a break from the traditional copyright regime

of individual contracts enforced in individual lawsuits.

If we agreed that the Copyright Office had no power to

interpret the statute, every dispute over the meaning of

the statute could give rise to an infringement action

where, as this case suggests, enormous damage claims are

commonplace.'* If, on the other hand, reasonable inter-

pretations of the statute by the Copyright Office are due

judicial deference, a copyright holder’s incentive to bring

infringement actions that are based on interpretations

other than those of the Copyright Office would be reduced.

Since Congress consciously rejected traditional, contract-

based implementation as unworkable, a holding that

forced resolution of every dispute in an infringement or

declaratory judgment action would be unfaithful to this

13. No party argues that the CRT or the FCC, or anyone

other than the Copyright Office or the judiciary, has authority

to interpret the language in question.

'4 Cablevision suggests it could be subject to a $3 billion

judgment.

19a

policy choice and antithetical to Congress’ central concern

of providing a low cost transfer of copyrighted materials.

We are also unpersuaded by the suggestion that no

deference is due the Office because it lacks expertise in

vhis field. The Copyright Office certainly has greater

expertise in such matters than do the federal courts;

and while watching over the cable industry may have

been a novel brief for the Copyright Office when the new

Act was passed, that agency has had time to accumulate

experience. But, in any event, Chevron’s rationale for

deference is based on more than agency expertise.

[A]n agency to which Congress has delegated policy-

making responsibilities may, within the limits of

that delegation, properly rely upon the incumbent

administration’s views of wise policy to inform its

judgments. ... [I]t is entirely appropriate for

this political branch of the Government to make

such policy choices—resolving the competing inter-

ests which Congress itself either inadvertently did

not resolve, or intentionally left to be resolved by

the agency charged with the administration of the

statute in light of everyday realities.

Chevron, 467 U.S. at 865-66. Like the Court in Chevron,

we are faced with several interpretations of ambiguous

language which really involve competing policies among

which Congress did not explicitly choose. We see no

reason to deny the Copyright Office’s legitimacy in-select-

ing, as the EPA did in Chevron, among those choices so

long as the interpretation selected is reasonable.

The Supreme Court implicitly considered whether def-

erence is due the Copyright Office’s construction of the

(1956). Resolving a dispute between an author’s widow

and his illegitimate child, the Court took note of Copy-

right Office wegulations, recently rescinded though ap-

parently still followed in practice, that ostensibly gov-

erned the issue. The Court stated that it “would ordi-

20a

narily give weight to the interpretation of an ambiguous

statute by the agency charged with its administration,”

id. at 577-78, but declined to rely on the interpretation

because the fact that the practice was “more the result

of a decision that there is substantial doubt over the ques-

tion, rather than the result of a confident interpretation

of the statute” deprived the practice “of any force as an

interpretation of the statute,” i”. The Supreme Court

has thus indicated that it would defer to the Copyright

Office when the latter actually interpreted the statute.

undermining the notion that the Office is never owed

deference."*

To be sure, the Copyright Office in this case may have

come close to the point of excessive diffidence identified in

DeSylva. In its statement promulgating the 1984 regu-

lations, the Office “‘welcome[d] the guidance of the courts

on ‘tiering,’” but concluded it could not justify further

delay in issuing regulations in light of requests from “the

major interests affected by the compulsory license” that

the agency take a position. 49 Fed. Reg. 13,029, 13,031

(1984). The Office also stated it could not “provide the

flexibility requested by cable systems absent guidance

from the Congress or the courts.” Jd. at 13,035. On

balance, however. we conclude that the Office did see it-

self as having the authority to issue regulations and did

make “a confident interpretation of the statute.” De-

Sylva, 351 U.S. at 577. The Office stated that “[wlith

respect to administration of the Copyright Act in gen-

eral and the compulsory licenses in particular, the Copy-

right Office must and does, however, interpret the Act.”

49 Fed. Reg. 13,029, 13,031 (1984). After weighing the

potential administrative costs of intra-tier allocation. it

concluded that “the Copyright Act does not permit any

proration or other allocations of either DSE’s or gross re-

The DeSylra Court may also have been unwilling to at-

tribute to Congress an intent to delegate to the Copyright

Office authority over a matter such as the descent of property

that is traditionally entrusted to the states.

2la

ceipts,” id. at 13,035 ‘emphasis added!—not that the

Office did not have the power to order the allocation._ The

Office thus did interpret the statute with the meaning of

DeSylva.

Cablevision and the NCTA also rely on Bartok v.

Boosey & Hawkes, Inc., 523 F.2d 941 (2d Cir. 1975).

The Second Circuit there refused to give weight to a

definition of “posthumous” appearing on a Copyright

Office form, stating flatly that “the Copyright Office has

no authority to give opinions or define legal terms and

its interpretation on an issue never before decided should

not be given controlling weight.” Jd. at 946-47 ‘| foot-

notes omitted). But the court held the interpretation

put forward by the Office was inconsistent with legis-

lative intent, so its statement on the deference due the

Office would seem to be a dictum. In any event, the Sec-

ond Circuit was not considering section 111, and we can-

not agree with Cablevision and the NCTA that the court’s

proposition, even if generally sound, should be extended te

cover that section. We think Congress saw a need for

continuing interpretation of section 111 and thereby gave

the Copyright Office statutory authority to fill that role.

Its interpretations are therefore due the same deference

given those of any other agency. We thus turn to the

reasonableness of the construction at issue.

III.

The regulation applies the language of 17 U.S.C. § 111

(d)(1)(B): “the gross receipts from subscribers .. .

for the basic service of providing secondary transmissions

of primary broadcast transmitters.” We find it telling

that the interpretations of that language offered by

Cablevision and the NCTA as alternatives to the Copy-

right Office’s regulation violate the canon of construction

'* The Bartok court cites DeSylva. As our discussion of the

latter case indicates, we do not believe it stands for this

proposition.

22a

that effect should be given to every word of the statute

so that no part is rendered “inoperative or superfiuous.”’

Norfolk & W. Ry. v. United States, 768 F.2d 373, 379

(D.C. Cir. 1985), cert. denied, 107 S. Ct. 270 (1986).

The NCTA’s interpretation, adopted by the district court,

would allow cable companies to assign monetary values to

non-broadcast programming that is combined with broad-

cast programming in a mixed tier and to exclude those

amounts from gross receipts. This approach reads “basic

service” out of the statute; under this view, the language

could as easily be “gross receipts from subscribers . . .

for secondary transmissions of primary broadcast trans-

mitters.” By emphasizing only the delivery of discrete

stations, this reading ignores the clear implication of

the phrase “basic service’ that cable services are typ-

ically provided in packages.

Cablevision, conversely, contends that “basic service”

is a well defined term of art, meaning the first or lowest

tier. But a necessary consequence of this interpretation

is that all language that follows that term is superfluous.

Indeed, since Cablevision contends basic service can con-

tain anything the cable system chooses, and not neces-

sarily just—or even any—broadcast retransmissions, sce

infra p. 29, the phrase “of providing secondary trans-

missions of primary broadcast transmitters,” which

would seem to serve the purpose in the statute of ex-

plaining “basic service.” could actually contradict “basic

service.” The Copyright Office’s regulation is thus the

interpretation before us that best accounts for the statu-

tory language.

The regulation also evinces a full understanding of the

structure and purpose that underlie that language. In

holding the regulation to be inconsistent with the will of

Congress and adopting the interpretation espoused by the

NCTA, the district court in our view misunderstood a

fundamental mechanism of the statute. The court cor-

rectly observed that liability under the compulsory license

23a

was to be limited to the retransmission of distant non-

network programming, 641 F. Supp. at 1161; see H.R.

Rep. No. 94-1476, supra, at 90, but failed to appreciate

how the distant signal equivalents satisfy that intention.

Because the DSE value—and hence the percentage of the

fixed gross receipts base due as a fee—rises with each

distant broadcast channel retransmitted, the cable system

pays only for distant non-network ' programming ac-

tually broadcast.

That Congress intended the DSEs to correlate the

number of distant signals carried and fees paid can be

further established by examining the divergences of the

content of the revenue base and the programs eligible for

reimbursement from the CRT. Congress never contem-

plated a precise congruence of the royalties paid and the

amount of distant non-network programming actually

carried. Instead, Congress picked a convenient revenue

base and used the DSEs to discount it in a reasonable

manner. Attempting to fine tune the gross receipts base

to include only revenues from items reimbursable by the

CRT is a plausible approach a priori, but it ignores Con-

gress’ actual decision and would ultimately render the

DSE mechanism superfluous. Congress’ clear understand-

ing that gross receipts were to include revenues from sub-

scription fees paid in part for the retransmission of local

broadeasts (that much is apparent from the statutory

language alone) is, since such local broadcasts are pro-

gramming not eligible to draw from the fund adminis-

tered by the CRT, a strong indication of its approach."*

17 Recall that a DSE of 0.25 is assigned to the retransmis-

sion of a distant network affiliate’s signal, to approximate the

proportion of non-network programming carried by such a

station.

18 The same is true of network programming on distant net-

work affiliates. Gross receipts are not reduced to account for

the payment copyright owners already receive for network

programming, DSEs are. See supra text accompanying note

24a

If an allocation between broadcast and non-brvadcast

programming revenues in each tier were required by the

statutory scheme, one would wonder why Congress did

not call for a further allocation, to remove local broad-

cast revenues from gross receipts, and do away with the

DSE system altogether. The answer, it seems to us, must

be that DSE calculations were considered more practical

and were therefore adopted in lieu of attempts at such

allocation. All cable systems, moreover, pay a section 111

fee regardless of whether they carry any distant signals.

See supra note 5. A payment scheme that reflected

usage exactly would not impose such a_ requirement.

Finally, it should be noted that the Act was an attempt

to simulate the market in the face of the market’s in-

ability to provide precise fits between retransmissions

and royalty fees, and so the Act could not itself aspire

to too much precision.

In short, the reasonableness of the regulatory require-

ment that all revenues from a tier containing one re-

transmitted broadcast signal be included in gross receipts

cannot be attacked for its failure to allow cable systems

to attribute a value to nonbroadcast programs and to

subtract that value from gross receipts.'"* We find no

requirement in the statute or its history that the fee

paid by a cable system reflect precisely the value it re-

ceived from retransmissions—indeed, as we have shown,

in many cases the relationship is skewed considerably.

Congress instead chose an easily calculable revenue base

and used the DSEs to approximate the value received by

the cable companies. The Copyright Office has simply con-

tinued that practice.

' The regulation’s stance on attribution is also due defer-

ence because of its relative contemporaneity with the enact-

ment of the statute and its consistency. See Udall v. Tallman,

380 U.S. 1, 16 (1965). It has its roots in the 1978 regulation

prohibiting attribution. See 43 Fed. Reg. 27,827, 27,828,

27,832 (1978),

25a

Comparison of the Copyright Office's regulation with

the position now espoused by the NCTA suggests a fur-

ther reason dleference is due the regulation. The NCTA’s

interpretation, endorsed by the district court, would cre-

ate “a hornet’s nest of problems.” ” If five channels are

sold as a package for $5, and none is priced separately

for individual sale, one can conclude nothing more about

the revenue that each generates individually than that

it does not exceed $5." The artificiality of contending

that each is worth $1 is obvious from the example of a

tier containing~- ESPN and four weather channels. Nor

(lo viewer measurement techniques such as the Nielsen

ratings provide a solution. Methodological wrangles and

monitoring expenses far in excess of those required under

the Copyright Office’s regulation are easily foreseeable

and would thwart the congressional goal of minimizing

transaction costs.

The Copyright Office’s interpretation avoids these ob-

vious pitfalls, and that practicality alone provides sub-

stantial support for the reasonableness of its interpre-

tation. When Congress delegates a function to an agency,

we believe that an important element of congressional

purpose is that the function be carried out sensibly and

efficiently. Congress recognizes that it can only legislate,

2° The phrase is that of Robert W. Ross, testifying on be-

half of the NCTA in hearings held by the Copyright Office on

July 28, 1981, regarding attempting to allocate revenues to

particular items sold in a single tier for one price. Joint Ap-

pendix at 326; see supra p. 13. It is interesting that the

regulation promulgated after the district court adopted the

NCTA’s approach simply directs cable systems to attribute

any amount they see fit to cable-originated programming. It

asks only that they maintain records of the amounts thus

deducted from gross receipts. See 51 Fed. Reg. 30,214 (1986) ;

id. 45,110. No obvious method of attribution suggests itself.

*! We assume, perhaps unrealistically, that no television sta-

tion would have a negative value for a large number of con-

sumers.

26a

not administer;-so it necessarily relies on agency action

to make “common sense” responses to problems that arise

during implementation, so long as those responses are

not inconsistent with congressional intent. In Drummond

Coal Co. v. Hodel, 796 F.2d 503, 507 (D.C. Cir. 1986),

cert. denied, 107 S. Ct. 1593 (1987), for instance, this

court agreed that the Secretary of the Interior’s defini-

tion of “coal produced” was reasonable, noting that the

Secretary adopted the regulation out of concern for the

vexing complications and expense that accompanied com-

peting approaches and for the need for a uniform national

standard. Similarly, including all revenues from any

separately priced tier that contains one or more broad-

cast stations is a convenient, indeed perhaps the only

reasonable, way of computing gross receipts that ensures

a revenue base large enough to perform the function

Congress intended—reimbursing copyright owners.

The reasonableness of the regulation is further bol-

stered by the ability it provides cable systems to control

their own destiny. See 49 Fed. Reg. 13,029, 13,035

see also Drummond, 796 F.2d at 507 n.9 (coal companies

can act to limit impact of interpretation). A company

can segregate all its secondary transmissions into a single

tier and thus avoid including in gross receipts any reve-

nues from cable-originated programming. Although the

ing practices of cable companies, the companies could on

their own forgo those marketing advantages that now

lead them to pay higher than necessary fees.

In its separate challenge to the reasonableness of the

regulation, Cablevision puts forth an alternative that at

least can be said not to present administrative com-

plexity. Cablevision concedes that the gross receipts base

was not necessarily intended to include only broadcast

signals, and rather was selected to provide a clear, uni-

form, and constant base for the calculation of royalty

27a

fees, but asserts that the regulation is unfaithful to the

the first tier of service to which all customers must sub-

scribe. Cablevision argues that basic service was at the

time of passage of the Act a trade term with the mean-

ing Cablevision suggests and that the language was con-

sistently used in earlier bills in the same manner.

Because Congress never considered the issue of ‘‘mixed

tiering” this view is not without surface plausibility. The

legislative history shows that Congress contemplated only

one “tier” containing a mixture of broadcast and cable-

originated stations. All higher ‘“‘tiers” in this model con-

tained only cable-originated stations for a separate fee,

and these pay cable services were excluded from gross

receipts. See H.R. Rep. No. 94-1476, supra, at 96. Thus

the tier from which gross receipts were to be calculated

was at the same time all tiers (the only one) containing

a broadeast signal—the Copyright Office’s view—and the

first tier alone—Cablevision’s position.

As support for its construction, Cablevision points first

to numerous affidavits of cable industry executives stat-

ing that basic service was an accepted trade term in the

early 1970's, that it referred to the lowest tier of service,

and that it was used interchangeably with “minimum

level of service,” “initial package,” and “regular sub-

seriber service.” Cablevision contends the Congress must

be presumed to have adopted this trade meaning. Our

difficulty with this argument is that one can concede each

step and not reach Cablevision’s conclusion. Congress

may have envisioned basic service as the first tier or the

initial package when debating the Act, but it also viewed

this level of service as the only level—other than tiers of

pay cable that were to be excluded from gross receipts.

The truth, it seems to us, is that Congress never con-

sidered the situation of multiple tiers containing broad-

casting materials, and use of an industry definition from

28a

« period when the practice under consideration was not

widespread in the industry is singularly unenlightening.*

Cablevision nevertheless attempts to link its definition

of basic service to the early concept of “adequate tele-

vision service” that appeared in an unenacted Senate bill.

See S. 644, 92d Cong., 1st Sess. (1971). That bill would

have provided cable systems a compulsory license to re-

transmit local signals and any distant signals that would

be a necessary complement to local broadcasting in pro-

viding ‘‘adequate television service’’—service that would

provide the system’s customers access to a_ prescribed

minimum range of stations—as defined by the Act. See

id. § 111(c) (3). In return, cable systems were to pay a

fee based on a percentage of gross receipts after report-

ing the “gross amounts paid to the cable system by sub-

scribers for the basic service of providing secondary

transmissions of primary broadcast transmitters.” Jd.

$ 111(d) (2). Cablevision argues that, since the language

at issue in this case appeared initially in a bill relating

to minimum or adequate service, basic service must be

equivalent to “adequate” or “first tier” service.

Identity of language in an unenacted bill addressing

adequate television service with language in an Act

passed years later to deal with a transaction cost prob-

lem in the copyright law is not, by itself, particularly

significant. Putting to one side the weight properly to

be accorded an unenacted bill, we observe that words can

take on vastly different meanings in different contexts.

See, e.g., Director v. Black Diamond Coal Mining Co.,

22 A homely metaphor illustrates the tension between Cable-

vision’s view and Congress’ intent. Imagine a fee to be paid

on the gross revenue from the sale of dressers, enacted at a

time when dressers were available only as single pieces of

furniture. With the advent of modular furniture, is it more

in keeping with the statute’s spirit to base the fee on revenues

from the sale of bottom drawers only, which every customer

must buy, or on the sale of all dresser drawers?

29a

598 F.2d 945, 951 (5th Cir. 1979) (most words have

multiple meanings, depending on context; absent evidence

Congress intended to create-a term of art, a word's

meaning in one statute does not necessarily indicate its

meaning in another). It is furthermore unclear whether

the language of S. 644 does what Cablevision would have

it do. The provision actually directing payment of a fee

refers not to the “gross amounts paid .. . for the basic

service” that the company is required to report, but to

“the gross receipts from subscribers,” presumably a much

broader concept, even in Cablevision’s view. 7d. at § 111

(d) (2) (B).

The most troublesome aspect of this argument, how-

ever, is the explicit equation of basic service with ade-

quate service. Cablevision has argued to us that the

first tier—basic service in its parlance—may contain

anything the cable system chooses. Its concept of basic

service is therefore simply unrelated to adequate service,

which presumably involves a specific content. And we

are bemused by Cablevision’s slightly misleading attempts

to suggest that the FCC’s “must-carry” rules, which re-

quire a cable system to provide certain services, assure

a minimum content on the first tier. This court has twice

struck down particular FCC must-carry rules as incom-

patible with the First zamendment. Quincy Cable TV v.

FCC, 768 F.2d 1434 (D.C. Cir. 1985), cert. denied, 106

S. Ct. 2889 (1986); Century Communications Corp. v.

FCC, No. 86-1683 (D.C. Cir. Dec. 11, 1987).

Even where two equally tenable interpretations of «

statute are put forward, one by the agency charged with

administering the Act—as we have held the Copyright

Office to be—and the other by a private party, we will

favor the former. See Udall v. Tallman, 380 U.S. 1, 4

(1965). But on examination we find Cablevision’s posi-

tion untenable, since it could lead to the absurdity of only

a minuscle portion of revenues, at the option of a cable

30a

company, being included in gross receipts—hardly a rea-

sonable interpretation of Congress’ objective.”

“or the foregoing reasons, we conclude that the Copy-

right Office’s regulation is reasonable as applied to calcu-

lations involving any tier viewed in isolation, the primary

element of dispute in this case. If we rested on this

conclusion, however, we would omit discussion of a mat-

ter heavily debated in the briefs and at oral argument

and relied on substantially by the district court. In the

proceeding below, the district court allowed counsel for

the NCTA to request from Dorothy Schrader, General

Counsel of the Copyright Office, responses to certain hypo-

thetical questions regarding the Office’s interpretation of

its regulation. Whether or not that procedure was ap-

propriate, once it was employed—once the General Coun-

sel’s letter of reply had put this ancillary dispute in issue

—we understand why the district court acted on the

questions the letter raised.

Nevertheless, and despite the government’s failure to

argue the point explicitly, we believe that the issues

raised in Schrader’s June, 1986 letter are unripe for

judicial review. But because the issue has been hotly

litigated both before us and below, and, more impor-

tantly, because our conclusion regarding unripeness stems

as much from the confusion created by the letter as

from any intrinsic unsuitability of the issues for dis-

position, we find it necessary in explaining our con-

clusion to discuss in some detail the 1986 letter and the

debate surrounding it.

The letter deals with marketing practices we will style

“discounts” and “tie-ins.” The following hypotheticals

are addressed: A cable system offers tier A, containing

23 We intimate no view as to whether the operation of the

must-carry rules at an earlier time served to make Cable-

vision’s behavior more or less willful. That issue is for the

district court on remand. See infra Section IV.

3la

all broadcast signals, for $10, tier B, containing two non-

broadcast and two broadcast signals, for $4; and tier

C, containing a pay cable station, for $9. General Coun-

sel Schrader considers both a discount, offering all three

tiers for $22, and a tie-in, under which the subscriber

could receive tier A for $10 only after subscribing to

tier C for $9. Schrader’s opinion specifically requires

the entire $22 discount price to be included in gross

receipts, just as the $19 under the tie-in must be. She

explained:

Whenever the two types of service are offered for

a single price or, if on separate tiers, whenever it is

necessary to subscribe to one tier in order to receive

another, the two services are in reality being offered

as a single package of service; if secondary trans-

missions are included in the package, gross receipts

from both tiers or the combined package must be

reported and used in calculating copyright royalties.

Joint Appendix at 491 (emphasis omitted).

The NCTA argues, and the district court agreed, see

641 F. Supp. at 1160, that this language, if followed

literally, would violate Congress’ intent. They both read

the letter to suggest that in precisely the paradigm

case envisioned by Congress—in which the subscriber

‘must purchase a basic package of retransmitted stations

before going on to buy pay cable—receipts from pay

cable must, contrary to Congress’ specific intent, be in-

cluded in gross receipts because “it is necessary to sub-

scribe to one tier in order to receive” pay cable. We

have some reason to believe, however, that the General

Counsel was addressing a slightly different problem and

merely expressed herself incompletely. Another, earlier

letter from the General Counsel that appears in the

record, Joint Appendix at 488, was written in August

of 1985 and avoids the problem the 1986 letter seemingly

creates.

32a

The 1985 letter and the parties’ presentations suggest

the following analysis. Whenever a tier, call it Y, can

be purchased only after another tier, X, has been pur-

chased, there is a danger that the price associated with Y

is merely notional. Thus, if Y contained broadcast signals

that would be valued by consumers at $20, 2 cable op-

erator bent on downward manipulation of receipts from

the sale of Y could construct an X tier of automated

services worth $1, make Y available only to subscribers

to X, charge $19 for X and $2 for Y and, absent a re-

quirement that the two amounts be lumped together, un-

derstate gross receipts for Y by $18 per subscriber. This

technique will not work in reverse, however. Subscribers

forced to buy through tier Y to be allowed to pay $19

for tier X will simply stop after buying Y, leaving the

cable operator to absorb a loss or to raise the price to

reflect value accurately. Generally, if a subscriber can

buy a given tier without purchasing any others, its

nominal price will be at least as great as its value; if

the subscriber must purchase another tier to receive the

one in question, the latter’s price may be understated.

The language of the General Counsel’s 1986 letter

therefore would appear, as the district court discerned,

to be too sweeping. Indeed, counsel for the Copyright

Owners, a group whose interests would certainly be

served by a strict adherence to the literal language of

Schrader’s letter, conceded it was “overbroad.” The let-

ter suggests that the two cases just described should be

treated the same—revenues from both tiers should go

into gross receipts regardless of whether X or Y must

be purchased first—when there is a strong argument

only the first should be so treated. The letter does

analyze the tie-in case as we tentatively do, for in that

hypothetical the broadcast signals in A can be bought

only after purchasing C, so the price for A may be no

more than nominal and there is a risk that gross receipts

will be understated. The treatment of the discount seems

33a

incorrect, though, for as we understand the hypothetical

it would be possible to buy all the broadcast signals, A

and B, alone for $14. That $14 price is therefore an

accurate reflection of the value placed on the package

and could be used in calculating gross receipts from re-

transmission from the $22 discount fee.

The Government’s Reply Brief, moreover, adopts the

analysis of the 1985 letter and seems to back delicately

away from the inconsistencies in the 1986 letter. But

at oral argument, counsel for the Government was un-

willing to make any firm statement regarding the Copy-

right Office’s position on this issue. We cannot, in light

of this rather bewildering array of conflicting positions,

affirm the reasonableness of this facet of the agency’s

interpretation of the statute. We nevertheless are quite

unprepared to reject either the regulation or the inter-

pretation in Schrader’s 1986 letter on this basis. First,

there is no showing as to the Copyright Office’s actual

practice in these cases. Requirements that subscribers

“buy through” initial tiers of broadcast programming

before receiving pay cable stations such as HBO are

apparently widespread; it would be imprudent to in-

validate an interpretation of a regulation on the subject,

without more information, on the strength of one letter

from the General Counsel replying to a hypothetical

question.

Further, the rulemaking from which this regulation

sprang never addressed tie-ins or discounting; it focused

on the treatment of individual tiers. 49 Fed. Reg. 13,029

(1984). And the lawsuits now before us are focused on

the first tier /basic service equivalence and the permissi-

bility of allocating values within a tier. The tie-in and

discount issues are a litigating afterthought, and we are

uncertain from the record as to the Copyright Office’s

authoritative interpretation. It is often necessary to re-

view agency action in a rather theoretical setting, but

a court must have some sort of record upon which to base

its review. There has been here no showing of an in-

34a

terpretation to which the Office firmly adheres. The

Supreme Cowrt in Abbott Laboratories v. Gardner, 387

U.S. 136 (1967), observed that the purpose of the ripe-

ness doctrine in the context of reviewing administrative

action is to “prevent the courts, through avoidance of

premature adjudication, from entangling themselves in

abstract disagreements over administrative policies, and

also to protect the agencies from judicial interference

until an administrative decision has been formalized and

its effects felt in a concrete way by the challenging par-

ties.” Id. at 148-49. If this dispute is not abstract, it

is certainly not yet well defined enough for judicial re-

view. The Copyright Office, will, we hope, clarify its

position regarding tie-ins, perhaps in a rulemaking. Any

party injured by the Office’s new application of the regu-

lation could, of course, seek relief from that concrete

injury. See Geller v. FCC, 610 F.2d 973, 978 (D.C. Cir.

1979).

IV.

The district court ordered that the first phase of the

trial consider “|{w)hether plaintiff complied with the

statutory prerequisite conditions for obtaining a compul-

sory license,” and that a further hearing would be had,

if it were determined that Cablevision was not entitled

to a compulsory license, regarding “which copyrights

of defendants have been infringed and the remedies

therefor.” In its opinion ending the first phase, the court

dismissed the Copyright Owners’ counterclaims. It noted

that Cablevision had paid the fees indicated by its

method of calculating gross receipts and had posted bonds

to cover the difference between its payments and the

amount required by the Copyright Office’s regulation.”

The court concluded Cablevision had complied “with the

spirit of the law.” 641 F. Supp. at 1163. The Copyright

24 Cablevision had used its accounting convention since 1979

but posted bonds only for the periods after the 1984 issue of

the regulation.

35a

Owners point to the bifurcation order and claim this dis-

position was premature.

Section 111(c)(2) makes a cable system liable for in-

fringement when, without paying the required royalty fee,

it engages in the “willful or repeated secondary transmis-

sion” of primary transmissions. We recognize that the

district court might have intended to conclude as a

matter of law at the end of the first phase that Cable-

vision’s conduct was neither willful nor repeated within

the meaning of the Act.** The court did not couch its

ruling in the statutory language, however, and while it

might have thought “willful or repeated” equivalent to

a disregard for the “spirit of the law,” it did not clearly

explain its reasoning. Nor did the court address how,

if at all, Cablevision’s conduct is to be judged in light

of regulatory changes. Because we are unsure of the

basis for the district court’s dismissal and are unwilling

to consider the issue of liability for infringement without

the benefit of its full reasoning, and because it is also

unclear whether the court’s opinion directed Cablevision

to pay back royalties for the entire period not excepted

by the statute of limitations or only for the period after

promulgation of the regulation—the period covered by

the bonds the district court mentioned—we reverse the

dismissal and remand for further proceedings on the

counterclaim consistent with this opinion. The action is

Reversed in part and reversed and remanded in part.

23“The words ‘willful or repeated’ are used to prevent a

cable system from being subjected to severe penalties for

innocent or casual acts .... The Committee does not intend

... that a good faith error by the cable system in computing

the amount due would subject it to full liability as an in-

fringer.” H.R. Rep. No. 94-1476, supra, at 93.

36a

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

CABLEVISION COMPANY, )

)

Plaintiff. )

)

v. ) Civil Action No. 83-1655

)

MoTION PICTURE ASSOCIATION )

Or AMERICA, INC., et al. )

)

Defendants. )

NATIONAL CABLE TELEVISION

ASSOCIATION, INC.,

Plaintiff,

Civil Action No. 83-2785

COLUMBIA PICTURES INDUSTRIES,

INc., et al.

Dere ndants.

CABLEVISION COMPANY

Plaintiff,

Civil Action No. 84-3097

MOTION PICTURE ASSOCIATION,

Or AMERICA, INC., et al.,

Ne ee eee eee ee ee”

Defendants.

37a

OPINION

These matters are before the Court on cross-motions for

summary judgment, the respective opposition and reply

briefs to the motions, a hearing on the motions, and the

entire record herein.

I. Background

This civil action consists of three separately filed com-

plaints which seek a judicial interpretation of a phrase

contained in Section 111(d) of the Copyright Act of 1976,

Pub.L. No. 94-553, 90 Stat. 2541 (1978) (codified at 17

U.S.C. §§ 101 et seg.) Plaintiff Cablevision Company (‘‘Ca-

blevision’’) filed two uf those complaints, Civil Action Nos.

83-1655 and 84-3097. Cablevision provides cable television

services to subscribers residing in Nassau, Westchester,

and Suffolk Counties, New York, and in Bayonne and Ber-

gen Counties, New Jersey. Plaintiff National Cable Tele-

vision Association, Inc. (‘‘NCTA’’) filed the third complaint,

Civil Action No. 83-2785. NCTA is a trade association

whose members include owners and operators of cable tel-

evision systems in the United States. Cablevision, a mem-

ber of NCTA, is also a plaintiff-intervenor in the NCTA

action. See March 20, 1984, Order granting Cablevision’s

Motion to Intervene.

The defendants are the same in all three cases. They

include eight copyright owners, co-owners or exclusive li-

censees of public performance, distribution and rights to

the motion pictures which are the subject of this dispute

and a trade association which represents the interests of

these copyright owners. These copyright owners are Co-

lumbia Pictures Industries, Inc., Embassy Communications,

MGM/UA Entertainment Co., Orion Pictures Corporation,

Paramount Pictures Corporation, Twentieth Century-Fox

Film Corporation, Universal City Studios, Inc., Warner

Bros. Inc., and the Motion Picture Association of America

(“Copyright Owner Defendants’). The U.S. Copyright Of-

fice and its Register (‘Copyright Office Defendants’’) were

38a

joined as necessary party defendants in a separate count

of an amended complaint pursuant to an order of this

Court. See July 17, 1984, Order and Amended Complaint

of the Library of Congress in Washington, D.C., which

has certain responsibilities with respect to the Copyright

Act of 1976 pursuant to that Act. The Register of Co-

pyrights is the officer in charge of the Copyright Office.

Plaintiffs’ complaints seek a declaratory judgment as to

the proper interpretation of Section 111(d) of the Copy-

right Act of 1976, concerning the amount of gross receipts

included in calculating the payment of copyright royalty

fees by cable television systems for the basic service of

providing secondary transmissions of primary broadcast

transmitters. Both plaintiffs claim that the defendants in-

terpret improperly section 111(d) so as to require cable

operators to overpay substantially their copyright royalty

fees and thereby unjustly enrich defendants. Moreover,

Cablevision requests an order restraining Copyright Owner

Defendants from instituting any further action against it

for copyright infringement and such other relief as may

be appropriate.

The defendants disagree with plaintiffs’ reading of sec-

tion 111(d). They argue instead that the plaintiffs’ inter-

pretation of the statute results in an underpayment of

royalties. Defendant Copyright Owners filed a counterclaim

for copyright infringement, statutory damages, injunctive

relief, costs, and attorneys fees.

Before the Court discusses more fully the positions of

the parties in this dispute, a short overview of section

111(d) and the development of the cable industry is in

order.

A. The Copyright Revision Act of 1976

The Copyright Revision Act of 1976, 17 U.S.C. §§ 101

et seq., established a compulsory copyright license for the

39a

retransmission of television broadcast signals by cable sys-

tems. The Act was the culmination of congressional efforts

to respond to the Supreme Court's decisions in Fortnightly

Corp. v. United Artists Television, Inc., 392 U.S. 390

(1968), and Teleprompter Corp. v. CBS, Inc., 415 U.S. 394

(1974), which held that the distribution of television broad-

casts was not a “performance” so as to be protected by

the Copyright Act of 1909. Consequently, the cable op-

erators were not required to make royalty payments to

the copyright owners. The Court stated in Teleprompter

that “any ultimate resolution of the many sensitive and

important problems in this field ... must be left to Con-

gress.” 415 U.S. at 414.

Congressional efforts to- safeguard the interest of the

creators of copyright material being distributed on cable

systems, while still allowing for the fullest development of

the public’s right of access to information through cable

technology, began in 1964 and was followed quickly by the

introduction of bills in 1965, 1966, 1967, 1969, 1971, 1978,

and 1975, leading to the passage of the revised Copyright

Act of 1976. See The Cable Television Provisions of the

Revised Copyright Act, 27 Cath.U.L.Rev. 263, 279 n.64

(1978). Congress realized that it would be impractical, if

not impossible, for each and every cable operator to ne-

gotiate directly with every copyright owner and embarked

upon a new approach.

This new approach required cable operators to obtain a

compulsory license in order to retransmit television pro-

grams. Copyright owners of motion pictures and/or other

works that are embodied in the retransmitted signals are

compelled to license these works to cable systems in return

for which they are compensated through the payment of

semi-annual fees by individual cable systems. These semi-

annual royalty fees are computed in accordance with a

statutory formula based upon gross receipts from a basic

statutory service.

The royalty schedule formula was the result of last-

minute negotiations between the™ pyright owners and the

cable television industry and, with some modifications, is

found in section 111(dX2XB) which provides for the fee to

computed on the basis of specific percentages of

the gross receipts from subscribers to the cable

service during said period for the basic service

of providing secondary transmission of primary

broadcast transmitters. . . .

17 U.S.C. 111(dX2XB). The royalty feés are then distrib-

uted to those copyright owners whose works were the

subject of secondary transmissions of broadcast signals.

The Copyright Tribunal (“Tribunal”), an independent

agency of the legislative branch, determines the formulae

for dividing the fees among the copyright owners. The

Tribunal is also authorized to “... adopt regulations .. .

governing its procedures and methods of operation. .. .”

17 U.S.C. § 803.

Semi-annual statements of account which list the broad-

cast signals carried by the cable system operators must

also be filed with the semi-annual royalty payments. Cable

systems with semi-annual gross receipts below $146,000

pay a flat royalty fee ($28) regardless of the number of

distant signals carried, and are known as “Form 1" sys-

tems. 17 U.S.C. § 111(dX2XC); 37 C.F.R. § 308.2(b,1)

(1985). Cable systems with semi-annual gross receipts of

$146,000 to $292,000, commonly known as “Form 2” sys-

tems, pay a royalty fee based on a set percentage of gross

receipts regardless of the number of distant signals. 17

U.S.C. § 111(dX2XD); 37 C.F.R. § 308.2(b2) (1985).

Major cable systems with semi-annual gross receipts in

excess of $292,000, known as “Form 3"’ systems, pay roy-

alty fees based on a percentage of gross receipts, but the

percentage varies with the number and nature of the

broadcast signals retransmitted. The licensing fee of the

4la

major cable operators is based upon a percentage of gross

receipts derived from basic subscriber charges multiplied

by the number of distant signal equivalents (‘‘DSE’’) car-

ried. A DSE is a numerical value assigned to the secondary

transmission of a non-network television program beyond

the local service area of the primary transmitter by a cable

system. 17 U.S.C § 111(f). Different DSE values are as-

signed to three types of stations (independent, network

affiliated, and noncommercial educational) that can be re-

transmitted as distant signals.' Jd. See Copyright Owner

Defendants’ Motion for Summary Judgment on Phase One

Issue at 10-12, filed March 2, 1984, for a detailed expla-

nation of Form 3 System royalty fee calculations.

Congress defined the terms “secondary transmissions’’

and “primary transmissions” used in section 111(d\2\B)

of the Act It failed, however, to define specifically the

terms “gross receipts’ or ‘“‘basic service,’ the meaning

upon which this controversy centers. The Copyright Tri-

bunal, consistent with its mandate and over six months

after NCTA filed its complaint, adopted rules of procedure

and prepared forms for the use of cable operators to fa-

A greater distant signal equivalent (‘‘DSE’’) value is ‘‘assigned in-

dependent television stations since they almost exclusively carry non-

network programming: a lesser value is assigned to network affiliates

since they carry only a limited amount of nonnetwork programming.”

National Cable TV v. Copyright Royalty Tribunal, 689 F.2d 1077, 1080

n.17 (D.C. Cir. 1982).

‘A “primary transmission’ is 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.

A “secondary transmission” is the further transmitting of a pri-

mary transmission simultaneously with the primary transmission,

or nonsimultaneously with the primary transmission if by a ‘‘cable

system” not located in whole or part within the boundary of the

forty-eight contiguous States, Hawaii, or Puerto Rico. ...

17 U.S.C. § LLM

42a

cilitate the filing of periodic statements of account and

defined specifically ‘‘gross receipts.” According to the Tri-

bunal,

[g]ross receipts for the “‘basic service of providing

secondary transmissions of primary broadcast

transmitters” include the full amount of monthly

(or other periodic) service fees for any and all

services or tiers of service which include one or

more secondary transmissions of television or ra-

dio broadcast signals, for additional set fees, and

for converter fees. All such gross receipts shall

be aggregated and the DSE calculations shall be

made against the aggregated amount.

37 C.F.R. § 201.17(bX1) (April 2, 1984).

B. The Development of the Cable Industry

When the 1976 Copyright Act was passed, cable tele-

vision and ancillary technologies were still developing. Ca-

ble television developed originally as a means for

transmitting television broadcast signals by wire to the

homes of paying subscribers. These cable television sys-

tems retransmit both local broadcast signals, received off

the air by antennae, and distant broadcast signals, cus-

tomarily received by terrestrial microwave relay systems

or by satellite. Cable television systems also transmit non-

broadcast entertainment and informational programing,

i.e., programing that is not originally broadcast by a tel-

evision station. Such nonbroadcast transmissions are made

under individually negotiated copyright licenses.

Early cable systems had limited channel capacity, usually

twelve systems or less. The principal use of these channels

was for retransmission of local broadcast signals received

off the air at a well-placed antenna site and distant broad-

cast signals imported by microwave. The cable systems

offered usually both the local and distant broadcast signals

for a single package price. By the early 1970’s, a few

48a

cable systems began to offer one or more optional tiers

of services for an additional charge. The optional tiers

usually consisted of one or two channels of commercial-

free movies, 1.e., Home Box Office (““HBO”’), or other en-

tertainment supplied to the cable system by tape or mi-

crowave.

A whole new category of nonbroadcast programing

emerged as satellite and cable technology developed in the

1970’s. This programing today consists of offerings such

as ESPN (a sports channel), The Weather Channel, the

Health Channel, cultural and religious channels, etc. Ac-

cording to NCTA, ‘‘some of these channels are supported

principally by advertising’ while—‘‘others are financed in

substantial part by cable systems making direct payments

to the supplier for the right to offer the copyrighted pro-

graming.’’ NCTA Complaint at 11.

The cable system enters into a written agreement with

the program supplier licensing the system to transmit the

copyrighted nonbroadcast programing and governing the

compensation, advertising rights, and other terms agreed

to by the parties. Some cable systems offer the nonbroad-

cast channel as an optional tier of service at an additional

charge. Other systems add the nonbroadcast programing

with the system's so-called “‘basic service’’ or lowest tier

of service and the combined tier is offered at a higher

charge. As to the former type of ‘‘tiering,’’ the additional

tier will sometimes include retransmitted distant broadcast

signals. For example, a typical additional tier may include

one or more of the satellite delivered broadcast ‘‘super-

stations,”’ 7.e., WTBS (Channel 17 in Atlanta) and one or

more distant broadcast signals. The marketing practice of

‘‘tiering’’ has become prevalent in the cable industry and

cable operators now frequently market their program ser-

vices in ‘‘tiers’’ consisting of both broadcast and nonbroad-

cast programing. See 49 Fed. Reg. 13029, 13034 col. 3

(April 2, 1984).

~ 44a

C. Positions of the Parties

The Court notes with interest that plaintiffs Cablevision

and NCTA see different int

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