The Court of Appeals for the D.C. Circuit affirmed on May 31 the Librarian of Congress' royalty distribution to cable television system operators.

NEW YORK -- The Court of Appeals for the D.C. Circuit affirmed on May 31 the Librarian of Congress' royalty distribution to cable television system operators.

At issue was more than $216 million in royalties from 1998-1999. The Public Broadcasting Service and Program Suppliers appealed the Librarian of Congress's order distributing these payments, objecting to the Copyright Arbitration Royalty Panel's (CARP) methodology and application to determine the parties' shares.

Cable system operators (CSOs) generate most of their revenue from cable service subscribers. CSOs get their channels through contracts to carry cable networks that sell programming only to CSOs and by retransmitting signals broadcast by over-the-air stations, such as independent televisions stations, public broadcasting stations and broadcast network affiliates.

For the retransmissions, CSOs pay royalty fees into one or more of three related funds maintained by the Register of Copyrights. These funds compensate copyright owners for the distant retransmission of non-network programming (retransmission that reaches viewers beyond the range of signal broadcast). The Librarian of Congress then distributes each year's fund to copyright owners.

If copyright owners fail to agree on the proportional distribution of funds, then the process for sharing the funds takes place in two stages.

In Phase I, royalties are distributed among classes of claimants, with a percentage going to Program Suppliers (for copyright owners of movies and syndicated shows) and a percentage to the National Assn. of Broadcasters (for copyright owners of news programs).

In Phase II, royalties are distributed within each class. For example, Program Suppliers' share is split among Paramount Pictures, Twentieth Century Fox Film Corp. and other claimants.

For the first time since the 1990-1992 distribution, the copyright owners failed to agree on the Phase I distribution. The Librarian appointed a CARP to split the royalties among Program Suppliers, Joint Sports Claimants, Public Television Claimants, the National Assn. of Broadcasters, music claimants, Canadian claimants, devotional claimants and National Public Radio. The devotional claimants and the NPR settled with the others.

The remaining parties submitted "reams of evidence," the court wrote.

After the CARP's report, Program Suppliers and the Public Broadcasting Service challenged the distribution.

Program Suppliers objected to the methodology used by the CARP to determine the shares.

The CARP relied solely on the Bortz survey and not on the Nielsen study. This survey measured what the CSOs perceived as the relative market value of different types of programming.

Specifically, Bortz surveyed CSOs in 1998, who said they would allocate 39.7% to movies and syndicated shows, 2.9% to public television, 14.8% to news programs, 37% to sports and the rest to devotional and Canadian signals. The 1999 Bortz survey produced similar results.

The Nielsen study measured what cable subscribers watched. As compared to the Nielsen study, Bortz gave a far higher value to sports and a far lower value to movies/syndicated shows and public television.

The court held that the CARP was not obligated to rely on the Nielsen study or any other direct evidence of viewing. "We detect nothing either arbitrary or capricious about using relative market value as the key criterion for allocating awards. Indeed, it makes perfect sense to compensate copyright owners by awarding them what they would have gotten relative to other owners absent a compulsory licensing scheme," the court wrote.

Program Suppliers also objected that the CARP departed from precedent. The court held that the CARP may deviate from what it had done in the past, provided that it offers a reasoned explanation. In this case, the CARP had sufficiently explained its reasoning, the court held.

PBS claimed that the CARP erred in concluding that no changed circumstances since 1992 affected PTV's relative market value. PBS argued that the CARP chose an inappropriate methodology and that its application was flawed.

The court noted that the CARP relied on more than the Bortz survey to make its determination. It held that "because the evidence does not 'compel a substantially different award,' we have no basis for setting aside the Librarian's decision to accept the CARP's recommendation."

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