National Law Journal

National Law Journal

December 8, 1980

Communications Law

By James C. Goodale.

Big Picture Before the 2d Circuit:
Whether to Deregulate Cable TV

Cable television is clearly the medium of our future. Ultimately, many believe, all of America's television will be delivered to the home by cable.

That's why the rules adopted now for cable television have extraordinary long-range significance. In MalriteTV of New York Inc. v. FCC,[1] the 2d U.S. Circuit Court of Appeals is being asked to make sure that the Federal Communications Commission isn't leaping to any conclusions in this field. On Nov. 19., the 2d Circuit responded by granting a motion to stay the effectiveness of a new FCC rule in order to consider for itself the shape of things to come.[2]

Malrite seeks to overturn an FCC order that, as a part of the agency's general effort to deregulate cable television, would permit cable operators to broadcast on their systems a virtually unlimited number of syndicated programs originating in other cities without first obtaining consent from the owners of those programs. Consequently, if the FCC prevails, a cable viewer in New York City could watch the same episode of “I Love Lucy” being broadcast simultaneously on two stations, one a cable station, the other a “regular” local station. The “regular” station would have the consent of the program owner and the other would not.

If one thinks this is a strange result, one has to understand that the real genesis of the controversy lies in some awkward Supreme Court decisions of the late 1960s and early 1970s, which held effectively that cable operators could carry television signals belonging to someone else without obtaining the consent of the owner.

Cable television, it may be recalled, started in hilly towns where an enterprising person would install a community antenna on a hill and distribute the signal to his neighbors hence its first name, community antenna television (CATV). Not surprisingly then, the first case to reach the Supreme Court, in 1968, involved such a system in West Virginia, Fort nightly v. United Artists Television Inc.[3]

United Artists brought a suit against Fortnightly, a, West Virginia cable operator, for copyright violation inasmuch as the operator had rebroadcast a United Artists program without obtaining United's consent. The Supreme Court held for the cable operator since it was unable to find the necessary “performance” to violate the copyright act. The court reasoned that CATV’s “basic function . . .is little different from that served by the equipment generally furnished by a television viewer.”[4]

One can see why merely strengthening a weak signal might not be a copyright violation[5] and why no Supreme Court justice would want to write a decision telling television viewers there was a law against improving their reception. But a later decision from the Supreme Court, Teleprompter Corp. v. CBS,[6] involved a substantial variation on the same type of question, and is a little harder to understand.

In that case, a cable operator broadcast a program actually being shown in another city. In other words he did more than merely improve the signal. He was able to broadcast such a program because he had contracted with a microwave operator located in another area to have the “distant signal” (a program broadcast initially beyond the cable operator's home area) “imported” (microwaved to him). The cable operator then sent the distant signal to his subscribers by cable.

The copyright owner sued, maintaining the cable operator had imported a distant signal without “retransmission consent”; that is, without copyright permission, and more importantly, of course, without payment. The owner pointed out that this case was different from Fortnightly because there only the signal was improved but here a new program was itself being imported. Again, however, the court found no copyright violation: the “reception and rechanneling of . . . [distant] signals for simultaneous viewing is essentially a viewer function, irrespective of the distance between the broadcasting station and the ultimate viewer.”[7]

MaIrite in a sense is a replay of the controversy before the court in Teleprompter and Fortnightly. MaIrite is suing the FCC to enjoin a new regulation permitting a virtually unlimited number of distant signals to be imported without explicit consent of copyright owners. The FCC issued an order on Sept. 11, 1980, removing any restrictions on such importations,[8] but stayed the effectiveness of the order until Malrite's motion to stay could be decided by the 2d Circuit. Having granted its own stay, the 2d Circuit will now render a decision on the merits of the case against the FCC's deregulation before existing restrictions can be removed.

In order to understand how this matter can be back in the courts, one should know that since the 1974 decision in Teleprompter, there has been a revision of the Copyright Act that reflects the principle that copyright owners must be compensated when cable operators use their material.

The device used by Congress in the Copyright Revision Act[9] was the so-called compulsory license, with the amount payable to copyright owners by cable operators set at a percentage of the cable system's gross revenues and an allocation of that amount to copyright owners handled through an organization set up under the new act called the Copyright Royalty Tribunal.[10] In other words, no direct negotiations are required with copyright owners; cable operators, instead, are compelled to pay a license fee fixed by Congress.

In addition, the FCC retains its jurisdiction under the new act to promulgate regulations with respect to importation of distant signals by cable operators.[11]

The first set of FCC regulations – adopted after Fortnightly an a stopgap for the anticipated distant signal copyright controversy that eventually arose in Teleprompter[12]— limited severely the right of cable owners to import distant signals. For example, under these regulations — still in effect until Malrite is resolved — a New York City system would be allowed to carry no more than two distant signals, subject to a host of special rules as to specialty programs late-night time periods and other specified exceptions.[13] These rules also require cable systems to delete particular programs from signals that are otherwise available for carriage under the distant signal quotas.[14]

Four years ago, the FCC set out to re-evaluate its policy on importation of distant signals.[15] Generally, the attitude toward new policy was to lean heavily in favor of deregulation. Deregulation (i.e. no restrictions on importation of distant signals, with or without consent) would make more programming available to cable owners and so stimulate the growth of cable systems. On the other hand, without some protection for program exclusivity, the syndicators believed there was no way to distribute their product effectively. Television station owners were also threatened by deregulation because they, too, believed there was no other way to protect their programming.

For example, If a station owner had paid a high price for exclusive New York City rights for “The Mary Tyler Moore Show,” the value of that purchase was threatened by the unrestricted ability of a cable operator to import the same show from a distant signal at no extra charge to its viewers. The fixed compulsory license fee imposed on cable operators by the new copyright law was considered inadequate compensation by syndicators and regarded as an unfair competitive advantage by broadcasters.

On July 22, 1980, the FCC, after due deliberation, came down on the side of deregulation, noting “the general disfavor into which regulations limiting competition have fallen."[16] On removing its own restrictions, the FCC provided for virtually unlimited importation of distant signals without retransmission consent. In addition to its motion to stay, Malrite filed a petition for review, and, as noted above, deregulation has been stayed pending a decision by the 2d Circuit.

The FCC's report on distant signal importation is a complicated one. The commission introduced statistical models and empirical evidence of its own tending to minimize the adverse impact of unrestricted distant signal carriage. Applying the public interest standard to evidence that it found to be reliable, the commission found that competition from distant signals retransmitted via cable had a de minimis impact on the quantity of “merit” programming broadcast locally.[17] “After almost three years of intensive study,” the FCC concluded, “we have not found it to be the case that competition from cable television has redounded to the detriment of non-cable households.”[18]

With respect to the syndicated exclusivity rules, the commission found that the broadcasters' fear of heightened competition was not sufficient to justify retaining regulation in order to protect the public interest, a finding that relates back to its analysis with respect to the distant signal carriage rules.[19] Thus, the “public interest” of FCC communications policy does not require further protection of broadcasters, who have no copyright interest, against competition from cable retransmission of syndicated programs.

When addressing the impact of eliminating the syndicated exclusivity rules on program suppliers, the FCC ignored the dire predictions submitted by interested Parties. Indeed, the FCC tentatively concluded “that total payments to producers from broadcast stations may remain unchanged or may even increase” as a result of the broadcasters' ability to exploit distant signal pick ups to expand advertising revenues.[20]

The FCC noted that the copyright law's compulsory license fee was a legislative adjustment of program supplier's rights with respect to cable, and suggested that program suppliers should seek redress in the form of petitioning for increased copyright royalty fees.[21] In a similar vein, the FCC rejected the proposal that it adopt a new retransmission consent provision, noting that such regulation would clash with the legislative definition of the copyright obligations that were to govern the relationship among program suppliers, broadcasters and cable system operators.[22] Indeed, to the extent that such retransmission consent would be a surrogate for the full copyright liability that was considered and rejected by Congress in the course of adopting the compulsory license fee, it would appear to be beyond the authority of the FCC.[23]

Cable television is an essential part of the new communications technology that is sure to change our lives in the years ahead. It is extremely difficult to regulate this technology when the economic premise of such regulation is almost certain to be exploded by rapid change. Yet, it is also clear that in order to promote creativity, an appropriate system must be in place to ensure that those who create and distribute programming get fairly paid for it.

Historically, the copyright laws have regulated the economic relationships between creators and distributors. The lessons from this history were thrown into a cocked hat when the Supreme Court decided Fortnightly and Teleprompter, which effectively ruled there was no copyright protection from infringement by cable television under the old copyright law.

The novel legislative compromise that ensued involved compulsory licensing, a royalty tribunal and endorsement of continued regulation by the FCC. Goaded to action by the court, Congress threw up its hands in trying to resolve the controversy and delegated all further responsibility to the Copyright Royalty Tribunal. That tribunal was authorized to reconsider how much cable operators should pay[24] and to deliver all payments from the common pot to the owners of the copyright.[25]

One wonders after parsing the history of the controversy in Malrite whether ideally the appropriate form of "regulation" would be to permit market forces to set the price for licensed use of copyrighted programs. In other words, no compulsory licensing, no tribunals, no nothing except the plain old-fashioned, face-to-face negotiating for copyright licenses that has gone on for years in the entertainment industry. The reason this has not happened is because generally the Supreme Court, Congress and the FCC have desired above all to facilitate diversity in programming. Their premise seems to be that the more cable programming we get and the faster we get it, the better off we will be.

Generally, this is a highly desirable objective since there is no more promising and exciting development in our mass communications technology than cable television. We must acknowledge, however, that this desire for diversity could have a cost; it may be the creator, the artist, the writer, the owner of copyright who subsidizes new growth in this area because he or she could get more money through traditional negotiation and consent than through the compulsory license fee.

As for the FCC's action that led to Malrite, the commission probably had no other choice when one considers the legislative concession to its presence in this area built into the new copyright law. Generally, in this era of robust expansion by the cable industry, its deregulation even may be desirable. The 2d Circuit will enlighten us on that issue before too long. But in the long run it would seem that at some point Congress will have to re-examine its approach to copyright in this area.

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[1]Marlite TV of New York Inc. v. FCC. 80-4120 and 80-4160 (2d Cir. filed July 22. 1980).

[2]“Court stays Rule Freeing Cable TV,” N.Y. Times, Nov. 20, 1980, Section D, at 4 col.. 4.

[3]392 U.S. 390 (1968).

[4]392 U.S. at 399 (footnote omitted). See id. “[A] CATV system no more than enhances the viewer's capacity to receive”) (emphasis added).

[5]But cf. Buck v. Jewell-Lasalle Realty Corp., 283 U.S. 191 (1931) (reception and retransmission held to be an infringing performance).

[6]415 U.S. 394 (1974).

[7]415 U.S. at 408.

[8]Cable Television Syndicated Program Exclusivity Rules, 45 Fed. Reg. 60186 (FCC Sept. 11, 1980).

[9]Pub.L. 94-553,17 U.S.C. Secs. 101-810 (1976).

[10]See 17 U.S.C.A. Sec. 111 (1980).

[11]See 17 U.S.C.A. Sec. 801(b)(2)(B) (1980).

[12]Barbara Ringer, now register of copyrights, called the FCC rules “probably the most elaborate and intricate copyright provisions ever promulgated anywhere.” Recent Cable Television Developments in the United States Involving Copyright,” 3 Performing Arts Review 581 (1972).

[13]See 47 C.F.R. Part 76, Subpart D (1979).

[14]See 47 C.F.R. Part 76, Subpart F (1979),

[15]Notice of inquiry in Docket 20988, 61 FCC2d 746 (1976); Notice of Inquiry in Docket 21284, 65 FCC2d 9 (1977); Report in Docket 20988, 71 FCC2d 951 (1979) (“Syndicated Exclusivity Report”); Report in Docket 21284, 71 FCC2d 632 (1979) (“Economic Inquiry Report”); and Notice of Proposed Rulemaking in Dockets 20988 and 21284. 71 FCC2d 1004 (1979).

[16]45 Fed. Reg. at 6018S.

[17]See 45 Fed. Reg. at 60193-218 passim.

[18]45 Fed. Reg. at 60217.

[19]The FCC concludes from its theoretical and empirical data that “the effect of the syndicated exclusivity rules on local broadcast service is a subset of the larger, encompassing effect of unregulated distant signal carriage.” 45 Fed. Reg. at 60220.

[20]45 Fed. Reg. at 60223.

[21]45 Fed. Reg. at 60225.

[22]45 Fed. Reg. at 60227.

[23]Cf. FCC v. Midwest Video Corp., 440 U.S. 689, 708 (1979) (“Though the lack of congressional guidance has in the past led us to defer. . .to the commission's judgment regarding the scope of its authority, there are strong indications that agency flexibility was to be sharply delimited.”).

[24]17 U.S.C.A. Sec. 801(b) (1980).

[25]17 U.S.C.A. Sec. 801(b)(3) (1980).