gram, obviously, are not watching the local stations . . . In short, cable has fractionalized the local viewing audience. . . . Or look at Binghamton, New York... The share of audiencc viewing signals other than those in the market has risen from 2% in November 1963 to 25% in May 1975. . . . The reason? The growth of cable systems in the area, systems that import three signals from New York City 200 miles away and additional signals from Syracuse and WilkesBarre-Scranton." George Koehler, President, Gateway Communications, Cherry Hill, N.J.

c. The economics of program marketing insulate program buyers from higher prices:

"There are only a limited number of stations in each city and . . . the allimportant time left for non-network programing is severely limited. Accordingly, since many programs compete for sales to such limited outlets and there is always more product than time available for syndicated programs, there exists a perpetual and structural "buyers" market that is not and cannot be affected by increases in coverage due to CATV."-Frank Reel.

(See attachment D for the complete statements.)

B. The formula erroneously exempts network and local signals because it ignores the concept of a separate payment for each commercial use.

As already pointed out, the Teleprompter formula exempts from copyright, network signals and required signals. These exemptions ignore the traditional concept of copyright law of a separate payment for each commercial use.

As the Register of Copyrights so well explained in a letter to Senator John McClellan last year:

"The Constitution directs Congress to legislate to secure to authors exclusive rights in their writings. Reward to the author and his legal successors is essential to stimulate creativity. We are all enriched by this creativity. It is surely not too much to expect that some payment to copyright proprietors will be made for commercial uses of copyrighted works."

Or as the Supreme Court has formulated the reason for copyright:

"The economic philosophy behind the (constitutional) clause empowering Congress to grant patents and copyrights is the conviction that encouragement of individual effort by personal gain is the best way to advance public welfare through the talents of authors and inventors in "Science and useful Arts." Sacrificial days devoted to such creative activities deserve rewards commensurate with the services rendered." (Mazer v. Stein, 347 U.S. 201, 219, 1954)

The right of copyright should not be sacrificed to every other right-nor should it ever be sacrificed to economic or technological expediency. To quote again the Register of Copyrights: "The basic human rights of individual authors throughout the world are being sacrified more and more on the altar of . . . the technological revolution."

Cable systems use network signals and required signals as means of attracting subscribers and promoting their industry. They should be required to pay copyright for all signals they carry.

IV. THE FORMULA WOULD GIVE THE COMMERCE COMMITTEES AN APPROPRIATE BASIS FOR CLAIMING JURISDICTION OVER H.R. 2223

Under the formula, the FCC is required to certify every three months to the Register of Copyrights the "copyright owners' percentage share" which is determined by dividing all broadcast revenues into all broadcast program expenses and multiplying the result by 100. The formula also requires the Commission to certify, on a quarterly basis, the market share (“program popularity") of each signal carried by the cable system which is subject to copyright liability. The FCC is therefore given the duty of collecting or obtaining program ratings on a signalby-signal and county-by-county basis, or else, using the literal language of the formula text, collecting or obtaining total viewing hours on a signal-by-signal and county-by-county basis.

The formula would therefore impose on the Commission specific mandatory duties; it does not simply rely upon existing duties of the Commission to trigger automatically the operation of certain provisions of the copyright revision bill. Since jurisdiction over the FCC is vested in the Senate Committee on Commerce and the House Committee on Interstate and Foreign Commerce, these committees could appropriately assert jurisdiction over the bill. This assertion would further delay the passage of the bill and likely insure that no copyright bill would be enacted this Congress, especially since it now appears that the Subcommittee is

not likely to begin markup before mid-January, 1976, and the Congressional leadership has announced its intention to adjourn the 94th Congress on October 2, 1976.

[Attachment A]

OPINION AS TO THE CONSTITUTIONALITY OF CERTAIN PROVISIONS OF H.R. 2223

INTRODUCTION

Now pending before a sub-committee of the House Judiciary Committee is H.R. 2223, a bill "for the general revision of the Copyright Law." This bill in its major aspects parallels S. 1361, which was approved by the Senate in the Second Session of the 93rd Congress. If H.R. 2223 is enacted into law, Congress will have finally completed comprehensive overhaul of the Copyright Law of 1909– a major revisory effort which Congress initiated twenty years ago.

In a Memorandum dated October 14, 1975, Professor Ernest Gellhorn has advanced the view that certain provisions of H.R. 2223 are "[a]s presently drafted . . . unnecessarily vulnerable to constitutional attack under the due process clause." At the request of counsel for the Motion Picture Association of America, I have examined the challenged provisions of H.R. 2223 in the light of Professor Gellhorn's Memorandum. In my judgment, these provisions are secure against constitutional attack.

THE CHALLENGED PROVISIONS OF H.R. 2223

The provisions of H.R. 2223 to which Professor Gellhorn's Memorandum is addressed are those relating to the unauthorized interception and secondary transmission by cable television of authorized primary television transmissions of copyrighted matter. These provisions-embodied in S. 1361 and now brought forward to H.R. 2223-seek to cure the anomalies introduced into the copyright system by the Supreme Court's determination that the present Copyright Law affords the copyright owner no protection against cable television's unconsented and highly remunerative dilution of the copyright.'

In order to protect the copyright owner, while simultaneously encouraging cable television's dissemination to a wider public of copyrighted matter which has been televised, H.R. 2223 utilizes the "compulsory license"-the device which, with respect to copyrighted music which the copyright owner has permitted to be recorded, has been a central feature of the copyright system ever since 1909. Section 111 of H.R. 2223 recites the conditions under which a primary television transmission of copyrighted matter is subject to a compulsory license authorizing a secondary transmission by cable television. Section 111 (d) (2) (B) establishes a scale of royalty fees for such secondary transmissions-a scale which is graduated in relation to the quarterly gross receipts of the cable system. The scale is that contained in Section 111 of S. 1361 as adopted by the Senate in 1974.

The adequacy of the royalty fees established in S. 1361, and now appearing in H.R. 2223, was one of the most sharply contested issues in the Senate Judiciary Committee's consideration of S. 1361. In the sub-committee version of the bill, the fee schedule was twice what the full committee ultimately agreed upon: the original fee schedule was, as Senator Tunney observed, "cut in half by a twovote margin during the full committee markup of the copyright bill," an action which the Senator opposed because in his "judgment the original fees were quite modest in terms of the costs imposed upon the cable operators and reasonable with respect to the interests of the copyright owners."

12

But although the Senate Judiciary Committee was closely divided on the adequacy of the particular royalty fee schedule written into S. 1361 (and now reproduced in H.R. 2223), they were united in the view that the schedule should be

1 Fortnightly Corporation v. United Artists Television, Inc. 392 U.S. 390 (1968); Teleprompter Corporation v. Columbia Broadcasting System, 415 U.S. 394 (1974). See Cable Television and Copyright Royalties, 83 YALE L. J. 554 (1974).

2 Copyright Law Revision, S. Rep. No. 93-983, 93rd Cong., 2nd Sess., p. 217 (Additional Views of Senator John V. Tunney). Compare the assessment in Cable, Copyright, Communications: Controversy, 24 CLEVE. STATE L. REV. 107, 145 (1975), that S. 1361 as it emerged from the Senate Judiciary Committee was "a clear victory for CATV." The royalty schedule contained in S. 1361 as adopted, and now contained in H.R. 2223, calls for a "total royalty fee" of %% of a cable operator's quarterly gross receipts up to $40,000, running up to a maximum "total royalty fee" of 2% of quarterly gross receipts in excess of $160,000.

subject to mandatory periodic reappraisal. In this way, the Senate Judiciary Committee contemplated that the new Copyright Law would avoid imposing a permanent economic strait-jacket on copyright owners and on the cable television industry. The problem was well understood by the Senate Judiciary Committee because of its familiarity with the fixed statutory royalty which has governed the compulsory license for recordings of copyrighted music since 1909. For lack of any required periodic reappraisal of the 2-cents-per-recording legislated in 1909, the royalty has been frozen at that level for over six decades. Not too surprisingly, S. 1361 (here again emulated by H.R. 2223) called for a substantial increase in the 1909 recording royalty. Moreover-and of greater relevance to the cable television provisions of S. 1361 and H.R. 2223-S. 1361 (again followed by H.R. 2223) also mandated periodic reappraisal of the recording royalty, and by the identical process to which, under the bill, the revision of the cable television royalty schedule is committed. It is that process, initially elaborated in S. 1361 and now reaffirmed in H.R. 2223, which Professor Gellhorn calls into question.

The process questioned by Professor Gellhorn is, in its essence, a very simple one. Two years after the effective date of H.R. 2223,-and at five-year intervals thereafter, if requested by a copyright owner or user-the Register of Copyrights is to convene a Copyright Royalty Tribunal composed of three members of the American Arbitration Association nominated by that body. The Tribunal is directed to hold hearings at which interested parties may appear by counsel. And on the basis of the hearings the Tribunal determines whether the royalty rates and/or rate bases specified by Section 111 (or by a prior Tribunal's adjustment of the Section 111 rate and/or rate base) "are reasonable." Section 801 (b). The Tribunal's determination (which is to be reached within a year) "shall be in writing and shall state the reasons therefor." Section 804 (d). Each such determination is to be transmitted to each House of Congress. If the Tribunal's determination recommends an adjustment of the prevailing royalty rates or bases, that recommendation is to go into effect on the one-hundred and eightyfirst legislative day after transmittal, unless within ninety days of transmittal "either House of Congress adopt[s] a resolution stating in effect that the House does not favor the recommended royalty adjustment," in which event "such adjustment . . . shall not become effective." Section 807(a).

DISCUSSION OF THE ASSERTED CONSTITUTIONAL DIFFICULTIES

The compulsory license has been an important instrument of copyright policy and practice since 1909. For more than six decades, the several constituencies which comprise the music industry have operated within its ambit and thus subject to a flat, legislatively determined, royalty. Whatever may be said as to the wisdom of these arrangements, they do not appear to have been the subject of any serious constitutional question.*

Aware that the inflexible 1909 royalty has spawned consequences which, while not heretofore provoking any constitutional challenge, have been detrimental to the copyright system, the Committees responsible for S. 1361 and H.R. 2223 have sought to soften the perceived rigors of the compulsory license system both as applied to the familiar field of musical recordings and as applied to the new field of cable television. Yet, curiously, it is the attempt to ameliorate the rigor of the present statute which is said to pose constitutional difficulties:

(1) The first constitutional difficulty identified by Professor Gellhorn's Memorandum is the asserted opacity of the term "reasonable" as employed in Section 801(b) to guide the Copyright Royalty Tribunal in determining whether to recommend an adjustment of the royalty rate or base. "Reasonable" may or may not be thought to be self-defining; but it is, in any event, a venerable statutory standard often sustained by the Supreme Court (as, for example, in phrases such as "just and reasonable" "). Indeed, as the Court of Claims recently observed, "The standard of reasonableness has . . . become the mainstay of our law.""

3 A nominee is subject to challenge, for cause shown, by an interested party. Section 803 (a). 4 See I Nimmer, Copyright (1975 ed.) § 7.

5 See. e.g., Tage Bros. & Moorhead v. United States. 280 U.S. 420 (1930); Federal Power Commission v. Natural Gas Pipeline Co.. 315 U.S. 575 (1942): Montana-Dakota Public Utilities Co. v. Northwestern Public Service Co.. 341 U.S. 246 (1951).

"The great function in the law of the word 'reasonable" is to enable a standard of decision to be accommodated to all circumstances. 'Reasonable', used for this purpose, has served in legal instruments at least since Magna Carta, in which King John undertook not to levy 'more than a reasonable aid' or tax to raise a ransom for his person. The standard of reasonableness has since become the mainstay of our law." National Steel and Shipbuilding Co. v. United States, 419 F. 2d 863, 876 (1969).

Objection to "reasonable" may perhaps be taken on some aesthetic level, but hardly on the ground that it offends constitutional norms.

The point, of course, is not that, in the formulation of statutory standards for the guidance of agencies doing the legislature's bidding vagueness is to be prized. The point is that in many instances-and the proportion of these instances increases with the complexity and multiplicity of the jobs government undertakes-categorical delineation is an illusory objective. The point is succinctly illustrated by a comment made by Professor Kenneth Culp Davis on a sequence of two New Jersey cases:

In the first case, decided in 1949, the New Jersey Supreme Court invalidated, for lack of adequate standards, a statute providing for compulsory arbitration of labor disputes between a public utility seized by the governor and the employees of the seized utility.' The New Jersey Legislature then passed a new compulsory arbitration statute, directing the arbitrators to "make a just and reasonable determination of the dispute," and outlining a number of amorphously contoured sub-ingredients of “just and reasonable” which were to be taken into consideration by the arbitrators. The New Jersey Supreme Court upheld the new statute, finding the new standards "adequately definitive.""

Professor Davis, plainly skeptical of the first decision, welcomed the second, but wholly disagreed with its rationale:

The protection against arbitrariness did not lie in the statutory standards; it lay in the procedural safeguards, especially in the requirement of written findings of fact "upon the issue or issues." 10

In similar fashion, Section 804 of H.R. 2223 requires the Copyright Royalty Tribunal to proceed with procedural regularity and to render a decision which "shall be in writing and shall state the reasons therefor."

(2) Professor Gellhorn's Memorandum also takes exception to the composition of the Copyright Royalty Tribunal. The asserted defects are two-fold: The first of these is that the Tribunal has no continuity of membership. Because of this, so it is argued, the Tribunal members will not acquire the case-by-case expertise which could over time give content to the statutory standard. The argument has a superficial appeal, but it is an appeal which loses much of its weight when it is recalled that the Tribunal will only be convened to consider adjustment of the cable television royalty schedule at five-year intervals." Of course, a plausible case can be made for constituting the Tribunal as a continuing body on a stand-by basis; but it would be extravagant to contend that such an elaborate structure is constitutionally compelled.12

The second objection to the Tribunal's composition is that the Tribunal is to be selected from members of the American Arbitration Association. "Arbitration," says Professor Gellhorn, "involves no tradition of adherence to precedent or to some consistent principle of decision. It treats each case on its own bottom and therefore evolves no reliable way to handle future cases." (Gellhorn Memorandum, p. 9).

With all respect, Professor Gellhorn's strictures about arbitration seem somewhat beside the point. The fact that the Tribunal is to consist of persons with broad arbitral experience does not, of course, show that their role as Tribunal members is to be arbitral in nature. With equal justice, it could be argued that Article 4 of the Statute of the International Court of Justice is defective insofar as it vests the critical responsibility of nominating Judges of the International Court of Justice in "the national groups in the Permanent Court of Arbitration." It is H.R. 2223, not membership in the American Arbitration Association, which defines the function of the members of the Copyright Royalty Tribunal. Their function is not to arbitrate disputes; it is "to make determinations concerning the adjustment of the copyright royalty rates specified by Sections 111 and 115 so as to assure that such rates are reasonable," and, when adjustment appears

7 State v. Traffic Telephone Workers' Federation, 66 A. 2d 616. 2 N.J. 335 (1949). New Jersey Bell Tel. Co. v. Communications Workers, 75 A. 2d 721, 729, 5 N.J. 354 (1950).

• Ibid.

10 Davis. Administrative Law Text (1972) n. 38.

11 H.R. 2223 also vests in the Tribunal the authority to adjudicate controversies as to the distribution of cable television royalties among numerous claimants (see §§ 111(3) B. 801(b)(2). 808); but this aspect of the Tribunal's work appears to lie outside the main thrust of Professor Gellhorn's objections to H.R. 2223. See Text at notes 17 and 18, infra. 12 See note 15. infra.

13 Section 801 (b). (Section 111 royalty rates are those relating to cable television; Section 115 royalty rates are those relating to "phonorecords"-i.e., recordings of copyrighted non-dramatic musical works. Although Professor Gellhorn's Memorandum seems to be confined to the field of cable television, his arguments would appear equally applicable to phonorecords").

9 14

warranted, to transmit to Congress "the recommended royalty adjustment.' To convert the professional status of the Tribunal members into a challenge to the validity of the Tribunal seems an exercise in semantics rather than in constitutional law.15

(3) Professor Gellhorn also expresses concern at the lack of any provision in H.R. 2223 for judicial review of Tribunal decisions in royalty adjustment proceedings. Given the architecture of Chapter 8 of H.R. 2223, it seems a fair inference that the bill does not contemplate direct judicial review of such decisions. For it is plain that direct review of such decisions is vested in, and is indeed obligatory upon, Congress, inasmuch as a veto by either the House or the Senate prevents the going into force of the Tribunal's "recommended royalty adjustment." By contrast, when the Tribunal performs its separate and very different function of adjudicating controversies with respect to the distribution of cable television royalties (a function apparently not within the ambit of Professor Gellhorn's chief objections to H.R. 2223)," the federal district court-not Congress is the specified forum for review."

18

However, there is not a syllable in H.R. 2223 which precludes judicial review of royalty adjustments recommended to Congress after recommended adjustments have been acquiesced in by Congress (through the failure of either chamber to act in the negative) and have gone into effect. A challenge to a new royalty rate-asserting, for example, that it is confiscatory or that the determination that it is "reasonable" is not supported by substantial evidence-would seem a fit issue for judicial determination. Moreover, the propriety of such judicial review-subsequent to Congressional acquiescence in the new royalty ratewould seem to be supported by relevant precedent: It will be recalled that in a series of statutes Congress has vested in the Supreme Court authority to promulgate, and amend, the various sets of rules governing procedure and evidence in the federal district courts, subject to review by Congress before such rules or amendments take effect." But it will also be recalled that the Supreme Court has consistently held that the validity of the rules which it and Congress have approved is open to subsequent judicial inquiry when challenged in an appropriate case or controversy.20

In short, one may be permitted to hope that H.R. 2223 would be judicially construed as authorizing judicial inquiry, in an appropriate case, into the reasonableness of the royalty rate schedules attendant on H.R. 2223's system of compulsory licensing, whether those schedules be the ones initially written into H.R. 2223 or thereafter adjusted through the action of the Copyright Royalty Tribunal and the acquiescence of Congress. But for immediate purposes it suffices to say that the absence of specific provision in H.R. 2223 for judicial review of compulsory license royalty rates cannot be thought a greater constitutional infirmity than the absence of such a provision in the existing Copyright Law which has, as to musical recordings, linked compulsory licenses and fixed, legislatively declared, royalties ever since 1909.

(4) Finally, Professor Gellhorn (in what may appear a volte face from his concerns about undue Congressional delegation to the Tribunal) expresses misgivings about the propriety of the statutory reservation to each legislative chamber of authority to vote down a royalty rate adjustment recommended by the Tribunal. This device, Professor Gellhorn says, "could be objectionable as an unconsitutional effort to legislate without Presidential approval." Gellhorn Memorandum, p. 10.

14 Section 807 (a).

15 Cf. Professor Gellhorn's quotation (in a footnote on p. 8 of his Memorandum) from State v. Traffic Telephone Workers Federation. 2 N.J. 335, 66 A. 2d 616 (1949), a case in which arbitrators plainly were intended to act as a "board of arbitration." As indicated in the text at note 7, supra, the court's holding was that the compulsory arbitration statute was invalid for lack of adequate standards. Moreover, to the extent that dicta expressed misgivings about the impermanence of the "board of arbitration". the dicta must be regarded as qualified by the same court's upholding of a redrafted compulsory arbitration statute a year later, in New Jersey Bell Tel. Co. v. Communications Workers, 5 N.J. 354, 75 A. 2d 721 (1950). See notes 7, 8 and 9, supra.

16 Section 807 (a).

17 See note 11. supra.

18 Section 809. The limited scope of review contemplated by Section 809 suggests that in resolving such controversies (as opposed to adjusting royalty rates) the Tribunal is expected to act in an arbitral capacity. See Copyright Law Revision, S. Rep. No. 93-983, 93rd Cong. 2nd Sess., pp. 205-6.

19 28 U.S.C. §§ 2072. 2075 and 2076: 18 U.S.C. § 3771.

20 See, e.g.. Sibbach v. Wilson, 312 U.S. 1 (1940): Mississippi Publishing Corp. v. Murphree, 326 U.S. 438. 444 (1946); Schlagenhauf v. Holder, 379 U.S. 104 (1964).