[Federal Register: July 24, 1998 (Volume 63, Number 142)]
[Rules and Regulations]               
[Page 39737-39739]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]



Copyright Office

37 CFR Parts 201 and 256

[Docket No. RM 98-4]

Cable Compulsory Licenses: Application of the 3.75% Rate

AGENCY: Copyright Office, Library of Congress.

ACTION: Final rule.


SUMMARY: The Copyright Office is amending its rules in order to clarify 
how a cable system shall calculate its royalty fees when it carries a 
distant signal which under the former Federal Communications 
Commission's regulations would be considered a permitted signal in some 
communities and a non-permitted signal in others. These amendments also 
make clear that both the base rate fee and the 3.75% fee

[[Page 39738]]

shall be applied toward the statutory minimum fee.

EFFECTIVE DATE: August 24, 1998.

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

SUPPLEMENTARY INFORMATION: Section 111 of the Copyright Act, 17 U.S.C., 
establishes a compulsory license which authorizes a cable system to 
make secondary transmissions of copyrighted works embodied in broadcast 
signals provided that it pays a royalty fee according to the fee 
structure set out in section 111 and meets all other conditions of the 
statutory license. The license also provides for an opportunity to 
adjust the statutory royalty rates once every five years, 17 U.S.C. 
803(a)(2), or whenever the Federal Communications Commission (FCC) 
amends its rules to allow a cable system to carry additional signals 
beyond the local service area of the primary transmitter, or its rules 
governing syndicated program and sports exclusivity. 17 U.S.C. 
    In 1982, the former Copyright Royalty Tribunal (CRT) concluded a 
rate adjustment proceeding in response to an FCC order repealing its 
distant signal carriage and program syndication exclusivity 
restrictions on cable retransmission; wherein the CRT created two new 
rate structures, apart from those set by statute, to compensate the 
copyright owners for the loss of the surrogate copyright protection 
afforded them under the FCC rules: a 3.75% rate for the secondary 
transmission of formerly non-permitted distant signals, and a 
syndicated exclusivity surcharge for the secondary transmission of 
permitted signals that had been subject to the FCC's former syndicated 
program exclusivity regulations. 47 FR 52146 (November 19, 1982).
    Although the Copyright Office adopted final rules to implement the 
new rate structure of the CRT in 1984, the rules did not specify how a 
cable system was to calculate its royalty obligation for the carriage 
of a distant signal which under the former FCC rules was a permitted 
signal in some communities and a non-permitted signal in others. 
Instead, the Office allowed each cable system to determine whether to 
report the signal as entirely permitted, entirely non-permitted, or as 
partially permitted/partially non-permitted, and calculate its royalty 
obligation accordingly.
    This practice came to an end when, in April, 1997, the Copyright 
Office adopted a final rule which requires a cable system to calculate 
the 3.75% rate fees for distant signals on a partially permitted/
partially non-permitted basis. 62 FR 23360 (April 30, 1997). Under the 
new rule, a cable system shall pay the base rate with respect to those 
communities where the signal would be considered permitted under the 
FCC's former distant carriage rules in effect on June 24, 1981 (or in 
the case of those systems that commenced operation after June 24, 1981, 
would have been considered permitted under those rules), and the 3.75% 
rate with respect to those communities where the signal would be 
considered non-permitted. In each case, however, the cable system must 
base its calculations upon the total amount of gross receipts from 
subscribers within the relevant community without regard to whether the 
subscriber actually receives the distant signal.
    To assure uniformity in the reporting process and to clarify that 
both the base rate fees and the 3.75% rate fees shall be applied toward 
the minimum fee, the Copyright Office proposed additional amendments to 
its rules detailing how a cable system was to report and calculate its 
royalty fees for the carriage of a partially permitted/partially non-
permitted distant signal. 63 FR 26756 (May 14, 1998). In response to 
the proposed amendments, the Joint Sports Claimants (JSC), the Motion 
Picture Association of America, Inc. (MPAA), and the National Cable 
Television Association (NCTA) filed comments with the Copyright Office.
    While no party objects to the underlying rational for the proposed 
amendments,<SUP>1</SUP> both JSC and MPAA request clarification of the 
regulatory language to make it clear that a cable system may not 
``prorate gross receipts within communities--claiming that they are not 
required to apply the 3.75 rate (or any other rate) to revenues from 
subscribers who do not actually receive the signal in question.'' JSC 
comment at 2-3 (emphasis omitted); see also MPAA comment at 1-2. 
Because two of the three parties found the proposed regulatory language 
somewhat ambiguous on this point, the Copyright Office is adopting the 
language proposed by JSC, since the proposed change merely restates in 
an affirmative manner the obligation of a cable system to pay royalties 
based on gross receipts from all subscribers within the relevant 

    \1\ JSC continues to oppose the formation of subscriber groups 
which would reduce either the value of the distant signal equivalent 
or a system's gross receipts. See Comments of the Joint Sports 
Claimants in Docket No. 89-2A (filed February 23, 1995); Comments of 
Joint Sports Claimants in Docket No. 89-2 (filed December 1, 1989). 
Nevertheless, JSC has supported the premise of the current rule. In 
its December 1, 1989 comment, JSC stated that it ``continue[s] to 
believe that a cable operator should be required to pay 1) the 3.75 
percent rate on gross receipts derived from subscribers located in 
communities where the particular signal could not have been carried 
under the former FCC rules; and 2) the statutory (non-3.75 percent) 
rates on gross receipts derived from all other subscribers.'' JSC 
comment in Docket No. RM 89-2 at 10.

    As noted by NCTA, these amendments are tailored narrowly and 
address only the calculation of royalties for the carriage of a 
partially permitted/partially non-permitted distant signal. They do not 
resolve any issues concerning the reporting and payment of royalty fees 
for merged and acquired systems. These questions, which remain 
unresolved today, were the subject of earlier rulemaking proceedings, 
see Docket No. RM 89-2 and Docket No. 89-2A, which the Office 
terminated until further notice when Congress asked the Copyright 
Office to prepare a report on the compulsory license scheme. 62 FR 
23360 (April 30, 1997).

List of Subjects

37 CFR Part 201

    Cable television, Copyright, Jukeboxes, Literary works, Satellites.

37 CFR Part 256

    Cable television, Copyright.

    In consideration of the foregoing, 37 CFR parts 201 and 256 are 
amended as follows:


    1. The authority citation for part 201 continues to read as 

    Authority: 17 U.S.C. 702.

    2. Section 201.17(h)(2)(iv) is amended by adding the phrase ``and 
the syndicated exclusivity surcharge, where applicable,'' after the 
phrase ``the current base rate'' and by adding two sentences to the end 
of the paragraph to read as follows:

Sec. 201.17  Statements of Account covering compulsory licenses for 
secondary transmissions by cable systems.

* * * * *
    (h) * * *
    (2) * * *
    (iv) * * * The calculations shall be based upon the gross receipts 
from all subscribers, within the relevant communities, for the basic 
service of providing secondary transmissions of primary broadcast 
transmitters, without regard to whether those subscribers

[[Page 39739]]

actually received the station in question. For partially-distant 
stations, gross receipts shall be the total gross receipts from 
subscribers outside the local service area.
* * * * *


    3. The authority citation for part 256 continues to read as 

    Authority: 17 U.S.C. 702, 802.

    4. Section 256.2(a)(1) is amended by adding the letter ``s'' to the 
word ``fee'' and by adding the phrase ``and (c)'' to the end of the 
paragraph after ``(4)''.
    5. In Sec. 256.2 the concluding text of paragraph (c) is amended by 
adding the phrase ``(2) through (4)'' after the phrase ``royalty rates 
specified in paragraphs (a)''.

    Dated: July 1, 1998.
Marybeth Peters,
Register of Copyrights.

    So approved.
James H. Billington,
The Librarian of Congress.
[FR Doc. 98-19415 Filed 7-23-98; 8:45 am]