Statement Of
THOMAS J. OSTERTAG
GENERAL COUNSEL
OFFICE OF THE COMMISSIONER OF BASEBALL
Before The
SUBCOMMITTEE ON COURTS AND INTELLECTUAL PROPERTY
OF THE HOUSE JUDICIARY COMMITTEE
106th Congress, First Session
February 25, 1999
Mr. Chairman and members of the Subcommittee, I am Thomas J. Ostertag, General Counsel, Office of the Commissioner of Baseball. I appreciate the opportunity to testify before you, on behalf of the thirty clubs engaged in the sport of Major League Baseball, concerning the satellite carrier compulsory license in Section 119 of the Copyright Act.
SUMMARY
A fundamental principle of copyright is that commercial enterprises should not exploit copyrighted works without the consent of the copyright owners. Section 119 represents a significant exception to that principle. It permits satellite carriers to retransmit, to paying subscribers, countless hours of copyrighted programming on broadcast television stations - without obtaining the consent, indeed over the objection, of the copyright owner. That programming includes thousands of Baseball and other live sports telecasts each year. Baseball's only recourse under Section 119 is to receive a royalty, the amount of which is determined in costly and time-consuming governmental proceedings.
Baseball's position is simple: (1) The satellite compulsory license should not be extended beyond its current expiration date of December 31, 1999. There is no justification for continued government involvement in the licensing of programming to satellite carriers; nor is there any legitimate basis for exempting the satellite industry from marketplace transactions and normal copyright liability. The marketplace, and not Congress or government agencies, should set the terms and conditions for licensing of all copyrighted telecasts, including telecasts of Major League Baseball games. (2) Until the marketplace is allowed to function, satellite carriers should pay, and copyright owners should receive, fair market value for copyrighted telecasts, as currently required by Section 119. The fair market value rate set by a panel of independent arbitrators in August 1997 (and affirmed by the Register of Copyrights, Librarian of Congress and United States Court of Appeals for the District of Columbia Circuit) should not be reduced.
DISCUSSION
As a former Register of Copyrights testified before this Subcommittee, "A compulsory license mechanism is in derogation of the rights of authors and copyright owners. It should be utilized only if compelling reasons support its existence." Hearings On H.R. 1805 et al. Before the Subcomm. On Courts, Civil Liberties and the Admin. Of Justice, Pt. 1, 97th Cong., 1st and 2d Sess. 959-60 (1981) (statement of David Ladd, Register of Copyrights). There are no compelling reasons that support the continuation of the Section 119 compulsory license. To the contrary, there are compelling reasons not to do so.
· When the Congress enacted Section 119 over a decade ago, the satellite industry consisted of relatively small and struggling entrepreneurs. Today, that industry is dominated by corporate giants - such as Hughes Electronics (a subsidiary of General Motors), TCI (soon to be acquired by AT&T) and Echostar (in which News Corp. and MCI Worldcom will hold significant interests). These billion dollar conglomerates, which account for the vast bulk of Section 119 royalties, are fully capable of negotiating with copyright owners over program rights. They certainly do not warrant any type of subsidy from copyright owners.
· The Section 119 compulsory license has served its purpose. The DBS industry, which now takes primary advantage of Section 119, is enormously successful. From its inception in the mid-1990s, DBS has grown to nearly 9 million subscribers - making DBS the fastest growing consumer electronics product ever. Last year alone (after fair market rates went into effect for the first time) DBS operators enjoyed perhaps their most successful year to date; they increased their customer base by nearly 2.5 million households. That success underscores the point that DBS carriers do not need any exemption from the marketplace or the obligation to pay fair market compensation.
· When the compulsory license was originally enacted, there was very little programming available to satellite carriers other than broadcast programming. Today, the satellite industry has access to a wide variety of programming from more than 100 cable networks, such as TBS, TNT, ESPN, CNN and USA, as well as to a number of program packages provided by Baseball and the other sports interests. Satellite carriers are able to negotiate in the marketplace, and pay fair market rates, to obtain all that programming. There is no reason they cannot do the same to obtain broadcast programming. Indeed, the experience of TBS - which in 1998 successfully converted from a superstation (subject to compulsory licensing) to a cable network (subject to market negotiations) - demonstrates that the marketplace works perfectly well without compulsory licensing.
· Compulsory licensing was intended to reduce transaction costs but it has, in fact, significantly increased those costs for copyright owners. To receive their share of royalties, copyright owners must engage annually in negotiations with one another as well as in the development of expensive factual evidence necessary to help determine royalty shares. If negotiations do not produce agreement, copyright owners are then required to engage in time-consuming litigation before arbitration panels, the Copyright Office and the U.S. Court of Appeals (the extraordinary costs of which are borne entirely by copyright owners). We have been required to repeat that process in connection with rate adjustments, which we have been forced to defend, at a great deal of additional expense, before the Congress as well.
· The recent explosion of controversies over compulsory licensing provides added justification for not extending Section 119. The Congress and the parties have devoted enormous resources to numerous issues surrounding the satellite compulsory license - including controversies over "white areas," "local-into-local," rate adjustments and extension of the compulsory license. These issues have come before Congress only because of the existence of the compulsory license. Absent compulsory licensing, these issues would be resolved - as they should be - in the market.
CONCLUSION
Thank you again, Mr. Chairman, for the opportunity to provide Baseball's views on the Section 119 satellite carrier compulsory license. For the reasons set forth above, we believe the time has come to let that compulsory license expire. Until it does, satellite carriers should continue to pay the fair market rate that went into effect on January 1, 1998.