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ACA: Copyright Office Needs To Limit Audit Burdens On Small Cable

The American Cable Association urged the U.S. Copyright Office to limit cost burdens on small cable operators by adopting a clarification that its rule requires copyright owners to front the financial costs of statement audits that they have initiated until a final legal determination of underpayment has been made against a cable operator of an amount sufficient to trigger the shifting of audit costs to the cable operator.

ACA is concerned that a proposed Copyright Office audit cost-shifting rule would require cable operators to pay for audits initiated by copyright owners after an auditor issues its written report, but before the courts have found that cable operators have fallen behind on their copyright payments of an amount that would require cost shifting under the proposed rules.

"The Copyright Office should revise its proposed rules to clarify that in the event of a dispute over the auditor's written report, cable operators' obligations to pay for all or any part of the costs of the audit would arise only after a final determination upholding the auditor's written report finding that there was a quantifiable underpayment," ACA President and CEO Matthew M. Polka said.

In comments filed June 24 with the Copyright Office, ACA explained that the Copyright Office proposed to have copyright owners bear the costs of audits they initiate with two exceptions:  the cable operator will bear all the costs of an audit where the auditor finds an underpayment of 10% or more and will pay half of the audit costs where the statutory licensee files a good faith objection to the auditor's findings that if correct, would result in an underpayment of between 5 and 10%.  If the underpayment is 5% or less, the audit cost burden would remain with the copyright owners.

The proposal, however, is unclear as to the point in time at which the cable operator raising an objection to the auditor's written report must reimburse the copyright owner for the audit's costs.  ACA asked that the rule be clarified to specify that audit costs remain the responsibility of the initiating copyright owners until a final determination has been obtained.

ACA said that shifting the cost burden before a court has made a final ruling on the cable operator's audit appeal is inconsistent with the Copyright Act in addition to being particularly onerous for small cable operators. ACA explained that a small cable operator vindicated in court might need to take further legal action to reclaim its audit cost payments from uncooperative copyright owners. In some cases, litigation costs would likely exceed audit costs, leaving the cable operator with no cost-effective means of reclaiming original audit costs.

"In this circumstance, the cable operator would have no financially viable recourse to be properly reimbursed in the event that the copyright owners refuse to do so voluntarily. The Copyright Office must take this reality into account, and not require cable operators to pay for an audit's costs prior to a final determination," Polka said.

Under the Copyright Act, a copyright owner may bring an infringement action against the cable operator. Copyright owners, not cable operators, have the responsibility to seek recourse through the courts for underpayments. ACA said there is no basis for changing this fundamental premise merely because the copyright owners now have the added resource of an audit to help them assess whether an enforcement proceeding should be undertaken.

If there remains a disagreement about whether the auditor's written report is accurate, the auditor's costs should remain with the copyright owners, until such time that all legal remedies have been exhausted, ACA said.

For ACA members, who are smaller cable operators, an audit process that shifts the responsibility of paying an audit's costs to the cable operator prior to a final determination and requires the cable operator to take further legal action to reclaim its payment for the auditor's costs from copyright owners would be a burden.

Smaller cable operators will generally have fewer financial and legal resources than the group of copyright owners that initiated the audit. It is burdensome and unfair to put these operators, which may wish to exercise their right to dispute the auditor's written report, in the position of having to pay first and later expend additional resources to get the copyright owners to return the money that copyright owners are responsible to pay under the audit cost-shifting rules.

In previous comments filed June 10, ACA agreed with the Copyright Office proposal to require copyright owners to file an additional notice with the Copyright Office when seeking to audit a larger sample of cable systems owned by the cable operator. This will serve a useful purpose for cable operators by both giving them lead time to determine how best to balance their day-to-day operations in complying with an expanded audit, and allowing them to begin preparing the information potentially required by the expanded audit at the earliest opportunity.

ACA also endorsed the Copyright Office plan to require that expanded multiple system operator (MSO) audits occur the year after the initial audit, which would allow smaller operators to return their focus to their day-to-day operations for a period of time following an initial audit before once again having to redirect their limited resources toward an expanded audit.

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