Juris Magazine- Winter 1982

WINTER 1982

THE DUQUESNE lAW SCHOOL NEWS MAGAZINE

PA~'<ING

BUILDING BLOCKS WITH TAX-EXEMPT FINANCING

Editor's Note ore often than not my interaction with practicing attorneys leaves me wonder if indeed I chose the right field three years ago. It is not the nature M of the practice of law which leads me to this query. Rather, it is the personalities to

Editor-In-Chief Roseann LaRosa

of the attorneys themselves which I find bothersome. It seems to me, and I believe that I am at least as perceptive as the "reasonable-man", that manyattorneys are haughty, brash, overbearing and arrogant. In fact. lately I suspect that along with a Bachelors Degree, and a Juris Doctorate, there is an uUv/Tinen requirement for a of Insolence.

Perhaps I am being too harsh on my soon-to-be contemporaries. The arrogance I see portrayed may just be too difficult to avoid. After all, from the onset of their careers, even before they bec{)me attorneys, frightened, young first~year law students are told that someday they will be called the counselors, the barristers, the "high-priests" of society.

This assumption of infallibility that attorneys acquire, even if with cause, is still inexcusable. All professionals, especially attorneys. should be proud of who they are and what they have accomplished. However, this sense of pride should always be coupled with a spirit of humility.

Robert Frost in his poem, The Fear of God. better expresses what my intentions have been in this editoriaL I encourage aU of you who are or may be "guilty" to read the poem, then read it again, carefully!

The }I'ear of God If you should rise from Nowhere up to Somewhere, From being No one up to being Someone, Be sure 10 keep repeating to yourself You owe it to an arbitrary god \Vhose mercy to you rather than to others Won't bear too cri1ical examination.

Stay unassuming. If for lack of license To wear the uniform of who you are, You should be tempted to make up for it In a subordinating look or tone, Beware of coming too much to the surface And using for apparel what was meant To be the curtain of the inmost souL P.S. I have read and re~read the poem myself, many times.

A5~\'ociate

Editors Sharon Bogarad Donna Rae Lisa Rich

Assistant Eaitors Cheryl Croyle James Gaston Shirley Novak James Orie Business Editor Gery Nietupski Faculty Advisor Patrick J. Basial Cover Art Eric J. Danenberg Photography Gery Nietupski Feature Writers: William R. friedman Henry M. Sneath Robert M. Danenberg James Murray Staff Members: James Brad Dornish, Bruce Zero, Indig, Rhoda Neff

Sincerely,

Roseann LaRosa Editor-in-Chief

JURIS is a student publication Duquesne University School of Views and opinions expressed necessarily those of JURIS or University. All manuscripts comments may be addressed to Duquesne University School of 900 Locust Street, Pittsburgh, Pennsylvania 15282.

Telephone (412) 434-6305.

Copyright

In this issue

3

INDUSTRIAL DEVELOPMENT FINANCING

6

HOME VIDEO RECORDING

8

EDITORIAL

10 12

JURIS INTERVIEWS: HENRY X. O'BRIEN THIRD WORLD

PRINCIPLES AND POLICIES OF

NDUSTRIAL DEVELOPMENT FINANCING

ell,

he N.

ot sne IS, N,

an effort to promote the deve]opof new and existing busi, states as well as local governsince the late 1930's have bonds, the proceeds from have been used to financially those businesses. The prigoal has been to assist small . The most common type of utilized is the industrial deve1bond (IDB). "Typically the of an industrial developbond issue are used to finance purchase or construction of busifacilities which are leased to firms on a long -term basis." 1 1936, Mississippi became the state to act as an intermediary to struggling businesses. By 1960, states had authorized IDB financby 1970, 25 additional states had today all states provide some of assistance.' attractive feature of the IDB is tax-exempt interest generat ed by bonds as provided for in the InterRevenue Code, Section 103(a). To more precise, however, the interest not tax-exempt, but rather the inis an exclusion from income. 3 type of IDB utilized is the enue bond which is secured by the 'red property rather than being by the issuing unit's taxing Another type of IDB is the control bond which was a response to the needs of busirequired to meet environmenlaws.

The mechanism employed to issue bonds is the Industrial DevelopAuthority (IDA), a method avoids any limitation placed on state or local government's own 4 to issue bonds. New Hampin 1955 became the first state to an IDA; Pennsylvania was the in 1956.

Federal Regulation

hen the Securities Act of 1933 and the Securities Exchange t of 1934 were enacted, Congress excluded from regulation securities which were issued by governments.' Despite abuses

BY

WILLIAM R. FRIEDMAN AND

ROBERT M. DANENBERG which occurred in the absence of regulation, no revisions were made in the way municipal obligations were traded for 34 years. The Revenue and Expenditure Control Act of 1968 carved out exceptions to tax-exempt issues and allowed the exemption to continue for only those projects which Congress thought would be socially beneficial. "The [968 Act resulted in near total eradication of tax-exempt fDBs. "6 To illustrate: in 1968 the amount issued for IDBs was $1.6 billion, by 1969 the amount had dropped to $51 million. 1 The Control Act of 1968 reserved exemptions from taxable status for three exceptions. The first was for bonds of any size used to finance "exempt activities" such as equipment to control air and water pollution; airports, docks, and warehouses; local gas, electric, or water plants; mass transit or parking facilities; housing, waste di['posal; sports facilities; trade show or convention centers; and industrial parks. The second exception was for small-issue IDBs up to $1 million for any kind of business. The Renegotiation Act of 1968 raised the ceiling on small-issue IDBs to $10 million as long as the developer and principal user did not invest more than $5 million over six years in anyone municipality. In 1975 the limit was raised to $10 million.

The third exception was for bonds issued by colleges, non-profit hospitals, and other charitable organizations. The term that is applied is "tax-exempt bonds for private purposes." , To correct the growing abuse of fraud in IDBs, in 1975 Congress passed the Securities Act Amendments. Prior to that time, it was only the general anti-fraud provisions of the 1933 and 1934 Acts which could be implemented to prevent fraud with

respect to municipal securities.' The 1975 legislation created a regulatory scheme for brokers and dealers of securities and il also created the Municipal Securities Rulemaking Board to self-regulate the municipal securities industry. Unfortunately, the Board does not have full authority and "no direct power to conduct inspections or enforce its own rules." 1 0 lOBs in Pennsylvania

ennsylvania's basis for the creation of IDAs and for issuing P IDBs is the "Industrial and Commercial Development Authority Law." 73 PS 371 et seq. The legislature felt that such action was necessary to "promote the health, safety, morals, employment, business opportunities and the general welfare of the peopie.. for the public purpo">e of alleviating unemployment, ... eliminating and preventing blight ... and eliminating or reducing air and water pollution ... and creating and developing business opportunities." 73 PS 372(11 ).

Authorities created by the legislation are public bodies which have the power to "acquire, purchase, own, hold, lease as lessee and use any franchise, property, real, personal or mixed, tangible or intangible, or any interest therein." 73 PS 376(b) (4), Authorities, of course, are empowered to "borrow money, make and issue bonds." 73 PS 376(b) (10).

The constitutionality of the Pennsylvania law was challenged in the case of Basehore v. Hampden Industrial Development Authority, 248 A.2d 212 (1968). In its opinion, the Pennsylvania Supreme Court emphasized that the Authority is an instrumentality of the Commonwealth; the projects are actually owned by the Authority. Id. at 216. On this premise, the court wenl on to say that "it is the province of the legislature, not the judiciary, to determine the extent of the unemployment problem . .. and to determine the means necessary to combat the problem."

Id. at 217. Ordinarily, the courts

properly avoid entering those areas which are clearly the responsibility of the other branches of government, but in this case, the court enunciated its own public policy concerns: "industrial development authorities are so prevalent throughout the country that Pennsylvania is at a competitive disadvantage in attracting industry to this state should we declare this act unconstitutionaL" Id. at 218.

The question of whether IDAs are non-profit industrial development agencies for the purpose of local taxes was the issue in Foster v. Borough oj Green Tree 12 D&C 3d 71 (1979). The Oliver Tyrone Corporation (OTC) sold a parcel of property to the Greentree Building Associates (GBA) in the Borough of Green Tree. GBA then assigned its interests to the Allegheny County Industrial Development Authority. OTC and GBA paid the borough's transfer tax and then sued to recover. The local transfer tax ordinance by which the tax was paid, the court said, "is subject to any exemptions from transfer taxes created by the legislature."

Id. at 72. Specifically, the court held that the "Local Tax Enabling Act of December 31, 1965," [53 PS§6902] exempts the transfer from local transfer tax. The court explained that by "exempting industrial development authorities from paying taxes on property which it acquires or uses, the legislature has shown a desire to minimize operational costs." Id. at 77. While the minimization of operating costs is laudable, the fact of the matter is that it is the private business which absorbed the cost not the local authority.

Development in Allegheny County

he Allegheny County Industrial Development Authority T (ACIDA), one of the nation's most active, was created in 1969 and since that time has issued bonds for industrial development worth more than $1.7 billion. This translates into 650 loans which either created or saved 200,000 jobs. 11 In 1982 alone, ACIDA has approved more than $90 million in bonds for nearly 70 projects which it is anticipated will create 2,000 jobs. 12 The impact of ACIDA, or any IDA for that matter, is not simply in the number of jobs created at inception but rather the long-term impact on other parts of the economy. In

other words, for every job created, there is a multiplier effect which is felt as thc initial investment is rccirculated and expanded throughout the economy. As far as ACIDA is concerned, it is "conservatively estimatcd that $81.7 million in spending and 4,584 jobs (through 1982) can be attributed to 67 projects begun in 1978." IJ According to Stephen M. Barrouk, the Executive Director of ACIDA, lending institutions have always preferred those projects which have the potential for a greater multiplier effect. As a result, they will lend for manufacturing purposes before recreational purposes. When considering the underwriting of IDBs, the same principle holds true. '4 Some businesses for which ACIDA bonds were issued in the past have included Station Square, U.S. Air facilities, TambeIlini's, Charter Oaks Village, Gold Circle, Hill's, Bank Center, Pizza Hut, Fort Pitt Commons, pollution control at local steel mills, Wendy's, Long John Silver'S, McDonald's, and many of the professional offices on Fifth Avenue near Chatham Center.

In Pennsylvania any municipality can create its own IDA to finance business and industrial development.

The law also permits an IDA in one municipality to develop in another municipality without assuming much responsibility for the long-term impact in the latter municipality.

"That's one of the chief weaknesses in the law, and one reason why the abuses in Pennsylvania became so apparent."" Additionally, each IDA is free to establish its own guidelines as to its operation, such as fees to be paid to the IDA by the company using the bond proceeds. ACIDA has a published fee schedule which describes all fees which might occur throughout the life of a project. This includes initial fees as well as ongoing annual fees to support the administration of the program. This affords businesses a valuable planning tool. Businesses developing through other IDAs may not be so fortunate insofar as each IDA can set its own guidelines and in some cases create an endless parade of consultants, attorneys, and others, all demanding their fees ad infinitum.

The ACIDA is an oddity in another way. If there are funds remaining at the end of the year which have not

been used, those funds are to the county. 16 Surpluses in other IDAs are kept by the supposedly for economic men!. Such a need is difficult insofar as each new project its own fees. It is commonly that many IDAs are simply millions of dollars in surplus IDBs -

The Basics

ection 103 (a) (1) of the Revenue Code excludes come interest earned in ob states and municipalities.

103 (b) provides that the inter on certain issues of IDBs is exempt. The exemption certain "small issues" of IDB!> gating $1 million or less and tion to increase the amount exemption to $10 million under tain conditions. "One who threads his way through this comes to the realization interest paid on IDBs is exempt taxation if the bond comes small issue exemption."I' If th qualifying the small issue under the Code are not met, sumption of tax-free interest lost. When the lOB qualifies exempt, the selected business the equivalent of a low-interest The advantage of lOB a company without other options is that it can start or the business without having to the high cost of investment. example, assuming that a IDB pays an annual interest which is three percent less taxable bond, a business nanced with a $10 million, year small issue IDB would million in interest over the the bond. 18 A comparison terest rates required on fully bonds to equal the after-tax from interest on tax-exempt shown below:

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Ind{vidual income fax

rate bracket

fax-free interest rate of

local

income

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7 fJiu

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20«:(1' 10Oli! 40070 50"70 6O a!n

6.25o;'e 7,JA

8.33 10.00 12.50 16.6,

8.57 W.OO 12.00 15.00 20.00

8, J2tJ(ij 9,19 10.83 13.00 16,25

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21.6°

A bond issued by a political division will be considered an the obligation is part of an

which at least a "major porof the proceeds is to be used or indirectly in any trade or s carried on by a private busiuser. 20 This is commonly reto as the trade or business test. is also met if the proceeds are to acquire or construct facilities will later be sold, or leased to, or more private users. Section (b) (2) of the Code provides that lise of more than 25070 of the proin the trade or business of business users constitutes a or portion" of the proceeds. A does not fail the trade or s test merely because the state government uses the proceeds engage in a series of financing """''-''''''"5 for the acquisition of by private business users.21 however, a substantial portion of proceeds is used in any trade or carried on by an "exempt , the bonds will not be classias IDBs. An "exempt person" is mental unit or a tax-exempt ,aU1LQ,e'V'H as described in Section (c) (3) of the Code. The purpose the trade or business test is to CU'!;"U"" between those bonds hava public purpose and those issued the purpose of financing private s activity. $1 Million Small Issue Exemption he ' issue" exemption is a general term which includes two of exemptions. The first is the issue of up to $1 million. The is those with additional finanrestrictions, a special election Code Section 103 (b) (6) (D) of to $10 million. In both cases, suball of the bond proceeds be used to finance a project that ves the acquisition, construcreconstruction, or improvement nd or property that is subject to ",,"',<"",VH under Section 167 or to all or part of a prior issue of issued for those purposes. 22 all" requires that at 90 percent of the proceeds be exin the manner described Treqsury Regulation 1.103-10 (ii). Proceeds used to provide capital and inventory cannot included in the 90 percent require. Likewise, "neutral costs" are be subtracted prior to computing 90 percent. Neutral costs are those incurred in issuing the bonds as publication expenses, and fees.

Under Section 103 (b) (6) (A) an issue of $1 million or less is partially determined by the aggregate authorized face amount of the issue. The aggregate face amount is determined by combining the outstanding face amount of certain prior exempt small issues. If the aggregate exceeds the established ceiling (either $1 million or $10 million), the bond loses its taxexempt status. Facilities are aggregated if they are located in the same county or municipality, or are contiguous or integrated facilities on two sides of a political border that are physically connected or economically dependent. The facilities must be within one-half mile of the border and one-half mile of each other. 23 In Revenue Ruling 75-193, the Service construed the term contiguous to mean adjacent. For example, although manufacturing facilities were separated by 300 feet, the parcels of land were deemed to be contiguous even though they were not considered to be integrated. There was no physical connection between the plants and there were no common facilities.

Dissimilar processes were performed and different products were produced at the two plants. Other than management personnel, each plant employed its own workers.24 Principal User ccording to the I.R.S., a principal user may include both the owner, purchaser, lessee of the project, sublessee, or any other person who has the right to occupy ten percent or more of the project. The ten percent, in some cases is determined in reference to space occupied and in other cases it is determined by reference to the value of the property.

Despite the lack of statutory support for this definition, most bond counsel adhere to it for "clean opinion" purposes.

A person may also qualify as a principal user of the project if, pursuant to a contractual obligation, he takes a substantial portion of the goods or services produced at the project. 25 The term "principal user" is significant in ยง 103(b). A finding of principal user status will result in the application of the test requiring aggregation of certain outstanding prior issues under the $10 million exemption.

Although principal user is not defined in Section 103 of the Code, the term has been defined in "Private Letter Rulings" issued by the I.R.S.

A

The general tone of the rulings gests that the ten percent test is ployed to determine a principal of a given facility. This definition led to a restrictive effect on the ability of the small issue exemption situations involving multiple users a bond financed facility.

Assume, for example, that an dustrial development authority poses to issue a $1 million PY,>rn,,,t small issue to finance the costs constructing an office building to leased to nine or fewer tenants. Each tenant is expected to occupy eleven percent or more of the building, by area and by value, and will pay its pro-rata share of total annual rentals. The bonds will be secured by a mortgage on the building and will be payable solely from rentals under the tenant leases. According to the Service's ten percent test, each tenant will be considered a principal user of the office building.

In order to determine the prior issues which must be taken into account for purposes of the $1 million limitation, one must identify each facility financed with the proceeds of an outstanding exempt small issue, located in the same jurisdiction and more than ten percent of which, is used by any tenant of the office building. 26 By way of illustration, assume that tenant A of the office building occupies space in another facility in the same jurisdiction and such facility was financed with the proceeds of an exempt small issue which remains outstanding. Depending on the extent of occupancy of such facility by tenant A, it mayor may not be possible to lease space in the office building to tenant A to the extent described and still qualify for the exemption.

The I.R.S. addressed the ten percent rule in Ruling No. 7817108, where the New Jersey Economic Development Authority issued an IDB in favor of a limited partnership for the purpose of financing the acquisition of a medical clinic. All the members of the limited partnership were also members of another general partnership that operated a pharmacy in the clinic. The I.R.S. ruled that both the corporation and the limited partnership were principal users of the facility. 21 "Fortunately for the limited partnership, and corporation, there were no prior issues to be aggregated, and the principal users com(continued on page /4)

HOME VIDEO RECORDING: A NEW LEGAL CONTROVERSY

By Sharon time you watch television, turn it off after the program is over. Wait until you have seen all of the credits. close attention to the very last line. It is always there ... whether you are watching a news program, a situation comedy, a series, or a movie. Sometimes it is in small letters; sometimes it reads only "copyright" and the holder's name.

Nevertheless, it is there; and despite the fact t hat over the years it has rarely been noted or understood, that copyright clause is lots of attention these days.

It is not because television viewers are suddenly becoming more conscious of what they are watching. Unfortunately, an examination of television programming will illustrate that the so caIJed ., programming geniuses" are still dictating to the American public what they will watch. It is the advent of new technology that is causing all the excitement ... the advent of home video recording. The home video recording system is a phenomena of high electronic technology. Such technology creates a strain when legislative and judicial standards no longer keep pace with state-of-the-art improvements. Improvements must be encouraged and standards must be reevaluated to encompass such growth.

The time has come to challenge the established standards of copyright law.

There are currently more than 3.5 million video recording devices in this country, with another 1.5 million expected to be sold this year. It is an area of rapid growth, both technologically and economically. Because of such growth, it has become an area of confusion and of conflict between First Amendment guarantees and recognized rights of intellectual property.

It is this conflict of interests which now faces the United States Supreme Court. Technology is forcing the Court to resolve an important issue; whether home video recording of television programming is in violation of federal copyright laws.

The Ninth Circuit Court of Appeals in San Francisco said it does.

Now millions of dollars and the future of the video recording industry ride on the Supreme Court's determination.

Background II

Universal Citr Studios v. Sony

Corporation of America, 480 IF.Supp.

429 (CD. Cal. 1979), the plaintiffs, Universal City Studios (Universal) and Wall Disney Productions, Jne. (Disney) brought an infringement action against Sony Corporation (Sony), the manufacturer of the Betamax video tape recorders, Sony Corporation (Sonam) the distributor; Doyle Dane Bcrnbach, Inc. (DDB1). the adVertising agency who promoted the recorder; and several retailers who sell the recorder. An individual defendant was also joined for the use of a rel:order in his home, but was later dropped in the action.

Plaintiffs, as owners of copyrighted audiovisual materials alleged that this home recording infringed their copyrights and that the manufacturers, distributors, retailers and advertisers were either direct or contributory infringers. The district court held that home video recording from free television for use in the home was not a copyright infringement and that the defendants were not liable. Plaintiffs appealed, and the judgment was reversed by the appellate court in Universal City Studios v. Sony Corporation of America, 659 F.2d. 963 (9thCir.1981).

Sony (and the remaining defendants) in the appellate court filed their petition for certiorari in March of 1982. Certiorari was granted in June of 1982 to review the decision of the Court of Appeals, which held that off-the-air copying of copyrighted audiovisual material by owners of video tape recorders in their homes for private noncommercial use, constituted infringement for which recorder's manufacturer, distributor, retailers, and advertisers were liable; and further, that such copying did not constitute "fair use". The plaintiff-respondents, Universal and Disney, did not intend to hold Betamax owners individually liable,

ISQlaail'l

though technically the appellate I:ase did hold that such constitutes infringement.

The questions presented orad are as follows: 1) Is reception at home by recorders (followed by viewing at home) of free air television programming fringement of statutory on such programming?

2) If so, does the manufacturer's and! or advertisement of video tape rel:orders per se tute contributory whenever that video used for such programming?

3) Is "fair use" of copyright limited to "productive" precluded from being , use?

4) Can a federal court impose pulsary license on a owner and impose royalties on an infringer remedy for statutory infringement?

5) By totally ignoring the fact of the distrkt court, holding retailers liable for tributory infringement when were never alleged to have liability, did the Court of so far depart from ac(:entea usual course of judicial ings as to call for the this Court's power of ", ..,~r"i0; Copyright Act of 1909 and 1976

n Article I, ยง 8, d.8, the

I States Constitution empowers gress to "promote the science and useful arts by limited time, to authors tors, the exclusive right to respected writings and The philosophy behind the illustrative of the desire to and encourage achievement, also of a more basic nature. ' economk philosophy behind clause empowered Congress to patents and copyrights is the tion that encouragement of effort by personal gain is the to advance public welfare talents of authors and

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v. Stein, 347 U.S. 201 (1954). passed the Copyright Act and revised it in 1976. Techhad caused ambiguity in the applicability so laws were to encompass the new adthe technological advancealtered the available markets these works, the revisions gave and inventors exclusive rights some, but not all uses of their To come to such a comproCongress had to balance cominterests. The Supreme Court this legislative balancing in

Century .Music Corp. v.

422 U.S. 1.51 (1974): limited scope of the copyright statutory monopoly, like limited copyright duration reby the Constitution, reflects balance of competing claims the public interest: creative is to be encouraged and rebut private motivation ........ _.J serve the cause of broad public availabiliof literature, music and the other

,VUJVL'U",

video recording does test the of the copyright protection for materials broadcast on airways; and "its resolution rebalancing of strong competing ',480 F.Supp. at 432, to "ultiserve the cause of promoting public availability". s imposes limitations of holder's exclusive rights if use of the material in question is a use". 17 U.S.C. ยง 107 provides framework for such limitations. o determine whether the use made a work is a "fair use", four factors to be considered: the purpose and character of the use, including whether such use is of a commercial nature or is for non-profit, educational purposes; the nature of the copyright work; the amount of the work used in relation to the copyrighted work as a whole; the effect of the use upon the potential market and value of the copyrighted work. "fair use" doctrine is designed balance exclusive rights of copyholders with the public'S interest the dissemination of information areas of universal concern placing a privilege in individuals than the holder to use the copy-

righted material in a reasonable manner without the consent of the holder." Dallas Cowboy Cheerleaders, Inc. v. Pussy Cat Cinema, Ltd., 604 F.2d. 200 (2nd Cir. 1979),

Rosemont Enterprises, Inc. v, Random House, Inc., 366 F.2d. 303 (2nd Cir. 1966). It cannot be determined by "resort to arbitrary rules or fixed criteria and requires examination of the facts of each case."

Meeropol v. Nezir, 560 F.2d. 1061 (2nd Cir. 1977).

Simply put, "fair use" is a privilege in someone other than the copyright holder. The doctrine is not as simple as it appears. It was created in the Copyright Act of 1909, and has been revised both by case law and by statutory exemption. The Copyright Act of 1976 included as "fair use" the copying and recording of sound recordings in the home. It is a recognized, explicit exemption for the use of magnetic tape to copy prerecorded recordings for noncommercial private use in the home. Video tape is also magnetic tape which records the visual impression along with the soundtrack. Sony is arguing that home video tape recording, like home sound recording, is a "fair use" under the copyright scheme; and therefore, exempt from liability for copyright infringement.

The decision of the appellate court "alarmed manufacturers of home video recording equipment and delighted producers whose programs were being taped and who contended that they were being denied payments to which they were entitled. It has also caught the attention of average citizens, many of whom are taping television shows for later viewing at home.'"

The current confusion of copyright laws provided an unrestricted marketplace to the six Japanese manufacturers who were making and marketing the machines. Sony, in its petition, told the Court that the "appeals court decision could mean a halt to the video recording industry, which has sales of one billion dollars annually, and is growing rapidly." 2 "This case raises important questions affecting the rights of Americans to utilize and obtain the full benefits of television programs distributed over the public airways," Sony president Kenji Tamiya said.

"It is important that an issue of such widespread impact should be reviewed by the nation's highest

court. " J Not everyone is as pleased with the Court's decision to review the case.

Jack Valenti, President of the Motion Picture Association of America, and spokesman for the motion picture industry, voiced his concern. "This issue of copyright law falls within a congressional province, not a judicial one," he said. "The Supreme Court decision to accept the case "makes it all the more necessary for Congress to move quickly and resolutely on legislation that would require manufacturers to pay royalties on the equipment they produce. The issue is not whether home taping should be allowed everyone agrees that it should be - but whether copyright owners should be compensated for their work.'"

The Court's decision to take the case does divert attention away from Congress. Although both sides want Congress to continue its efforts to resolve the issue, they disagree on what a viable solution would be .

"Manufacturers of the equipment want an exemption written into the copyright laws for home taping, while the entertainment industry is backing legislation that would require the manufacturers of machines and tapes to pay a royalty on the equipment.'"

Proposals are pending in both the House and the Senate to exempt home taping from liability. In the Senate, Sen. Dennis DeConcini (D-Ariz.) introduced S-17.58; and in the House of Representatives, Rep. Stan Parris (R-Va.) introduced H.R. 4808. Also pending are alternative proposals to compensate copyright holders through compulsory licensing on the sale of audio and visual cassette recorders: found in the amendment to S-17.58, sponsored by Sen. Charles Mathias (R-Md.) and in a separate bill, H.R . .5488, introduced

by Rep. Don Edwards (D-Cal.).

It would appear that the battle is being waged on two fronts. The issue could be settled in Congress before the Court has the opportunity to hear the case. So the race is on. The bills are expected to be reintroduced in the 98th Congress scheduled to convene after January 1983.

When proponents of both sides took their views to the legislature in June of 1982, they testified before the Congressional Arts Caucus. Charles D. Ferris, former Federal Communications Commission Chairman, (continued

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n expose of local governmental eminent domain powers, as .... . Mr. William Friedman in the Fall issue of Juris, 1982, is the proposed Street Expressway, The project began as an element of Pittsburgh '$ mid-CCPnt urban redevelopment plans to spllr the city's growth. What evolved struggle of the "little man" versus lhe <~<;tate. " The key issue waS still is adequate compensation, which would encomp(1:;'S relocat/on group of citizens whose lives would be dramatically altered by the exp'res.S'}!

The pivotal component being the sanctity of private property.

As early 0$1952, Easi Street was designated as a possibility for an which would link the center of Pittsburgh with the industrial northern cit the St. Lawrence Seaway. This designation took place in the post World redevelopment era known in Pittsburgh's history as "Pittsburgh Rcpnni",.-.m Projects such as the Parkway East and West were already under and the rebuilding of the Golden Triangle had begun. A major obstacle city '$ in striving to maintain economic vitality, was a highway providing bility to its downtown district. The East Street area, as the heart oj North Side section. presented a viable solution.

Strategically, Ihe East Street area begins at the Allegheny River, through a valley, and ends near the northern city limits. This includes oj the lower North Side, the East Ohio business district, and the length Street until it meets Evergreen Road near Baytree Street.

Historically, this area in the early 1900's was a large(y sel/-sufficienl munity of Germanic heritage. The total community population before domain proceedings was approximately 15,000. Traditional religion, education, business, entertainment and professional services nearby. These sustained the basic needs of the community's residents. interaction of the people promoted relationships marked by personal moral commitment, emotional depth, and a social cohesion which over time. oj Pittsburgh, in 1907, annexed the entire North Side, When the includes the East Street area, economic emphasis shifted from the North the downtown area. This development, coupled with the growth of the suburbs, caused East Street to become a majorpathway to andjrom the 1952, the daily traffic volume was estimated by the Pennsylvania LJt:IJUI"~j Transportation at 15,178 with a projection oj 40,300 estimated for street was not designed jar this purpose and soon became a terror stoplights, parked cars, and traffic jams.

Passage of the Federal Aid Highway Act of 1956 gave local impetus they needed to build a major highway along the East Street Vi program made funds available jor projects designed to promote the way concept. A proposal for an East Street interchange was submitted to Federal Bureau of Public Roads and subsequently approved.

In 1961, at the firs/public hearing concerning an East Street oV''lrO<,<,lAH1.V proposal was revealed. This was the citizens' first encounter with do.main proceedings. While few residents opposed the plan, the project from its inception, a battleground. The battle centered on the right to compensation. A key problem area was the anemic compensation Wi/hin a short span o.j time, the local citizens began to organize designed to profet:t the interests oj their members. The first of these the East North Side Citizens Council. This organization was cernec/ with the fate oj the lower North Side residents and e{)I'TlmillU~U these citizens informe(/ about the activities of the Pennsylvania Transportation officials and the others involved with the planning and o/tJurbighway, The council was active in the property negotiations these parties and continually pre;;sed jor fair property appraisals alJd men! housing.

11'1)968. the Highway Emergency.and Relocation Team (HEART) o.ut of the Highway and Legis/ative Committee, a componen t of the Side council. Its attention was moinly jocused on the Expressway's feets on the East Street Valley residents. HEART'sgoal was (0

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value for property owners. Th~ REAR~ organization operated a high level of vigor and vitality that it qUIckly overshadowed and the East North Side Citiz;ens (:ouncil which disappeared by 1970.

971 the East North Side Area Council was founded as a successor Âť to the East North Side Citizens Council. As a watchdog agency, oup concerns itself with all lower North Side neighborhood problems. to the group's interests is the manner in which the new expressway iffect the area, once completed. tailed account of the events o/the ensuing twenty odd years wou~d be unhere. Briefly. the scenario the residents found themselves mvolved the inability to find similar housing and business facilities for reloca~ion based on the compensation granted by the state. There was l~ttle which protected the individual property owner~' rights, and th,e hlgh:ticials armed with the powers of eminent domam w~re dete~ml1:~d to onward through the valley, Little consideration was gIven to mdlVl~ual rtfiit.{]n,~p''i:. as the residents were expected to lie down to governmental nghty laws. Through the mouthpiece organization of HEART, the residents able to organize mass meetings, picketing, mailings, and press conference~. enabled them to gain political recognition and gain sympathy for their two desperately needed goals. Gradually, through effective lobbying compensation legislation was passed.

Federallevel the 1962 Federal Aid Highway Act required all states to relocation assistancefoT moves prompted by highway construction. The ederal Aid Highway Act calledfor a study of displacement practices. This the 1968 Highway Relocation Assistance Act. This program was tailored hardships placed on relocatees. of the plan include moving costs and reimbursement~ for reasonand necessary expenses inherent in property conveyances. sull re/ocatees not provided with adequate services. This prompted the Uniform Re/~ca­ Assistance and Real Property Acquisition Policies Act. This Act prOVides all federally aided programs involving displaced persons be su,.bject .to property acquisition policies. 1n addition, the Act allows for CItIzen Inin the decision making process in areas of displacement. early 1970's legislation such as the Supplemen.tal Paymen,t Act a~d ousing of Last Resort re-affirmed the states commltment to Old the dlSilies. The Supplemental Payment Act established a system of bonuses to lessen the gap between the state's offer and the present market of homes. The Housing of Last Resort provided that if s~milar l!roperty unavailable in the area for comparative purposes, property In outSide areas be used to compute home cost. some of the residents benefitted from the legislative measures, others left the valley early in the struggle were not as fortunate. And for othe'.s, oney could never replace the friends, homes, churches, and commumty had lost. . the East Street Valley is a desolate area. Despite a lavish groundceremony in June, minimal construction has been complete~. The East xpressway is still on the drawing board. The handful of resldent~ that express the same feelings of helplessness common to all the reSIdents the controversy. The inability to effectively make themselves be against larger governmental forces, their fate, like their property, has ondemned by the state to a future of un,certainty. . .. relocatees languish the surrender of their commumty to a seemmgly Idle Their present plight involves dealing with the loss and loneliness which from their community produced. . . . express frustration as a much needed highway remams unbuzlt. seek to blame, but are uncertain exactly where the fault lies. is difficult to evaluate the benefits of projects such as th~ East Str~et "'''''OHM'''. While the larger public goal is easily recognized, the dilemma of mhome and business owners face with losing all they own and ever is equally important. The future will find the powers of eminent domain and governmental authorities able to execute similar pu?lic go~dp'.ojects. or citizen groups will benefit from compensatIOn legIslatIOn deto equalize the economic factors. However, nothing will replace the loss ibrant community to the city or prevent the individual hardships such brinks. When you speed by, remember, this could happen to you.

HOME VIDEO RECORDING (continued from page 7)

represented the Home Recording Rights Coalition. Ferris said that Hollywood producers were reacting to the new video cassette recording technology the same way they reacted to the birth of television - by trying to kill iLFerris testified that technology long before the advent of video recording provided viewers with a means to edit their programming to avoid commercials through remote control switchers. He contended that the new video editing devices on various recorders were no new threat to commercial broadcasting revenues.

MP AA President Valenti replied that although his industry welcomed such innovations, he contended that copyright owners have a right to have their property rights redefined and protected in light of technological changes in the marketplace.

Valenti said the ability of viewers to edit out commercials has already prompted major advertisers, including Pepsi-Cola and Coca-Cola, to warn the television industry that they will want to negotiate lower advertising rates once penetration of the market by video recorders reaches 10070 or eight million machines.

(Penetration of the market now is estimated at about 4.3070.)

The congressional solutions submitted are based on these economic points of view. Each side is submitting that they will suffer economic loss if the situation is not resolved in their favor. Each side is pressing Congress and the Court to regulate the marketplace, an area traditionally reserved for self-regulation based on progress and technological advancement. In the context of these concerns, the Court will hear this case. It will hear it in two languages; that of economics and that of artistic protection. One is practical, one is esotericaL One is realistic, one is dramatic.

Sony's defense is grounded in the doctrine of "fair use" and in First Amendment guarantees. Sony bases its argument on the "understanding of the public's right to receive free off-the-air TV." (Sony's brief) According to Sony, "Universal and Disney have no control over the segment of the population which may view the program ... The privilege of receiving the broadcast electronic (continued on page 13)

HENRY X. O'BRIEN Juris Interviews the Chief Justice

BY HENRY M. SNEATH Chief Jusfice 0 'Brien was born in Pittsburgh in 1903 and was educated in the city's public schools. He graduared from Duquesne University (B.S.) in 1926, and from its school of law (LL B.) in 1929. He served as .Assistant District A (forney for Allegheny County, and was elected fo the Court of Common Pleas of this county in 1947. After two full terms on the Common Pleas bench, he was elected fa the ,""tate Supreme Court in 1961. During his judicial career he taught at Duquesne University's School of Law, and was at one time the Chairman of the Faculty. Chief Justice O'Brien has received numerous awards and has served on the boards of iHercy Hospital, the Association of the Blind, St. Paul's Orphanage, the ['1.Iuself/ar Disfrophy Association, Duquesne University, and Seton Hill College. He is married and has two children. Chief Justice O'Brien refired from the Pennsylvania Supreme Court on December 31, 1982, after twenty-one years of disringuished service.

Juris: Justice O'Brien, when did you first attend Duquesne University as a student? Was it grade school or prep school?

Justice O'Brien: Prep School in 1918. I went to prep school there, which they don't have now. They've eliminated the prep school which was up on the bluff. The bluff looked a whole lot different than it looks now.

Matter of fact, where Canevin Hall is presently situated was a stable with manure piled around and the houses were old and in poor condition, although that area had been a very elegant place at one time, about the turn of the century. It was a lovely place up there.

Juris: And that was night school back then, wasn't it?

Justice O'Brien: Yes, it was all night school back then, Juris: Did you work when you were going to law school?

Justice O'Brien: Yes. I was in a law firm.

Juris: Were you a clerk, or what did you do?

Justice O'Brien: Anything that had to be done.

Juris: What did a clerk do in those days?

Justice O'Brien: Some of the same as you do today. Research, filing papers, checking on dates when they had to be filed. That sort of thing. I interviewed some witnesses and got their statements. That was the principle thing.

Juris: When you graduated from law school, did you teach?

Justice O'Brien: No, I didn't teach right away, I graduated from law school in 1928. I was on the faculty from 1945 to 1960 and during that time Dean Brophy died and I took over as the acting Dean. I was also a department head and chairman of the faculty at the time.

Juris: Tell me about your law school experience. Was it pretty tough in those days?

Justice O'Brien: Yes, it was tough and generally the classes were small, so you had to be prepared. We used

textbooks rather than the Cd~,t:[JDn. although we did have some books. The casebooks carne around 1960. We were taught practicing attorneys or judges the exception of one man who Professor Lacey who had been aj school ever since it was a law in 1911. We essentially got what Bar Association is now putting as the "practicum." Or at least PA Bar Association is working up now to give the students an tunity to learn how to apply the and where to go to file papers, schedule hearings and that sort thing - in other words, the nuts bolts of the practice of law that don't get in law school. The PA working on that now and I've going over it and studying it.

Juris: Are they going to institute now? The practicum?

Justice O'Brien: Yes, they're about it and last month the PA Association Executive and officers had a working the LeMont where we went over matter or rather I should say, it presented to us by Mr. Unkovic of Bar who is the head of it and a by the name of Lackne-F and two other young lawyers who on this thing and have done a mendous amount of work, and very fine work. So it is something I think will catch ahold.

Juris: Did you have a practicum in the days when you were in school?

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O'Brien: Well, it was evening 5:30-7:30 and most of us were law office during the day. We getting it there. And, of course, teachers we had at Duquesne were practicing lawyers or judges, and would get it incidentally in the of law. : Do you think that law students should work while they're to school?

O'Brien: Well, yes, but it on the individual. The first is your law school. There's more work to do now in law than there used to be. And we worked in the law office we a lot of time to study and we ~ere the practicum there because were right in the practice and with lawyers.

Do you think the school forbid students from working?

O'Brien: No, certainly not. I 't think they should forbid it.

So you think students should Ie to work if they want to?

O'Brien: If they want to and they're able to carry their subjects do well in law school, that's the priority. See now, you're taught professors who are not practicing . That's been the change since days when I went there and that's the Bar Association believes that practicum will fill that void. you know how to apply the where to go to see that it is propon its way to where it's going to decided, you get something in to the theory, so it's a good to be affiliated with a law ofbut it's up to the individual. can handle it, others can't. So 's one of the things each indimust decide for himself. As I , though, the first priority is the school. : Chief, when were you elected the Supreme Court?

O'Brien: To the Supreme. was 1961.

Do you think the election is viable for judicial candiDo you think the people can an educated decision? The are not allowed to campaign particular issues. They're not in the campaigning to say, for abortion, I'm against aboror I'm for this or for that.

O'Brien: No, they're not because that's really not their

Juris: Well, what are people voting on, what do people supposedly vote on?

Justice O'Brien: Well, that's just it, abortion or non-abortion, and the death penalty and that sort of thing.

That's a legislative matter, but in campaigning so many times those things are brought in.

Juris: So we know how they all stand even though we're not supposed to?

Justice O'Brien: That's right. The truth stands on the evidence and the legislation.

Juris: Which system would you prefer to see? The merit-selection or the election process or perhaps something different?

Justice O'Brien: Well, for the time being I think the election process within the judicial district but on a statewide level I would be for some type of merit selection that would really be a merit selection and not just in name alone. And that would be the biggest problem ... to set up a real merit selection system.

Juris: How could that be done? Do you know anyway to set that up?

Justice O'Brien: There are so many different ways that it might be done by different committees and people who might know the candidates throughout the state or have some means of determining their reputation in their localities. It would take a great deal of work. Bar Associations could help. They would be a great assistance.

Juris: Do you think that politics can ever be removed from the judicial system. No matter what kind of method we use?

Justice O'Brien: I doubt if politics can be removed from the American system of government.

Juris: And it can't be removed from selecting judges?

Justice O'Brien: No, it can't be removed. You can eliminate some of the politics where people get in for ulterior purposes but you can't eliminate politics. But, politics is not a dirty word because politics is what this country was founded on. You have to have politics. Generally, people have the connotation of politics as something dirty and something that pulls government down but that is not the case generally.

Juris: What made you want to become a judge? You were on the common pleas bench for a time.

Justice O'Brien: Yes I was.

Juris: When were you on that bench?

Justice O'Brien: I went on in 1947 and then went on the Supreme Court in 1962.

Juris: So you were on common pleas from 47 until 62. Well, what made you decide to be a judge? Why did you want to become a judge?

Justice O'Brien: Well, I think I just had a penchant for that. I like to practice law, it was diversified and sitting on the bench I thought would be a contribution that I could make. I had ideas of morality and theory of the law and that sort of thing.

Juris: You thought on the bench you could contribute more than you could in practice?

Justice O'Brien: Yes, I thought so.

Juris: How is being Chief different than just being a justice?

Justice O'Brien: The Chief Justice is a chief administrative office and the administrative work is just killing.

The administrative work, as Harry Truman said, the buck stops here.

There are certain things you can take up with the Court, other things you have to do yourself and the administrative part is the killing part, even though we have a good state court administrator's office. It's a great office because we have this unified judicial system which comes very much like a pyramid. It comes up to the top and the Chief Justice is the one who has to make these decisions when it comes to the matter of administrative work. We have so many different committees and they're not paid although many of the committees have staff to do the work who are paid and all of these people report to the Chief Justice on what you're going to do and that sort of thing; what the policy shall be. It's greatly different than being a justice.

Juris: What is the most memorable experience you've had on the bench?

Is there one incident in particular that you remember?

Justice O'Brien: There are so many of them but one of the things involves Justice Musmano. I came on the bench and was with him on common pleas court for awhile. And during the days of the communist activities he engineered a raid on Communist headquarters right across from CityCounty Building. That's the parking lot now. That building is down now, as are all the other buildings that were (continued on page 16}

Third World Perspective: COMMENTS BY FATHER PATRICK BASCIO he following interview was conducted with Father Bascio during a recent visit to Pittsburgh. Ordained a Catholic priest in 1955, Patrick Bascio of the Holy Ghost Fathers has a diverse background of education and experience. He began his ministry in the inner city parishes of Harlem and Brooklyn, New York. Later he served as a missionary in Tanzania, East Africa. Also, he was a pastor of churches on the Caribbean islands of Carriacou and Grenada. In addition to joining the local black power movement there, Father Pat was on the faculty of the Seminal~v for the Eastern Caribbean Islands, where he taught a comparative study of capitalism, socialism, and Marxism; he also lectured on the Swahili language. His work led him into politics, and in 1974, Eric Gairy, the prime minister of Grenada, invited Father Bascio to head that country's first diplomatic entourage to the General Assembly of the United Nations. His wrifings include The U. N. JVas My Parish (Dimension Books) and Building a Just Society (Orb is Books); he is currently writing a historical novel on the life of Karl Alarx. Father Pat has now returned to Harlem as the pastor of St. Marks.

The theme of Father Bascio's work and life has been the welfare of the individual through the promulgation of different economic systems. Naturally, this has led to an examination of a competitive system versus a sharing economy. Both systems have different attitudes toward the individual and injustices that can arise in either system. Addressing a whole economic-political system in concern for the individual is always a large task; it involves insurmountable jumps between the ideal and reality, collective and individual rights, society and the person.

As an economist, Father Bascio would make a distinction between political communism and the l'vlarxism vision. His primary concern is that the merging of the two concepts often lead, to a misinterpretation of the fundamental Marxist principles. This led to the writing of Building A Just Society.

This interview crosses on many paths and does not attempt to present cut and dried answers. These are ideas only in flux. The issues Father Bascio deals with should not be seen as presenting him as a proponent of a specific vision or economic system.

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J.M.: If you were going to describe in a nutshell the meaning of your book, Building A Just Society, what would you say?

BASCIO: My purpose was to present Marx without the emotional code words; present him in his humanity. All his economic writings were dedicated to the common man. It is painful to hear him misquoted. Neither do I see Marx as infallible. I agree that much of his writing needs modification, re-thinking, and, in some cases, outright rejection.

J.M.: On page 79 of this book, you make the statement; "In short, Western society, for all its rhetoric, has no ambition of bringing about self-sustaining economic growth in any underdeveloped nation. Self-sustaining economic growth means progressive economic independence and is precisely what the multi-national corporation will fight to the death. And use the C.I.A. to see to it that underdevelopment remains a permanent condition throughout the non-industrialized world." That is a powerful statement. Do you expect to be taken seriously?

BASCIO: There are really two questions there: one, is about the fact that multi-national corporations will see to it that third-world countries remain underdeveloped. The second part is the C. LA. will help them. Multi-national corporations have a policy of keeping an underdeveloped country underdeveloped. There is an expression in the

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third world among government and business people that "they won't give us the machine!" What they mean by that is multi-national corporations will locate facilitiesin the third world because of cheap manpower, wages are low. But anything to do with the technical aspects of their operation is normally run by somebody from a developed country. Then the machine itself is never left there. When they close down, they never leave the machine. They would never allow the third world to buy the machine and set-~P their own factory. That is simplified, of course. You Will never see a deal made where this corporation sells the en~ tire operation and is managed by skilled people that country. That is a policy with the purpose of limi~in~ competition. It would be self-destructive to allow a third" world country to produce on its own.

The C.I.A. has been used, selectively, to protect terest of large American corporations. The Chilean case a perfect example. .

J.M.: Chile?

BASCIO: Chile is a perfect example. We know The declared aim of Allende was to establish sustaining economic growth. The economic rivalry means is too much a threat in a competition-based economy to allow it to emerge that way with its for the whole third world.

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SCIO: Yes, large corporations initiate economic make a dent in unemployment, and teach skills for a third-world economy to complete. In this the corporation is a benefit.

The problem lies with the fact that it is not the economy the host country that is uppermost in the corporate nd. At any given time. if profits would be higher elseâ&#x20AC;˘ the corporation will close down the operation and elsewhere - leaving a disrupted economy in its Much of this happens right here at home: steel mills, factories. etc. : You refer to the C.I.A. officer in the book who you: "I am seriously considering retirement Father, what J was told today, they have taken away our rity to assassinate." Does this tie in with what you . ? saYlllg.

It does. In his case you must know this man was dedicated Catholic, he ran the religious education proin a parish church. He had problems related to the head of the c.1.A. Gradually he started to tell me he very disturbed because the United States was a Chrisnation, and he was helping to keep the world safe for racy. He was proud to be a member of the C.I.A. agency was starting to come out with a new set of ",~'HU'-H"''-~ and the authority to assassinate was removed. decided he had had it. He felt the United States had a mission to the world and he was fulfilling that the Agency.

There is something wrong with a view of Christianity could allow such an obscene vision as good. ;Uf"Lv'''''''''':

,J.M.: Your writing brings out that the Church's attitude is similar. As an international speaker she is very for whatever system she blesses. Does the Church with capitalism?

Generally the Church has because it sees the part: not too much interference from the government. is changing.

How do you see it changing?

BASCIO: I see it changing in the attitude toward the economic interpretation of capitalism. Certainly I not want to see the Church identified with political communism. Stalin is an example. But there are aspects of which have brought out the morally bankrupt of capitalism which has seeds of injustice. The

VIDEO RECORDING from page 9)

and of converting them into sights and sounds of the program to all members of the public have the means of doing SO." of th~ public who have the of doing so are those who own recorders, a group growing in each year. asserting their constitutional Sony cites Red Lion I:Jrc'ad4;:aSJttng Co. v. FCC, 395 U.S. (1969). The Red Lion decision

motivation for work in our society is money. Marx sees this as having a debilitating affect on a man. His analysis, I believe is the correct analysis. Mostly, Marxism is a code word meaning something bad in the Christian community. [t is identified with the repression in Poland. I am sure Marx would be as horrified as we are as to what is taking place in Poland; neither would he nor I defend a right-wing dictator in a Catholic country because he goes to Mass.

J.M.: Hans Kung in his magnum opus, On Being a Christian, holds that the cause of man is the cause of God, and the cause of God is the cause of man; they are the same concept as the main message of Christianity. Would you like a return to this simpler idea?

BASCIO: Yes, we should not be too identified with anything. We should constantly be reviewing and analyzing to see if that society produces the Christian man. It is hard to do that in a society where dog is eating dog. The Church's task is not so much to approve or condemn an economic system, as to provide the spiritual initiative to assist all of us in building a just society, based on the Gospel message.

J.M.: How do you see the Church moving away from support for capitalism?

BASCIO: I see the Church moving more in this direction, not because of the current Pope, but because of a movement started by John XXIIl himself. He spoke about the evils of capitalism and the movement toward socialization.

That is a relative term for him, meaning somehow restructuring your economy. It is a challenge to us to come tip with a society where there would be peace and justice.

J.M.: Away from society and the Church, how do you see the Holy Ghost Fathers moving with the third world?

BASCIO: It is very exciting. Our whole process is toward a study of economic structures, to comment on them from a Christian perspective, and all that that entails: aiding people in all the aspects of their Jives.

J.M.: Is there something you would like to say to lawyers?

BASCIO: There is a growing social consciousness in the legal profession. It is a nice thing to see: people inspired to give professional help to the disadvantaged.

J.M.: If you were going to give a spiritual message, what would that be?

BASCIO: To a law student, I would say be imbued with the Church of today which is concerned with the total man and woman. You will find many areas where this can then be applied.

concerned the right of the government to control the electronic media.

The case challenged the right of the FCC to require broadcasters to adhere to the "fairness doctrine", which required broadcasters to provide reply time to the public in cases involving personal or political editorial attacks. In Red Lion, the petitioner operated a radio station under a FCC license. During a broadcast program, the announcer verbally attacked a particular author. The author demanded time to reply and

the station refused. The author filed a complaint with the FCC and the FCC required the station to provide the time. The radio station went to court and eventually was granted certiorari by the Supreme Court. The Court upheld the FCC requirement.

Recognizing the right of the listener or viewer over that of the broadcaster, the Court held that broadcasters have a fiduciary duty to the public and because of that duty are required by the "fairness doctrine" to provide time for replies to such attacks. (continued

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page 16)

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plied with the I.:apital expenditure test. "2, In a subsequent ruling, the I. R.S. identified the prior user of a facility that was designed for use as one store in a shopping center development plan. In that case, the developer held title to the land upon which the store was to be constructed. A corporation, which was not related to the developer, was to use the store and agreed to lease the site from the developer for a term of fifty years. A municipality intended to issue IDBs to finance construction of the store.

Under these circumstances, the l.R.S. specifically held lhat the developer was not a principal user of the store, but rather that the corporation was the principal user. 29 "In each case, only those parties actively using the facility were held to be principal users. Thus, it would appear that some form of actual use is required in order to be designated as a principal user. "'0 The designation of a company as a principal user of a facility can have far-reaching effects.

Such a company may find it cannot make further use of IDBs because its status as a principal user of certain facilities has caused the aggregation of outstanding prior issues to exceed the mandatory limitations. Similarly, the aggregation of certain capital expenditures, occasioned by a determination of principal user status, could result in the loss of tax exemption on outstanding lDBs. Capital Expenditures

ccording to I.R.C. 103 (D), the issuer of bonds is reA quired to make a special election in ยง

(b) (6)

order to increase the IDB limit to $10 million from the standard $1 million exemption. Once this election is made, it cannot be revoked. In addition to meeting general requirements for IDBs, the issue must also meet the "capital expenditure" test. Generally, a capital expenditure is one which materially adds to the value of, or prolongs the useful life of, the property, and is charged off through depreciation. Whether or not an expenditure is a capital expenditure, is determined under general income tax principles without regard to any special provisions of the Code.; I An important aspect of capital expenditures relates to tenant equipment, fixtures, and improvements, either in the project itself or in other facilities. Even if one is not a prinโ ข

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cipal user of another facility in which he is the owner or has a right of occupancy, all equipment, fixtures, and improvements made by the principal user must be counted as capital expenditures. '2 The capital expenditures which must be included in the aggregate face amount of the $10 million small issue are those expenditures made during the period on any bond-financed facility located within the same municipality and which are used principally by the user of the bond-financed facility.

Revenue Ruling 80-162, 1980-1 C.B.26 wnccrned the question of what constitutes a capital expenditure within the meaning of ยง 103 (b) (6) (D) (ii) for purposes of determining whether the exempt small issue limitation of $10 million had been exceeded. In January of 1979, a city issued IDBs in the amount of $9,500,000 to finance the acquisition of an existing manufacturing facility.

In 1980, the user of the facility ordered custom-made equipment to expand operations at the facility and paid $600,000 of its own funds as a down payment and deposit. When the user discovered that the equipment purchased would be treated as a capital expenditure for purposes of ยง 103 (b) (6) (D) and perhaps cause the $10 million limitation to be exceeded, it immediately entered into an agreement with an unrelated corporation under which the latter corporation would purchase the equipment.

The Service held that the down payment and deposit were not capital expenditures by the user because the user did not purchase, acquire, or take delivery of any of [he equipment prior to the termination of the purchase contract. 11 "For planning purposes, a company must monitor its other company affiliations, business practices, and expenditures for the six-year period beginning three years before the date of issuance of the bonds and ending three years after issuance." '4 To the extent that the capital expenditure is incurred during the applicable time period, the expenditure will be included in the test. The failure to consider the timing of proposed transactions can cause the loss of the taxexempt features of the bond.

Current Legislation

espite the 1968 restrictions as codified in I.R.C. 103 the D volume ofIDBs has grown rapidly. In ยง

(b),

1981, new issues totaled $21.2 billion,

for such purposes as housing, tion control, and small issue Between 1976 and 1981, new' private purpose bonds rose 25 each year, while traditional m bonds to finance roads, schools, other public improvements grew one percent each year. ]n private purpose bonds accounted ,,,,.g'," 24 percent of the tax-exempt By 1981, their share had doubled 48 percent."

Congress was concerned tha! rapid growth in IDBs and the ing revenue loss from private tax-exempt bonds had a significant narrowing of the, ference in interest rates between exempt and taxable bonds, more expensive for state and governments to finance public projects. Congress believe, new restrictions in the 1982 Equity and Fiscal Responsibility will restore the benefits of financing for traditional ITA'H""'''''''''''''' purposes. 36 Proponents while acknowledging some loss to the Treasury, maintain any initial loss is more than increases in economic activity

by IDBs. As the volume of IDB creased in the 1970's, its use panded well beyond what the felt was proper for lax-exempt Car dealerships, fast-food health clubs, ski lodges, and profit hospitals were financed lOBs. There have even been u' l~""U},Vlf, where local development have issued bonds to finance businesses as pornographic stores and topless bars.

Meanwhile, a few large tions with many low-cost outlets made use of the small issue K-Mart, the nation's second retailer, used $220.5 million in between 1975 and 1980, to stores in 19 states, the Congressional Budget Office.

Donald's used tax-free " bonds" to open 32 resta Pennsylvania and Ohio in Other large users of small issue are Eckerd Drug Stores, Beatrice Foods, Burlington tries, General Mills, Pepisco, and Proctor and Attempts were made to abuse of LDBs in the 1981 iVH.'"'''''' ous Tax Amendment (H.R. 47 banning use of tax-exempt for the kinds of projects which

the worst publicity. These ingolf courses, country clubs, parlors, tennis clubs, skating , ski resorts, racquet clubs, hot suntan facilities, and race18. The 1982 legislation is more ive. The small issue exemption obligation issued after Sep30, 1986 will be terminated.

C. § 103 (b) (6) (N) as amended 214 (c). Additionally, the small exemption will not be available issued after 1982 if more 25 percent of the proceeds of the are used to develop such busias retail food and beverage serautomobile sales or service, or entertainment. It should that "retail food and beverservices" includes eating and places, but does not include stores. ion from the IDB community been varied. "The opposition that IDBs are driving up inrates on traditional municipal and further denies that IDBs costing the Treasury pots of ey."39 Missouri Governor her S. Bond told the House and Means Committee that the Federal government elimimost economic development IDBs become almost the

Kasicky, counsel to the AlleCounty Industrial DevelopAuthority said, "job developis a primary purpose of IDB ation. Fast-food restaurants have enough resources to finance ects without the need for IDBs, also create many jobs.'''' nearly all of the McDonald's in Allegheny County in years are IDA projects, each creates 80 to 100 full-time and jobs. As Stephen M. of ACIDA points out, it is u .. ,uW"',", to expect each and every created to be a high paying posi. Barrouk's personal feeling is the "federal government elimithe entire restaurant financing in order to rid itself of the "LJVH.o<".,-type abuses. "42 Another change in the 1982 Act is related to "composite issues", are those which one bond is to finance a number of projwithin a single jurisdiction. This often done in the past to consoli-

date a number of smaller IDBs. The I.R.S. today will no longer honor such composite issues. A company is now eligible for only one facility per bond issue. 43 In addition, loans are to be limited to $1 million or less unless they are for airport or pollution control facilities. Finally, the highest elected officials in a municipality must approve the projects. However, insofar as the Allegheny County Commissioners have always been active in IDA affairs, this requirement does not change the practical methods in ACIDA operations.

Industrial development bonds have been useful vehicles for financing the deVelopment and expansion of private business. With double-digit unemployment, the beneficiaries can be the businesses, and the local governments as well as the employees. The 1982 Act, however, may impose restrictions on the use of small issue IDBs for the health of the Treasury but at the expense of a crucial source of financing for jobcreating development projects.

FOOTNOTES I Gray & Spina, "State & Local In· dustrial Location Incentives A Well-Stocked Candy Store," 5 The Journal of Corporation Law at 532 (Spring, 1980).

2 [d. at 539.

3 Roberts, "Industrial Development Bond Financing: Section 103 (b) Examined," 32 U. Fla. L. Rev. 1, 4 (1980).

• Gray & Spina, Supra at 550.

I Hellige, "Industrial Development Bonds: The Disclosure Dilemma," 5 The Journal of Corporation Law at315 (Winter, 1981).

6 Stewart, "Small Issue Industrial Development Bonds: The Growing Abuse, " 39 Wash. & Lee L. Rev. at 230, 231 (Winter 1982).

Gray & Spina, Supra at 535. , Pierson, "Tax-Exempt Bonds: A Status Report," 15 Tax Notes, 435 at 436 (No.6 May 10, 1982).

9 Hellige, Supra at 301.

10 [d. at 308. " The Pennsylvania Economy League (Western Division), "A Study of the Economic Impact of Projects Financed Through the Allegheny County Industrial Developement Authority," at 20 (May, 1982).

12 Claire Simmons, "County Projects Get Tax-Exempt Financing," The Pittsburgh Business Times at 1 Sept. 13 -19, 1982.

16

The Pennsylvania Economy League, Supra at 38.

Interview with Stephen M. Barrouk, Executive Director, Allegheny County Industrial Development Authority (October 14, 1982). [d. [d.

17

Continental Bank

IJ

14

15

v.

U.S. 1-2

USTC (1981) 517 F. Supp. 918 (E.D. Pa.) at 87892.

18 Gray & Spina, Supra at 530.

19 Federal Tax Coordinator 2d (1982) at 30. 39.

Treas. Reg. § 1.103-7 (b) (1) (i); I.R.S. Code § 103 (b) (2) (A).

Treas. Reg. § 1.103-7 (b) (3) (iii).

22 I.R.S. Code § 103 (b) (A) (1) (ii).

23 Klaiman, "Tax-Exempt Financing With Industrial Development Bonds," 5 ALl-ABA Course Materials 76 (No.5 1981).

2. Roberts, Supra at 150.

11 Klaiman, Supra at 71,77,78.

26 Roberts, Supra at 36, & n. 165.

27 Russell, "The Importance of Assessing Business Transactions For Their Impact Upon The TaxExempt Status of Industrial Development Bonds," 30 Syracuse L. Rev. 705 at 722n.78 , 723 n.79&80 (1979).

H [d. at 723 n. 81 (1979).

29 !d. at 723 n.n. 82-84 (1979).

30 [d. at 724 n. 86 (1979).

J I Podolin & 0' Leary "Capital Expenditure Problems Under The Ten Million Dollar Exemption for Jndustrial Development Bonds," 33 Tax Lawyer, 153, 155 & 155n.

IO(No.11979).

32 Klaiman, Supra at 84.

33 Committee on Tax-Exempt Financing, 34 Tax Lawyer 1350, at 1353 (No.4, Summer 1981).

34 Russell, Supra at 733n. 130 (1979); Treas. Reg. 1.103-10 (b) (2) (b) (ii) (a), T.D. 7199, 1972-2 CoB. 45.

35 Pierson, Supra at 436.

36 The RIA Complete Analysis of The 1982 Tax Equity and Fiscal Responsibility Act, Federal Tax Coordinator 2d, September 15, 1982 at 71.

37 Pierson, Supra at 436.

H [d. at 438.

39 [d.

40 [d.

41 Interview with Paul Kasicky, Esq., Counsel To The Allegheny County Industrial Development Authority (October 14, 1982).

42 Interview with Stephen M. Barrouk, Supra.

43 Id.

15

HOME VIDEO RECORDING (confirmed from page 13)

"The First Amendment is relevant to public broadcasting, but it is the right of the viewing and listening public, and not the right of the broadcasters which is paramount." Red Lion at 368. "It is the purpose of the First Amendment to preserve an uninhibited marketplace of ideas in which truth will ultimately prevail, rather than to countenance monopoly, whether it be by the government or a private license." Red Lion at 390, citing Associated Press v. United States, 326 U.S. 1 (1945), New York Times v. Sullivan, 376 U.S. 354 (1964).

The Court in Red Lion recognized that the First Amendment is relevant to broadcasting, but it also recognized that the characteristics of the medium were different and justified applying different standards. It is the application of these different standards the Court will struggle with here.

"The importance of free off-theair TV to the American way of life coupled with various pronouncements of this Court over the years, suggest that the public's entitlement to receive TV for personal use in the privacy of the home approaches ... the status of a First Amendment right. "6 The motion picture industry respondents reject this First Amendment argument. Universal and Disney, in their joint brief, state that ;'the free speech guarantee is not a license to trammel on legally recognized rights of intellectual property."?

The appellate court in Universal City Studios, acknowledge these contrasting philosophies. "Despite what is said in some of the authorities that the author's interest in securing an economic reward for his labors is a secondary consideration, it is clear that the real purpose of the copyright scheme is to encourage works of intellect, and that this purpose is to be achieved by reliance on the economic incentives granted to authors and inventors by the copyright scheme. This scheme relies 011 the author to promote the progress of science by permitting him to control the cost and access to his novelty. It is based on the premise that the exclusive right granted by the copyright laws will not impose unacceptable costs to society in terms of limiting access to published works or pricing them too high." Id. at 965.

The economic incentive provided by the copyright laws is not the same economic argument being made by the entertainment industry here. The legislative purpose seeks to invite innovation and artistic challenge; the purpose of the respondents is one in pursuit of profit. A few years in any size television market, large or small, will teach one important lesson that television, more than anything else, is a business. Because it is a business, its major concern is in turning a profit.

Home video recording does pose a threat to the billion dollar revenues that pour into commercial bwadcasting coffers. It is not a new threat. In this sense, it is a cost. That cost, that harm, must be weighed against the benefits which increased access to copyright works will provide.

Increased access to copyrighted works for private viewing in the home will not deprive the copyright holder of his economic incentive. Broadcasters negotiate with producers for programming rights. The copyright holder is well compensated. Rather, home video recording will further the legislative intent to preserve and encourage works of art. Home video recording has met the challenge of copyright laws. It is time for the laws to encompass technology.

FOOTNOTES J Broadcasting "Will the Supreme Court erase home videotaping?"

June 21, 1982; p. 26 , Ibid. p. 26 3 Ibid. p. 26 4 Ibid. p. 26 , fbid. p. 26 6 Broadcasting, "Law & Regulation" Nov. 8, 1982 p. 89, citing

Red Lion Broadcasting Co. v.

FCC, 395 U.S. 367, 376-377 (1969) 7

JURIS INTeRVIEW ••• (L'onJinuea /rom

.

•

T ypogra;;lcy a'lC L,·[-·og· apc:y cy JOSep,"1 0 ,_a~~e')~ & Assoc,ates

PA

Ibid. p. 89

POSTAGE REQUIRED

page II)

around there. Anyway, raid there along with government. They had about these people so they the raid, and the case was in criminal court. I W1IiJPt:lllZU. t sitting in criminal court. started and these charged with sedition. It months. I sat on that. It trial and I certainly thing about communism all the evidence that went was a tremendous amount might guess in an 8 month then it went to the U.S Court where it was knock: cause they had usurped the the federal government..

Juris: How did the case Justice O'Brien: Well it being discharged. Because federal decision to treat all that belong exclusively to government and this them.

Juris: Are you looking retiring?

Justice O'Brien: Well, I feelings about that, but looking forward to fetiri have so many things to want to do, and that I ,,~,.'''-'+ able to do.

Juris! justice O'Brien, wilI at all?

Justice O'Brien: Yeah, I'm up for a awhile, but I certain amount of time, anxious· to do something.

~OR

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