Cablevision Systems Development Co. v. Motion Picture Ass'n of America, Inc.

Decision Date05 January 1988
Docket NumberNos. 86-5552,s. 86-5552
Citation836 F.2d 599
Parties, 56 USLW 2406, 1988 Copr.L.Dec. P 26,216, 5 U.S.P.Q.2d 1400, 14 Media L. Rep. 2113 CABLEVISION SYSTEMS DEVELOPMENT COMPANY v. MOTION PICTURE ASSOCIATION OF AMERICA, INC., et al., Appellants, U.S. Copyright Office and its Register. to 86-5554, 86-5597 and 86-5635 to 86-5637.
CourtU.S. Court of Appeals — District of Columbia Circuit

Appeals from the United States District Court for the District of Columbia (Civil Action Nos. 83-01655, 83-02785 and 84-03097).

Stuart H. Newberger, Asst. U.S. Atty., with whom Joseph E. diGenova, U.S. Atty., Dorothy Schrader, Gen. Counsel, U.S. Copyright Office, Royce C. Lamberth and Michael J. Ryan, Asst. U.S. Attys., Washington, D.C., were on brief, for federal appellants/cross-appellees.

Richard M. Cooper, with whom Edward Bennett Williams, Robert W. Hamilton, Paul Mogin, Arthur Scheiner and Dennis Lane, Washington, D.C., were on brief, for appellants/cross-appellees, Motion Picture Ass'n of America, Inc., et al.

Jay E. Ricks, with whom David J. Saylor, Gardner F. Gillespie, Steven J. Horvitz and Brenda L. Fox, Washington, D.C., were on brief, for appellee, Nat. Cable Television Ass'n, Inc. Michael S. Schooler, Washington, D.C., also entered an appearance for appellee, Nat. Cable Television Ass'n, Inc. Mark J. Tauber and Michael A. Schlanger, with whom Deborah C. Costlow and Nora E. Garrote, Washington, D.C., were on brief for appellee/cross-appellant, Cablevision Co.

Philip R. Hochberg, Washington, D.C., for Nat. Basketball Ass'n and Nat. Hockey League, Ritchie T. Thomas and Judith Jurin Semo, Washington, D.C., for Nat. Collegiate Athletic Ass'n, David H. Lloyd, Robert Alan Garrett, Terri A. Southwick, and Edwin M. Durso, Washington, D.C., for Major League Baseball, Victor E. Ferrall, Jr. and John I. Stewart, Jr., Washington, D.C., for Nat. Ass'n of Broadcasters, Bernard Korman and I. Fred Koenigsberg, Washington, D.C., for American Soc. of Composers, Authors and Publishers, Charles T. Duncan and Michael Faber, Washington, D.C., for Broadcast Music, Inc., Nicholas Arcomano for SESAC, Inc., Gene A. Bechtel, Washington, D.C., for Public Broadcasting Service, Jamie S. Gorelick, Washington, D.C., for Nat. Public Radio, John H. Midlen, Jr., Washington, D.C., for Old-Time Gospel Hour, and Douglas G. Thompson, Jr., Washington, D.C., for Canadian Broadcasting Corp., were on the brief for amici curiae, Nat. Basketball Ass'n, et al.

Robert W. Coll, Washington, D.C., also entered an appearance for amici curiae, National Hockey League.

Before ROBINSON, RUTH BADER GINSBURG and SILBERMAN, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

SILBERMAN, Circuit Judge:

The Copyright Act of 1976, 17 U.S.C. Secs. 101 et seq. (1982 & Supp. IV 1986), grants cable television systems a license to retransmit copyrighted broadcast 1 programming to their subscribers, id. Sec. 111(c)(1), and requires in return that the systems deposit with the Copyright Office a fee equal to a "specified percentage[ ] of the gross receipts from subscribers to the cable service ... for the basic service of providing secondary transmissions of primary broadcast transmitters," id. Sec. 111(d)(1)(B). 2 In a series of complaints consolidated for trial, a trade association representing the cable television industry and Cablevision, an individual cable company, sued several copyright owners seeking a declaration of the meaning of the above-quoted language. The copyright owners filed counterclaims against Cablevision for copyright infringement, alleging that Cablevision's interpretation of the statutory phrase led to an underpayment of the required fee and thus made the company an infringer. On the district court's order, the trade association joined the Copyright Office as a defendant.

On cross motions for summary judgment, the district court rejected the Copyright Office's interpretation of the statute--that gross receipts "include the full amount of monthly (or other periodic) service fees for any and all services or tiers of services which include one or more secondary transmissions of television or radio broadcast signals," 37 C.F.R. Sec. 201.17(b)(1) (1987)--as inconsistent with congressional intent and endorsed instead the position of the trade association. Cablevision Co. v. Motion Picture Ass'n of Am., 641 F.Supp. 1154, 1161 (D.D.C.1986). The court ordered the Copyright Office to modify its regulation to accord with the court's perception of congressional intent. The district court then dismissed the counterclaims for infringement on grounds that there had been no violation of "the spirit of the law." Id. at 1163. The copyright owners the Copyright Office, and Cablevision appeal, putting forward a wide variety of arguments for reversal or modification of the district court's order. We hold that the Copyright Office has the authority to issue regulations interpreting the statutory language at issue and that its interpretation was a reasonable one. We agree with the district court's rejection of Cablevision's reading of the statutory term "basic service," but hold that the district court erred in declining to defer to the Copyright Office's regulation as to what revenues make up "gross receipts." We also reverse and remand for further proceedings regarding the counterclaims. The basis for the district court's dismissal is unclear, and the record before us is insufficient to allow us to rule as a matter of law on whether infringement occurred.

I.

This case presents a dispute over the structure of a statutory fee that cable television operators must pay for the right to retransmit broadcast television programming. Those who pay the fee, the cable systems, advocate a construction that the eventual recipients of the fee, the copyright owners, find objectionable. The dispute arose because, after governmental intervention designed to correct a market imperfection, the market evolved in unanticipated directions. The disagreement has its roots in two Supreme Court decisions, Teleprompter Corp. v. Columbia Broadcasting System, 415 U.S. 394, 94 S.Ct. 1129, 39 L.Ed.2d 415 (1974), and Fortnightly Corp. v. United Artists Television, 392 U.S. 390, 88 S.Ct. 2084, 20 L.Ed.2d 1176 (1968), that held retransmissions by cable television systems of broadcast programming, whether of local or distant origin, did not constitute "performances" under the copyright law and thus did not give rise to liability for infringement. The Teleprompter Court concluded that if the Copyright Act of 1909 was inadequate to govern the commercial relationships that had emerged in the interim, it was for Congress to create a substitute. 415 U.S. at 414, 94 S.Ct. at 1141.

Thus prompted, Congress, as part of its revision of the copyright laws, addressed in particular this problem of "secondary transmissions." When a cable system takes a broadcast signal ("primary transmission") and delivers it to the system's subscribers ("secondary transmission"), the system is earning money by selling to its customers the copyrighted material licensed only for the primary broadcast transmission. Under Fortnightly and Teleprompter, the copyright owner was unable to share directly in those revenues. Congress was of the view that the copyright holders should receive direct compensation for the use of their rights. But Congress also recognized that the transaction costs accompanying the usual scheme of private negotiation that controls the use of copyrighted materials could be prohibitively high. H.R.REP. NO. 1476, 94th Cong., 2d Sess. 89, reprinted in 1976 U.S.CODE CONG. & ADMIN.NEWS 5659, 5704. The operator of a small cable system in a rural area, for instance, might find it more profitable to forgo rebroadcasting a wide variety of signals rather than to negotiate with various copyright owners in Atlanta, Chicago, and Los Angeles; cable operators, subscribers, and copyright holders would all be worse off under such circumstances than in a world where the retransmission rights could change hands at a lower cost. Congress saw that neither the situation as it existed after Fortnightly and Teleprompter nor a replication of classic copyright arrangements would be entirely satisfactory.

The response was a new regime, embodied in section 111 of the revised Act. Congress first abandoned the notion of individual negotiation in favor of a compulsory license. Under Sec. 111(c) of the Act, a cable system may retransmit to its customers any primary transmission made by a broadcast station licensed by the Federal Communications Commission. 3 In exchange for this privilege, however, the cable systems are required to pay a fee, to be distributed to the copyright owners as surrogate for the royalties for which they might have negotiated under a pure market scheme.

In devising that fee, Congress drew a crucial distinction between local and distant broadcast signals. The House Judiciary Committee observed that "there was no evidence that the retransmission of 'local' broadcast signals ... threatens the existing market for copyright program owners." H.R.REP. NO. 94-1476, supra, at 90, 1976 U.S.CODE CONG. & ADMIN.NEWS 5704. Because local 4 retransmission does not carry the signal to households beyond those local advertisers would be willing to pay to reach, the advertising revenue base will be increased by any expansion of the scope of the dissemination due to the retransmission, and copyright owners will be able to negotiate with the broadcaster to receive appropriate compensation. By the same token, the retransmission of network signals, from whatever distance, causes no difficulty. Advertisers on national network television--such as CBS--expect to reach audiences nationwide and pay accordingly. Because national advertisers will pay to reach any incremental viewers, networks will be willing and able to pay copyright holders the full value placed on the...

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