[Federal Register Volume 78, Number 6 (Wednesday, January 9, 2013)]
[Rules and Regulations]
[Pages 1755-1759]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-00171]
=======================================================================
-----------------------------------------------------------------------
LIBRARY OF CONGRESS
Copyright Office
37 CFR Part 201
[Docket No. 2010-3]
Refunds Under the Cable Statutory License
AGENCY: Copyright Office, Library of Congress.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Copyright Office is amending its regulations to clarify
its practices for providing refunds of cable royalties under the
provisions of the Satellite Television Extension and
[[Page 1756]]
Localism Act of 2010 (``STELA''). A cable operator must pay royalties
to and file Statements of Account with the Office every six months in
order to use the statutory license that allows for the retransmission
of over-the-air broadcast signals under 17 U.S.C. 111. STELA allows a
cable operator to calculate its royalty obligation for the carriage of
distant signals on a community-by-community basis for accounting
periods beginning on or after January 1, 2010, instead of calculating
its royalty obligation based on the system as a whole. STELA also
states that a cable operator shall not be subject to an infringement
action if it used the subscriber group methodology to calculate its
royalty obligation in a Statement filed prior to the effective date of
STELA. Although a cable operator cannot be held liable for using the
subscriber group methodology, the regulation clarifies that a cable
operator's obligation to pay for the carriage of distant signals prior
to the effective date of STELA was determined on a system-wide basis.
Therefore, refunds for an overpayment of royalty fees on a Statement
filed prior to the effective date of STELA will be made only when a
cable operator has satisfied its outstanding royalty obligations (if
any), including the obligation to pay for the carriage of each distant
signal on a system-wide basis.
DATES: Effective Date: February 8, 2013.
FOR FURTHER INFORMATION CONTACT: Tanya Sandros, Deputy General Counsel,
or Erik Bertin, Attorney Advisor, Copyright GC/I&R, P.O. Box 70400,
Washington, DC 20024. Telephone: (202) 707-8380. Telefax: (202) 707-
8366. All prior Federal Register notices and comments in this docket
are available at http://www.copyright.gov/docs/stela/comments/index.html.
SUPPLEMENTARY INFORMATION:
I. Background
Section 111 of the Copyright Act (``Act''), Title 17 of the United
States Code (``Section 111''), allows cable operators to retransmit the
performance or display of a work embodied in a primary transmission
made by a television or radio station licensed by the Federal
Communications Commission (``FCC''). In order to use this statutory
license, cable operators are required to pay royalty fees to the
Copyright Office on a semi-annual basis. The Office invests these
royalties in United States Treasury securities pending distribution of
the funds to those copyright owners who are entitled to receive a share
of the fees. In 2010, Congress enacted the Satellite Television
Extension and Localism Act of 2010 (``STELA''), Public Law 111-175,
which inter alia changed the methodology for calculating royalty
obligations under Section 111.
Generally speaking, the royalty fee for retransmitting a distant
broadcast signal is based on a percentage of the gross receipts
generated by a cable system. Under the licensing framework established
by Congress in 1976, cable operators were required to pay for every
distant broadcast signal that they carried on their system without
regard to whether a particular signal was received by or made available
to all of the subscribers within a particular community. Cable
operators often referred to the signals that subscribers could not
receive as ``phantom signals,'' because the operator's royalty
obligation was calculated based solely on the number and type of
signals (e.g., local vs. distant or permitted vs. non-permitted)
carried by a cable system, even if the operator did not provide a
particular signal to all of its subscribers. The Office and the cable
industry have been aware of this issue for more than 25 years, but it
did not receive legislative attention until 2010.
Section 104 of STELA changed the methodology for calculating the
royalty fees that a cable operator must pay in order to use the
statutory license. The royalty fee is based on the communities where a
cable system actually offers distant broadcast signals, instead of
calculating royalties based on carriage of the signals throughout the
system as a whole. As a result, the controversy surrounding phantom
signals has been eliminated. Specifically, STELA amended Section
111(d)(1) of the Copyright Act to state that if a cable system provides
distant broadcast signals to some, but not all, of the subscribers
served by that system, the gross receipts and distant signal equivalent
values for each signal may be based on the subscribers in those
communities where the signal is actually provided. See 17 U.S.C.
111(d)(1)(C)(iii).
STELA also amended Section 111(d)(1)(D) to state that:
A cable system that, on a statement submitted before the date of
the enactment of the Satellite Television Extension and Localism Act
of 2010, computed its royalty fee consistent with the methodology
under subparagraph (C)(iii), or that amends a statement filed before
such date of enactment to compute the royalty fee due using such
methodology, shall not be subject to an action for infringement, or
eligible for any royalty refund or offset, arising out of its use of
such methodology on such statement.
In other words, a cable operator cannot be held liable for using the
subscriber group methodology to calculate its royalty obligation on any
Statement of Account filed prior to the enactment of STELA (including
any amended Statement).\1\ However, the legislation makes clear that a
cable operator shall not be entitled to any refund or offset based on
the fact that it used the subscriber group methodology on a Statement
or amended Statement filed prior to the date of enactment.
---------------------------------------------------------------------------
\1\ Although the President signed STELA into law on May 27,
2010, the statute states that the date of enactment shall be deemed
to be February 27, 2010. See Public Law 111-175, Sec. 307(a), 124
Stat. 1257 (May 27, 2010).
---------------------------------------------------------------------------
On October 4, 2010, the Office published a notice of proposed
rulemaking and request for comment on a regulation that would implement
Section 111(d)(1)(D) of the Copyright Act. See 75 FR 61116. The Office
explained that the proposed regulation would confirm that a cable
operator's obligation to pay for the carriage of distant signals prior
to the effective date of STELA was determined on a system-wide basis.
It would also confirm that the Office will not issue refunds for a
Statement filed before the 2010/1 accounting period, unless the cable
operator has satisfied its outstanding royalty obligations (if any),
including the obligation to pay for the carriage of distant signals on
a system-wide basis.\2\
---------------------------------------------------------------------------
\2\ The Office is aware of at least two situations where a cable
operator initially calculated its royalty obligation using the
subscriber group method, and then in response to an inquiry from the
Licensing Division, changed its Statement of Account to calculate
its royalties using the system-wide method. The operator then
requested a refund for an overpayment that was unrelated to the
issue of phantom signals. The Office issued a refund in both cases,
because the amount paid on the initial Statement of Account exceeded
the amount due for the phantom signals.
---------------------------------------------------------------------------
The Office explained that a number of cable operators have
requested refunds for overpayments that they allegedly made on
Statements filed prior to the enactment of STELA. In most cases, the
refund request was made in response to an inquiry from the Licensing
Division concerning a questionable or missing entry in the operator's
filing, such as identifying a local signal as a distant signal for the
2009/2 accounting period or an earlier accounting period.\3\ In
[[Page 1757]]
those cases where the operators used the subscriber group methodology
to calculate their royalty obligations, instead of calculating
royalties on a system-wide basis, the Licensing Division has declined
to issue a refund because there appears to be a balance due--rather
than an overpayment--on their Statements.
---------------------------------------------------------------------------
\3\ Refund requests may also originate with the cable system.
The Office is aware of at least one situation where a cable operator
initiated and submitted a timely formal amendment to its initial
2009/2 Statement of Account requesting a refund before the Statement
was examined by the Licensing Division. However, in this case, the
Licensing Division is unable to ascertain whether a refund is due
because the operator used the subscriber group methodology in its
initial and its amended filing and, as a result, the extent of the
royalty fees that the cable operator owed for the system-wide
carriage of all signals is unclear.
---------------------------------------------------------------------------
II. The Timeliness of the Refund Requests
A. Comments
The Office received comments and reply comments from the National
Cable & Telecommunications Association (``NCTA'') and the Motion
Picture Association of America, Inc., on behalf of its member
companies, and other producers and/or syndicators of movies, programs,
and specials broadcast by television stations (collectively, the
``Program Suppliers''). The Office also received reply comments from a
group of Copyright Owners who, like Program Suppliers, are the
beneficiaries of the royalties collected under the statutory
license.\4\
---------------------------------------------------------------------------
\4\ This group includes the Joint Sports Claimants (professional
and college sports programming); Commercial Television Claimants
(local commercial television programming); Devotional Claimants
(religious television programming); Canadian Claimants (Canadian
television programming); and Music Claimants (musical works included
in television programming).
---------------------------------------------------------------------------
In their initial comments, the Program Suppliers asserted that most
of the refund requests should be denied because they appear to be
untimely. The Copyright Owners expressed the same view. See Program
Suppliers Comment at 3-4; Copyright Owners Reply at 1-2.
The Office's current regulations state that a cable operator may
request a refund ``before the expiration of 60 days from the last day
of the applicable Statement of Account filing period, or before the
expiration of 60 days from the date of receipt at the Copyright Office
of the royalty payment that is the subject of the request, whichever
time period is longer.'' 37 CFR 201.17(m)(3)(i). The Program Suppliers
stated that this regulation bars many of the refund requests at issue
in this proceeding, because the cable operators made their requests
more than 60 days after they filed their Statements and their royalty
payments with the Office. Program Suppliers Comment at 3-4. However,
the Program Suppliers took a different position in their reply
comments. Although they urged the Office ``to continue to enforce [the
60 day] rule,'' the Program Suppliers stated that refund requests
should be permitted where--as here--a cable operator requests a refund
in response to a communication from the Licensing Division, even if
that request is made more than 60 days after the deadline. Program
Suppliers Reply at 1, 2.
The NCTA expressed the same view. Both the Program Suppliers and
the NCTA contended that the current regulations do not allow cable
operators to request a refund when they discover an overpayment in
response to a communication from the Licensing Division, and they asked
the Office to adopt a new regulation which would allow the Office to
issue a refund in this situation. Program Suppliers Reply at 2-4; NCTA
Reply at 4.
B. Discussion
The Program Suppliers are correct that a cable operator may request
a refund under Sec. 201.17(m)(3)(i) of the regulations, provided that
the request is made within 60 days after the operator filed its
Statement of Account and/or royalty payments with the Office. However,
most of the refunds at issue in this proceeding are not governed by
this section.\5\ Instead, they are governed by Sec. 201.17(m)(3)(vi)
of the regulations, which states that ``[a] request for a refund is not
necessary where the Licensing Division, during its examination of a
Statement of Account or related document, discovers an error that has
resulted in a royalty overpayment.''
---------------------------------------------------------------------------
\5\ As discussed above, the Office is aware of at least one
situation where a cable operator requested a refund on its 2009/2
Statement of Account before the Statement was examined by the
Licensing Division. This request was timely under Sec.
201.17(m)(3)(i), because it was received within 60 days after the
last day of the accounting period.
---------------------------------------------------------------------------
When the Office discovers a legitimate overpayment in its
examination of a Statement or amended Statement it is required to issue
a refund, regardless of whether the Office discovers the error on its
own or in the course of its communication with the cable operator. When
the Office issues an inquiry concerning a particular Statement of
Account, the NCTA noted that the operator typically reviews that
Statement for errors and, if the operator determines that the royalties
paid on that Statement exceeded the amount due, the operator may
request a refund by filing a corrected Statement of Account. The NCTA
correctly noted that ``the Office's longstanding practice has been to
issue the appropriate refund'' in this situation, ``even though the
request for such refund falls outside the 60-day window that governs
operator-initiated refund requests.'' NCTA Reply at 4.
The NCTA contended that this practice ``is not expressly codified
in the Office's rules,'' NCTA Reply at 4, but in fact, the regulations
specifically state that ``the Licensing Division will forward the
royalty refund to the cable system owner named in the Statement of
Account without regard to the time limitations provided for [in Sec.
201.17(m)(3)(i) of the regulations].'' 37 CFR 201.17(m)(3)(vi). Simply
put, the Program Suppliers and the NCTA have asked the Office to adopt
a rule that is already reflected in the regulations.
To be clear, there must be a direct relationship between the issues
identified in the Office's inquiry and the basis for the operator's
refund request. An inquiry from the Office is not an open invitation to
revisit every entry in every Statement of Account that has been filed
with the Office, and refunds will not be made if the operator discovers
errors that are unrelated to the issues that prompted the Office's
inquiry. For example, if the Office notified a cable operator that it
apparently reported three local signals as distant signals on its 2010/
1 Statement of Account, the operator may be entitled to a refund for
those three signals under Sec. 201.17(m)(3)(vi) of the regulations.
However, if the operator determined that it failed to identify another
distant station as a significantly viewed station on its 2010/1
Statement of Account (hence, considered to be a local station), or
mistakenly paid royalties for another signal that was not carried
anywhere on the system, the operator would not be entitled to a refund
for those overpayments unless it filed an amended Statement of Account
within the time allowed under Sec. 201.17(m)(3)(i) of the regulations.
III. Final Rule
A. Comments
The Program Suppliers and the Copyright Owners did not take a
position on the proposed regulation in their initial comments. They
simply noted that the refund requests appear to be untimely and should
be denied on that basis. However, the Program Suppliers took an
entirely different position in their reply comments, stating that the
``proposed Amendment to Section 201.17(m) is unnecessary,'' and that
there is ``no reason for [a] new regulation regarding phantom
signals.'' Program Suppliers Reply at 2.
While the Program Suppliers did not explain the reason for the
change in their views, the NCTA consistently maintained the same
position in its initial comments and reply comments. The NCTA contended
that the proposed rule ignores the ``letter and spirit'' of the
statutory language set forth in Section 111(d)(1)(D), as well as the
legislative
[[Page 1758]]
history for that provision. The NCTA also contended that the regulation
would undermine the negotiated settlement between copyright owners and
cable operators that resolved the longstanding dispute over phantom
signals. NCTA Comment at 2; NCTA Reply at 1, 2.
Specifically, the NCTA asserted that the proposed regulation ``runs
counter to Congress' clear intent to hold cable operators harmless for
their past use of the subscriber group methodology,'' and that adopting
this rule ``would effectively penalize a cable operator for something
Congress has expressly approved.'' NCTA Comment at 2; NCTA Reply at 3.
The NCTA commented that the regulation would prevent cable operators
from obtaining a refund for an overpayment on a Statement of Account or
an amended Statement of Account filed prior to the effective date of
STELA, even if the overpayment ``does not arise from the operator's use
of subscriber group or system-wide reporting.'' NCTA Reply at 3. For
example, the NCTA contended that the regulation would prevent a cable
operator who used the subscriber group methodology from claiming a
refund where the operator incorrectly reported a local signal as
distant or mistakenly paid royalties for a signal that was not carried
anywhere on the system. NCTA Reply at 3.
Finally, the NCTA predicted that the proposed rule will cause
``confusion'' regarding the treatment of phantom signals and it will
``reignite the uncertainty and controversy'' that the legislation was
intended to resolve. NCTA Comment at 2; NCTA Reply at 2. The NCTA
explained that the amendments to Section 111 were intended ``to provide
a permanent resolution of the phantom signal controversy'' and that the
proposed rule ``is antithetical to the goals of closure and certainty
that are at the heart of the phantom signal settlement.'' NCTA Comment
at 4 (emphasis in original).
B. Discussion
As a general rule, the Office will issue a refund to a cable
operator when the royalty fees paid on a particular Statement of
Account exceed the amount due. The NCTA contended that ``Section
111(d)(1)(D), as amended by STELA, speaks for itself and provides all
of the guidance needed for copyright owners, copyright users, and the
Office to determine a cable operator's royalty fees and to make refunds
where appropriate.'' NCTA Reply at 2. The Office agrees with that
assessment.
STELA amended Section 111(d)(1)(D) to state that:
A cable system that, on a statement submitted before the date of
the enactment of the Satellite Television Extension and Localism Act
of 2010, computed its royalty fee consistent with the methodology
under subparagraph (C)(iii), or that amends a statement filed before
such date of enactment to compute the royalty fee due using such
methodology, shall not be subject to an action for infringement, or
eligible for any royalty refund or offset, arising out of its use of
such methodology on such statement.
As the NCTA observed, cable operators cannot be held liable in an
infringement action for using the subscriber group methodology to
calculate their royalty obligations on a Statement of Account or
amended Statement of Account filed prior to the enactment of STELA. Nor
are they required to recalculate their royalty obligations using the
system-wide methodology in order to avoid liability for infringement.
See NCTA Reply at 2. However, Section 111(d)(1)(D) makes it clear that
cable operators are not entitled to any refunds or offsets arising out
of their use of the subscriber group methodology before the enactment
of STELA. The NCTA correctly noted that cable operators who paid for
phantom signals on a pre-STELA Statement of Account are ``expressly
precluded from obtaining any benefit (through refunds or offsets to
other payment obligations) by going back and revising their
calculations to use the subscriber group methodology after-the-fact.''
NCTA Comment at 3-4. Likewise, cable operators cannot deduct the amount
that they paid for a phantom signal prior to the 2010/1 accounting
period in order to reduce the amount that they owe on a future
Statement of Account. See id.
The question presented in this proceeding is whether the Office
should allow use of the subscriber group methodology in place of the
system-wide methodology to determine whether there is an overpayment or
a balance due on Statements filed prior to the effective date of STELA.
The NCTA contended that Section 111(d)(1)(D) prevents copyright owners
from bringing an infringement action against a cable operator that
computed its royalty obligations using the subscriber group
methodology, and that this same provision extinguishes ``all direct or
indirect claims that operators have outstanding `balances' of underpaid
royalties as a result of their using that methodology.'' NCTA Comment
at 5.
While this is one interpretation of Section 111(d)(1)(D), it is not
the only one. As the Office explained in the notice of proposed
rulemaking, a literal reading indicates that this provision shields
cable operators from liability for an infringement action, but it does
not eliminate the obligation to pay for the carriage of phantom signals
prior to the enactment of STELA. Under the licensing framework that
predated STELA, cable operators were expected to calculate their
royalty obligations on a system-wide basis. If an operator failed to
pay for a distant signal on a system-wide basis, the Office would
notify the operator and record the balance due as an outstanding
obligation. Until the operator satisfied this royalty obligation, the
Office would not issue a refund for overpayments caused by misreporting
a local signal as a distant signal or other reporting errors. The
Office has followed this practice for more than 30 years.
The NCTA contended that the proposed regulation ``would effectively
penalize cable operators who used the subscriber group methodology on
statements of account for accounting periods occurring prior to 2010''
and that this is contrary to ``Congress' clear intent to hold cable
operator's [sic] harmless for their past use of the subscriber group
methodology.'' NCTA Comment at 2; NCTA Reply at 3. However, the NCTA
has not cited any language in the statute or the legislative history
that expressly overruled the Office's longstanding practice concerning
refunds or offsets involving payments for phantom signals in the pre-
STELA period. Section 111(d)(1)(D) simply states that a cable operator
cannot be sued for infringement for failing to calculate its royalty
obligation using the system-wide methodology on a Statement filed prior
to the enactment of STELA. The fact that Congress eliminated a cause of
action that could have been asserted before STELA does not mean that
the obligation to use the system-wide methodology did not exist or that
Congress retroactively eliminated that obligation prior to the 2010/1
accounting period. Nor does it mean that a cable operator should be
able to pocket the difference if using the subscriber group method,
rather than the system-wide method, resulted in an overpayment for
accounting periods prior to 2010/1. Indeed, the statute specifically
states that refunds or offsets arising out of the cable operators' use
of the subscriber group methodology prior to the effective date of
STELA are not permitted.
The NCTA contended that the proposed rule would prevent a cable
operator from obtaining a refund or offset, even if the overpayment
``does not arise from the operator's use of subscriber group or system-
wide reporting.'' NCTA Reply at 3. In other words, if the cable
operator would
[[Page 1759]]
otherwise be entitled to a refund or offset \6\--but for the fact that
it calculated its royalty obligation using the subscriber group method
rather than the system-wide method, and as a result, underpaid the
royalties due under the system-wide method--then the operator is not
entitled to a refund or offset under Section 111(d)(1)(D). That is
indeed the effect of the regulation.
---------------------------------------------------------------------------
\6\ As the NCTA observed, an operator might be entitled to a
refund if it incorrectly reported a local signal as distant or
mistakenly paid royalties for a signal that was not carried anywhere
on the system. See NCTA Reply at 3.
---------------------------------------------------------------------------
Cable operators presumably use the subscriber group method, because
it lowers the amount of royalties owed under the statutory license.
Indeed, in most of the refund requests at issue in this proceeding, the
amount owed on the Statement of Account would be higher if the cable
operator used the system-wide method instead of the subscriber group
method to calculate its royalty obligation. In such cases, the
operators are not entitled to a refund or offset, because the
overpayments purportedly shown on their Statements of Account would not
have occurred but for the fact that they calculated their royalty
obligation using the subscriber group method rather than the system-
wide method, which was the methodology in effect when the Statements
were filed.
The NCTA contended that the proposed rule is inconsistent with the
legislative history for the amendment to Section 111(d)(1)(D), but the
quotes that the NCTA cited from the congressional debate do not support
this view. At best, these quotes merely indicate that stakeholders
disagreed over whether a cable operator should be required to pay for
phantom signals and that the legislation was intended to resolve that
longstanding dispute. The NCTA offered no language from the
congressional debate indicating that Congress intended to change the
method that should be used to calculate royalty obligations on
Statements filed before the date of enactment. Nor is there any
indication that Congress intended to overrule the Office's longstanding
practice of declining to issue refunds or offsets to cable operators
who failed to pay for phantom signals.
Finally, the NCTA contended that the proposed rule will cause
``confusion and uncertainty'' regarding the treatment of phantom
signals. NCTA Reply at 2. However, the NCTA acknowledged that the
instances where a cable operator used the subscriber group methodology
and subsequently requested a refund ``are relatively rare,'' NCTA
Comment at 1 n.3, and in fact, it provided only one example of alleged
``confusion and delay'' in its comments. Specifically, the NCTA
predicted that the proposed rule would create uncertainty for
Statements of Account filed for the second accounting period of 2010,
because ``those statements were not due until after the effective date
of STELA, but in some cases were filed before that date.'' NCTA Reply
at 2, n.1. In fact, the Office did not receive any Statements of
Account for the 2010/2 accounting period before the effective date of
STELA, so the regulation will not cause any delay in connection with
those Statements.\7\ Moreover, the proposed rule draws a bright line
that eliminates any confusion. Refunds on Statements of Account filed
prior to the 2010/1 accounting period are based upon calculations of
royalty obligations under the methodology that attributed carriage of a
signal throughout the cable system rather than on the revised
methodology adopted under STELA that requires calculations to be made
based on carriage of signals within discrete communities.
---------------------------------------------------------------------------
\7\ As discussed above, STELA is effective as of February 27,
2010. The 2010/2 accounting period ended on December 31, 2010, and
Statements of Account for that period were due on March 1, 2011.
---------------------------------------------------------------------------
List of Subjects in 37 CFR Part 201
Copyright, General provisions.
Final Regulations
In consideration of the foregoing, the Copyright Office amends part
201 of 37 CFR as follows:
PART 201--GENERAL PROVISIONS
0
1. The authority citation for part 201 continues to read as follows:
Authority: 17 U.S.C. 702.
0
2. Amend Sec. 201.17 by redesignating paragraphs (m)(1) through (4) as
paragraphs (m)(2) through (5) and adding a new paragraph (m)(1) to read
as follows:
Sec. 201.17 Statements of Account covering compulsory licenses for
secondary transmissions by cable systems.
* * * * *
(m) * * *
(1) Royalty fee obligations under 17 U.S.C. 111 prior to the
effective date of the Satellite Television Extension and Localism Act
of 2010, Public Law 111-175, are determined based on carriage of each
distant signal on a system-wide basis. Refunds for an overpayment of
royalty fees for an accounting period prior to January 1, 2010, shall
be made only when all outstanding royalty fee obligations have been
met, including those for carriage of each distant signal on a system-
wide basis.
* * * * *
Dated: September 21, 2012.
Maria A. Pallante,
Register of Copyrights.
Approved by:
James H. Billington,
The Librarian of Congress.
[FR Doc. 2013-00171 Filed 1-8-13; 8:45 am]
BILLING CODE 1410-30-P