[Federal Register Volume 83, Number 146 (Monday, July 30, 2018)]
[Proposed Rules]
[Pages 36509-36512]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-16175]


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LIBRARY OF CONGRESS

Copyright Royalty Board

37 CFR Part 387

[Docket No. 15-CRB-0010-CA-S]


Adjustment of Cable Statutory License Royalty Rates

AGENCY: Copyright Royalty Board, Library of Congress.

ACTION: Proposed rule; modified.

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SUMMARY: The Copyright Royalty Judges (Judges) publish for comment 
modified proposed regulations to require affected cable systems to pay 
a separate per-telecast royalty (a Sports Surcharge) in addition to the 
other royalties that those cable systems must pay under Section 111 of 
the Copyright Act.

DATES: Comments and objections are due no later than August 29, 2018.

ADDRESSES: You may submit comments and objections, identified by docket 
number 17-CRB-0001-BER (2019-2023), by any of the following methods:
    CRB's electronic filing application: Submit comments online in eCRB 
at https://app.crb.gov/.
    U.S. mail: Copyright Royalty Board, P.O. Box 70977, Washington, DC 
20024-0977; or
    Overnight service (only USPS Express Mail is acceptable): Copyright 
Royalty Board, P.O. Box 70977, Washington, DC 20024-0977; or
    Commercial courier: Address package to: Copyright Royalty Board, 
Library of Congress, James Madison Memorial Building, LM-403, 101 
Independence Avenue SE, Washington, DC 20559-6000. Deliver to: 
Congressional Courier Acceptance Site, 2nd Street NE and D Street NE, 
Washington, DC; or
    Hand delivery: Library of Congress, James Madison Memorial 
Building, LM-401, 101 Independence Avenue SE, Washington, DC 20559-
6000.
    Instructions: Unless submitting online, commenters must submit an 
original, two paper copies, and an electronic version on a CD. All 
submissions must include a reference to the CRB and this docket number. 
All submissions will be posted without change to eCRB at https://app.crb.gov/ including any personal information provided.
    Docket: For access to the docket to read submitted background 
documents or comments, go to eCRB, the Copyright Royalty Board's 
electronic filing and case management system, at https://app.crb.gov/ 
and search for docket number 15-CRB-0010-CA-S.

FOR FURTHER INFORMATION CONTACT: Anita Blaine, CRB Program Specialist, 
by telephone at (202) 707-7658 or email at [email protected].

SUPPLEMENTARY INFORMATION: On July 2, 2018, the Copyright Royalty 
Judges (Judges) received a motion from the Joint Sports Claimants 
(JSC),\1\ the

[[Page 36510]]

NCTA--The internet and Television Association, and the American Cable 
Association, notifying the Judges that they reached agreement on a 
modified sports surcharge rule and requesting the Judges adopt the 
rule. Joint Motion of the Participating Parties to Suspend Procedural 
Schedule and to Adopt Modified Settlement at 1 (Jul. 2, 2018) (Joint 
Motion). The Judges had published an earlier version of the proposed 
rule in the Federal Register at 82 FR 24611 (May 30, 2017) and a 
request for reply and surreply comments regarding that version at 82 FR 
44368 (Sept. 22, 2017).
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    \1\ The Joint Sports Claimants are the Office of the 
Commissioner of Baseball, the National Football League, the National 
Basketball Association, the Women's National Basketball Association, 
the National Hockey League, and the National Collegiate Athletic 
Association.
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    The moving parties also requested that the Judges suspend, pending 
resolution of the Joint Motion, the procedural schedule set forth in 
the Order Reinstating Case Schedule dated January 18, 2018, and that 
the Judges publish the modified proposed rule expeditiously. On July 
20, 2018, the Judges issued an order suspending the proceeding 
schedule, pending their review of the moving parties' agreement and 
publication of the modified proposed rule for public comment. The 
Judges stated that they would defer decision on adoption of the 
settlement agreement and termination of the proceeding until after they 
consider comments, if any, filed in response to publication of the 
modified proposed rule.

A. Background

    Section 111(d)(1)(B) of the Copyright Act (the Act), 17 U.S.C. 
111(d)(1)(B), sets forth the royalty rates that ``Form 3'' cable 
systems must pay to retransmit broadcast signals pursuant to the 
Section 111(c) statutory license. Form 3 systems are those with semi-
annual ``gross receipts'' greater than $527,600. See id. Sec. Sec.  
111(d)(1)(B), (E) & (F); 37 CFR 201.17(d). Section 801(b)(2)(C) of the 
Act provides:

    In the event of any change in the rules and regulations of the 
Federal Communications Commission [``FCC''] with respect to 
syndicated and sports program exclusivity after April 15, 1976, the 
rates established by section 111(d)(1)(B) may be adjusted to assure 
that such rates are reasonable in light of the changes to such rules 
and regulations, but any such adjustment shall apply only to the 
affected television broadcast signals carried on those systems 
affected by the change.

17 U.S.C. 801(b)(2)(C).
    Section 804(b)(1)(B) of the Copyright Act states that, in ``order 
to initiate proceedings under section [801(b)(2)(C)],'' an interested 
party must file a petition with the Judges requesting a rate change 
within twelve months of the FCC's action. 17 U.S.C. 804(b)(1)(B); see 
H.R. Rep. No. 94-1476 at 178 (1976) (right to seek review ``exercisable 
for a 12 month period following the date such changes are finally 
effective''). The FCC adopted sports exclusivity rules for cable 
systems in 1975. See Report and Order in Doc. No. 19417, 54 F.C.C.2d 
265 (1975) (``Sports Rules''). The FCC repealed the Sports Rules 
effective November 24, 2014. See Sports Blackout Rules, 79 FR 63547 
(Oct. 24, 2014) (Sports Rule Repeal). At the time of the Sports Rule 
Repeal, the Sports Rules were codified at 47 CFR 76.111 (2014).
    On November 23, 2015, JSC filed a rate adjustment petition pursuant 
to Section 801(b)(2)(C) of the Copyright Act. In June 2016 the Judges 
established a procedural schedule for ruling on the JSC petition. Order 
of Bifurcation . . . and Scheduling Order (June 2016 Order). While the 
moving parties were unable to settle this matter during the voluntary 
negotiation period established by the June 2016 Order, they continued 
negotiations and agreed that this proceeding should be terminated with 
the adoption of a proposed rule.
    Upon motion of the Participants in January 2017, the Judges 
published the proposed rule and received comments. See 82 FR 24611 (May 
30, 2017). The Judges then published, in September 2017, a request for 
further comments on the proposed rule. See 82 FR 44368. After reviewing 
reply and surreply comments, they declined to adopt the proposed rates 
and reinstated a case schedule. Order Reinstating Case Schedule (Jan. 
12, 2018).
    In declining to adopt the proposed settlement the Judges noted that

    The applicable license in this proceeding is the license to 
retransmit by cable beyond the local service area the works of ``any 
. . . owner whose work was included in a secondary transmission made 
by a cable system . . . in whole or in part. . . .'' 17 U.S.C. 111 
(d)(3). [Major League Soccer (MLS)] and potentially other 
professional sports leagues are owners of, or represent owners of, 
copyrights to televised professional team sports events. The 
regulations proposed by the JSC define an ``eligible professional 
sports event'' to include only professional baseball, basketball 
(men and women), football, and hockey. By definition, MLS and any 
other professional league scheduling team sports events for telecast 
(and retransmission by those affected cable systems) would be 
ineligible to receive any portion of the sports programming 
surcharge negotiated by the JSC and cable providers. This proposed 
regulatory configuration provides for licensing royalties from Form 
3 cable systems for some sports leagues to the express exclusion of 
other leagues that own or represent owners of protected works.
    As proposed, the regulation for the exclusive benefit of Major 
League Baseball, the National Basketball Association, the National 
Football League, the National Hockey League, and the Women's 
National Basketball Association is contrary to the applicable 
section 111 license. The Judges decline to adopt the proposed 
settlement as a basis for regulations that would bind non-
participants to a zero rate.

Order Reinstating Case Schedule at 2.
    In April 2018, MLS filed a late Petition to Participate (PTP) and 
accompanying motion for the Judges to accept it. The Judges granted the 
motion and accepted the PTP on July 20, 2018.
    In July 2018, the participants filed a modified proposed rule that 
addressed the Judges' concerns regarding the proposed rule. Joint 
Motion at 4, 8. MLS does not object to the modified proposed rule. Id. 
at 2. The Judges hereby publish it for comment.

B. Scope of the Modified Proposed Rule

    According to the moving parties, the modified proposed Sports 
Surcharge differs from the January 2017 proposal in two key respects: A 
cable operator's obligation to pay a Sports Surcharge royalty is not 
limited to retransmissions of sports events affiliated with specific 
JSC members; \2\ and the modified Sports Surcharge includes language 
expressly stating that no copyright owner of a retransmitted telecast 
of a sports event is precluded from seeking Sports Surcharge royalties 
if the retransmission would have been subject to deletion under the 
former FCC Sports Blackout Rule. Joint Motion at 2.
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    \2\ Under the January 2017 proposal the cable operator's 
obligation to pay Sports Surcharge royalties was limited to 
retransmissions of telecasts of sports events affiliated with 
specific JSC members. Joint Motion at 5.
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    The moving parties also state that ``nothing in the proposed rule 
would require the Judges to distribute the Sports Surcharge royalties'' 
only to sports organizations whose telecasts trigger the ``pay-in'' 
obligation. Rather, ``[t]he determination of the recipients of those 
royalties (and the amount of royalties those recipients should receive) 
would be addressed by the Judges in future allocation and distribution 
proceedings'' absent a settlement. Id. at 4. As modified, the rule 
draws a bright line between the ``pay-in'' methodology by which 
affected cable systems will compute their surcharge royalty payment 
obligations and the ``pay out'' process by which those royalty payments 
are distributed. Id. at 5.
    According to the moving parties, the modified Sports Surcharge does 
not

[[Page 36511]]

change the previously agreed upon per event royalty rate of 0.025 
percent of an affected cable system's gross receipts. Moreover, the 
definition of which cable systems may have to pay the surcharge has not 
changed (i.e., systems that would have been subject to the FCC Sports 
Blackout Rule prior to its repeal).
    Under the modified rule, a cable system's retransmission of a 
sports event telecast that would have been subject to deletion under 
the FCC Sports Blackout Rule triggers a Sports Surcharge pay-in by the 
system's operator--as long as the holder of the broadcast rights in the 
event (or its agent) provides the affected system: (1) Written notice 
containing information comparable to that required to invoke the former 
FCC Sports Blackout Rule; and (2) documentary evidence that the sports 
entity giving the notice required to trigger the Sports Surcharge pay-
in provision previously invoked the FCC Sports Blackout Rule between 
January 1, 2012 and November 23, 2014 (the day before the repeal of the 
rule took effect). Joint Motion at 6.
    With respect to certain collegiate events, the pay-in rule caps the 
maximum number of events involving a specific team that can trigger an 
affected cable system's surcharge payment obligation in a particular 
accounting period based on the largest number of events as to which the 
FCC Sports Blackout Rule was invoked by that specific sports entity 
during any of the accounting periods occurring during the January 1, 
2012 through November 23, 2014 period. Id. at n.12.
    In addition, the Joint Motion proposes a new effective date in 2019 
and points out that the rule proposal can be reconsidered in 2020 
pursuant to statute. Id. at 2 n.6; see 17 U.S.C. 804(b)(1)(B).
    According to the moving parties, the royalty rate reflected in the 
modified proposed rule represents a negotiated compromise regarding 
adoption of a royalty surcharge and limiting when licensors must pay 
it, but not regulating the method of determining how the funds should 
be distributed. Id. at 6-7.
    The moving parties state that they do not intend for the agreed-
upon methodology for calculating a cable system's pay-in obligation to 
be accorded any precedential effect or to be regarded as representing 
any agreement as to the fair market value, now or in the future, of the 
secondary transmission of any sports event or of the economic or other 
impact of the repeal of the FCC Sports Blackout Rule. Joint Motion at 
6. The moving parties state that if the Judges do not adopt the 
proposed rule, each of the moving parties reserves the right to seek to 
demonstrate that the Sports Surcharge originally proposed is not 
contrary to law and/or that the Judges should adopt a different rate 
adjustment to account for the repeal of the FCC Sports Blackout Rule. 
Id. at 8 n.13.

C. The Judges' Authority To Adopt the Proposed Rule

    According to the moving parties, ``a key Congressional objective 
underlying the Judges' rate-setting authority is the promotion of 
voluntary settlements rather than litigation.'' Id. at 7, citing H.R. 
Rep. No. 108-408 at 24 (2004) (referring to the legislative policy of 
``facilitating and encouraging settlement agreements for determining 
royalty rates''). Consistent with that objective, the Judges may accept 
a settlement reached by ``some or all of the participants'' in a rate 
proceeding ``at any time during the proceeding.'' 17 U.S.C. 
801(b)(7)(A).
    The Act requires that the Judges afford those who ``would be bound 
by the terms, rates or other determination'' in a settlement agreement 
``an opportunity to comment on the agreement.'' 17 U.S.C. 
801(b)(7)(A)(i). The Copyright Royalty Board rules also require that 
the Judges ``publish the settlement in the Federal Register for notice 
and comment from those bound by the terms, rates, or other 
determination set by the agreement.'' 37 CFR 351.2(b)(2).

D. Solicitation of Comments

    The Judges seek comments on the moving parties' proposal. In 
particular, the Judges seek comment on whether the proposal is 
consistent with Section 111 of the Copyright Act which provides that 
the applicable license granted in that section is the license to 
retransmit by cable beyond the local service area the works of ``any . 
. . owner whose work was included in a secondary transmission made by a 
cable system . . . in whole or in part. . . .'' 17 U.S.C. 111(d)(3), 
and consistent with the Judges' interpretation of that section as 
elaborated in the Order Reinstating Case Schedule.
    In addition to general comments for or against the proposal, the 
Judges seek comment on whether the proposed provision in section 
387.2(e)(9) (``Nothing herein shall preclude any copyright owner of a 
live television broadcast, the secondary transmission of which would 
have been subject to deletion under the FCC Sports Blackout Rule, from 
receiving a share of royalties paid pursuant to this paragraph.'') 
could apply to the secondary transmissions of the live television 
broadcasts of any entity other than a current member of the JSC.\3\ In 
other words, would the phrase ``the secondary transmission of which 
would have been subject to deletion under the FCC Sports Blackout 
Rule'' enable any entity beyond the current members of the JSC to 
qualify for a share of royalties from the Sports Surcharge? If the 
answer is yes, which entities' transmissions would qualify for a share? 
If the answer is no (i.e., only JSC members could qualify), then is the 
current proposal nevertheless still consistent with the Section 111 
license? If so, why?
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    \3\ See note 1, supra.
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    Interested parties may comment and object to the modified proposed 
regulations contained in this notice. Such comments and objections must 
be submitted no later than August 29, 2018.

List of Subjects in 37 CFR Part 387

    Copyright, Cable television, Royalties.

Modified Proposed Regulations

    For the reasons set forth in the preamble, and under the authority 
of chapter 8, title 17, United States Code, the Copyright Royalty 
Judges proposes to amend 37 CFR chapter III as follows:

PART 387--ADJUSTMENT OF ROYALTY FEE FOR CABLE COMPULSORY LICENSE

0
1. The authority citation for part 387 continues to read as follows:

    Authority:  17 U.S.C. 801(b)(2), 803(b)(6).

0
2. Amend Sec.  387.2 by:
0
a. Redesignating paragraph (e) as paragraph (f) and
0
b. Adding a new paragraph (e) to read as follows:


Sec.  387.2   Royalty fee for compulsory license for secondary 
transmission by cable systems.

* * * * *
    (e) Sports programming surcharge. Commencing with the first 
semiannual accounting period of 2019 and for each semiannual accounting 
period thereafter, in the case of an affected cable system filing Form 
SA3 as referenced in 37 CFR 201.17(d)(2)(ii) (2014), the royalty rate 
shall be, in addition to the amounts specified in paragraphs (a), (c) 
and (d) of this section, a surcharge of 0.025 percent of the affected 
cable system's gross receipts for the secondary transmission to 
subscribers of each live television broadcast of a sports event where 
the secondary transmission of such broadcast would have been subject to

[[Page 36512]]

deletion under the FCC Sports Blackout Rule. For purposes of this 
paragraph,
    (1) The term ``cable system'' shall have the same meaning as in 17 
U.S.C. 111(f)(3);
    (2) An ``affected cable system'' (i) is a ``community unit,'' as 
the comparable term is defined or interpreted in accordance with Sec.  
76.5(dd) of the rules and regulations of the Federal Communications 
Commission in effect as of November 23, 2014, 47 CFR 76.5(dd) (2014);
    (ii) that is located in whole or in part within the 35-mile 
specified zone of a television broadcast station licensed to a 
community in which a sports event is taking place, provided that if 
there is no television broadcast station licensed to the community in 
which a sports event is taking place, the applicable specified zone 
shall be that of the television broadcast station licensed to the 
community with which the sports event or team is identified, or, if the 
event or local team is not identified with any particular community, 
the nearest community to which a television station is licensed; and
    (iii) whose royalty fee is specified by 17 U.S.C. 111(d)(1)(B);
    (3) A ``television broadcast'' of a sports event must qualify as a 
``non-network television program'' within the meaning of 17 U.S.C. 
111(d)(3)(A);
    (4) The term ``specified zone'' shall be defined as the comparable 
term is defined or interpreted in accordance with Sec.  76.5(e) of the 
rules and regulations of the Federal Communications Commission in 
effect as of November 23, 2014, 47 CFR 76.5(e) (2014);
    (5) The term ``gross receipts'' shall have the same meaning as in 
17 U.S.C. 111(d)(1)(B) and shall include all gross receipts of the 
affected cable system during the semiannual accounting period except 
those from the affected cable system's subscribers who reside in (i) 
the local service area of the primary transmitter, as defined in 17 
U.S.C. 111(f)(4);
    (ii) any community where the cable system has fewer than 1,000 
subscribers;
    (iii) any community located wholly outside the specified zone 
referenced in paragraph (e)(4) above; and
    (iv) any community where the primary transmitter was lawfully 
carried prior to March 31, 1972;
    (6) The term ``FCC Sports Blackout Rule'' refers to Sec.  76.111 of 
the rules and regulations of the Federal Communications Commission in 
effect as of November 23, 2014, 47 CFR 76.111 (2014);
    (7) Subject to paragraph (e)(8) of this section, the surcharge will 
apply to the secondary transmission of a primary transmission of a live 
television broadcast of a sports event only where the holder of the 
broadcast rights to the sports event or its agent has provided the 
affected cable system
    (i) Advance written notice regarding such secondary transmission as 
required by Sec.  76.111(b) and (c) of the FCC Sports Blackout Rule and
    (ii) documentary evidence that the specific team on whose behalf 
the notice is given had invoked the protection afforded by the FCC 
Sports Blackout Rule during the period from January 1, 2012, through 
November 23, 2014;
    (8) In the case of collegiate sports events, the number of events 
involving a specific team as to which an affected cable system must pay 
the surcharge will be no greater than the largest number of events as 
to which the FCC Sports Blackout Rule was invoked in a particular 
geographic area by such team during any one of the accounting periods 
occurring between January 1, 2012, and November 23, 2014;
    (9) Nothing herein shall preclude any copyright owner of a live 
television broadcast, the secondary transmission of which would have 
been subject to deletion under the FCC Sports Blackout Rule, from 
receiving a share of royalties paid pursuant to this paragraph.
* * * * *

    Dated: July 24, 2018.
Jesse M. Feder,
Copyright Royalty Judge.
[FR Doc. 2018-16175 Filed 7-27-18; 8:45 am]
 BILLING CODE 1410-72-P