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July 21, 2009

The Honorable John Conyers, Jr.
Chairman
Committee on the Judiciary
U.S. House of Representatives
Washington, DC 20515

The Honorable Lamar Smith
Ranking Member
Committee on the Judiciary
U.S. House of Representatives
Washington, DC 20515

Dear Chairman Conyers and Ranking Member Smith:

The undersigned public interest and consumer organizations write to ask
the Judiciary Committee, in the process of reauthorizing SHVERA, to
clarify an area of confusion in the law that will harm consumers
needlessly unless addressed. Simply put, the Committee should clarify
that copyright law does not and should not require the payment of
copyright royalties for broadcast signals not actually delivered to
consumers.

In interpreting Section 111 of the 1976 Copyright Act, a 2008 Copyright
Office policy decision has led to a confused and anomalous outcome. The
decision suggests that the statutory definition of a “cable
system” requires cable operators to calculate copyright royalties
for distant broadcast signals according to the total number of consumers
served in neighboring communities even when the line-up of signals
offered is not the same across these multiple communities.

If all these communities or subscriber groups received identical distant
signal offerings, and all consumers had the exact same programming
demands, then calculating copyright royalties in this way would not be so
problematic. However, in truth, cable operators provide neighboring
communities with different distant broadcast signals in order to meet
consumer demands and historical expectations.

By charging royalties for these “phantom signals” –
that is, charging for signals not actually delivered to subscribers in
one community simply because they are delivered to a neighboring
community nonetheless defined as part of the same “cable
system” – copyright owners are overcompensated by payments
that do no not correlate with the performance of their work or with the
number of subscribing consumers who actually get access to the relevant
broadcast content.

This pricing scheme results in an increase in royalty payments that the
cable operator must pass on to subscribers in the form of higher rates
for cable subscription with no value-added to existing service.
Alternatively, phantom signal payments may simply deter operators from
carrying diverse stations across the communities they serve, depriving
consumers in those communities of programming that they desire with no
greater revenues produced for copyright holders. In both scenarios, the
consumer’s interest is harmed.

The NCTA’s proposal that these royalty calculations should be made
on a community-by-community basis is reasonable, balanced, and entirely
practical. This proposal for subscriber group calculations (as opposed to
“cable system calculations”) neither denies rights holders
compensation for performances of their work nor requires cable operators
to pass copyright costs on to subscribers for content they do not
receive. Prior to the confusion created by the 2008 Copyright Office
policy decision, this method of calculation accurately reflected the use
of copyrighted broadcast content and resulted in no increased cost or
loss of service for consumers.

To prevent overcompensation to copyright owners at the expense of the
consumer interest, Section 111 should be amended in conjunction with the
current SHVERA reauthorization. The law leading to this counterintuitive
pricing scheme should be clarified and the sensible status quo of
subscriber group calculation restored.

Respectfully submitted,

Public Knowledge
Consumers Union
Media Access Project
New America Foundation

cc. Members of the Committee
Members of the Senate Committee on the Judiciary