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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1988
- **Citation:** 487 U.S. 1235

## Text

Supreme Court U.S.
reLEy

Q 4 Nol & 4 A. MAY 4 june

JO Eh eet OL, JR.
CLE®K

‘

IN THE

Supreme Court of the United States

OCTOBER TERM, 1987

NATIONAL CABLE TELEVISION ASSOCIATION, INC..
Petitioner.
v3

. ae ans : = Ee : }
COLUMBIA PIcTt RES INbt SL mints. IN eh at.

Re spondents.

PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Jay E. Ricks
Counsel of Record

GARDNER F. GILLESPIE
STEVEN J. HORVITZ
ROBERT CORN-REVERE
HOGAN & HARTSON
555 Thirteenth Street, N.W.
Washington, D.C. 20004
(202) 637-5600

OF Counsel:

BRENDA L. Fox, Esq.

NATIONAL CABLE TELEVISION

ASSOCIATION, INC.

1724 Massachusetts Avenue, N.W.

Washington, D.C. 20036

(202) 775-8664

May 4, 1988

LOE 3 A TD
PRESS OF BYRON S. ADAMS, WASHINGTON, D.C. (202) 347-8203

QUESTIONS PRESENTED

Section 111 of the Copyright Act of 1976, 17 U.S.C.
§ 111 (1982 & Supp. IV 1986), establishes a compul-
sory copyright license for cable television’s retrans-
mission of broadcast programming. The District of
Columbia Circuit, reversing the District Court, de-
ferred to the Copyright Office and upheld an inter-
pretation of Section 111 that requires cable operators
to include revenues derived from non-broadcast pro-
gramming—for which cable operators pay the copy-
right holders-directly—in calculating their compulsory
royalty fee.

The questions presented are:

1. Whether the court below erred in concluding,
contrary to the Second Circuit, that the Copyright
Office, an arm of Congress with an acknowledged
institutional bias, is entitled to judicial deference in
interpreting substantive provisions of the Copyright
Act.

2. Whether the court below erred in concluding that
Section 111 requires cable operators computing co-
pyright royalties due to the owners of broadcast pro-
gramming to include revenue derived from non-
broadcast services.

il

LIST OF PARTIES

Petitioner in this Court, and Appellee in the D.C.
Circuit, is the National Cable Television Association,
Inc.* Respondents in this Court, and Appellants in
the D.C. Circuit, are Columbia Pictures Industries,
Inc., Embassy Communications, MGM/UA Communi-
cations Co., Orion Pictures Corporation, Paramount
Pictures Corporation, Turner Entertainment Com-
pany, Twentieth Century Fox Film Corporation, Uni-
versal Pictures, A Division of Universal City Studios,
Inc., Warner Bres., Inc., the Motion Picture Associ-
ation of America, Inc., the United States Copyright
Office and its Register.

Cablevision Company appeared in consolidated cases
below as appellant/cross appellee.

* National Cable Television Association, Inc. is a non-profit
trade association primarily of cable television operators, with
associate membership of programmers and suppliers. It considers
its membership list proprietary and confidential, but will en-
deavor to provide a list of members under seal upon request of
this Court.

—

ill

TABLE OF CONTENTS

Eg, ee

NE TEEN en aR Re

REASONS FOR GRANTING THE WRIT ...ececccccccccecceceee

I.

Il.

The Court Below Erred In Deferring To The
Copyright Office To Resolve A Controversy
Over Which The Office Has No Statutory
Ne cans csck scutinanumncsanes

A. The Decision Below Granting the Copy-
right Office Deference in Interpreting
Section 111 Contradicts Established Law
in the Second Circuit and Has No Sta-
ST IIE cavonascanceussisveancesenerniecensesss

B. The Copyright Office Is Institutionally
Biased in Favor of Copyright Owners and
Not Entitled to Deference in Resolving
Disputes Between Copyright Owners and
I

C. The Copyright Office Is a Part of the
Legislative Branch~and Not Entitled to
i eee When Assuming Functions Re-
served for the Executive Branch ...........

The Statutory Interpretation Advanced By
The Copyright Office, And Upheld By The
Court Below, Is Unreasonable ....................

a ERRETS EE pe ee

10

14

19

bo
~)

Table of Contents Continued

APPENDIX

Opinion of the Court of Appeals .........:0:++
Opinion of the District Court ........::sscssesee

17 U.S.C. § 111(d\(1) (Supp. IV 1986) ............

37 C.F.R. § 201.17(bX1) (1987) «0... eeeeeeeereeeeees

Vv

TABLE OF AUTHORITIES

CASES: Page
Bartok v. Boosey & Hawkes, Inc., 523 F.2d 941 (2d

Cle, SIRIP asisissccciscetictsetenaenainsce mannan . 10,11
Bethlehem Steel Corp. v. EPA, 723 F.2d 1303 (7th

CAE, FINED stccssccosciceccccasmeninimnenanidasioiaamameenaa 16
Bowsher v. Synar, 106 S. Ct. 3181 (1986) .... 19,20,21,22
Buckley v. Valeo, 424 U.S. 1 (1976) ...............cceee8 19

Cablevision Co. v. Motion Picture Ass’n of
America, Inc., 641 F. Supp. 1154 (D.D.C.
EGIDGD nskcisnsnsccsnnssanontdenonsadoaniaaanaaianinamiianaia passim

Cablevision Systems Development Co. v. Motion Pic-
ture Ass'n of America, Inc., 836 F.2d 599 (D.C.

COP, TD nnsccccsinsssncensehénssintietaaasniaaimiadbinaiie passim
Chevron, U.S.A., Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837 (1984) .............. 9,10,22
Eltra Corp. v. Ringer, 579 F.2d 294 (4th Cir.

RGD sicsuinsssonsinssieabeasnkassceaalapaeetanaiaceedia 22
Esquire, Inc. v. Ringer, 591 F.2d 796 (D.C. Cir.

1978), cert. denied, 440 U.S. 908 (1979) ........ 14
Fortnightly Corp. v. United Artists Television, Inc.,

See UD. GeO CD senncunaeennneus 2,17
Hampton & Co. v. United States, 276 U.S. 394

CRIED csissessscadsscsssacistaneiaiaiiicisamasiomeemeninianae 19
INS v. Cardoza-Fonseca, 107 S. Ct. 1207 (1987) .. 9,22
INS v. Chadha, 462 U.S. 919 (1988) .......:cceseeeeees 19,20
Keeffe v. Library of Congress, 777 F.2d 1573 (D.C.

CO TID snxissnseictinsiceniovmnacidnisinlpmetsintatiatianeiiicses 21

National Conference of Bar Examiners v. Multistate
Legal Studies, Inc., 692 F.2d 478 (7th Cir.

1982), cert. denied, 464 U.S. 814 (19838) ........ 14
National Treasury Employees Union v. FLRA, 810
P28 Se Gls. Ca: Tee cicesoaaduiecen 9

NLRB vy. United Food and Commercial Workers
Union, Local 22, 108 S. Ct. 413 (1987) ......... 9,22

vi

Table of Authorities Continued

Page

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

(ROTO) <ccctcieccotectosessessicsnisennaan maaan 2.17
Universal Shipping Co. v. United States, 652 F.

Sump. G65 GIDL. WGBE) ascecessscccsssercecesesnenseres 20
STATUTES AND REGULATIONS:
17 U.S.C. § 111 (1982 & Supp. IV 1986) ............ passim
17 U.S.C. § 111(dX1) (Supp. IV 1986) .............0... 2,12
17 U.S.C. § 111(dX1XB) (Supp. IV 1986) .................. 3,22
17 U.S.C. § 111(dX2) (Supp. IV 1986) ................... 12
17 U.B.C. © GRR GER RID cecccsscccssccssetsscesetsannicnnse 13
17 UDG. © FOR Gee wtiscicieccncccensssntaonucenen 21
AT USC. & FOU Cie ccccscsesecnenscecsrncsaqmsaseasonniees 13
17 U.S.C. § 801 (1982 & Supp. IV 1986) ............. 12,18
SB UBC. § REGED Cie cascscccscseresevceeipsnctssssctnels 2
SB UBC. © THE GROG scsscsccisscssinmissecmanninon 2
38 USL. § 1906 Glee ttictcinienaen 2
28 U.S.C. § 2201(a) (Supp. ITI 1985) ..................... 2
28 USB... § SERB CORD svnistcccicieetiien 2
37 C.F.R. § 201.2(aX1) (1975Xamended 1985) ........ 11
37 C.F.BR. § B01. LTT) (1687) ....cccseccccscccscescsscceses passim
ST C.F RR. § BOR. TIS CRIED cccccsncccaccenecscsmssssinnns 11

LEGISLATIVE MATERIALS:

H.R. Rep. No. 2222, 60th Cong., 2d Sess. (1909) . 13
H.R. Rep. No. 83, 90th Cong., 1st Sess. (1967) ... 15

H.R. Rep. No. 1476, 94th Cong., 2d Sess. (1976),
reprinted in 1976 U.S. Code Cong. &
FROG GIRO ccccesestnseccsscsseicsesestasaniensedaiaeneenias 4,14,15,23

vii

Table of Authorities Continued
Page
Copyright Law Revision: Hearings on H.R. 2223
Before the Subcomm. on Courts, Civil Liberties
and the Admin. of Justice of the House Comm.

on the Judiciary, 94th Cong., 1st Sess.
CERNE cctsicvenitcninsiaspinidcieanitessaibiaiienaneiniiaaitaitaiaitiae 15,16,17,24

Oversight of the Copyright Act of 1976: Cable Tel-
evision Hearings Before the Senate Comm. on
the Judiciary, 97th Cong., Ist Sess. (1981) ... 17

122 Cong. Rec. 3822-23 (1976) .................cccccccecesees 15
122 Cong. Rec. 31,984, 32,009 (1976) .................... 15
ADMINISTRATIVE REPORTS AND PROCEEDINGS:

Oi a i Ta I seeccrstensencersccepenntitoneneneens 13
TD Ss ee SE eerecrentetcreetteccorcdensess 11
GB FOG. Tee. GOTR CGT cececcccsccccccccscbssatescncoscsscosss 13
GD Fe BR, Bae CO ‘cnscnscccckcccnsnccotncnceusinnsioc 5,12
Ds ee CD ccestinibaiaciiatttnniiasnteniiioes 11,17,21
Be re SE CII sh coasintsticstisncetecineinacsincaiaiaten 8
MISCELLANEOUS:

8 Communications Daily No. 44 (March 7, 1988) . 3,7
E. Brylawski, The Copyright Office: A Constitu-
tional Confrontation, 44 Geo. Wash. L. Rev. 1
EIT: siiietdiisaisithanclaenisdlbmniahactnadseamubintenpiahaiemtebiasateons 22
Letter from Dorothy Schrader, Copyright Office,
General Counsel, to David J. Saylor, June 9,
BASU itisssasisbahheieattceinnsciicieiceaanteadhiceintbigiaeasnlacninesinote 5

Transcript of Status Hearing, April 25, 1986 ....... 12
United States Government Manual 1986/87 ........... 21

IN THE

Supreme Court of the United States

OCTOBER TERM, 1987

No.

NATIONAL CABLE TELEVISION ASSOCIATION, INC.,
Petitioner,
Vv.
COLUMBIA PICTURES INDUSTRIES, INC., et al.,
Respondents.

PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Petitioner National Cable Television Association,
Inc. (“NCTA”) respectfully 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 entered in Cablevision Systems
Development Co. v. Motion Picture Association of
America, Inc., et al., on January 5, 1988.

OPINIONS BELOW

The opinion of the Court of Appeals is reported at
836 F.2d 599 and is reprinted in the appendix hereto
(““App.’’) at la.

The opinion of the District Court is reported at 641
F. Supp. 1154 and is reprinted at App. 36a.

9
a

JURISDICTION

NCTA’s action in the District Court arose under
28 U.S.C. §§ 1338, 2201, and 2202(a). Review by the
D.C. Circuit was sought pursuant to 28 U.S.C. § 1291.
The decision for the D.C. Circuit was filed on January
5, 1988. On March 22, 1988, the Chief Justice granted
an Order extending NCTA’s time to file this petition
until May 4, 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

The relevant portions of the Copyright Act, 17
U.S.C. § 111(d\1) (Supp. IV 1986), and of the Co-
pyright Office regulations, 37 C.F.R. § 201.17(b\1)
(1987), are reprinted in the Appendix hereto, at App.
9a-62a.

STATEMENT OF THE CASE

The Copyright Act of 1976 established a compulsory
copyright license for cable television’s retransmission
of broadcast signals.! Section 111 of the Act, 17
U.S.C. § 111 (1982 & Supp. IV 1986), App. 59a, im-
posed liability on cable operators for the ‘‘secondary
transmission”’ of broadcast signals and provided a sta-
tutory mechanism to calculate royalty obligations.
Over half of American television households now re-
ceive their broadcast programming through operation

‘The compulsory copyright license was adopted in direct re-
sponse to this Court’s rulings allowing cable systems to retrans-
mit broadcast signals without incurring copyright liability. See
Fortnightly Corp. v. United Artists Television, Inc., 392 U.S.
399 (1968) (a cable system ‘‘no more than enhances the viewer’s
capacity to receive the broadcaster’s signals’); Teleprompter
Corp. v. CBS, Inc., 415 U.S. 394 (1974).

of this license. The resulting royalty fees for 1987,
collected from more than 10,000 separate cable sys-
tems, exceeded $100 million.?

The statutory royalty mechanism, with its detailed
computational formula, was designed so that cable
operators would not be forced to negotiate privately
with the myriad copyright owners of broadcast pro-
gramming. Section 111(d1)\B) provides that the com-
pulsory royalty payment shall be “‘computed on the
basis of specified percentages of the gross receipts
... for the basic service of providing secondary trans-
mission of primary broadcast transmitters.”
App. 60a. The more revenue a cable system generates
from its carriage of broadcast signals, the greater the
operator’s compulsory copyright fee.®

Section 111 does not address cable’s delivery of
non-broadcast, or ‘‘cablecast,’’ programming. At the
time the Copyright Act was adopted, cablecast pro-
gramming was of little significance, and cable tele-
vision operators were dependent almost entirely upon
retransmitting broadcast signals. Through the advent
of satellite technology, cablecast programming has
since expanded so that it now frequently occupies
more channels on a cable system than does broadcast
programming. Cablecast programming, which today
includes such popular services as Cable News Net-
work, C-Span, and ESPN, have always been privately
purchased from the copyright owners for distribution
over cable systems.

28 Communications Daily No. 44, at 3 (March 7, 1988).

3 Royalties paid to the government under Section 111 are ul-
timately distributed to individual copyright owners by the Co-
pyright Royalty Tribunal.

The underlying controversy in this case concerns
how compulsory copyright fees should be computed
when broadcast programming (which is covered by
the compulsory license) is offered together with ca-
blecast programming (which is not covered). The
House Report accompanying the 1976 Copyright Act
stated that, in calculating royalty payments, ‘only
receipts for the basic service of providing secondary
transmission of primary broadcast transmitters are to
be considered. Other receipts from subscribers, such
as those for pay cable services or installation charges,
are not included in gross receipts.’’

In September 1983, NCTA, as the principal trade
association for the nation’s cable television operators,
filed a complaint in the United States District Court
for the District of Columbia against the Motion Pic-
ture Association of America, Inc. (“‘“MPAA’’) and its
member companies seeking a declaratory ruling in-
terpreting Section 111.° The District Court later or-
dered that NCTA join the Copyright Office as a co-
defendant, and the court ultimately consolidated
NCTA’s case with on-going cases involving an indi-
vidual cable operator, Cablevision Company, and
MPAA.* It was while these cases were pending before

‘H.R. Rep. No. 1476, 94th Cong., 2d Sess. 1, 96 (1976), re-
printed in 1976 U.S. Code Cong. & Admin. News 5659, 5710-
11.

* MPAA’s member companies receive the largest share of the
fees paid under the compulsory copyright license.

® Cablevision espouses a different interpretation of Section 111
than that offered by either NCTA, MPAA, or the Copyright
Office. Cablevision filed a petition for writ of certiorari on April
4, 1988, No. 87-1642. These separate petitions from the same
judgment should be considered together.

the District Court that the Copyright Office, for the
first time, clearly addressed in regulations and other
writings how to compute the compulsory copyright
payment where valuable non-broadcast and broadcast
signals are combined on a single tier for one price.

At that time, the Copyright Office indicated that
where the cablecast programming is “‘offered in com-
bination with secondary transmission [broadcast] ser-
vice for a single fee,’’ all revenues must be included
in the computation. 37 C.F.R. § 201.17(bX1) (1987).
The Copyright Office offered the following explana-
tion:

Whenever the two types of services [i.e.,
broadcast and nonbroadcast] are offered for
a single price or, if on separate tiers, when-
ever it is necessary to subscribe to one tier
in order to receive another, the two services
are in reality being offered as a single pack-
age of service; if secondary transmissions are
included in the package, gross receipts from
both tiers of the combined package must be
reported and used in calculating copyright
royalties.’

In promulgating the regulation, the Copyright Office
noted that it could not ‘“‘decide tlie matter finally since
definitive interpretation of a statute is the province
of the courts.” 49 Fed. Reg. 18029, 138031 (1984).
The Office went on expressly to ‘‘welcome the guid-
ance of the courts.” Jd.

Under the Copyright Office’s interpretation, if a
cable operator offers ten channels of broadcast pro-

? Letter from Dorothy Schrader, Copyright Office General
Counsel, to David J. Saylor, June 9, 1986, at 2.

gramming for $5 and ten channels of cablecast pro-
gramming for another $7, the compulsory copyright
fee would be based solely on the $5 broadcast tier.
If the operator instead offers a single twenty channel
package, consisting of the same broadcast and cable-
cast programming, for $12, all $12 must be included
in the fee calculation.

The District Court held for NCTA and struck down
the Copyright Office’s new regulations. It noted that
‘the mere inclusion of nonbroadcast signals on the
same tier with broadcast signals does not magically
transform the nonbroadcast signals into signals now
subject to the compulsory licensing scheme. They re-
main outside the licensing scheme and any revenues
attributable to them should not be included in the
calculation of ‘gross receipts.’’’ App. 5la. The court
concluded that “‘the Copyright Office’s definition of
‘gross receipts’ does not have a reasonable basis in
law and frustrates the underlying congressional pol-
icy.” Id. at 48a.

The Court of Appeals reversed the District Court
and sustained the regulations. Finding the statute
‘silent or ambiguous,” the court felt obliged to defer
to the interpretation offered by the Copyright Office.
“Congress saw a need for continuing interpretation
of Section 111,” the court concluded, ‘‘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.”’ Id.
at 2la (emphasis added).

REASONS FOR GRANTING THE WRIT

The decision below dramatically increases the
amount of copyright fees that cable television oper-

ators must pay to broadcasters and other copyright
holders. The rates have soared 140 percent in the
short time since the Court of Appeals decision issued
in January 1987.* The increase will translate literally
to hundreds of millions of dollars and will affect far
more than the profitability of cable operators. The
decision also will adversely affect the nation’s cable
subscribers. Indeed, cable operators are now being
forced to reevaluate existing marketing practices.
Broadcast signals may be excluded from popular pro-
gramming packages or deleted altogether. On the
other hand, cable operators will be penalized for of-
fering packages with more cablecast programming,
since that programming now bears a “‘double’’ copy-
right payment. This case will affect the media land-
scape throughout the country for program producers,
cable operators, artists and, ultimately, consumers.

Even beyond the implications of this particular
interpretation of the Act, the decision below is sig-
nificant in granting unprecedented authority to the
Copyright Office. By deferring to that Office in this
private dispute between the owners and users of co-
pyrighted material, the Court of Appeals bestowed
powers on the Office never envisioned by Congress.
The decision to do so conflicts directly with Second
Circuit precedent limiting the Office’s interpretative
authority. Under the Copyright Act, the Copyright
Office is the depository of compulsory copyright pay-
ments. Whether cable operators have properly com-

8 For the first half of 1987, prior to the appellate decision,
cable operators paid $32.1 million in compulsory copyright fees.
Payments for the second half of 1987, which were due after the
appellate decision was issued, soared to $76.8-million. 8 Com-
munications Daily No. 44, at 3 (March 7, 1988).

puted their compulsory copyright fees is a matter to
be determined in the first instance by the courts in
an infringement action.’ The Copyright Office has no
role in disputes between owners and users of copy-
righted materials as to the amounts owed under the
compulsory license.

The breadth of the ruling of the court below prom-
ises to be especially damaging to the congressional
copyright scheme because of the institutional tend-
ency of the Copyright Office to favor copyright own-
ers. The Office was established to serve the interests
of the copyright holders, and the Register of Copy-
rights has clearly recognized this duty.’ The inevi-
table consequence of the court’s holding that the
Office’s interpretations are entitled to deference will
be a tilting of Congress’ careful copyright balance
toward the copyright holders in a manner not in-
tended in the Copyright Act. Already the Copyright
Office has been importuned by MPAA to flex its new
muscles in favor of the copyright holders." And in a
Notice of Inquiry released just weeks after the Court
of Appeals decision, the Office suggested a willingness
to make certain determinations regarding broadcast
signals which heretofore were the exclusive province
of the Federal Communications Commission. 53 Fed.
Reg. 5591 (1988).

* See pages 10-14, infra.

© See pages 15-18, infra.

‘On February 12, 1988, MPAA submitted a petition request-
ing the Copyright Office to impose interest charges, nowhere

mentioned in the Copyright Act, on cable operators for late
payments. The Copyright Office has not yet ruled on the petition.

Not only is this development contrary to Congress’
evident intent, but a ruling that Congress delegated
broad interpretive authority to the Copyright Office
of the Library of Congress—as issued by the court
below—is inconsistent with the separation of powers
doctrine. The Copyright Office is part of tte legis-
lative branch of government. Accordingly, constitu-
tionally imposed restrictions on the functions of the
legislative branch unequivocally preclude the treat-
ment of the Copyright Office as ‘‘any other agency.”

I. THE COURT BELOW ERRED IN DEFERRING TO
THE COPYRIGHT OFFICE TO RESOLVE A CON-
TROVERSY OVER WHICH THE OFFICE HAS NO
STATUTORY AUTHORITY.

In a series of important cases beginning with the
Chevron case in 1984, this Court has endeavored to
set forth the basic principles for reviewing statutory
interpretations by administrative agencies.'’* Although
Chevron and its progeny mandate deference to ad-
ministrative agencies in certain circumstances, this
Court has never suggested that deference is due to
an agency operating outside its lawful authority.’* The
court below overlooked this fundamental limitation,
and applied Chevron to the Copyright Office’s inter-

12 Chevron, U.S.A., Inc. v. Natural Resources Defense Council,
Inc., 467 U.S. 837 (1984).

18 See, e.g., INS v. Cardoza-Fonseca, 107 S. Ct. 1207 (1987);
NLRB v. United Food and Commercial Workers Union, Local
23, 108 S. Ct. 413 (1987).

14 Chevron, 467 U.S. at 842-45. See also National Treasury
Employees Union v. FLRA, 810 F.2d 295, 297 (D.C. Cir. 1987)
(deference will not be accorded unless “‘agency’s interpretation
falls within the scope of authority that has been properly del-
egated by Congress to the agency’’).

10

pretation of Section 111. App. 16a-2la. It failed to
appreciate that the Office’s ministerial charge under
the Copyright Act did not convey with it a concom-
itant responsibility to make statutory interpretations
affecting the substantive rights of private parties. The
court applied Chevron because it erroneously assumed
that the Copyright Office was ‘‘an agency to which
Congress has delegated policy-making responsibili-
ties.’’ App. 19a. By ignoring the special characteris-
tics of the “‘agency’’ at issue and deferring to the
Copyright Office, the District of Columbia Circuit
stretched the Chevron doctrine beyond recognition.

A. The Decision Below Granting the Copyright Office De-
ference in Interpreting Section 111 Contradicts Estab-
lished Law in the Second Circuit and Has No Statutory
Support.

The decision of the court below to defer to the
Copyright Office’s statutory interpretation conflicts
directly with the Second Circuit’s decision in Bartok
v. Boosey & Hawkes, Inc., 523 F.2d 941 (1975). At
issue in Bartok was whether a particular composition
should be treated as ‘‘posthumous” work under the
Copyright Act. The Second Circuit flatly refused to
give weight to the Copyright Office’s definition of the
statutory term. “[T]he Copyright Office has no au-
thority 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.

The court below summarily dismissed Bartok’s
treatment of the Copyright Office as dictum and ir-
relevant to disputes arising under Section 111. App.
21a. But resolution of the deference issue in Bartok
was critical to that court’s construction of the un-
defined statutory term. Moreover, the court below

11

failed to explain why Congress ascribed a larger role
to the Copyright Office in interpreting Section 111
than in interpreting other provisions of the Copyright
Act. Notwithstanding the efforts of the court below,
its decision cannot be reconciled with the decision in
Bartok. Unless this Court addresses the issue, this
split among the circuits will create confusion as to
the proper role of the Copyright Office in adminis-
tering the Copyright Act.

The decision in Bartok was based, in part, on the
Copyright Office’s own regulations, which stated that
“(t]he Copyright Office ... does not ... give legal
opinions or advice on such matters as ... [t]he suf-
ficiency, extent or scope of compliance, with the co-
pyright law.”’ 37 C.F.R. § 201.2(a)(1) (1975Xamended
1985). And the Copyright Office has, in other con-
texts, acknowledged the limited scope of its authority.
It has readily admitted that active enforcement of the
statute ‘‘would be beyond [its] statutory authority”’
and emphasized that ‘“‘[t]he principal obligation for
enforcement of violations of Section 111 rests with
the affected copyright owners, not the Copyright Of-
fice.”’ 45 Fed. Reg. 45270, 45271 (1980).'® Counsel for
the Copyright Office explained to the District Court:
“By statute and by its own practice, the Copyright

‘5 The Office in the past has expressed concern that cable
systems might reject the Office’s statutory interpretation, but
concluded “‘that the only remedy lies with the copyright owners
themselves, who may decide to bring civil infringement actions
for violation of the compulsory license.” 49 Fed. Reg. 14944,
14948 (1984). See also 37 C.F.R. § 201.17(cX2) (1987) (final proc-
essing by the Copyright Office “‘shall in no case be considered
a determination that ... requirements to qualify for a compul-
sory license have been satisfied’’).

12

Office says, we are not the S.E.C., we are not the
F.C.C.; we do not go out and affirmatively say to the
copyright owners or the cable operators you shall do
this, you shall not do that.’"* In adopting the very
regulation contested here, the Copyright Office ex-
pressly invited judicial resolution of the issue. 49 Fed.
Reg. 13029, 13031 (1984).

As previously recognized by both the Second Circuit
and the Copyright Office, the latter has no role in
making substantive interpretations governing the
scope of compliance with copyright laws. The Office’s
authority, with respect to Section 111, is restricted
to the procedural matters of gathering identifying in-
formation, revenue data, and royalty payments. 17
U.S.C. §§ 111(dX1), 111(d\2), (Supp. IV 1986);
App. 59a-61a.'’ Although Section 111 describes in de-
tail the Office’s authority as a depository to design
and collect copyright reporting forms, it never as-

‘ Transcript of Status Hearing, April 22, 1986, at 25. No-
where is the Copyright Office given statutory authority to make
substantive policy determinations regarding Section 111. Indeed,
Congress created a separate entity, the Copyright Royalty Tri-
bunal, and charged it with responsibility for distributing the
royalty fees collected and also for periodically adjusting the roy-
alty rates to account for changing circumstances. 17 U.S.C. §§
801 et seg. (1982 & Supp. IV 1986).

‘ To avoid the need for private copyright negotiations, Section
111 provides that the government act as an intermediary ‘‘clear-
inghouse.’’ Cable operators deposit compulsory royalty fees with
the Copyright Office. The Copyright Royalty Tribunal then re-
views the aggregate composition of broadcast programming car-
ried by cable systems and determines what percentage of the
royalties collected should be distributed to each copyright owner.

S|

13

cribes to the office the authority to certify or deny
compliance with the Act’s requirements."*

To be sure, Section 702 of the Copyright Act au-
thorizes the Register of Copyrights, as director of the
Copyright Office, ‘‘to establish regulations . . . for the
administration of the functions and duties made the
responsibility of the Register under this title.” 17
U.S.C. § 702 (1982). But this authorization has never
previously been construed to give the Office the right
to determine the scope of compliance with the Co-
pyright Act.’®

In short, the Copyright Office may interpret the
Copyright Act insofar as necessary to design appro-
priate forms for filing compulsory copyright pay-
ments. It may even provide advice to cable operators
as to how these forms should be completed. But this

‘* A cable operator automatically secures a compulsory copy-
right license under Section 111 upon filing the requisite reports
and royalties with the Copyright Office. Under Chapter 5 of the
Copyright Act, 17 U.S.C. § 501 et seg. (1982), if a copyright
owner shows in court that the requirements of Section 111 have
not been met, the operator becomes a copyright infringer and
is liable for damages.

'* Section 702 of the 1976 Copyright Act derives directly from
Section 53 of the 1909 Act. The 1909 provision provided that
“the register of copyrights shall be authorized to make rules
and regulations for the registration of claims to copyright as
provided by this Act." The accompanying House Report ex-
plained that the provision “for the making of rules and regu-
lations does not confer upon the register any judicial functions.”
H.R. Rep. No. 2222, 60th Cong., 2d Sess. (1909). The Copyright
Office has reiterated in various public notices that it is the
judiciary, not the Copyright Office, that must decide whether
the statutory requirements of Section 111 have been met. See,
e.g., 44 Fed. Reg. 73123, 73127 (1979); 48 Fed. Reg. 6372 (1983).

a

14

limited ministeria! role does not allow the Copyright
Office to determine the substantive rights of private
parties under the Copyright Act.”

B. The Copyright Office Is Institutionally Biased in Favor
of Copyright Owners and Not Entitled to Deference in
Resolving Disputes Between Copyright Owners and Co-

pyright Users.

In adopting Section 111, Congress fashioned a long-
negotiated and carefully-balanced compromise be-
tween the interests of the cable operators and their
consumers, on the one hand, and the copyright own-
ers, on the other.*! From its inception, however, the

* Prior to the decision below, the courts had narrowly cir-
cumscribed the Copyright Office’s authority. The Office was given
latitude only in strictly ministerial functions, see, e.g., National
Conference of Bar Examiners v. Multistate Legal Studies, Inc.,
692 F.2d 478 (7th Cir. 1982), cert. denied, 464 U.S. 814 (1983)
(upholding ministerial decision regarding the retention of copy-
right works in the Office’s files), and in determining whether a
particular submission was “‘copyrightable."’ See, e.g., Esquire,
Ine. v. Ringer, 591 F.2d 796 (D.C. Cir. 1978). cert. denied, 440
U.S. 908 (1979). Assuming for the sake of argument that the
Office is entitled to deference in resolving whether something
is “copyrightable,” it does not follow that the Office is entitled
to deference here. Unlike the controversy in this case, resolving
whether something is “‘copyrightable” is critical to the Office's
“depository”’ function. Moreover, in contrast to this case, res-
olution of the “copyrightability”’ issue does not necesarily place
the interests of recognized copyright owners (whom the Office
serves) in conflict with copyright users.

** “The difficult problem of determining the copyright liability
of cable television systems" was before Congress for a decade
prior to adoption of the 1976 Act. H.R. Rep. No. 1476, supra
note 4, at 89, 1976 U.S. Code Cong. & Admin. News at 5703.
Congress recognized that “{njeither the full liability sought by
the copyright interests, nor the complete exemption sought by

15

Copyright Office has had an institutional bias favoring
copyright owners. By deferring to the Copyright Of-
fice’s substantive interpretation of the Act, the court
below tilted that balance toward the copyright owners
in a way Congress did not intend.”

the [cable] interests would be appropriate or fair.’ H.R. Rep.
No. 83, 90th Cong., 1st Sess. 1, 51-52 (1967). Section 111, as
drafted, ‘“‘attempt[ed] a compromise between the[se] extreme po-
sitions.” Copyright Law Revision: Hearings on H.R. 2223 Before
the Subcomm. on Courts, Civil Liberties, and the Admin. of
Justice of the House Comm. on the Judiciary, 94th Cong., 1st
Sess. 132 (1975) (statement of Irwin Goldbloom, Deputy Assist-
ant Attorney General) [hereinafter cited as Hearings].

Supporters of Section 111 proudly noted that it ‘“reflect(ed]
a compromise” between NCTA and MPAA, and “reconcil{ed]
many conflicting interests as fairly, as justly, and as construc-
tively as possible.” 122 Cong. Rec. 31,984 (1976). “In working
ovt this formula, the committee ... arrived at a solution which

. is workable and is fair and equitable to both the owners
and users of copyrighted materials and which also protects and
serves the public interest.” Jd. at 32,009. See also H.R. Rep.
No. 1476, supra note 4, at 362, 1976 U.S. Code Cong. & Admin.
News 1976 at 5804.

Section 111 proponents were well aware of the fragility of
the statutory compromise. Recognizing that the legislation “im-
pose(d] copyright liability for the first time on several industries,
including cable television,"’ one Senator expressed his ‘concern
that these industries not be overpowered by long established
and more prominent industries who also have an interest in this
bill.” 122 Cong. Rec. 3822 (1976). In opposing a pending amend-
ment, he explained that Section 111 “‘is a fair and equitable
balance for all parties. However, it is a delicate balance, and
one that I earnestly hope will not be upset.” Jd. at 3823.

2 As the Seventh Circuit has noted:

[W]here a statute strikes a political balance but administra-
tion of the statute is entrusted to an agency that may not
embody that balance, it is dangerous to defer automatically

16

The institutional tilt of the Copyright Office is pro-
nounced and undisputed. In the legislative hearings
prior to adoption of the 1976 Copyright Act, then-
Register of Copyrights Barbara Ringer conceded that
she viewed her responsibilities as solely to the co-
pyright holders:

My feeling as the head of the Copyright Of-
fice is that my responsibility is to one group
and one group only, and that is the group
that is identified as the sole and only bene-
ficiary of the copyright law of the United
States under the Constitution, the authors of
the so-called writings.”

She urged Congress that, in fashioning a ‘‘compro-
mise’ between copyright owners and copyright users,
“it is vitally important that you consider the effect
of a particular provision on the individual author and
not primarily of its effect on an economic group using
the author’s work for good or ill.’’*4

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 an other faction. The court must enforce the
compromise, not the maximum position of one of the interest
groups about which the compromise was struck.

Bethlehem Steel Corp. v. EPA, 723 F.2d 1308, 1309 (7th Cir.
1983).

°° Hearings, supra note 21, at 106 (statement of Barbara
Ringer, Register of Copyrights). Ringer went on to state, “I am
profoundly of the belief that authors in this country have been
treated shabbily and stingily from the very beginning of our
copyright system.” Jd.

*4 Jd. Former Register and Honorary Consultant in Copyright

17

The Copyright Office has, in fact, never hidden its
dislike for cable’s compulsory copyright license.” Nor
has it made secret its approach to disputes regarding
cable’s compulsory copyright. It has explained that it
“construe[s] the compulsory license strictly, since the
burden of responsibility is on cable systems to prove
that they have satisfied the legislature’s conditions
for a compulsory license in derogation of the other-
wise recognized ... property rights of copyright own-
ers.” 49 Fed. Reg. 14944, 14950 (1984).

The tilt of the Copyright Office toward the copy-
right holders is not a matter of personalities or tim-
ing. It is institutional. To defer to the Copyright Office
on matters affecting the rights of copyright owners
vis-a-vis copyright users would be akin to giving a

at the Library of Congress Abraham Kaminstein explained in
congressional testimony, “I make no bones about favoring au-
thors, composers, and artists.’ Hearings, supra note 21, at 94.
Significantly, the Copyright Office, while steadfastly defending
its interpretation before both the District Court and the Court
of Appeals, never once attempted to refute NCTA’s charge that
it was, as an institution, biased in favor of the copyright owners.

*5 See, e.g., Oversight of the Copyright Act of 1976: Cable Tel-
evision Hearings Before the Senate Comm. on the Judiciary, 97th
Cong., lst Sess. 97, 149 (1981) (statement by Donald Ladd,
Register of Copyright, advocating elimination of the compulsory
copyright license).

*6 In placing the ‘‘burden of responsibility’’ on cable systems,
the Copyright Office overlooks the historical origins of the com-
pulsory copyright provision. Prior to the adoption of the 1976
Copyright Act, this Court had ruled that cable systems were
free to retransmit broadcast programming without paying any
royalties whatsoever to the copyright owners. Fortnightly, su-
pra; Teleprompter, supra. Thus, cable’s compulsory copyright
license constituted an expansion, rather than a contraction, of
the rights of copyright owners.

——

18

trustee deference in resolving a dispute between the
trust’s beneficiary and a third party. The trustee has
no choice but to interpret the trust agreement in a
manner advantageous to the trust’s beneficiary. Re-
cognizing and acting on this fact, as Congress did in
precluding the Copyright Office from playing an ac-
tive role in defining the substantive rights of copy-
right owners and users, is no slight on the integrity
of the trustee.

Certainly, there is nothing in the record to suggest
that Congress wanted Section 111 interpreted by an
entity that would invariably resolve issues in favor of
the copyright owners. To the contrary, Congress took
pains to avoid placing the Copyright Office in a sit-
uation where its loyalty to copyright owners might
threaten the integrity of the compulsory copyright
compromise. It created the Copyright Royalty Tri-
bunal and relied upon the Tribunal, rather than the
Copyright Office, to adjust periodically the rates for
the various compulsory copyright licenses included in
the 1976 Copyright Act. And it left resolution of dis-
putes over the amounts necessary to earn the com-
pulsory license to private litigation between the
copyright owners and users. Congress was not blind
to the inability of the Copyright Office to balance the
needs of both copyright owners and copyright users
in setting rates intended to provide a fair return to
both parties.’

*" In light of the delicacy of the compromise underlying Section
111, Congress placed numerous restrictions on the Tribunal’s
discretion to adjust rates for this particular compulsory license.
See 17 U.S.C. § 801 (1982 & Supp. IV 1986).

19

C. The Copyright Office Is a Part of the Legislative Branch
and Not Entitled to Deference When Assuming Func-
tions Reserved for the Executive Branch.

The court below granted the same deference to the
Copyright Office’s substantive interpretation that the
court would grant to ‘‘any other agency.’’ But the
Copyright Office is not “‘any other agency.” It is a
division of the Library of Congress and part of the
legislative branch of government. Congress did not,
and could not permissibly, delegate to the Copyright
Office responsibility for determining the substantive
rights of copyright holders and copyright users. To
have done so would have violated the separation of
powers doctrine. Although the Copyright Office is en-
titled to interpret the Copyright Act as necessary to
perform its ministerial functions as depository for
compulsory copyright payments, its interpretations are
not entitled to judicial deference in infringement ac-
tions involving the substantive rights of private par-
ties.

Recent decisions of this Court have affirmed the
bedrock principle that the legislative branch cannot
delegate power that properly resides in another
branch. E.g., Bowsher v. Synar, 106 S. Ct. 3181
(1986); INS v. Chadha, 462 U.S. 919 (1983); Buckley
v. Valeo, 424 U.S. 1, 137-43 (1976). The need to draws
a bright line between the co-equal branches of gov-
ernment arises not simply out of procedural fussiness;
“it is a breach of the National fundamental law if
Congress .. . attempts to invest itself or its members
with ... executive power ....”’ Buckley, 424 U.S. at
121-22 (quoting Hampton & Co. v. United States, 276
U.S. 394, 406 (1928)).

20

The court below erred by deferring to the Copy-
right Office, an arm of the Congress, in interpreting
the substantive rights of copyright users. As this
Court pointed out in Bowsher, ‘‘iJnterpreting a law
enacted by Congress to implement the legislative
mandate is the very essence of ‘execution’ of the
law.”’ 106 S. Ct. at 3192.% But ‘{t]he structure of
the Constitution does not permit the Congress to ex-
ecute the laws; it follows that Congress cannot grant
to an officer under its control what it does not pos-
sess.”’ Id. at 3188. See INS v. Chadha, 462 U.S. at
951-59.

The court below assumed without analysis that sub-
stantive statutory interpretive powers are vested in
the Copyright Office, as they are in ‘‘any other
agency.’ But this Court’s recent cases make clear
that authority that might be delegated to an inde-
pendent agency is not acceptable if delegated to a
component or an agent of Congress. In Bowsher, for
example, this Court voided that portion of a budget
balancing statute that delegated executive functions
to the Comptroller General of the General Accounting
Office (‘‘GAOQ”’).”9

*8 See Universal Shipping Co. v. United States, 652 F. Supp.
668, 674 (D.D.C. 1987) (‘‘Bowsher makes clear that ‘execution’
involves making judgments about application of a statute in a
particular instance and making actual interpretations of law in
order to implement it’’).

*° Because it found the GAO to be ‘“‘a part of the legislative
branch of government,” Bowsher, 106 S. Ct. at 3192, the Court
held that delegation of interpretive power to the Comptroller
General is the “‘kind of congressional control over the execution
of the laws [which] is constitutionally impermissible.” Jd. at 3189.

21

The same constitutional considerations as in
Bowsher bar delegation of executive functions to the
Copyright Office, a department of the Library of Con-
gress. In his concurring opinion in Bowsher, Justice
Stevens compared the Comptroller General to ‘‘other
obvious congressional agents, such as the Librarian
of Congress ....”’ Jd. at 3205 n.25. Other courts have
similarly recognized that “‘the Library of Congress is
a congressional agency.’ See, e.g., Keeffe v. Library
of Congress, 777 F.2d 1573, 1574 (D.C. Cir. 1985).*°
The Copyright Office itself has stated that ‘[t]he Co-
pyright Office is a department of the Library of Con-
gress in the legislative branch. Neither the Library
of Congress nor the Copyright Office is an agency
within the meaning of the Administrative Procedure
Act ....” 49 Fed. Reg. 14944, 14951 (1984).* Be-
cause the Copyright Office is a creature of Congress,

30 The “‘official handbook of the Federal Government”’, lists
the Library of Congress and its Copyright Office as being part
of the Legislative Branch. United States Government Manual
1986/87, pp. iii, v. Neither the Library of Congress nor the
Copyright Office is listed among the “Executive Agencies’’ or
‘Independent Establishments” described in the Manual. The
Manual states that “ujnder the organic law, the Library’s first
responsibility is service to Congress.” Jd. at 50. Moreover, Li-
brary employees (including those in the Copyright Office) are
exempt from the Hatch Act, which restricts political activity by
executive branch employees, thus providing further evidence of
the Office’s independence from the executive branch. Keeffe, 777
F.2d at 1577 (Library of Congress personnel are legislative
branch employees).

31 The Copyright Office’s structure and responsibilities as an
“agency” are set forth in Chapter 7 of the Copyright Act. Sec-
tion 701 establishes the Copyright Office as a part of the Library
of Congress. 17 U.S.C. § 701(a) (1982).

i)
bo

its views on the substantive meaning of the Copyright
Act are not entitled to deference by a court attempt-
ing to determine the respective rights of parties be-
fore it.*

Il. THE STATUTORY INTERPRETATION AD-
VANCED BY THE COPYRIGHT OFFICE, AND UP-
HELD BY THE COURT’ BELOW, IS
UNREASONABLE.

Even if the Copyright Office were accorded the
deference due ‘‘any other agency,”’ such treatment
would hardly justify the decision of the court below.
Section 111(d\1)(B) provides that royalties shall be
“computed on the basis of specified percentages of
the gross receipts from subscribers ... for the basic
service of providing secondary transmissions of pri-
mary broadcast transmitters.’”’ App. 60a. The lan-
guage of that provision necessarily precludes the
inclusion of revenue from nonbroadcast sources in the
gross receipts calculation.**

8° See E. Brylawski, The Copyright Office: A Constitutional
Confrontation, 44 Geo. Wash. L. Rev. 1 (1975). But see Eltra
Corp. v. Ringer, 579 F.2d 294, 298-301 (4th Cir. 1978) (Register
of Copyrights is an executive officer via presidential appointment
of the Librarian of Congress). The reasoning employed in Eltra
Corp. has since been rejected by this Court. Bowsher, 106 S.
Ct. at 3189-91 (Comptroller General is an agent of Congress
despite appointment by the President).

88 Although the practice of mixing valuable cablecast and
broadcast programming in the same tier of service was not
prevalent when the Copyright Act was adopted, the language
and legislative history of Section 111 of the Copyright Act clearly
reveal how Congress would have resolved the issue now pre-
sented. Thus, under the standard set forth by this Court, the
D.C. Circuit erred in looking to the Copyright Office’s inter-
pretation. See, e.g., Chevron, U.S.A., Inc. v. Natural Resources

23

The court below rejected NCTA’s interpretation of
the language of Section 111 largely because it be-
lieved the interpretation read the phrase “‘basic ser-
vice’ out of the statute. App. 22a. According to the
court, under NCTA’s approach, Congress could have
based the royalty calculation simply on gross receipts
“for secondary transmissions,” rather than on gross
receipts “for the basic service of providing secondary
transmissions.”’ Jd. (emphasis added). But the term
‘basic service’ was more likely intended as a limi-
tation on gross receipts, rather than an expansion. It
is through this phrase, and this phrase alone, that
Congress indicated that the revenue base for the com-
pulsory copyright fee was to be closely circumscribed.
Without this clarification, revenue from a host of ser-
vices relating, but not fundamental, to the delivery
of broadcast retransmissions could be included in the
gross receipts pool.* As evident in the Act’s legis-
lative history, the congressional compromise that re-
sulted in Section 111 was rooted in carefully limiting
the revenues to be included in the copyright com-
putations.*

Defense Council, Inc., supra; INS v. Cardoza-Fonseca, supra,
NLRB v. United Food & Commercial Workers Union, Local 28,
supra.

34 While the other parties to this case have clouded the issue,
the statutory phrase actually supports, rather than undermines,
NCTA’s position. Using its ordinary meaning, the phrase sug-
gests that cable revenue should be included in the compulsory
copyright calculation only so long as it derives directly from
broadcast retransmission and from nothing else. Where a single
charge covers a multitude of services, the phrase dictates that
only the component attributable to providing broadcast pro-
gramming be considered.

35 See H.R. Rep. 1476, supra note 4, at 96 (excluding receipts

ee

24

NCTA’s interpretation is consistent not only with
the language of Section 111, but also with the un-
derlying logic. Because Congress established the com-
pulsory license to cover broadcast signals, it was
natural that the accompanying royalty would be based
solely on cable revenues attributable to broadcast re-
transmission. As Section 111 made the right to re-
transmit each and every broadcast signal contingent
upon a statutory grant, Congress was free to create
a compensation formula that drew from all broadcast
retransmissions. It does not follow, however, that
Congress intended to subject nonbroadcasting pro-
gramming to the same licensing obligations. Congress
had no logical basis to demand an additional statutory
payment for the right to carry programming which
cable operators had already acquired and paid for
through private negotiations.

Respondents’ construction of Section 111, on the
other hand, defies common sense. Two cable systems
with the same total revenue and channel line-up could
pay dramatically different compulsory copyright fees
depending on whether the broadcast and cablecast
channels were marketed separately or together. Yet,
in affirming the reasonableness of the Copyright Of-
fice regulations, the court below explained: ‘We find
no requirement in the statute or its history that the
fee paid by a cable system reflect precisely the value
it received from retransmissions .... Congress in-
stead chose an easily calculable revenue base and used
the DSEs [distant signal equivalent charges] to ap-

for ‘“‘pay cable” and “‘installation” from the copyright calcula-
tion). Even Register Ringer recommended against allowing the
Copyright Royalty Tribunal to alter this revenue base. Hearings,
supra note 21, at 1824.

25

proximate the value received by the cable companies.”’
App. 24a. The conclusion overstates the mathematical
effect of the DSE and dramatically understates its
financial consequences.

The DSE charge was devised so that cable oper-
ators would pay higher copyright fees as they in-
creased the number of distant signals they carried.
This special charge for distant signals was premised
on the understanding that cable’s importation of dis-
tant signals has more of an effect on the copyright
market than the carriage of local signals, which, by
definition, are already available ‘‘over-the-air.’’ But
the DSE charge does not negate the need to calculate
correctly the system’s gross receipts.** The compul-
sory fee derives from multiplying together two var-
iables—‘‘gross receipts’ and “DSEs.”” When two
variables are multiplied, they produce a “‘proper”’ re-
sult only if both variables are themselves accurately
stated.

Perhaps suspecting the weakness of its mathemat-
ical explanation, the court below concluded that the
‘Gmprecision” inherent in the Copyright Office reg-
ulations was not unreasonable in light of the
“congressional goal of minimizing transaction costs.”’
App. 25a. But its decision more than doubled cable's
compulsory copyright payments. “Imprecision”’ of that
magnitude cannot be justified as a matter of admin-
istrative convenience.*

36 This is especially true in the case of smaller cable systems
(i.e., those with semi-annual gross receipts below $292,000) be-
cause their compulsory copyright calculation does not even in-
clude a DSE factor.

37 The court belittled the problem by suggesting that it can

26

Congress provided that the compulsory copyright
fee shall be calculated on the basis of “gross receipts
... for the basic service of providing secondary trans-
missions of primary broadcast transmitters.’’ It is
plainly unreasonable to construe that provision so that
the resulting fees derive more from the carriage of
cablecast programming than from the retransmission
of broadcast programming.

be avoided if cable operators would adjust their marketing prac-
tices to offer broadcast and cablecast programming separately.
The court ignored marketing realities—best illustrated by com-
paring cable marketing to that of a conventional daily news-
paper. A newspaper could theoretically sell each of its sections—
i.e., news, lifestyle, sports, etc.—for a separate price. For a
variety of business reasons, newspaper publishers have deter-
mined that it is better to offer their product as a package for
a single price. Cable operators should not be penalized for fol-
lowing a similar practice. In cable television, as in any compet-
itive commercial endeavor, effective marketing is critical to
economic success. The Copyright Office must not be allowed to
transform Section 111 from a copyright regulation into a mar-
keting regulation.

-

27

CONCLUSION

For the foregoing reasons, this Court should grant
the writ and reverse the decision of the court below.

Respectfully submitted,

JAY E. RICKS

Counsel of Record
GARDNER F. GILLESPIE
STEVEN J. HORVITZ
ROBERT CORN-REVERE

HoGAN & HARTSON

555 Thirteenth Street, N.W.
Washington, D.C. 20004
(202) 637-5600

Counsel for Petitioner
Of Counsel:

BRENDA L. Fox, Esq.

National Cable Television
Association, Inc.

1724 Massachusetts Avenue, N.W.

Washington, D.C. 20036

(202) 775-3664

May 4, 1988

APPENDIX

la

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 86-5552
CABLEVISION SYSTEMS DEVELOPMENT COMPANY
Vv.

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

2a

Stuart H. Newberger, Assistant United States Attor-

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

ney, Dorothy Schrader, General Counsel, United States
Copyright Office, Royce C. Lamberth and Michael J.
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, Inc. 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 Jghn 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.

= §

_

3a

Robert W. Coll also entered an appearance for amici
curiae, National Hockey League.

Before: ROBINSON, RUTH B. GINSBURG 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-
mitters,” id. § 111(d) (1) (B).? 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

! 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 genera! 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.

4a

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). ‘rhe 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.

I.

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
copyright owners, find objectionable. The dispute arose
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
copyright laws, addressed in particular this problem of
“secondary transmissions.” When a cable system takes
a broadcast 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. CopE Conc. & ADMIN. News 5659, 5704.
The operator of a small cable system in a rural area, for

6a

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 7.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 advertisers 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). I/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. I/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.

8a

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—wouid 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. 7d. §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-

5 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., 1st 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).

9a

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 1.456%, 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.

"17 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
“basic 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 Bor 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
cable-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 “superstations,” 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., ESPN), 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).

iia liana

l2a

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
broadcast 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
centered 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 loca! broadcast sta-
tions and an automated weather service plus ESPN and
WTBS for $6, tier 2 could carry WGN and CNN for $3, 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
case 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 veevaluation 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-broadcast 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
subscribers in gross receipts from basic service. Jd. 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-

NN ee

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. § 1ll(c) (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 position 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
Copyright Office’s regulation, holding that the regula-
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. /d. The court however rejected
Cablevision’s attempt to equate “basic service” with “first
tier” as also inconsistent with Congress’ purpose and as

aE

l6a

inviting manipulation. It instead agreed with the NCTA
that the statute requires revenues attributable to non-
broadcast 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 gross receipts, and the Copy-
right Owners seek reversal of the dismissal of their
counterclaims.
IT.

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-

% 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 shail,
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-
41 (U.S. Dee. 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 111, 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.

14 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
this 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
Copyright Act in DeSylva v. Ballentine, 351 U.S. 570
(1956). Resolving a dispute between an author’s widow
and his illegitimate child, the Court took note of Copy-
right Office regulations, 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,” id. 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 “[wl]ith
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-

1’ The DeSylva 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 to
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.

ITI.

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

16 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 superfluous.”’
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, see
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
broadcasts (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, DSE's are. See supra text accompanying note
6.

24a

If an allocation between broadcast and non-broadcast
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 norbroadcast 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 deference 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
do 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.

2! 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
(1984) (Copyright Office’s discussion of final regulation) ;
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
Copyright Office has no authority to regulate the market-
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

to
~)
~%

fees, but asserts that the regulation is unfaithful to the
Copyright Act by failing to equate “basic service” with
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 broadcast 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., lst 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.” /d.
$ 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. /d. 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 Amendment. 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 a
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

erential

30a

company, being included in gross receipts—hardly a rea-
sonable interpretation of Congress’ objective.”

For 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 $19 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, a 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 ‘he 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 Court 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 in

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385019_1704%3A1. Public record. Not legal advice.