Amicus Curiae Brief — Teleprompter Corp. v. Columbia Broadcasting System, Inc.

Supreme Court brief1974

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INDEX

PAGE

Motion for Leave to File Brief Amicus Curiae 1

Question Presented 6

Interest of Amici 6

Summary of Argument . 10

Port I— é

The decision of the Court below is fully consistent

with the economic realities of the television in-

dustry 16

1. Local, regional and national advertising reve-

nues are dependent upon the size of the audi-

ence in the local market and not the distant

market

2. Unrestricted importation of distant signals will

have an adverse impact on the license fees

which copyright owners may obtain from local

stations in the receiving market 21

3. The high financial risk and large capital ex-

penditures which characterize the motion pie-

ture industry make the payment of CA TV copy-

right fees of critical importance 23

Port II—

nals by cable systems is fully compatible with the

Communications Act and the rules and policies of

the Federal Communications Commission 26

PAGE

Pormt III—

The decision below is in full accord with the pri-

mary purposes of the Copyright Act 38

1. CATV sells its product to the public for profit

and cannot justify its infringements by claiming

to be “The Public” 38

2. Payment of separate license fees for separate

commercial uses of a copyrighted work is fully

consistent with copyright policy and will stim-

ulate the production of high quality television

programs 39

Porr IV—

The clearance of copyrights for CATV can be

worked out on the basis of precedents existing in

the television program distribution market 41

1. The mechanics of program licensing could be

easily worked out between an eager seller and

willing buyer through the creation of clearing

houses and through central buying offices for

CATV 42

2. Since CATV will be an important customer of

the copyright owners, they will not demand ex-

cessive fees or enter into unreasonable ex-

clusivity agreements with broadcasters. Any |

abuse could be handled by appropriate govern-

ment action 47

Porr V—

The viability of the cable industry is not threatened

by liability for past damages or suits for injunc-

tive relief 49

PAGE

Poner VI—

The failure of Congress to act on the cable-copy-

right question can be traced to the intransigence

of the cable industry following this Court’s deci-

sion in Fortnightly. An affirmance of the decision

below will greatly aid the adoption of CATV copy-

right legislation 55

ConrcLusion 61

Taste or AUTHORITIES

Cases:

Cable Vision Inc. v. KUTV, Inc., 335 F.2d 348 (9th

Cir. 1964) cert. den., 379 U.S. 989 (1965) 27

Chevron Oil Co. v. Huson, 404 U.S. 97 (1971) .........14, 51

Clarksburg Publishing Co. v. FCC, 225 F.2d 511 (C.A.

D.C. 1955) 35

Davis v. E. I. Du Pont de Nemours & Company, 249 F.

Supp. 329 (S.D.N.Y. 1966) 52

FCC v. Pottsville Broadcasting Co., 309 U.S. 134 (1940) 27

Great Northern R. Co. v. Sunburst Oil and Refining Co.,

287 U.S. 358 (1932) 51

Ideal Toy Corp. v. Fab-Lu Ltd., 360 F.2d 1021 (2d

Cir. 1966) 53

In re Network Television, 25 FCC 2d 318 (1970) —— 16

Markham v. Borden, 108 F. Supp. 695 (D.C. Mass.

1952) rev. o. o. gr. 206 F.2d 199 (Ist Cir. 1953) —— 52

PAGE

National Comics Publications, Inc. v. Fawcett Publica-

tions, Inc., 198 F.2d 927 (2d Cir. 1952) 53

Shapiro Bernstein & Co. v. 4646 S. Vermont Ave. Inc.,

367 F.2d 236 (9th Cir. 1966) 52

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

225 F. Supp. 177 (S.D.N.Y. 1966) 35

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

U.S. 390 (1968) 11, 15, 16, 20, 22, 35,

36, 50, 55, 56, 60

United States v. Southwestern Cable Co., 392 U.S. 157

(1968) 30

Woolworth Co. v. Contemporary Arts, 344 U.S. 228

(1952) 52

Ziegelheim v. Flohr, 119 F. Supp. 324 (E. D. N. V. 1954) 52

Constitutional Provision:

United States Constitution

Article I, Section 8 27

Statutes and Rules:

17 U.S.C.

See. 101 49

Sec. 101(b) 52

See. 112 53

Communications Act of 1934

47 U.S.C.

See. 151 et seq. 17, 26

Sec. 414 12, 27

PAGE

See. 303(h)

See. 307(d)

See. 308

2 8

Rules of the Federal Communications Commission:

47 C. F. R. § 73.606 17

47 C. F. R. § 73.614 17

47 C. F. R. § 73.683 35

47 C. F. R. 5 73.685 17

47 C. F. R. 5 73.689 17

47 C. F. R. 5 74.731-32, 831-32 33

47 C.F.R. § 76.57 (a) (1) 34

47 C.F.R. 5 76.151 (a) 34

47 C. F. R. 5 76.151 (b) 33

Agency Reports and Orders:

Cable Television Proposals (Letter of Intent), 31 FCC

2d 115 (1971) 29

Cable Television Report and Order, 36 FCC 2d 143

(1972) 12, 24, 28, 31, 32,

33, 56, 57, 58

Memorandum Opinion and Order on Reconsideration

of the Cable Television Report and Order, 36 FCC

2d 326 (1972) 28

First Report and Order, 38 FCC 683 (1965) (Dkt. No.

14895 et al.) 21, 32

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

No. 15971 et al.) 12, 21, 29, 36

Memorandum Opinion and Order, 6 FCC 2d 309 (1967) 364

Sixth Report and Order, 17 Fed. Reg. 3905 (1952) 30, 35

PAGE

Prime Time Access Rule, 23 FCC 2d 382 (1970) 24

Hearings before the FCC in Dkt. No. 19622 (1973):.... . 7

Congressional Material:

The Senate Study on Copyright Law Revision, No. 24,

86th Cong. 2d Sess., Sen. Comm. Print 3

113 Cong. Ree. S. 14067 (daily ed. Oct. 3, 1967)

Cong. Rec., Feb. 8, 1971, S. 962-S. 963

Cong. Rec., Mar. 26, 1973, S. 5615

S. 644, 91st Cong., Ist Sess.

Comm. on the Judiciary (87th Cong., Ist Sess.) ...... 52

Hearings Before The Subcommittee on Patents, Trade-

marks and Copyrights of the Committee on the Judi-

ciary, United States Senate, on S. 1361, 93rd Cong.,

Ist Sess. 59, 60

KAAS 8

Miscellaneous:

Broadcasting, March 12, 1973 54

Broadeasting, December 3, 1973 29, 60

Johnson, Dr. Leland L., The Future of Cable Televi-

sion” (1970) 19, 39, 41, 46, 48

Nimmer, Copyright §§154.1-154.14 (1973) 52

Sloan Commission Report, On the Cable (McGraw-Hill,

1971) 9

Teleprompter’s Annual Report 1971 53

Teleprompter’s Annual Report 1972 54

Time Magazine, August 23, 1971 7

TV Factbook, 1973-74 Ed., Services Volume 8, 33, 43,

44, 45

U.S. Department of Commerce, Social and Economic

Statistics Administration, Bureau of Economic Anal-

ysis (Survey of Current Business, National Income

and Product Account of the U.S. 1929-65, 1973) —-..

U.S. Industrial Outlook 1974, with Projections to 1980,

U.S. Dept. of Commerce, Domestic and International

Business Administration; Bureau of Competitive As-

sessment and Business Policy, Oct. 1973

Variety, June 7, 1971

PAGE

Variety, July 22, 1973

Variety, October 17, 1973

Wall Street Journal, January 12, 1972

Wall Street Journal, December 5, 1973

Non 0

Supreme Court of the United States

Ocroser Term, 1973

No. 72-1628

—

TELEPROMPTER CoRPORATION and CoNLEY

| Exectronics CorPoraTIoN,

Petitioners,

CoLUNHBIA Broapcastinc System, Ixc., CaLvADA Productions,

a joint venture, Jack CRHERTOK TRLxVIsIox, Ixc., and

Dena Pictures, IN conronarEp,

Respondents.

ON CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

—~»>—

Motion for Leave to File Brief Amicus Curiae

Pursuant to Rules 35 and 42(3) of the Rules of this Court,

Motion Picture Association of America, Inc. (MPAA), As-

sociation of Motion Picture and Television Producers, Inc.

(AMPTP), Columbia Pictures Industries, Inc., MCA, Inc.,

Metro-Goldwyn-Mayer Inc., Metromedia Producers Cor-

poration, Paramount Pictures Corporation, Twentieth Cen-

tury-Fox Film Corporation, United Artists Corporation,

and Warner Bros. Inc., hereinafter collectively referred to

as “Amici”, respectfully move the Court for leave to file a

brief amicus curiae in this case.

MPAA is a trade association whose membership com-

prises companies which are among the largest producers

and distributors of copyrighted motion pictures in the

United States.“ Each of the aforelisted companies joining

in this application is engaged in the production or distri-

bution or both, of copyrighted motion pictures for theatrical

exhibition and for telecasting in the United States and else-

where. AMPTP is a California membership corporation

which comprises seventy-two (72) companies which are

engaged in the production of copyrighted motion pictures.**

* Allied Artists Pictures Corporation, Aveo Embassy Pictures

Corp., Columbia Pictures Industries, Inc., Metro-Goldwyn-Mayer

Ine., Paramount Pictures Corporation, Twentieth Century-Fox

Film Corp., United Artists Corporation, Universal Pictures, a

division of Universal City Studies, Inc., Warner Bros. Inc.

Inc., Filmways, Inc., Formosa Productions, Inc., Four Star Inter-

national, Inc., Ross Productions, Geoffrey Productions, Inc.,

Gibraltar Productions, Inc., Hanna-Barbera Productions, Inc.,

Harold Hecht Company, Herbert Leonard Enterprises, Inc., Jack

Chertok Television, Inc., Jack Rollins and Charles H. Joffe Pro-

ductions, (The) Kappa Corporation, Lawrence Turman, Inc.,

Legarla, Inc., Leonard Films, Inc., Levy-Gardner-Laven Produc-

tions, Inc., Lucille Ball Productions, Inc., (The) Malpaso Company,

Max E. Youngstein Enterprises, Inc., Meteor Films, Inc., Metro-

Goldwyn-Mayer Inc., Metromedia Producers Corporation, Millfield

Productions, Ine., (The) Mirisch Corporation of California, Mirisch

Films, Ine., Mirisch Productions, Inc., Motion Pictures Interna-

Inc., Norlan Productions, Inc., Oakmont Productions, Inc., Para-

mount Pictures Corporation, Pax Enterprises, Inc., Pax Films,

Ine., Rainbow Productions, Inc., Rastar Enterprises, Inc., Rastar

Productions, Inc., RFB way ig | Inc., R.F.D. Productions,

Robert B. Radnitz Productions, Ltd., Sheldon Leonard Productions,

Sid & Marty Krofft Television Productions, Inc., Spelling-Goldberg

Productions, (The) Stanley Kramer Corporation, Stuart Millar

Productions, Ine., Summit Films, Inc., T&L Productions, Inc.,

Tandem Productions, Ine., Thomas/Spelling Productions, Twentieth

Century-Fox Film Corp., Universal City Studios, Inc., Walt

Disney Productions, Warner Bros. Inc., Wolper Pictures, Ltd.

Wrather Corporation.

The central issue in this case is of vital importance to

the health of the motion picture industry. This issue is

whether cable television systems (CATV) which import

copyrighted film programs from broadcasting stations

hundreds of miles distant from their own location and

which distribute these programs to their own paying sub-

scribers, are engaged in a “performance” of such pro-

grams and are liable for the payment of copyright fees

for such programs.

The CATV systems owned and operated by the petition-

ers retransmit to their subscribers broadcasts of distant

television stations containing not only the programs owned

by respondents herein, but also copyrighted motion pic-

tures produced and distributed by Amici and by others.

The interests of Amici are therefore directly affected by

the precedent which the decision of this Court will set for

the protection of Amici’s copyrighted films.

The motion picture industry now derives a very substan-

tial share of its domestic income from television. Its ability

to continue program production is in serious jeopardy un-

less it is compensated for the use of its films by CATV.

Such use results in an increasing diversion of its business

from the motion picture industry’s paying customers—

the TV stations—to the non-paying users of its films—the

CATV operators. Accordingly, Amici are vitally con-

cerned that this Court has before it a complete analysis

and argument covering all phases of the public and private

considerations involved in the issue presented to this Court.

The Court below has stated in its opinion:

“The starting point in our analysis of appellants

Supreme Court’s decision in a its v.

United Artists Television, Inc.,

One of the Amici herein was the plaintiff in the Fort-

nightly case. It is for that reason that Amici believe them-

selves to be in a unique position to present to this Court

the factual and legal differences distinguishing the func-

tion of the cable systems in Fortnightly—which did not

involve distant signals—from that in the case here on cer-

tiorari.

The consent of the attorneys for the respondents to

the filing of a brief amicus curiae has been obtained. Coun-

sel for petitioners have advised that while they do not con-

sent to the filing of such a brief they would not oppose

an application for leave to submit it.

Wuenerore, Amici respectfully pray for leave to file

the within brief in this matter.

Dated: New York, New York

December 19, 1973

Respectfully submitted,

Pures, Nizer, BensamMix Louis Nizer

Kem & BALOx Grnalp MEYER

477 Madison Avenue Geratp F. PR nis

New York, New York 10022 477 Madison Avenue

Of Counsel New 8 Vork 100

Anxrnun ScHEINEB

Wurm & ScHEINER Rosert D. Hap.

2021 Lꝰ Street N. W. 2021 “L” Street N. W.

Washington, D. C. 20036 Washington, D. C. 20036

Of Counsel Attorneys for Amici Curiae

IN THE

Supreme Court of the United States

Ocroser Term, 1973

No. 72-1628

—

TELEPROMPTER CoRPORATION and CoNLEY

Exectronics Corporation,

Petitioners,

Cotumsia B ( Sysrem, Ixc., Carvapa Pnopvorroxs,

a joint venture, Jack CHERTOR Teevision, Ixc., and

Dena Pictures, Ixconronarkn,

Respondents.

ON CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

—

BRIEF AMICUS CURIAE SUBMITTED BY

MOTION PICTURE ASSOCIATION

OF AMERICA, INC., ET AL.

This brief is submitted jointly by Motion Picture As-

sociation of America, Inc. (MPAA), Association of Mo-

tion Picture and Television Producers, Inc. (AMPTP),

Columbia Pictures Industries, Inc., MCA, Inc., Metro-

Goldwyn-Mayer Inc., Metromedia Producers Corporation,

Paramount Pictures Corporation, Twentieth Century-Fox

Film Corporation, United Artists Corporation and Warner

Bros. Inc.

Question Presented

The question decided by the Court below and to be de-

cided in the instant proceeding is one of first impression.

It is a test case of the issue as to whether a CATV system

which imports a copyrighted program from a distant

television market (where it is being telecast pursuant to

a license by the copyright owner) and transmits said

program to its monthly fee paying subscribers in another

market, is engaged in a “performance” of such program

and requires a license for each transmission from the

Interest of Amici

MPAA, AMPTP, and the aforelisted motion picture

companies (Amici), represent a large percentage of the

companies engaged in the production of copyrighted the-

atrical or television programs in the United States. These

include films for theatrical release which are subsequently

licensed to the networks and to individual stations, for

non-network showing (referred to in the trade as “syn-

dication”), films made specially for television, and series

programs made for network television and subsequently

licensed to individual stations in syndication.

All of these films are being imported by CATV sys-

tems into their own markets and distributed there to their

monthly fee paying subscribers in competition with Amici’s

paying customers—the television stations in the same mar-

kets. The diversion of the viewing public from the motion

picture industry’s paying customers to nonpaying users of

its films and the resulting decline of income from television

licensing threaten the viability of the industry.

The plight of the motion picture industry and the drastic

decline of its revenues and profits over the last few years

are a matter of record. From 1969 to 1973, the major film

distributors of this country, reported losses of $500 million.

As Variety reported in its October 17, 1973 issue, Columbia

Pictures Industries, Inc., suffered a total loss of some 82

million dollars in the past three years including a loss of

some 50 million dollars within the past year only. Accord-

ing to the Wall Street Journal of December 5, 1973, p. 17,

MGM had an operating loss of $585,000 in its last fiscal

quarter 1972/73, has withdrawn from the movie-distribu-

tion business and has slashed its movie-production schedule

drastically.

Obviously, if these financial difficulties are aggravated by

the spread of CATV’s free use of the producers’ films,

the result will be a drying-up of production. This would

victimize the creative segment of the industry,’ and would

also deprive motion picture theatres, television stations, and

CATV, of their primary need—high quality programs.

Ultimately, the public will suffer.

The severity of these problems appears most dramatically

in the figures showing the decline of motion picture theatre

admissions since the end of World War II. Indeed, the

revenues from such admissions declined from $1.692 billion

* Unemployment among talents and craftsmen in Hollywood is

severe. Nr

in Variety of July 22, 1973. See also the testimony of Chester

Beane, Reeves eee

1973, before the Federal Communications Commission, in

No. 19622, transcript p. 280. sae, Mighen ctsted’ that the “nam:

ployment rate in the Screen Actors Guild was approximately 85% ;

that unemployment in various craft unions ran from 10% to 75% ;

and that these figures did not really show the whole picture because

many members of these unions (i.e., actors, writers, composers, and

craftsmen), had abandoned their efforts to support their families

by working in the industry.

in 1946 to $1.234 billion in 1972, a decrease of 27%.’

When inflation is considered the $1.234 billion figure for

1972 is transformed into an even lower figure of $576.2

million in terms of constant 1946 dollars.

The same trend is revealed by the declining curve of the

number of paid admissions to motion picture theatres as

reported by the Motion Picture Association of America.

In 1946, some 78.2 million persons entered a motion picture

theatre each week. By 1972, weekly admissions were down

to about 18 million persons, a decline of 77% in the face

of a 48% increase in the U.S. population since 1946. This

tremendous loss in theatre admissions has been offset only

in part by revenues derived by the motion picture industry

from licensing of its films to television.

The threat posed to the motion picture industry by the

uncompensated carriage of its product by CATV must be

evaluated in light of the explosive growth of the cable

industry. According to the Television Factbook (Services

Volume, 1973-74 Edition, p. 84a) CATV subscriber figures

have grown from 2.8 million homes to 7.3 million homes

between January 1, 1968 and January 1, 1973. The U.S.

Department of Commerce projects an estimated 1.1 million

additional CATV subscribers in 1973 and 1.3 million new

subscribers in 1974 to reach a total of 9.5 million at the end

of that year.“ After a thorough survey conducted by the

The above figures were supplied by the U.S. Dept. of Com-

merce, Office of Business Economics and were published in the

July issue of the Department’s Survey of Current Bu- ess.

U.S. Department of Commerce, Social and Economic Statistics

Administration, Bureau of Economic Analysis (Survey of Current

Business, National Income and Product Account of the U.S.,

1929-65, 1973).

Sloan Commission, a prestigious group of scientists,

lawyers, and educators assembled by the Alfred P. Sloan

Foundation, that Commission concluded in its Report, On

the Cable (McGraw-Hill, 1971) at pp. 173, 174:

“The Commission believes that by the end of the decade

a cable television system will be in existence which

covers 40 to 60 percent of all American television

homes; which provides in a majority of instances a

capacity of twenty channels and in many instances a

capacity of forty channels or more; which possesses a

limited capacity for return signals from the home re-

ceiver back to the point of transmission; and which

will be extensively interconnected, most probably by

satellite.”

These estimates have been confirmed by other studies.“

The Wall Street Journal of January 12, 1972 reports a

statement by the chairman of General Instruments Corpo-

ration, a major manufacturer of CATV equipment, estimat-

ing that $3.5 billion could be spent on cable system con-

struction in the next decade; that those new systems could

add 30 million subscribers to cable, out of a total of 62.1

million television homes, providing the industry, at a sub-

scription rate of $5 per month, with new annual revenues

of $1.8 billion.

These high revenues for CATV, produced by the diver-

sion of audiences from TV to CATV, will reduce the income

presently collected from advertisers by the many hundreds

* According to an article in Variety of June 7, 1971, p. 30, a

460% rise in CATV homes by 1980 has been predicted by Frost &

Sullivan, a New York market research company. A study made

by this company estimates that CATV serviced homes will grow to

23,000,000 in eight years. And this study also says that CATV

subscriptions alone, exclusive of advertising income and other

special services, will bring in $2,000,000,000 in that year.

of stations to whom film producers now license their copy-

righted works.“ Given the present plight of the motion

picture industry, the continued freedom from copyright

liability, enjoyed by the cable industry, will erode the

foundation of television program production in the United

States.“

Summary of Argument

Affirmance of the decision of the court below is essential

to preserve the structure of copyright on which television

programming is based. At the same time, an adjudication

that cable systems must pay license fees when they import

programs from distant stations and transmit them to their

monthly fee paying subscribers, will not imperil the cable

industry. CATV systems are potentially important cus-

tomers for the motion picture industry and the producers

have a clear interest to preserve and encourage this new

5 When a comparable diversion of income occurred from theatres

to television in the 1950’s, it was at least accompanied by the pay-

ment of copyright fees by the television industry. By contrast the

diversion from television to the cable industry with which the

motion picture industry is now faced is without the payment of

The diversion of audiences from TV to CATV and the result-

ing reduction of income striking the film industry affects not only

the producers and distributors of copyrighted theatrical or tele-

vision programs, but also the tens of thousands of persons through-

out the industry who contribute to the creation of the motion

pictures and whose rights depend on those which the copyright

owners can enforce against CATV’s commercial distribution of

copyrighted films. The compensation of many of the creative talents

such as the screen writers, directors, composers and actors, depends

to a large extent, and in many cases the largest part, on their

income from payments under collective bargaining agreements for

showings of the film subsequent to its original telecast. To the

extent that any such showing on a television station which would

pay a license fee to the copyright owner is replaced by an importa-

tion of the same program by CATV, the talents the creative

segment of the industry will go

1¹

outlet for their product, Affirmance of the decision of the

court below will contribute greatly to the adoption of a

legislative solution of the CATV-copyright issue by break-

ing the legislative deadlock which resulted from this

Court’s decision in Fortnightly. (United Artists Television,

Inc. v. Fortnightly Corp., 392 U.S. 390 (1968).)

The “functional test” established by this Court in Fort-

nightly and followed;by the Court below, requires con-

sideration of the function that CATV plays in the total

process of television broadcast and reception. The relevant

factors include the economic realities of television broad-

casting. It is the fact that when cable systems import

programs from distant stations without paying the owners

of the programs, they compete with local television sta-

tions which pay substantial license fees to the copyright

owners for the right to transmit the very same programs

in the same market.

License fees paid by television stations to copyright

owners are dependent upon the revenue derived by stations

from the advertising accompanying the programs. Adver-

tising revenues in turn may be derived from local, regional

or national advertising, and are dependent upon the size

of the audience in the local market but not in distant mar-

kets. This is so because no regional or local advertiser is

willing to pay a higher advertising rate when its commer-

cials are carried by CATV to far-distant markets in which

the advertiser’s products are not distributed or sold.

When the copyright owner licenses his programs in syn-

dication (i.e. for non-network exhibition) to local stations

he is usually able to sell the larger markets first. If, how-

ever, CATV imports programs from the larger markets

to the smaller ones, the cable system scoops up part of the

potential audience for these programs when exhibited by a

local station. This diversion of audience and consequent

loss of revenue is particularly severe when the importa-

tion of programs occurs prior to their exhibition by local

stations.

The high financial risk and large capital expenditure

which characterize motion picture production make the

payment of CATV copyright fees of critical importance,

especially because of the present perilous financial con-

dition of the motion picture industry. The net economic

effect of the importation of programs from distant sta-

tions without copyright licensing is that while the number

of viewers of television programs by means of CATV grow,

the reward to the program producers must shrink.

Contrary to petitioners’ claim, copyright liability for the

carriage of distant signals by cable systems is fully com-

patible with the Communications Act and the rules and

policies of the FCC. Section 414 of the Communications

Act makes clear that nothing in the Act is intended to

amend, limit, or supersede the Constitutional or statutory

recognized that . . our decision is not intended to affect

in any way the pending copyright suits, involving as they

do matters entirely beyond our jurisdietion.“ Second Re-

port and Order, 2 FCC 2d 725, 768 (1966). And through-

out its Cable Television Report and Order, 36 FCC 2d 143

(1972), the FCC asserts that copyright policy is most

appropriately left to Congress and the Courts and that

its cable television rules are not to be considered a sub-

stitute therefor. Sie

The policy of providing minimum cable service to cer-

tain areas of the country does not preclude or exclude a

judicial finding that the transmissions involved are subject

to copyright liability. The two matters are not mutually

exclusive. In addition, by granting microwave licenses to

cable systems for the importation of distant signals, the

FCC neither relieves the system from the need to secure

a “Local” signal in Farmington, N. M.

There is no merit to the claim that the FCC’s exclusivity

rules offer adequate protection to the copyright owners.

These rules do not and cannot apply to license fees: they

are not all inclusive and fall substantially short of the full

and complete protection of the Copyright Act. |

One unusual set of circumstances extracted from the deci-

sion of the court below involving the carriage of the Du-

rango station by the Farmington CATV does not create an

insoluble conflict under the FCC’s rules. The FCC has

made it abundantly clear that following a judicial finding

of copyright liability, it would take action to insure that

its carriage rules do not subject a cable system to liability

for copyright infringement.

The decision below is in full accord with the primary

purposes of the Copyright Act. A copyright owner does

not get a “second reward” when a CATV system iniports

a program from a distant station, since the distant station

will not pay for exposure of its broadcasts in markets not

served by its advertisers. However, there would be nothing

contrary to copyright policy if the separate commercial use

by the importing CATV station would lead to a separate

compensation to the copyright owner.

The mechanics for licensing programs to CATV can be

easily worked out directly between eager sellers and willing

buyers or through clearing houses and central buying offices

such as now exist in the distribution of copyrighted pro-

grams to television and radio stations. All the information

required by CATV for program clearance is readily avail-

able from numerous sources, e. g., television broacast sta-

tions, newspapers, TV Guide ete. Indeed, many cable

systems now employ program buyers to acquire copy-

right licenses when the system engages in program origina-

tion. With respect to CATV systems owned and controlled

by smaller, individual entrepreneurs, Amici have agreed

and have repeatedly reaffirmed their willingness to support

to such systems.

The viability of the cable industry is not threatened by

liability for past damages or suits for injunctive relief.

As a potential customer and licensee for the product of

right owners to seek damages which would seriously affect

CATV. In any event, this Court has the power to eliminate

the issue of past liability from the case by applying its

decision prospectively if justice should so require. Chevron

Oil v. Huson, 404 U.S. 97, 106-07 (1971). =

The equitable powers of this Court and the lower federal

courts, as well as the enforcement powers of appropriate

government agencies, fully protect CATV against future

suits for injunctive relief.

The failure of Congress to act on the eable- copyright

question can be traced to the intransigence of the cable

industry following this Court’s decision in Fortnightly.

Since Fortnightly, the cable industry has exhibited no real

interest in supporting legislation which would subject it to

program production industries entered into a “Consensus

Agreement” sponsored by the FCC and the Office of Tele-

communications Policy providing for joint recommenda-

tions to the Congress regarding CATV-copyright legisla-

tion and payment of copyright fees. The CATV industry

has repudiated said agreement following the decision of

the District Court herein which would have exempted

CATV’s importation of distant signals from the copyright

law. Legislative activity which was revived after the Court

of Appeals had reversed the Decision of the District Court,

now seems to be stalled again since the granting of cer-

tiorari.

Accordingly, a decision in favor of petitioners will prob-

ably destroy any opportunity for a legislative solution to

the eable- copyright problem. Conversely, an affirmance of

the court below will contribute greatly to the adoption of

CATV-copyright legislation.

POINT I

The decision of the Court below is fully consistent with

the economic realities of the television industry.

Petitioners pay mere lip service to the “functional test”

established by this Court in Fortnightly and argue that the

decision of the Court below disregards the economic realities.

Petitioners are clearly in error. In Fortnightly, this Court

referred to the “function that CATV plays in the total

process of television broadcasting and reception” in deter-

mining whether CATV operates on “the viewer’s side of the

line,” 392 U.S. at p. 397. Amici respectfully submit that the

“functional test” established by this Court did not mean

to exclude, but rather to emphasize, the social, industrial

and economic realities of the television broadcasting scene

as a whole.’

The television revenues of the copyright owners are principally

derived from two sources: the licensing of (1) programs to national

networks for distribution to their affiliated stations for simultane-

ous or (due to time differences) same-day broadcasting; and (2)

programs to individual station use where the film or tape for that

purpose is physically sent to the station for broadcasting (referred

to in the trade as “syndication”). The importation of distant sig-

nals by CATV adversely affects both these sources of income with-

out the countervailing benefits asserted by petitioners.

* In re Network Television, 25 FCC 2d 318, 330 (1970).

4 4ndependent’ television producers of programs for network

exhibition must deal with the networks or not at all; all [are]

effectively excluded from non-network sales of their programs

in prime time and rarely recoup their costs from the network

run of the program, let alone make a profit. Normally, pro-

ducers do not earn profits from the network run of the pro-

gram, but must look to subsequent syndication of the series

to make them whole and to provide a profit. In effect, network

exhibition is to this extent subsidized by non-network use of

the programs.” (Footnotes omitted.)

In asserting that the Court below has disregarded the

economic realities, petitioners have confined their argument

exclusively to one of the two principal sources of copyright

revenues, namely, network exhibitions and have disre-

garded. and omitted any consideration of the revenues

derived from syndication exhibitions. The importance of

revenues from syndication to copyright owners has been

recognized by the FCC, and is stressed in the succeeding

points.

. Local, regional and national advertising revenues are de-

pendent upon the size of the audience in the local market

and not the distant market.

In compliance with the policy of the Communications Act

“to make available, so far as possible, to all of the people

of the United States a rapid, efficient . . radio communica-

tions service” (47 U.S.C. Sec. 151), the FCC, in order to

avoid signal interferences between stations, allocated fre-

quency channels to each of about 850 communities in the

United States (47 C.F.R. Sec. 73.606) and assigned to each

station a particular frequency, determined its power, and

prescribed the height and location of its antenna (47 C. F. R.,

Sec. 73.614, 685, 689).

The frequency allocations and determinations by the

FCO of a station’s power, and of the height and location

of its transmitting antenna, together with the electro-

physical limitations imposed by the horizon,’ lead to a

limitation of the area which the station’s signals reach for

effective reception and to the creation of definite geo-

® The reception of television broadcasts is limited in distance due

to the horizon with only slight extensions caused by the gravita-

tional bending of electro-magnetic waves.

graphical areas and commercial “markets” serviced by

for the telecasting of programs in that station’s market.

These licenses usually restrict stations to their present

power and antenna height to prevent programs from being

received in other markets. CATV exportation of these pro-

grams into other markets, in effect, deprives the copyright

owners of their right to grant exclusive licenses in such

other markets and thereby diminishes their ability to col-

lect license fees in those markets.

A commercial broadcast station derives its revenue

principally from advertisers who either sponsor programs

or whose names and commercials are inserted as so-called

“spots” during the breaks in the program, or at the time

of change of programs. Such advertising carried on tele-

vision may be of a national, regional or local nature. But no

regional or local advertiser is willing to pay a higher ad-

vertising rate when its commercials are carried by CATV

to far distant markets where the advertiser’s products are

not distributed or sold. Consequently, a television station

is not willing to pay the program supplier a higher price

for programs with local or regional commercials shown out-

side of the station’s own market area. Similarly, national

advertisers will place little, if any, value on duplicated

coverage of their commercials by CATV when it imports

the commercials and duplicates them with those carried

by the local stations. .

This experience of Amici in marketing their product is

confirmed by the in-depth economic study of Dr. Leland L.

Johnson for the Rand Corporation under a Ford Founda-

tion grant entitled The Future of Cable Television

(1970). Dr. Johnson states his findings as follows (pp. 22,

23):

“...a critical question relates to how advertisers value

distant audiences relative to local ones when they buy

time on a station.

—

In fact, there is reason to believe that advertisers, on

the whole, do not value distant and local audiences

f equally at any instant of time. Although the distant

audience frequently has some value to the advertiser

f buying time on a local station, it is probably less than

the value for the local audience of the same station.“

The reasons for such difference in valuation are ex-

plained by Dr. Johnson as follows:

“In the first place, it is clearly true that strictly local

advertisers, which today comprise about 20 percent of

total television broadcasting time sales, place little if

any value on distant audiences; the used car dealer

who buys time from the Los Angeles station would

have little interest in knowing that the station signal

is also carried by a station in Albuquerque. Secondly,

even regional and national advertisers do not view all

audiences equally. Non-network national spot sales of

broadcasting stations comprise nearly 50 percent of

* total broadcasting time sales, while network sales

comprise roughly 30 percent. The national spot sales

market operates to satisfy the desire of advertisers

to pinpoint markets at particular times without paying

the price of simultaneous exposure elsewhere. And in

buying time from networks, advertisers are careful to

select a particular lineup or subset of the network’s

affiliates. In both cases, the valuation an advertiser |

places on a particular market depends on a number of

factors, including his coverage through other media,

the character of the local population, and the extent

to which he has sales outlets in those markets.”

The Solicitor General in his brief submitted to this Court

in Fortnightly (pp. 10, 11) took the same position with

regard to the economics of the television marketplace. Im

urging that the transmission of programs into distant

markets be subject to copyright protection, he stated:

. . „ much of the advertising which accompanies the

performance of copyrighted works, such as motion

pictures, is directed solely at potential viewers who are

within the station's normal service area—local’ ad-

vertising and ‘national spot’ advertising both fall

within that category. Such advertisers do not neces-

sarily derive any significant commercial benefit from

CATV carriage of the sponsored programs outside of

the market ordinarily served by the particular station,

and accordingly may be unwilling to pay ae

amounts ~ such expanded coverage.”

Applying the foregoing economit realities to the CATV

systems operated by petitioners in the instant case, it is

obvious that a furniture dealer in Los Angeles, or a used

car dealer in Spokane, will not pay a penny more to these

stations for having its commercials carried by petitioners’

cable systems to Farmington, New Mexico or Great Falls,

Montana, respectively. Since such exportation cannot

produce more income for the television station, the station

whose programs are being exported to other markets will

not pay increased license fees to the copyright owners for

such additional use of the program.

2. Unrestricted importation of distant signals will have an

adverse impact on the license fees which copyright owners

may obtain from local stations in the receiving market.

A station’s advertising rates generally reflect the size

of its viewing audience, but for the reasons which we have

shown, only that within the station’s normal coverage area.”

This revenue is wholly dependent upon the station’s ability

to broadcast programs which the home viewer will want

to watch. To obtain that audience the station will pay sub-

stantial sums of money, which include copyright fees, for

the production or purchase of attractive programs.

In order to maintain its audience and revenues, it is

indispensable that the broadcast station have the exclusive

right™ for a reasonable period of time to show its programs

in its market. Each time a program is exhibited in a

market, the audience potential for the next showing of the

program in that market is diminished. Therefore, the fee

that stations are willing to pay for the right to show a

copyrighted work usually diminishes with each successive

showing in the particular market especially where the

importation occurs shortly prior to the exhibition by the

local station.

When the copyright owner licenses his programs in syn-

dication, he usually is able to sell the larger markets first

*° Petitioners’ contentions regarding advertising rates related to

size and share of audiences are wholly irrelevant to the point dis-

oussed here because they fail to distinguish between local and dis-

tant audiences and the respective advertising values and non-values

which should be allocated thereto.

u The principle of “exclusivity” has been described by the FCC

as “an entirely appropriate and proper for program

to protect the value of their product and for stations to

their investment and programs.” First Report and Order in Dkt.

No. 14895 et al. (“First Report”) 38 FCC 683 (1965), = 57;

Second Report and Order, 2 FCC 2d 725 (1966), par. 27.

since there is a greater demand for product in markets

having several stations. If, however, CATV imports pro-

grams from the larger markets into smaller ones, before

their exhibition by stations in the smaller markets, the

cable system scoops up part of the potential audience for

these programs to the detriment of the exhibition of these

programs by the local station.

Advertisers want to insert their commercials into pro-

grams broadcast by the local station attracting the largest

possible audience in the market which is the target area of

their advertising. Where the potential audience for a pro-

gram is diminished by CATV importation, the advertiser

would be unwilling to sponsor the program, and the local

station, if willing to buy it at all, would pay only a reduced

price therefor. Consequently, the importation reduces the

value of the program to the local station and it becomes

very difficult, if not impossible, for the copyright owner to

make a sale in that market. It is for this reason that when

a copyright owner licenses a program to a Los Angeles

station for the Los Angeles market, he neither desires nor

permits the program to be carried into any other market,

and would not grant special permission therefor without

receiving an increased fee to compensate him for the loss

of business certain to be incurred when the program is

carried into that other market. Yet that increased fee

is not obtainable because of the absence of economic value

of distant markets to local and regional advertisers.

As the Solicitor General also pointed out in his brief to

this Court in Fortnightly:

“Transmission of a sponsored program into a distant

market, where CATV penetration is substantial, may

also significantly decrease the potential audience in

—

that market for the program and adversely affect the

advertising revenues which a local station there could

otherwise expect to obtain from program sponsors.

Should this happen, the vet result may be to diminish

the value of a copyrighted work in the distant market

without any corresponding increase in the copyright

owner's royalties from he originating market” (pp.

10, 11).

In light of the foregoing, it is apparent that the failure

to provide copyright protection for distant signals will

adversely affect copyright owners by a loss of license fees

in the receiving markets with no added fee from the trans-

mitting markets.

3. The high financial risk and large capital expenditures which

characterise the motion picture industry make the payment

of CATV copyright fees of critical importance.

The production and distribution of beth feature films

and television program series are characterized by a high

degree of financial risk with large capital expenditure.

Even where a motion picture is produced for initial exhibi-

tion in theatres, the loss in theatrical audiences means that

the great majority of these films would not break even, let

alone make a profit, without revenue from television show-

ings. Indeed, the profitability of most feature films depends

on the revenue from television.

Even more risky are the development, production and

distribution of programs specifically designed for television.

Producers of television series must initiate, with a sub-

stantial investment, a broad range of program development

projects to insure a continuous flow of product. Fewer than

one in five “development projects” (all of which require

considerable cash risk) progress to the point of being a

finished “pilot” film. The pilot itself is merely a sample

program requiring a significant speculative outlay by the

producer, the return of which is by no means guaranteed.

Approximately two-thirds of the pilot programs are not

successful, and of such programs which are successful, 90

percent of the producers do not recoup their expenses in

the first run.”

It is characteristic of the motion picture industry that

seldom does a single source of income pay the entire cost

of making a film. Thus, a significant part of the income

from a film initially exhibited in theatres now comes from

its later exhibition on television. Similarly, a major part

of the income from a film or series program made for net-

work television comes from later “syndication.” It is the

impairment of this latter source of income“ which is most

threatened by CATV importations.

12 Mr. Richard Jencks, an official of Columbia Broadcasting Sys-

tem, Inc., testified (Trial Tr. p. 15) :

“In the current season . . we commissioned approximately 80

scripts to be written and on the basis of those scripts decided

to produce approximately 18 pilot films, that is to say, films

of projected network television series. Out of those 18 pilots,

we ultimately chose five series which were scheduled for this

season and which went on the air for the first time a week or

ten days ago.”

13 Sales of MPAA members from non-network television distribu-

tion (syndication) amounted to $146 million. The FCC has stressed

again and again that a healthy program production industry is

essential in the public interest. Thus, in its Report adopting the

Prime Time Access Rule, 23 FCC 2d 382 (1970), the Commission

said (p. 386) :

A healthy syndication industry composed of independent

producers capable of producing prime time quality programs

must have an adequate base of television stations to use its

product.

Similarly, in the even more recent Cable Television Report and

Order adopted Feb. 2, 1972, 36 FCC 2d 143 par. 73 (1972), the

CATV interests, however, claim that copyright owners

should seek to make up their losses by charging additional

fees to their licensee television stations whose programs

CATV systems retransmit to their own paying subscribers.

Since these stations are also the victims of CATV’s com-

petition and diversion of income in their own markets,

such claim adds insult to injury. Moreover, as we have

shown, supra, pp. 17-23, the originating station will be un-

willing to increase its fees because most advertisers will

not pay higher rates for having their commercials car-

ried to distant markets. As the Court below noted, “eco-

nomics and common sense compel [this] conclusion,” 476

F. 2d 338, at xviii.

The net economie effect of permitting the importation

of programs from distant stations without copyright li-

censing is that while the number of viewers of television

programs by means of CATV grows, the reward to the

creative artists must shrink as broadeasters become fewer,

and their audiences smaller. The end result must be that

less and less talent will be attracted to the creation of

television programs, that the standard of quality of such

programs will inevitably suffer, and that the number of pro-

grams in which it would appear fruitful to make an invest-

ment will decline.

Commission stressed the need “to insure the continued health of

the television programming industry” and further expressed its

concern “with the continued supply of television programming”.

POINT II

by cable systems is fully compatible with the Communica-

tions Act and the rules and policies of the Federal Com-

munications Commission.

Petitioners’ Brief is interlaced with claims tthat the de-

cision of the Court below conflicts with the Communications

Act, 47 U.S.C. 5151 et seq., and the rules and policies of

the FCC adopted thereunder. Thus, petitioner asserts that

the FCC has set forth certain criteria of mimimum tele-

vision service and that the public has an absolute right

to such service. Another argument is that by granting

microwave licenses for the retransmission of tellevision sig-

nals from one market to another, the FCC has changed

the character of the signals transmitted so that local signals

in the originating market remain local signals im the distant

market. Yet another argument is that the FCC rules re-

quiring cable systems to carry certain statioms, upon re-

quest, creates a mandatory requirement for tthe carriage

of infringing distant signals.

We submit that these arguments are wholly without

merit. Nothing in the Communications Act or the relevant

decisions of the FCC provides any basis for tthe determi-

tion that copyright liability for distant signals would

impede the regulatory goals and objectives of the FCC,

generally, or specifically with respect to cable television.

To the contrary, it is abundantly clear—and the FCC has

explicitly reeognized—that the absence of such liability

would be inconsistent with, and would require a re-evalua-

tion of, the regulatory scheme for cable television.

The issue in this case, however, is whether petitioners

“perform” respondents’ copyrighted works within the

meaning of the Copyright Act. The rights of all copyright

owners are squarely based on the language of the Copy-

right Act of 1909 which in turn rests upon an explicit

constitutional provision, United States Constitution, Art.

I, §8.

Nothing in the Communications Act amends, limits,

modifies, supersedes, or makes exceptions to the constitu-

tional or statutory copyright provisions. Indeed, Section

414 of the Communications Act, 47 U.S.C. §414, provides:

“Nothing in this Act contained shall in any way abridge

or alter the remedies now existing at common law or

by statute, but the provisions of this Act are in addi-

tion to such remedies.”

Both this Court and the lower federal courts have af-

firmed the policy embodied in Section 414 that the Com-

munications Act is regulatory in nature and is not dis-

positive or determinative of private property rights.“

Turning to the rules and policies of the FCC, petition-

ers’ arguments fare no better. At no point has the FCC

ever stated or even intimated that the imposition of copy-

right liability for distant signals would conflict with its

basic policies or its regulatory scheme for cable television.

Rather, it has repeatedly asserted that its cable rules were

„See FCC v. Pottaville Broadcasting Co., 309 US. 134, 138

(1940) “The Communications Act is not designed primarily as

a new code for the adjustment of roe te rights through

adjudication”; Cable Vision Inc. v. KUTV, Inc., 335 F.2d 348,

349 (9th Cir. 1964) cert. denied, 379 U.S. 989 (1965) * Con-

gress had not pre-empted the adjustment of property rights in

4 communications field by passage of the Communications Act

1934.”

designed to foster end facilitate a settlement of the cable-

FCC 2d 143, 166-67, para. 65 (1972).

In his concurring statement to the Cable Television Re-

port, Dean Burch, Chairman of the FCC, elaborated on

the Commission’s copyright approach (36 FCC 2d at 290):

“... one of the gut issues of the cable controversy

[is] that cable remains an uneasy outsider with re-

spect to the programming market. And only when

it is brought within that market, when its right to

the use of its basic product is secure and regularized,

only then will its future be unclouded. It is this issue

that the Federal Communications Commission can

neither resolve nor avoid.”

In its Memorandum Opinion and Order on Reconsidera-

tion of the Cable Television Report and Order, 36 FCC 2d

326 (1972), the Commission was confronted with argu-

ments that it should delay the effectiveness of its new

cable rules until a resolution of the copyright issue. The

Commission rejected these arguments (36 FCC 2d at 328

para. 5):

“Over the years, the ultimate integration of cable

television iato the nation’s communications structure

has been deadlocked on the copyright question—how

to weave the cable industry into the market for dis-

tributing television programs, a process that distrib-

utes the costs of programming among those who use

it. The tying of cable’s development to the settle-

ment of copyright has in the past served to harden

the impasse, not unblock it. We now expect agree-

ment of the industries and that legislation will be

forthcoming. We are convinced that putting our pro-

gram into effect only after legislation is enacted will

effectively diminish the prospect for settlement and

will not promote our goal of fostering the orderly

development of cable television.” *

The clear and overwhelming evidence, therefore, is that

the FCC rules and policies with respect to cable television

were enacted in expectation that copyright protection

would be recognized under the 1909 Act or in a revision

of that Act. Indeed, the regulatory scheme was designed

to foster and encourage a legislative or judicial resolution

of the cable-copyright issue.“ Thus, the FCC rules or

policies with respect to cable television are fully consistent

with the decision of the court below.

There is, therefore, no merit to petitioners’ argument

that the imposition of copyright liability somehow conflicts

with the minimum service criteria established by the FCC.

The Commission has enunciated a policy under which it

hopes to provide cable viewers a minimum number and

choice of signals. At the same time it has recognized that

the question of copyright liability for programs contained

in those signals is a matter for Congress and the Courts.

The absence of any inconsistency can be illustrated by

reference to other regulatory objectives of the FCC. One

of the fundamental policies of the FCC pursuant to the

** The reasons why legislation has not been forthcoming in the

two years since the FCC rules were adopted—and why none is

predicted until at least 1975 (Broadcasting, December 3, 1973,

p. 7)—are detailed elsewhere in this Brief, pp. 55-60.

In a Letter of Intent (Cable Television Proposals), 31 FCC

2d 115, 116 (1971) submitted to Congress outlining the Commis-

sion’s proposals for the cable industry, Chairman Burch made

clear that “copyright policy is most appropriately left to the Con-

gress and the courts.” The Commission has consistently adhered

to this view :

Eee

any way the pending copyright suits, involving as they

matters entirely beyond our jurisdiction.” Second Report and

Order, 2 FCC 2d 725, 768 (1966).

30 .

specifie Congressional mandate is to maximize television

service through the extensive use of local stations.” In

this regard both Congress and the FCC are on record as

favoring the development of UHF stations.“ Although the

FCC desires to foster full utilization of the UHF portion

of the broadcast spectrum, all UHF stations do pay copy-

right fees. It has never been suggested that the encourage-

ment of UHF stations should occur at the expense of

by UHF stations somehow conflicts with the FCC’s policies

to favor the development and growth of minimum UHF

service. Accordingly, there is no merit to the claim of

any conflict between the Commission’s goal of minimum

service by cable systems and the decision of the Court

below.

Another argument advanced by petitioners is that the

FCC, by its power to prescribe the area or zones to be

served by stations, 47 U.S.C. §303(h), may convert dis-

tant signals into local signals through the grant of micro-

wave licenses (Pet. Br. pp. 50 to 56). This argument

is ‘nothing but semantic doubletalk.

First, the fact that the FCC has issued a “license” to a

microwave carrier permitting it to bring distant signals

to CATV is, of course, no more equivalent to the granting

of a copyright license to the CATV than it would be to a

broadcast station when the FCC issues a license authoriz-

ing it to operate under the provisions of the Communica-

tions-Act. In neither of these cases, can the license under

the Communications Act and regulations promulgated by

sea the FCC’s Sicth Report and Order, 17 Fed. Reg. 3905

ase United States v. Southwestern Cable Co., 392 U.S. 157, 174

—

3¹

the FCC take the place of program licenses from the

ent statutes, are issued for different purposes, and pro-

vide different authorizations. And the authority to grant

such rights and privileges is vested in different agencies

and entities. Their common designation as “licenses”

should not be permitted to obscure the issues before this

Court.

Second, when a cable system in one television market

(e.g., Washington, D.C.) imports television signals from

another television market (e.g., New York), the signals are

local in the originating market and distant in the receiving

market. This distinction between local and distant sig-

nals permeates the FCC’s Cable Television Report, supra,

and the FCC’s rules are dependent on it.

To urge that the signals imported from the distant market

are somehow converted to local signals in the CATV market

by virtue of the microwave transmission would lead to ab-

surd results. For example, all television stations must file an

application for renewal of their licenses every three years,

47 U.S.C. §§307(d), 308. In this application form, the

FCC requires each station to show how it has met the needs

and interests of the area served by its license and how it

proposes to meet those needs during the next license

period. If, in the case cited, the New York signals were

transformed into “local” signals by their importation into

the Washington market, then Washington would become

part of the New York service area in terms of the licensee’s

responsibility to operate in the public interest. In short,

the separate identity of the New York and Washington

markets would be destroyed.

Moreover, wy abandoning the distant signal-local signal

dichotomy, petitioners would create a system of regional

“super stations.” Thus a small number of large “super

stations” located in such major markets as New York,

Chicago and Los Angeles would replace local stations sup-

ported by local advertising and would blanket the nation

with a uniform program fare sponsored by national adver-

tisers. The creation of such “super stations” would subvert

the FCC’s commitment to preserve local broadcasting. As

the Commission said in the Cable Television Report and

Order, 36 FCC 2d 143, at 164, para. 58, “our basic objective

is to get cable moving so that the public may receive its

benefits, and to do so without jeopardizing the basic struc-

ture of over-the-air television.” (Emphasis supplied.)

Further, in the FCC’s First Report and Order on Micro-

wave Relays, 38 FCC 683, 700, para. 47 (1965), the Com-

mission expressly rejected the concept of a few “super sta-

tions,” the signals of which would be spread all over the

country by a nationwide network of relay systems:

“Thus, our commercial television system is based

upon the distribution of programs to the public through

a multiplicity of local station outlets. In seeking to lift

restrictions upon the growth of multiple services im-

posed by the UHF-VHF problem, we have not turned

to an alternative system of signal and program dis-

tribution, based upon a handful of ‘super stations’ and

a nationwide network of wires, microwave relays and

translators. Our fundamental program in this area

stems from the all-channel receiver legislation, enacted

in 1962 (76 Stat. 150, 151). And that legislation, recog-

nizing the importance of local outlets and local service,

‘seeks an expansion of the present system through the

creation of new station outlets in the UHF bands.”

(Emphasis supplied.)

Clearly, a changeover to a policy of national or regional

“super stations” would be squarely contrary to the most

fundamental principles of communication policy as ex-

pressed by the Congress and implemented by the FCC.“

Petitioners also argue that under the exclusivity rules

adopted by the FCC, in its Cable Television Report, supra

47 C.F.R. Part 76, Subpart F, 36 FCC 2d 143, at 233-36,

distant signal reception by cable systems is limited and

the interests of the copyright owners are adequately pro-

tected (Pet. Br. pp. 55-56). The short and dispositive

answer to this argument is that the exclusivity rules do

not and cannot apply to license fees. As Chairman Burch

stated in his concurring statement to the Cable Television

Report:. . . we have no power to legislate a es pay-

ments,” 36 FCC 2d at 290.

Further the FCC’s exclusivity rules are not all-inclusive.

They prohibit only selected types of programs from being

shown in certain markets for limited periods of time, 47

C.F.R. 576.151 (b). Moreover, the exclusivity rules are

The normal service area and commercial market of a television

station can be extended lawfully through the use of “repeater”

(translator or booster) stations which’ require a license by the

FCC (47 C.F.R. §§73.689, 74.731-32, 74. 831-32). As of March, 1973,

there were 2,781 licenses for translator stations outstanding (TV

Factbook, 1973-74 Ed., Services Volume, p. 250a). The repeater,

like any other station, requires a license under copyright law for,

the rebroadcast of a copyrighted program although its signals

can be received by anyone in the area and does not have subscribers

who pay for its service. Thus, in spite of the fact that repeater

— do not collect fees from their audience, they pay copyright

ees.

Should petitioners’ CATV systems be permitted to import pro-

grams from distant stations without the consent of their copyright

owners, repeaters may well claim that such holding should be

extended to them. Thereafter, it would be only a small step fur-

ther to a claim that all television stations, when reb

another station’s programs, are exempt from the copyright law.

Such a claim, if accepted as a logical extension of petitioners’

a would mean ‘the end of copyright protection in the tele-

vision fiel

clearly predicated, with only one limited exception,” upon.

the sale of the particular copyrighted program in the mar-

ket to a television station. Absent such a sale no exclu-

sivity bar exists against the importation by CATV of a

signal from another market. Thus, the absence of such a

bar precludes’ or adversely affects future sales of copy-

righted programs to the markets into which programs are

imported. Under these circumstances, it is patently false

to assert that the FCC’s exclusivity rules offer copyright

owners an adequate substitute for the full and complete

protection of the Copyright Act. The copyright owners are

not compensated by CATV for the use of produet and yet

CATV can destroy the income from the markets where

the copyright owners are deprived of exclusivity protection.

Finally, petitioners devote substantial space to an as-

serted conflict between the FCC’s carriage rules and one

unusual set of circumstances extracted from the decision

of the Court below (Pet. Br. pp. 72-73). The Commission’s

carriage rules provide that all cable systems operating in

a community located wholly outside all major and smaller

television markets must carry, upon request, the signals

of any television broadcast station if the community of the

cable system is within the Grade B contour of the station,

47 C. F. R. §76.57(a)(1). Thus, in the situation where such

signals would be classified as “distant” rather than “local”

under the decision of the Court below, petitioners urge

that the carriage requirement makes the cable system liable

for copyright infringement. To prove the point they cite

* 47 CFR. §76.151(a) provides that in markets 1-50 there is a

preclearance period of one year from the date a program is first

— as a syndicated program to a television station in the United

tates.

the example in the record of the carriage by the Farmington_

system of the Durango signal.

The example cited by petitioners is an unusual one. The

Grade B contour of a television station is defined by the

Commission as the line which defines the area at the perim-

eter of which a good picture can be expected 90 per cent of

the time at 50 per cent of the locations.“ Thus, in the nor-

mal course most Grade B signals would be capable of re-

ception by traditional roof-top antennas and would clearly

be “local” signals under the decision of the Court below.

In Farmington, however, the signals are not available be-

cause they are blocked by high intervening mountains.

The problem posed by the Farmington-Durango situa-

tion, while unusual, is not new to the FCC. The FCC had

a similar carriage requirement when the Fortnightly case

was pending before the courts. Following the decision of

the District Court in Fortnightly,” the problem was even

more acute since copyright liability had been found for the

retransmission of all signals, local as well as distant. Nev-

ertheless, in reaffirming and extending the applicability of

its carriage rules, the Commission stated:

“Finally, we shall make brief mention of the copy-

right matter because, despite our plain statements in

paragraph 159 of the first report, there would still

appear to be some confusion on the part of some per-

sons as to the effect of our carriage and nonduplication

rules upon the pending copyright disputes. We have

stated that our decision is not intended to affect in

any way the pending copyright suits, involving as they

A Sixth Report and Order, 17 Fed. Reg. 3905, 3915; see 47

C.F.R. §73.683; see also Clarksburg Publishing Co. v. FCC, 225

F.2d 511, 515-516 (C. A. D.C. 1955).

* 225 F. Supp. 177 (S. D. N. V. 1966).

do matters entirely beyond our jurisdiction. We have

simply taken into account the existing practices of

CATV systems and the present inability of program

suppliers to control the availability of their programs

via CATV. Thus, the fact that we have given the local

station the right to have its signal carried over the

CATV system (and not duplicated for a ‘reasonable

period), affords no defense to that system in a copy-

right suit. The station cannot bestow broadcast or

transmission rights to programming which it does not

own (or as to which it has not obtained a license to

do so). * * * In short, if the copyright suits are de-

cided adversely to the CATV industry, we may, as

stated in the first report, have to revise our rules. We

have acted now, in light of the present copyright sit-

uation, which would appear likely to obtain for some

substantial period of time, and without the slightest

intent of affecting the determinations to be made in

the pending suits.*” (Footnote omitted.)

Further, in its Memorandum Opinion and Order issued

thereafter, 6 FCC 2d 309, 314 (1967) the Commission spe-

cifically rejected the argument that the decision of the

District Court in Fortnightly created an immediate conflict

with its carriage rules: :

. . our rules are based on the present situation in

which the CATV system operates without regard to

should not be taken as in any way affecting the copy-

right suit. As to the above argument, the short answer

is that it is up to the system to determine whether

to follow the district court’s decision or the present

industry practice, but it cannot’ properly obtain a

waiver of our carriage rules when it follows a selective

policy in this respect (i.e., ignoring copyright in the

case of distant signals and purporting to follow it as

23 Second Report and Order, 2 FCC 2d 725, 768-69 (1966).

to local signals). We believe that in light of present

industry practice, no revision of our rules is needed,

and that we should, therefore, deal with any situations

of this sort by waiver, when and if they arise. Gen-

erally, any revisions of our rules in this respect must

await further developments.”

From the foregoing it is clear that the FCC has always

viewed its carriage requirements as subordinate and subject

to copyright policy and any decision which might be made

with respect thereto by the Congress or the Courts. The

FCC has also indicated its readiness and ability to deal

with such problems as might arise in the future if a con-

flict with its rules developed. Given the limited number of

situations in which a potential i pyright conflict

might arise, we believe that the FCC is fully capable of

resolving such conflicts in a manner consistent with the

public interest.

38 ‘

POINT III

The decision below is in full accord with the primary

purposes of the Copyright Act.

Petitioners conceive the “primary policy” of the Copy-

right Act to be the release to the public of the author’s

creative genius (Pet. Br. pp. 68-69, 73-78). Petitioners

further argue that when a copyright owner licenses a

broadcasting station to transmit the copyrighted work, he

has received a reward agreeable to him, has released the

work embodied in the broadcast to the public, granted

some kind of an implied license to cable systems to re-

transmit it, and may not collect a “second reward” for

such retransmissions. Each of these arguments is fal-

lacious.

1. CATV sells its product to the public for profit and cannot

justify its infringements by claiming to be “The Public.”

On the shaky foundation of their misinterpretation of

the policy underlying the Copyright Act as favoring access

of the public to copyrighted works over reward to the

auther, petitioners, posing as “the public”, posit the fur-

ther claim of a license to be implied in law (Pet. Br. pp.

68, 73). Petitioners do not explain how an implied license

to the public, even if it existed, is, or can be, a license to

them, unless we are willing to further posit an implied sub-

license from the public to a private entrepreneur in order

that the latter may charge the public and make a profit

from the public’s license.

The basic fault of petitioners’ reasoning is that it wraps

itself in the mantle of “the public” to cover up the true

nature of its operations. Moreover, when the Copyright

Act, the Communications Act, or the cases decided there-

under refer to “the public” they mean, in the context of

broadcasting, home receivers not commercial entrepreneurs

utilizing sophisticated transmitters or retransmitters to sell

copyrighted works to the public for a profit. Petitioners’

error is caused by its erroneous self-identification with

“the public” and the faulty image of itself as a “receiver”

when in fact it imports and retransmits programs not

otherwise available to its paying subscribers. Once we

accept this functional reality, the premise of petitioners

being “the public” falls by its own weight.

2. Payment of separate license fees for separate commercial

uses of a copyrighted work is fully consistent with copyright

policy and will stimulate the production of high quality

television programs.

A copyright owner does not get a “second reward”

when a CATV system imports a program from a distant

station, since the distant station in the absence of adver-

tiser support will not pay for exposure of its broadcasts

in markets not served by its advertisers. In addition, there

would be nothing inherently contrary to copyright policy

if the separate commercial use by the importing CATV

station would lead to a separate compensation to the copy-

right owner.

Multiple uses of copyrighted works have traditionally

led to the payment of separate royalties for each profit-

making use. Thus, as Dr. Leland Johnson explains in The

Future of Cable Television, supra (p. 27):

“... the fact that a movie is produced primarily for the

theatre market and supported by paid admissions does

not suggest that television stations supported by ad-

vertising revenues should have free access to those

movies. Nor does the production of programming pri-

marily for the advertiser-supported broadcast market

—

suggest that cable systems supported by subscribers.

should have free access to that programming.”

The history of the motion picture industry illustrates

this point well. The sources of the industry’s income have

varied over the years. In pre-television days, motion pic-

ture income came primarily from exhibition in theatres.

When television became a commercial fact, the feature

films produced by the motion picture companies and al-

ready shown in theatres were licensed under copyright

law to television stations and networks for broadcasting

into the nation’s homes and additional fees were paid for

the separate broadcasting use. Fees for television network

use did not include the right to use the films for non-net-

work broadcasting. The subsequent showing of films on

local stations provided an additional source of income for

the program producers.

These historical patterns of different rentals for different

uses still prevail today.“ The multiple sources of income

from different uses of the same film provides money to pay

the creative people who make the films.“

2 New contemporary uses include use of motion pictures in air-

planes and on TV cassettes. Unlike CATV, neither the air trans-

port industry nor cassette manufacturers have denied their liability

under copyright law notwithstanding the novelty of the devices

used for the exploitation of copyrighted programs.

25 There is nothing unusual about motion picture distribution in

this respect. Books, both fiction and non-fiction, are published in

hardcover and softcover editions. Surely, the softeover edition

requires a copyright license regardless of the fact that the author

has already received a “reward” from the publisher of the hard-

cover edition. Surely the seller of the softcover edition cannot

claim that he does not owe royalties to the author because the

“publie” to whom the softcover book is to be sold has a “license

implied in law” to buy the book as the result of the prior sale of

the hardeover book to other members of the public.

Moreover, the addition of a new source of income will

be an incentive to increase and improve the production of

programs. Dr. Johnson, in reasoning that CATV when it

imports distant signals as a matter of copyright law should

be treated in the same manner as television stations,“ con-

cludes that:

“Even if advertiser erosion were not an issue, payment

would constitute an additional revenue source to pro-

gram producers that would likely stimulate produc-

tion of additional programming in a socially desirable

fashion.” (Emphasis supplied)

POINT IV

The clearance of copyrights for CATV can be worked

out on the basis of precedents existing in the television

Petitioners claim that they should not be subject to copy-

right liability because “even if copyright proprietors were

willing to grant licenses to CATV, there is no mechanism

by which the CATV operators could effectively negotiate

with the numerous copyright proprietors for copyright

licenses” (Pet. Br. p. 38). National Cable Television Asso-

ciation (NCTA) adds in its amicus brief that “there is no

device or way for the CATV system to locate the copy-

right owner, and certainly no way to compel him to nego-

tiate once located” (NCTA Br. p. 14). In support of this

argument petitioners and NCTA assert that many systems

are small in size and operate in scattered locations

(NCTA Br. p. 13).

We submit that the asserted administrative difficulties

and obstacles conjured up by petitioners and NCTA are

without substance. The CATV industry is now largely

Re Future of Cable Television, supra, p. 28.

owned and operated by powerful corporate interests with

diversified holdings in numerous industries including

broadcasting and publishing. To the extent that CATV

systems are owned and controlled by small, individual

entrepreneurs, Amici have agreed and reaffirm their will-

ingness to support copyright legislation which grants a

total exemption to all such systems with less than 3,500

subscribers. Further, experience in related and other in-

dustries clearly establishes that a willing and bona fide

buyer can readily obtain licenses from an eager seller.

Thus, the asserted obstacles in the path of obtaining copy-

right licenses are either non-existent or easily overcome.

I. The mechanics of program licensing could be easily worked

out between an eager seller and willing buyer through the

creation of clearing houses and through central buying of-

fices for CATV.

for@heir copyrights and are equipped to do so. They have

regional sales offices and maintain nationwide efficient sales

organizations with eager salesmen to service their paying

customers in the broadcasting and theatrical exhibition

fields. The same program salesmen would be only too

happy to license programs to the CATV industry. The

only reason they have not done so is that CATV systems

take the legal position that they are not obligated to obtain

licenses.

Many radio and television stations are located outside

of the large metropolitan cities. These small stations ob-

tain licenses for their programs through central buying

offices or have entrusted station representatives with the

negotiations for purchases of programs. Such stations

enter into licensing agreements for either individual pro-

grams or groups of programs, and have developed over

the years, an efficient standard operating procedure for the

licensing of copyrighted television programs throughout

the United States. A majority of the CATV systems are

located in the very same markets in which these small sta-

tions are located. Nevertheless these CATV systems as-

sert that it would be too burdensome for them to secure

licenses for these programs.” There is, however, no reason

to assume that similar procedures cannot either be worked

out by the play of free economic forces in the market or

why the CATV industry could not work out such program

licensing in negotiation with copyright owners.

A great number of musical compositions are played

every day on radio and television, in hotels, night clubs,

dance halls, ete. Yet, these users of copyrighted works

have never been permitted to plead, as cable operators do

now, that it is administratively too burdensome for them

to find out in advance what these musical compositions are

and who holds the copyright in them. These users found

it convenient to acquire licenses for these works by means

of omnibus or bulk licenses. No reason has been advanced

why the same mechanism cannot be adopted for cable tele-

vision clearances.”

*" While there were 2991 CATV systems operating as of January

1, 1973, there were 927 television stations and 2936 radio stations

on the air as of the same date. (TV Factbook, 1973/74 Services

Volume pp. 75a-84a)

Music performing societies, organized by thousands of authors

and composers, such as the American Society of Composers, Authors

and Publishers (ASCAP) and Broadcast Music, Inc. (BMI), clear

literally hundreds of thousands of copyrighted programs with

broadcasting stations and other commercial users. By the use of

omnibus licenses or separate individual licenses and automated

equipment, clearances between copyright owners and program

buyers of the broadcasting stations have become a matter of

routine.

Many cable systems employ buyers to acquire licenses

when the system engages in program origination. In these

instances, cable operators pay copyright fees. Unlike the

retransmission of distant broadcast signals which the

CATV operator takes from the air, origination requires

possession of a print or tape of the program which is under

the physical control of the copyright owner. For that

reason, cable systems, including small ones, maintain pro-

gram buyers. Indeed, petitioners’ system in Farmington,

New Mexico, negotiated for and did obtain licenses for

films of the Amici.

CATV systems are neither economically too weak nor

geographically too scattered, nor too uninformed in com-

munications matters to clear the copyrights they need.

In the early pioneering days, CATV subscribers were

serviced by CATV systems which were small or located

in*remote areas or both. However, the CATV scene has

changed radically. Present industry statistics show that of

the 3,032 CATV stations operating as of June, 1973, 1,048

or 34.6% are owned by broadcasters, 320 or 10.6% by

manufacturing concerns, 308 or 10.2% by newspapers, 221

or 7.3% by publishers, 130 or 4.3% by theatre chains, and

50 or 1.6% by telephone companies, leading to an aggregate

total of 2,076 or 68.6% owned by such corporate interests.”

Among the owners of CATV systems are such large and

knowledgeable firms as General Electric, Westinghouse,

General Tire & Rubber Co., Time-Life, Times Mirror Co.,

Hughes Aircraft Co., and many other blue chip names.“

2TV Factbook; 1973/74, Service Volume, p. 84a. Since the

above listed outside corporate interests control much of the giant

CATV systems in the big cities, the percentage of subscribers serv-

iced by systems owned or controlled by outsiders is considerably

larger than the 68.6% of system so owned and controlled.

* Ibid., at pp. 737a-764a. ‘

Moreover, among the remaining CATV systems which

are not owned by outside interests, many systems, whether

large or small, are no longer independently owned but as

the result of a recent wave of mergers, have become mem-

bers of large and powerful CATV group chains referred

to in the industry as “MSOs” (Multi System Ownerships).

The U.S. Department of Commerce observed in its afore-

cited™ study (p. 288) :

“The trend toward mergers and acquisitions in the

cable industry continues. The largest multiple system

in 1973 served about 800,000 subscribers. Much

thought is being given to network interconnection of

cable systems, and the possible use of domestic satel-

lite channels for that purpose.”

Thus powerful corporate interests which own CATV sta-

tions and which furnish its knowledgeable management

will certainly be able to secure the necessary information

and to obtain licenses from the copyright owners.“

Such information is readily available directly from

broadcast stations, from TV Guide or from newspapers

For example, petitioner Teleprompter Corporation, which owns

or has an interest in 142 systems and which as reported in CATV

Newsweekly of November 19, 1973, p. 4, has now reached a 900,000

subscriber level, equal to more than 11% of all CATV subscribers

in the United States. TV Factbook; 1973/74, Service Volume,

pp. 737a-764a entitled Group Ownership of CATV Systems in the

United States. 5

Supra, p. 8 fn. 3.

As respects even the small CATV systems many are owned by

one of the multiple system owners and are managed and super- .

vised by a well-trained “home office staff.” Many members of this

staff, whether at headquarters or in the local office, are former

executives or employees of broadcast stations, well versed in all

aspects of communications including licensing programs.

which list the programs carried by the stations they choose

to transmit. N .

As to the truly small systems in remote locations, they

have become the rare exception rather than the rule and

their existence should not be a pretext for exempting an

entire industry from paying fees for the commercial use

of copyrighted works. In any event, with respect to the

small systems, independently owned and controlled, the

Amici have agreed to support copyright legislation which

grants a total exemption for such systems with less than

3,500 subscribers." “

There is no basis to NCTA’s charge that the existence

of an unmanageably large number of copyright owners with

whom the CATV owners would have to deal would make

operators. Dr. Leland Johnson in his study for the Rand

Corporation found that there is only a relatively small

number of distributors of copyrighted programs and sug-

gests various ways how the licensing of these programs

could be accomplished :*

“Tronically, the very fact that distribution is in so

few hands would simplify the clearance process as

each distributor could negotiate simultaneously for all

of the programming he handles with each expected

buyer. Even today’s product is frequently sold to

In those rare instances where a CATV system is unable to clear

a copyright for a particular program it may substitute (manually

or automatically) a program for which it has obtained clearance.

Such substitution may be accomplished either by an “off-the-air-

pick-up” or by utilizing existing microwave connections.

As is shown below in detail, this agreement was repudiated

by the CATV industry (see infra, pp. 56-58).

„Tze Future of Cable Television, supra, p. 37.

broadcasters not on a program-by-program basis, but

on a package basis by each distributor. On the buying

side, those cable owners having an interest in a number

of systems could negotiate simultaneously for all of

them. Or agents could handle simultaneously the re-

quest of many scattered systems in much the same way

that agents today e clearances for movie theatres.

One attractive possibility would involve handling clear-

-ance somewhat along the lines that BMI and ASCAP

follow in clearing music“ (p. 37).

2. Since CATV will be an important customer of the copyright

owners, they will not demand excessive fees or enter into

unreasonable exclusivity agreements with broadcasters.

Any abuse could be handled by appropriate government

action.

Cable systems are potentially important customers for

the motion picture industry, so that any suspicion that the

program distributors would go out of their way to injure

CATV is absurd.

When the charge of an excessive number of copyright

owners with whom CATV would have to deal, has been

refuted, CATV operators fall back on an even less real-

istic defense against their paying of copyright fees. They

assert that the program production industry is so con-

centrated that CATV would be at the mercy of their licen-

sors’ possible abuses, such as demand of exorbitant license

fees or the erection of impregnable exclusivity barriers

(NCTA Br., 12, 15).

The baselessness of that charge has been amply refuted:

“Serious objections to such payment [for distant

signals] are frequently raised on grounds that cable

operators would be forced to pay exorbitant fees. This

concern is based partially on the fact that program

production and distribution are concentrated in few.

hands, combined with the fear that the long-term

exclusivity agreements for use of particular pro-

grams, typically made between producers and power-

ful broadcasting stations, would tend to shut cable

operators out of the market for the most attractive

programming. However, if the problem of unreason-

able restricted access is serious (this study develops

no evidence one way or the other), it is serious for

other means of obtaining programming as well—both

by cable operators for their own originations and by

the less powerful broadcasters (especially UHF). In

this case, the appropriate solution would appear to be

either antitrust action on the part of the Department

of Justice, or legal limitations on periods of program

exclusivity—not the singling out of distant signals for

special concessionary treatment.”

Dr. Johnson points to the absurdity of singling out dis-

tant signals for separate copyright treatment because of a

possibility of abuse:

It would seem not an appropriate response to single

out distant signals carried by cable for special copy-

right treatment. To do so would be analogous to per-

mitting purchase of certain kinds of automobiles (let

us say station wagons) at specially low prices on

grounds that manufacture of automobiles in the United

States is dominated by only three corporations.” (p.

36) *

In short, the alleged difficulty of CATV systems to buy

program licenses is a myth, a disability which is easily

cured by a modicum of effort and a willingness to accept

the realities of modern business methods.

* The Future of Cable Television, Summary pp. VI, VII.

% The Future of Cable Television, pp. 36, 37.

POINT V

The viability of the cable industry is not threatened

by liability for past damages or suits for injunctive

relief.

Petitioners urge that the ruling of the Court below

poses a threat to the existence of the cable industry in the

form of huge damage awards for past infringements (Pet.

Br. pp. 67-68; NCTA Br. pp. 13-14). They base their claim

on the damage provisions of the Copyright Act, 17 U.S.C.

§101 and by multiplying the dollar figures set forth in the

statute with the number of their infri ents, reach multi-

million dollar damages. Compensation in such large

amounts, they assert, would threaten to place control over

a major segment of the CATV industry in the hands of the

The concern expressed by petitioners is more theoretical

than real since the Courts, in appropriate cases, may adopt

a reasonable rule of damages or refuse to apply their rul-

ing retroactively if justice should so require. Further, as

to the possible ability of copyright owners to “take over”

the cable industry, either by exacting exorbitant license

fees or by unreasonably enjoining cable retransmission, we

submit that the federal courts and other government agen-

cies are amply armed with the means of preventing such

prohibitive or punitive acts.

The history of the cable industry and its relations with

the copyright owners make clear that the copyright owners

have refrained from the institution of infringement actions

that might saddle the cable industry with large damage

awards. Indeed, only two suits for copyright infringement

have been filed: Fortnightly and the present case. This

abstention on the part of Amici and other potential copy-

right plaintiffs is reflected in the assurances given by the

Amici to the Chairman of the Senate Committee in the

Fall of 1967 (following the decision of the court below in

Fortnightly) that they would refrain from instituting legal

action while negotiations for settlement or for legislation

were in progress.” While such negotiations are no longer

in progress,“ it is significant that in the more than six

years that have elapsed since those assurances were given,

no new infringement suits have been filed.“

Underlying this consistent refusal to press for monetary

damages is the economic reality that CATV is = sai

customer for the products produced by Amici. These eco-

nomic realities are such that it would be contrary to the

self-interest of the Amici to seek damages which would

seriously affect the CATV industry for its retransmission

of copyrighted programs in the past.

Assuming, however, that even the bare possibility of past

liability somehow poses an issue of decisional significance,

we submit that this Court has the power to eliminate the

113 Cong. Ree. S. 14067 (daily ed. October 3, 1967).

” and which ones are “distant” under the guidelines

of the Court below. Law suits are just as expensive and time

consuming for a potential plaintiff as they are for a potential

defendant. Moreover the guidelines of the Court below are clear

and easily applied by anyone familiar with the facts of a partic-

ular CATV system and its operation. The only reason why the

matter could not be fully resolved by the court below and had to be

remanded was that the District Court herein did not explore these

facts on the ground that “distance” was not relevant to the

function of petitioners’ CATV systems.

issue of past liability completely from this case by applying

its decision prospectively. Great Northern R. Co. v. Sun-

burst Oil and Refining Co., 287 U.S. 358 (1932). More

recently, in Chevron Oil Co. v. Huson, 404 U.S. 97, 106-107

(1971), this Court outlined the considerations that deter-

mine whether it will refuse to apply a decision retroactively :

“First, the decision to be applied nonretroactively must

establish a new principle of law, either by overruling

clear past precedent on which litigants may have re-

lied, see, e.g., Hanover Shoe v. United Shoe Machinery

Corp., supra, at 496, 20 L Ed 2d at 1243, or by deciding

an issue of first impression whose resolution was not

clearly foreshadowed, see, e.g., Allen v. State Board of

Elections, supra, at 572, 32 L Ed 2d at 20. Second,

it has been stressed that ‘we must . . . weigh the merits

and demerits in each case by looking to the prior his-

tory of the rule in question, its purpose and effect,

and whether retrospective operation will further or

retard its operation.’ Linkletter v. Walker, supra, at

629, 14 L Ed 2d at 608. Finally, we have weighed

the inequity imposed by retroactive application, for

‘[w]here a decision of this Court could produce sub-

stantial inequitable results if applied retroactively,

there is ample basis in our cases for avoiding the

“injustice or hardship” by a holding of nonretroactiv-

ity.’” Cipriano v. City of Houma, supra, at 706, 23

L. Ed. 2d at 652.

Applying these criteria to the present case, this Court

could require the nonretroactive application of a decision

if it should determine that justice so demands.

In any event, it should be emphasized that the issue of

damages was not included in the first stage of the trial“

which is the only one under review before this Court.

Pre- trial Order Number One, A. 71a.

It is the Saag ae order issued by the Court

below. If, following a trial on the damage question, peti-

tioners are dissatisfied with the result, their rights of appeal

guarantee that the issue will be presented based upon a

full and complete record.“

The fear is also expressed that even if liability for past

damages can be gainsaid, the CATV industry will be at

the mercy of the copyright owners in the future by suits

for injunctive relief. The notion that the cable industry

will be subject to a conspiracy and take-over by the pro-

gram industry as a result of the decision by the Court

below is without substance. The proper agency to prevent

such conspiracy and illegal take-overs is the Department

of Justice which in the past has not hesitated to enforce

the anti-trust laws with the necessary vigor.

The mandatory application of the statutory minimum of

$250 per infringement in all cases is by no means settled. Com-

pare Woolworth Co. v. Contemporary Arts, 344 U.S. 228 (1952)

with Shapiro Bernstein & Co. v. 4646 S. Vermont Ave. Inc., 367

F.2d 236 (th Cir. 1966); Ziegelheim v. Flohr, 119 F. Supp. 324

(E.D.N.Y. 1954); see Nimmer, Copyright §§154.1-154.14 (1973).

Cf. Davis v. E. I. Du Pont de Nemours & Company, 249 F. Supp.

329, 340-343 (S.D.N.Y. 1966) which involved a Simultaneous net-

work telecast of a program by 162 affiliated television stations. Mr.

Justice Fineberg characterized the damage provisions of Sec. 101

(b) of the Copyright Act of 1909, as “an ambiguous renal podge

of improvisations.” He rejected an “unrealistic massing of $250

minimums’ ital 5 stressed that = law can r agen,

and _— d] the — of ridiculous and injurious awa

n 9 — P Supp. 695, 704 (D. C.

Mass. i908) 2 an 1 o. gr. 206 F.2d 199 (Ist Cir. 1953) holding

that a Court must be careful to prevent the plaintiff from ar-

bitrarily multiplying infringements, and thus compelling a de-

fendant to pay damages greatly disproportionate to its actual

wrongdoing. )

Similarly, the Register of Copyrights pointed out in his Copy-

right Law Revision Report submitted to the House Comm. on the

Judiciary (87th Cong., Ist Sess.) p. 105:

“We believe that the danger of exorbitant awards in mul-

tiple infringement cases is more theoretical than real.”

Moreover, the fears expressed by petitioners are based

on unsound assumptions. The grant of injunctions in copy-

right cases lies in the sound discretion of the trial courts.

Ideal Toy Corp. v. Fab-Lu Ltd., 360 F.2d 1021 (2d Cir.

1966) ; National Comics Publications, Inc. v. Fawcett Pub-

lications, Inc., 198 F.2d 927 (2d Cir. 1952). The Senate

Study on Copyright Law Revision, No. 24, 86th Cong. 2d

Sess., Sen. Comm. Print, p. 127, states:

The present law leaves it to the discretion of the

court whether an injunction will be granted or denied.

It has always been the rule of the courts that an in-

junction is an extraordinary remedy to be used only

where further injury to the plaintiff is likely and the

equities of the situation are on the side of the injune-

tive relief, and the courts have denied an injunction

in cases where it was thought that this remedy would

be unduly harsh on the defendant.

Accordingly, this Court can confidently leave to the sound

discretion of the lower courts the determination whether

or not to grant an injunction in a particular case and, if

so, the terms on which such an injunction would issue, 17

U.S.C. 5112.

Further, it should be noted that the apprehension voiced

by petitioners as to the disastrous threat of damages to

cable operators is not shared by the management, auditors

and counsel of petitioner Teleprompter. In its annual re-

port for the year 1971, petitioner Teleprompter in note 8 D

attached to its Financial Statement, comments:

“The Columbia Broadcasting System, Inc., and three

other plaintiffs filed a suit in 1964 (since amended in

1969 and 1971) against the Corporation alleging that

the Corporation reproduced, without authority, certain

copyrighted programs. The Corporation denied in-

fringement. The Trial has been completed but the

Court has not yet issued its decision. In the event that

the plaintiffs ultimately prevail, the amount of poten-

tial liability cannot now be predicted. In the opinion

of management, this action, if successful, would not

have a material effect on the Corporation’s financial

position or operations.” (Emphasis supplied.)

That the opinion expressed above was not a slip which

had escaped the attention of counsel for petitioners is dem-

onstrated by the note accompanying Teleprompter’s Annual

Report for the year 1972 which stated in regard to this

litigation :

“In the event that the plaintiffs ultimately prevail,

in the opinion of counsel for the Corporation, the out-

come will not have a material effect on the Corpora-

tion’s financial position.” (Emphasis supplied.)

The same optimistic view was expressed by Mr. David

Foster, president of NCTA, who, following the decision of

the Court below, stated that he was “pleased with the court’s

affirmation of the principle that cable TV reception service

does not infringe on copyright” and that NCTA was pleased

“that the courts have not permitted the copyright issue to

interfere with the growth of the industry.“ Apparently

NCTA feels that it can live comfortably with the distinction

mate by the court below between CATV’s reception service

for local signals and the retransmission of those signals

which the Court below defined as distant, and, therefore,

held subject to the copyright law.

Broadcasting, March 12, 1973, p. 12.

POINT VI

The failure of Congress to act on the cable-copyright

question can be traced to the intransigence of the cable

industry following this Court’s decision in Fortnightly.

An affirmance of the decision below will greatly aid the

adoption of CATV copyright legislation.

Many respected writers who have commented on the

Fortnightly case have suggested that apart from the

strictly legal question decided by the Court, an underlying

policy assumption was that the then pending legislation to

revise the Copyright Act would be enacted shortly. At

the time of Fortnightly, the House of Representatives had

passed an omnibus copyright revision bill and the bill was

then pending in the Senate.

Unfortunately, following this Court’s decision in Fort-

nightly, the bill did not progress any further in the Senate.

To this date it remains buried in a Senate Subcommittee.“

The reasons for Congressional inaction in the more than

five years since Fortnightly can be traced directly to the

bargaining imbalance struck as a result of that decision.

Since the cable industry claims to be free from copyright

liability under Fortnightly, it is naturally reluctant to

support legislation which would impose such liability. And

the evidence shows that it has been able to forestall any

Senator McClellan, Chairman of the Subcommittee on Patents,

Trademarks and Copyrights, in introducing S. 644, 91st Cong., Ist

Sess., said that “A principal factor delaying further Senate action

on the copyright revision bill was the unresolved cable television

issue,” Cong. Rec., Feb. 8, 1971, pp. S. 962-S. 963. And in introdue-

ing S. 1361, 93rd Cong., Ist Sess., he stated “As is by now well

known, any significant progress on general revision of the -

right laws has been effecti ly precluded in recent years by

ae cable television issue,” Cong. Rec., March 26, 1973,

p. S. 5615.

56 | .

legislative solution that would require the payment of any.

The conclusion to be drawn from the experience of Fort-

nightly is that a legislative solution will not be forthcoming

if this Court again finds cable systems immune from copy-

right liability—this time in regard to distant signals. It is

only the requirement of respecting copyright that will

bring the cable industry to the halls of Congress to achieve

a legislative solution. A review of the attempts to achieve

a legislative solution makes this clear.

For the last several years, representatives of the CATV,

broadcasting and motion picture industries acting at the

suggestion and with the consent of the FCC, the Office of

Telecommunications Policy and the Chairman of the Sub-

committee on Patents, Trademarks, and Copyrights of the

Senate Committee on the Judiciary, negotiated their dif-

ferences. Their objective was twofold: (1) to resolve the

controversy regarding the retransmission of distant signals

by CATV stations and (2) to make joint recommendations

to the Congress and to the FCC for appropriate copyright

legislation and communication regulations.

In November, 1971, the parties reached a settlement

which was incorporated into a formal written “Consensus

Agreement” (Appendix D attached to the FCC’s Cable

Television Report and Order, supra, 36 FCC 2d 143 at

284-86 (1972). Both the representatives of the cable, broad-

casting and program production industries who signed the

agreement pledged themselves to support its full imple-

mentation by the Congress and the FCC.“

The Consensus Agreement was found to be in the public interest

both by the FCC and by the Chairman of the Subcommittee on

Patents, Trademarks, and Copyrights of the Senate Committee on

the Judiciary. Thus, in the Cable Television Report and Order,

Promptly after the settlement was signed, the FCC im-

plemented the agreement and issued new regulations giv-

ing wide latitude to cable systems for the importation of

distant signals.

It was because of the wide divergence of views between the

parties on the appropriate amount of copyright fees that

supra, 36 FCC 2d 143, 166-67 (par. 65), the FCC said in adopting

its new cable rules:

“We believe that adoption of the Consensus Agreement will

markedly serve the public interest :

(i) First the agreement will facilitate the passage of

cable copyright legislation. It is essential that cable be

brought within the television programming distribution

market. There have been several attempts to do so, but all

have foundered on the opposition of one or more of the

three industries involved.

It is for this reason that Congress and the Commission

have long urged the parties to compromise their differences.

(ii) Passage of copyright legislation will in turn erase an

uncertainty that now impairs cable’s ability to attract the

capital investment needed for substantial growth. . . .

It is important to emphasize that for full effectiveness the

Consensus Agreement requires Congressional approval, not

just that of the Commission. The rules will, of course, be

put into effect promptly. Without Congressional validation,

however, we would have to re-examine some aspects of the

program. Congress we believe will share our conclusion that

implementation of the agreement clearly serve: the public

interest.”

In a letter to the Chairman of the FCC dated January 31, 1972

and incorporated as Appendix E into the FCC’s Cable Television

Report, supra, 36 FCC 2d 143, 286-7, Senator McClellan, Chairman

of the Subcommittee on Patents, Trademarks, and Copyrights said:

“As I have stated in several reports to the Senate in recent

ey the CATV question is the only significant obstacle to

al action by the Congress on a copyright bill. I urged the

parties to negotiate in good faith to determine if they could

reach agreement on both the communications and copyright

aspects of the CATV question. I commend the parties for the

efforts they have made, and believe that the agreement that

has been reached is in the public interest and reflects a reason-

able compromise of the positions of the various parties.”

the Consensus Agreement specifically provided for an al-

ternative method of setting these fees in the event that

the parties should be unable to agree thereon. More specif-

ically the Consensus Agreement provided (36 FCC 2d at

285) :

“Unless a schedule of fees covering the compulsory

licenses or some other payment mechanism can be

agreed upon between the copyright owners and the

CATV owners in time for inclusion in the new copy-

right statute, the legislation would simply provide for

compulsory arbitration failing private agreement on

Shortly after the adoption of the Consensus Agreement,

negotiating committees of the copyright owners and of the

National Cable Television Association met in order to work

out a mutually satisfactory license fee schedule. These

meetings, however, had not as yet led to an agreement, when

the District Court in the case at bar issued its decision on

May 2nd, 1972, holding CATV systems not liable under the

stations. The negotiators of the CATV industry, having

by that time received from the FCC full implemen-

tation of the Consensus Agreement beneficial to them,

saw no reason to cooperate further in supporting legisla-

tion which would subject them to the payment of royalties

when the District Court had absolved them from such lia-

bility under existing law. CATV’s stiffened attitude led to

a breakdown of negotiations and to a request by the copy-

right owners for joint support in Congress of the arbitra-

tion clause contained in the Consensus Agreement. The

CATV industry, however, refused to give such support

and, in effect repudiated the agreement.

1973 when the Court of Appeals reversed the District Court

and held CATV distant signal importations to be subject

to the copyright law. The result was a prompt resumption

of legislative activity. On March 26, 1973, a new copyright

revision bill was introduced in the Senate (S. 1361, 98rd

Cong., Ist Sess.). Hearings were held shortly thereafter

before the Senate Subcommittee on Patents, Trademarks,

and Copyrights on July 31-August 1, 1973.“ At the hear-

ings Mr. Jack Valenti, president of MPAA, explained the

failure of the CATV industry to live up to its obligations

under the Consensus Agreement, but nevertheless re-

affirmed the copyright owners’ continued resolution to abide

by it:

. . . we did enter into an agreement. We pledged our

support to it. We never wavered in that support, even

though possibly we got a bad deal going in. But we

signed it, and we honored it, and we stick by it.

Senator Burdick. This is the so-called Consensus

Agreement?

Mr. Valenti. Yes, sir.

Senator Burdick. And you are willing to honor it?

‘Mr. Valenti. Yes, sir.” .

* Hearings Before The Subcommittee on Patents, Trademarks

and Copyrights of the Committee on the Judiciary, United States

Senate, on S. 1361, 93rd Cong., Ist Sess. (hereafter “Hearings”).

“* Hearings, supra, pp. 277-93. It should also be noted that

under the proposed revision of Section 111 of S. 1361 offered by

the copyright owners, any fee schedule adopted by an arbitration

tribunal would not be effective for a period of twelve months

after the enactment of copyright legislation. Hearings,

p. 313. In the unlikely event that an arbitration tribunal woul

render a rr prior 5 5 1 ä

ing enaetment of copyright legislation, the fee e wo e

effect as from the date of the tribunal’s decision. Id.

“ Hearings, supra, p. 291. 4

We respectfully submit that this unwavering support by

Amici of legislation as agreed to by the interested parties

regardless of whether the going is good or bad in the courts

assures their continued cooperation regarding future legis-

lation.

By contrast, the representatives of the cable industry

made clear that they were repudiating the Consensus

Agreement by rejecting compulsory arbitration of the fee

question. Instead, they called upon Congress to set a mini-

mum fee schedule, Hearings, supra, p. 420. Further, the

testimony shows that substantial elements in the cable

industry, relying on this Court’s decision in Fortnightly,

are fundamentally opposed to payment of any copyright

fees whatsoever. Hearings, supra, p. 405.

Based upon the foregoing, we would respectfully urge

this Court that a legislative solution of the problem will

only be forthcoming if the decision of the Court below is

affirmed. We think it significant that the hope for legis-

lation which appeared promising following the Senate

hearings, evaporated again in October of this year, when

this Court granted the writ of certiorari in this case.

At the present time it is apparent that the Senate sub-

committee will not take any further action on the bill

during the first session of the 93rd Congress and spokesmen

for the cable industry are now suggesting that copyright

legislation will not be forthcoming until 1975.“ Under these

circumstances, it is abundantly evident that a decision in

favor of the cable industry will probably destroy any

opportunity for a legislative solution to the cable-copyright

question. Conversely, a decision affirming the holding of

the Court below, will revive the principles on which copy-

* Broadcasting, December 3, 1973, p. 7.

right protection has been based and greatly aid the adop-

tion of CATV-copyright legislation.

CONCLUSION

Amici respectfully urge that the decision of the Court

below be affirmed.

Respectfully submitted,

TLLIPs, Nun, BenyaMIn Louts Nun

Keim & Baton Geratp MEYER

477 Madison Avenue Geratp F. Pamurrs

New York, New York 10022 477 Madison Avenue

8 New eon ag York 10022

Artur ScHErvEer

LNER & ScHEINER Rosert D. Hap.

2021 L“ Street N. W. 2021 “L” Street N. W.

Washington, D. C. 20036 : Washington, D. C. 20036

Counsel Attorneys for Amici Curiae

sember 19, 1973

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.