SPEAKERS CONTENTS INSERTS
Page 1 TOP OF DOCMUSIC LICENSING IN RESTAURANTS AND RETAIL AND OTHER ESTABLISHMENTS
THURSDAY, JULY 17, 1997
House of Representatives,
Subcommittee on Courts and Intellectual Property,
Committee on the Judiciary,
The subcommittee met, pursuant to notice, at 9 a.m., in room 2141, Rayburn House Office Building, Hon. Howard Coble (chairman of the subcommittee) presiding.
Present: Representatives Howard Coble, F. James Sensenbrenner, Jr., Bob Goodlatte, Sunny Bono, Edward A. Pease, Christopher B. Cannon, Bill McCollum, Barney Frank, Howard L. Berman, Zoe Lofgren, and William D. Delahunt.
Also present: Debbie Laman, counsel; Mitch Glazier, chief counsel; Blaine Merritt, counsel; Vince Garlock, counsel; Eunice Goldring, staff assistant; Robert Raben, minority counsel; Stephanie Peters, minority counsel; and Michael Seggerson, intern.
OPENING STATEMENT OF CHAIRMAN COBLE
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Mr. COBLE. The Subcommittee on Courts and Intellectual Property will come to order.
Permit me to visit informally a minute before we get started; I'll share with you all what I said at our fairly recently-conducted meeting at Nashville. I told the folks gathered there that many of us in the Congress oftentimes, if we want to seek a convenient way to avoid an issue, particularly an issue that is controversial, we will simply say, ''Oh, I don't have a dog in that fight,'' and withdraw from the scene.
Regarding this issue at hand, folks, I have nothing but dogs in this fight and all friendly dogsnot friendly to one another in many instances, but friendly to me, which of course compounds the problem. For the past 2 1/2 to 3 weeks, I have had no fewer than 15 people call me with their requestsperhaps ''direction'' might be a better word. Their orders have involved these two situations: ''Now, Coble, I am expecting you to get this bill killed,'' on the one hand. On the other hand, ''Now, Coble, I am counting on you to get this bill out before the full committee and on the floor and into law before the end of this year.''
Well, now, folks, I don't see that as my role as chairman. I see my role as chairman, and the subcommittee's for that matter, to conduct an open and fair hearing and to engage in dialog and to try to work through this and resolve it. It is an issue that needs to be resolved. If I had my druthers, I would take the parties at hand, my ''friendly dogs,'' that is, and take them to the woodshed and confine them therein until they had an agreement. Then we would go on about our business. I would rather not even be involved in this, but it appears that we are going to have to be.
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Now, having said that, it is good to have all of you here. I hope that we can get through here. I'm going to request of my colleagues on the subcommittee and the witnesses who come to testify, to try to operate under the 5-minute rule. Now that's not to say that we're going to impose a muzzle up on your respective chin if you go over 5 minutes. I would be appreciative to you if you could stay within the 5-minute timeframe because we have three panels today, and we're going to be working under a short leash. Be advised that your written statements will be made a part of the record, and they will not be summarily ignored. They will be studied very thoroughly.
Now, having said that, let me share with you a prepared statement.
Our subcommittee today is conducting an oversight hearing on music licensing and restaurant and retail and other establishments. The Copyright Act grants to copyright owners the exclusive right to perform or to authorize others to perform publicly their works. When a restaurant or retail or other establishment turns on a radio or television set for the benefit of its customers, that constitutes a public performance of copyrighted works under current law. Unless an exemption applies, the copyright owner of a work that is publicly performed on television or radio has the right, under current law, to receive compensation for the performance of that work.
The Copyright Act does contain a number of exemptions. Section 110(5) exempts those public communications or transmissions of a performance that are on a single receiving apparatus of a kind commonly used in private homes. This basic exemption does not apply, however, if there is a direct charge to hear or see the transmission or it is further transmitted to the public. This is commonly called the homestyle exemption, known, I'm sure, to many of you in the audience.
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The Music Licensing Fairness Coalition, which represents several restaurant, tavern, retail, and other establishment groups, supports expanding section 110(5) exemption. The Coalition proposes to exempt restaurants, taverns, retail, and other establishments from paying licensing fees for performances broadcast over radio and television equipment unless the operation of the radio or television set is not incidental to the purpose of the establishment or there is a direct charge to hear or see the broadcast.
The performing rights societiesASCAP, BMI, and SESACoppose this effort. They counter that the music aired in restaurants, bars, and retail and other establishments is integral to enhance sales and draw customers and that authors deserve to be compensated for such public performances of their respective works.
The Coalition also supports legislation that would allow music users to arbitrate the licensing fees charged by the performing rights societies under the auspices of the local district courts. Because the U.S. District Court for the Southern District of New York retains jurisdiction over the consent decree under which ASCAP and BMI operate, any challenge to the rates charged by those societies must be brought in that court. Restaurants, taverns, and small business owners argue that the legal fees and expenses associated with travelling to the rate court in New York make any challenge a virtually impossible option, particularly to the small operators.
Under the consent decree, ASCAP and BMI are required to treat all similarly-situated music users alike. They argue that allowing users to arbitrate rates in various local district courts would result in inconsistent rulings, thereby placing them in violation of the consent decree.
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Now, I have talked informally with some of you, and I have mentioned the proposal that would require a judge from the southern district of New York to travel to four or five different geographic locations across the country over a course of a set period time, 1 or 2 years, depending upon the docket back in the second district. This would allow the rate court in New York to retain jurisdiction over the consent decree and therefore assure uniformity. But it would also give music users a less expensive and time-consuming means of challenging rates, since they would then be able to file in a region closer to their respective homes or businesses.
And I may ask for some comments on that proposal as we proceed in this hearing today. It has always bothered me that there is one place, and only one place, where people can go regarding the arbitration process. We will also hear testimony about the recent commercial agreement reached between the National License Beverage Association and the performing rights societies. Under this agreement, certain establishments would receive an exemption from paying a licensing fee, or in the alternative, eligibility for reduced rates. This was agreed to privately by the parties with no legislation.
I look forward to a productive hearing today. And I know that Mr. Frank will be on his way, but I now recognize the gentleman from Massachusetts, Mr. Delahunt, for an opening statement.
Mr. DELAHUNT. Well, thank you, Mr. Chairman. I will waive my opening statement. I know that the ranking member had planned to be here; however, there is a whip meeting, and it's my understanding that he will be along shortly.
Page 6 PREV PAGE TOP OF DOC Mr. SENSENBRENNER. Mr. Chairman.
Mr. COBLE. Yes, sir, I will recognize the gentleman from Wisconsin. But before I do that, I want to indicate that Mr. Frank, ranking member of the subcommittee, and I are in agreement that when a designated hour appears and you all have responded to that, we don't need to keep you waiting. So, that's why we are starting in a timely fashion this morning.
I now recognize the gentleman from Wisconsin, Mr. Sensenbrenner.
Mr. SENSENBRENNER. Thank you very much, Mr. Chairman, for holding today's oversight hearing on the question of fairness in music licensing. Coincidentally, I have introduced legislation by this very name.
Fairness in music licensing originally caught my attention when tavern-keepers situated around Pewaukee Lake in my district were visited by an ASCAP representative and told to pay up. If they had a problem, they were told to call their Congressman. Several did just that, and together we got an education into the collection practices of the ''performance rights organizations.''
What we learned was disturbing. Despite consent decrees designed to limit ASCAP and BMI's market power, in the 1976 Copyright Act's attempt to address music licensing disputes, these organizations function like an unregulated utility. It is important that this issue of fairness be considered in context, primarily in the context of both antitrust and copyright. The question before the committee is not whether authors and publishers should be paid for their intellectual property. Mr. Davis, Mr. Holyfield, and my colleague Sonny Bono all deserve compensation for their musical properties. The issue is whether the process which determines how and how much they are paid is fair both to the seller and to the buyer.
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My conclusion is that the process delineated by the consent decrees and governed by ASCAP's home town rate court and the Department of Justice, that for decades has had other priorities, has gone astray and does not work for the smallest users of music, including those who will come before us today.
Opponents of the changes I have recommended made claims that I am interfering in what ought to be a marketplace decision. The fact is that there can be no fair long-term marketplace outcome when the playing field is tilted heavily in favor of the performance rights groups.
I welcome this week's agreement between ASCAP and the American Camping Association. I think that it indicates what the performance rights societies are willing to do when faced with a public relations disaster.
We will also hear from the National Licensed Beverage Association today. ASCAP, BMI, and the NLBA have agreed to a music licensing arrangement for the exclusive benefit of the NLBA membership. The details of that agreement will be discussed by today's panels. I would only say that the most respected and broadly-based organization representing Wisconsin's manyand I would emphasize ''many''taverns and bars, the Tavern League of Wisconsin, has unanimously rejected this agreement. They recognize that the only viable long-term solution to bring fairness to music licensing is through legislation.
These two licensing agreements argue even more strongly in favor of a legislative solution because they speak to the capricious behavior of the licensing society. The fact that ASCAP can unilaterally decide on a whim who is the favored recipient of this sweetheart deal attests to the need for an act of Congress. Neither the NLBA nor the American Camping Association agreements provide a rational basis for future commercial deals.
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Businesses should not be charged for music outside their control, such as a jingle in a commercial. They should not be forced into doing business with every licensing society demanding a fee. They should have easy access to the music they are paying for, and there ought to be a fair and affordable form of dispute resolution, so that a florist from Brookfield, WI doesn't have to go to New York to resolve a dispute with BMI or ASCAP.
Until these requirements are met, the performance rights groups will continue to enjoy the coercive apparatus of a monopoly navigating with their platoons of lawyers through the confusing and often contradictory terms of court decisions in the ambiguous and unenforceable language of the Copyright Act. A tavern-keeper on Pewaukee Lake does not stand much of a chance under the existing system. It is no wonder that ASCAP and BMI plead for a market-placed negotiation instead of congressional action, because they control the marketplace.
The licensing societies insist that Congress has no role in the music licensing debate when the central issue is a proposal to perhaps diminish their ability to extract fees. Meanwhile, they have suggested that Congress is the appropriate forum for the expansion of the scope of copyright and the expansion of users' obligations to pay additional fees. The licensing societies cannot have it both ways.
The Constitution that I read empowers Congress to promulgate laws creating intellectual property rights. The Constitution also suggests the need for balanced intellectual property rights. When the mechanisms designed to ensure this balance are not working, it is Congress' right and responsibility to take appropriate legislative action.
Page 9 PREV PAGE TOP OF DOC I will not stand aside and permit this Congress to do the bidding of copyright-holders who seek a one-way street to expand their rights while denying balance and fairness to the users of intellectual property.
Mr. COBLE. I thank the gentleman.
Our first witness will be the Honorable Marybeth Peters, who is the Register of Copyrights for the United States. She has also served as Acting General Counsel of the Copyright Office and as Chief in both the Examining and Information and References Divisions. She has served as a consultant on copyright law to the World Intellectual Property Organization and authored the general guide to the Copyright Act of 1976.
Our second witness is Mr. Robert Stoll, Administrator of the Office of Legislative and International Affairs in the U.S. Patent and Trademark Office. He represents the views of the administration.
We have written statements from both the witnesses on this panel, which I ask unanimous consent to submit in the record in their entirety. I ask that both witnesses limit their oral statement to 5 minutes or less.
I am told that the gentleman from California wants to be heard, so I extend my good will to Mr. Bono. Mr. Berman was here first, so, Mr. Berman, do you have an opening statement?
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Mr. BERMAN. I don't have an opening statement, Mr. Chairman. I could extemporize on a number of points on which I disagree with the sponsor of the legislation, the gentleman from Wisconsin, but I think that we'll let the committee process go on. I just didn't want my silence to indicate any acquiescence in the persuasiveness of those arguments.
Mr. COBLE. I thank the gentleman.
The gentleman from California, Mr. Bono.
Mr. BONO. Thank you, Mr. Chairman. I commend you for holding these very fair and unbiased proceedings. You are a patient leader.
I have often complained about the legalese used in our hearing rooms and chambers that too often results in the intentional confusion of our constituents. This nonlawyer wants to represent the position of the United States on intellectual property law. What enforces my belief most, however, is that the greatest legal document in government history is so easy to understand. The Founders of our Government spoke with both common sense and comprehensible language. If we would simply follow the genius of that document, we would eliminate so many arguments and disputes that arise from trying to justify proposed legislation by words that require translators.
Now here we are again about to debate whether to redefine intellectual property law. Should an artist be compensated for commercial use of their work, or should the restaurateur be given legislation for the right to piracy? It seems to me that as the Judiciary Committee we must examine the Constitution as we debate any legislation.
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In this case, the right of an artist is itemized in the U.S. Constitution in article I, section 8. It states, ''Congress shall have the power to promote the progress of science and useful arts by securing, for a limited time, to the authors and inventors the exclusive rights to their respective writing and discoveries.''
As always, I am impressed with the clarity and the beauty of the words that are used. And I am further impressed that it was James Madison, the chief advocate of the limitation of Federal powers, who demanded that this stipulation be included as an oversight in Federal Government.
Thomas McKeon, the American revolutionary and signor of the Declaration of Independence, found this to be the most important provision of the U.S. Constitution since it involved the right of a citizen to have jurisdiction over his own creative property. McKeon said, ''The power of securing to authors and inventors the exclusive right to their writings and discoveries could only with effect be exercised by Congress.'' With elegant simplicity, he states that our duty as a Congress is to assure that the works of our artists are not used for the commercial betterment of others without their permission and compensation.
Why would anyone feel that 20th century technology should abolish the constitutional, intellectual, and artist rights of our citizens? Clearly, it is beyond dispute that the reason particular restaurants want to have radio music broadcast for their customers is to attract financial gain without the author's permission or compensation. If that music is so valued to them, then they must give just compensation to those responsible for the creativity. Though I am not a lawyer, it appears to me that they are really trying to amend the Constitution into what it is not. If I were a lawyer, I would respond to James Madison and Thomas McKeon and I would say, in their absence, it is our obligation to see that their wisdom and clarity of thought is never absent from the judgment of Congress. Therefore, as a Member of this Congress, I am proud to stand on their principles.
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Frankly, I find it disturbing that my colleague would consider an attempt to take away a constitutional right. To the best of my knowledge, any exemption of the copyright law must be limited to a use or a purpose where there is no direct commercial charge or benefit. A bill authorizing a use of an owner's private property without payment is attempting to legalize piracy.
There are two final points I would like to make. This is not a dispute between ASCAP, BMI, and SESAC. The performing societiesbetween the restaurants and ASCAP, as you saythe performing societies are only agents. So we're not talking about BMI, ASCAP and SESAC. We're talking about songwriters and their right to collect their rightful earnings. In reality, this is, in fact, a quarrel between restaurants, Mac Davis, Muddy Waters, Percy Mayfield, Chuck Berry, and thousands of other songwriters. You are dealing with private property rights. A song is your private property. The rights of people who have strived to create the music for the world to listen tothey have written the songs; they own the songs; it's their property. With this legislation, you are now not going to hurt ASCAP or BMI. You are threatening the property rights of talented, hardworking creators.
In closing, I find it embarrassing that any Member claiming to be a defender of private property rights would allow this to be a consideration. Anyone who votes against what they say they stand for is nothing less than a hypocrite.
Mr. COBLE. Yes, the gentleman from
Mr. SENSENBRENNER. Mr. Chairman, Mr. Chairman, I demand that the gentleman's words be taken down because he has impugned my motives in introducing this legislation.
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Mr. COBLE. Let me say to the gentleman from Wisconsin, if he would withdraw that request. We ought to be able to do this in an evenhanded way without having
Mr. SENSENBRENNER. Mr. Chairman, I will withdraw the request, but this is a legitimate issue that should be debated. I am not impugning anybody's motives for taking the other side in this issue. My opening statement dealt with my position on this issue, not the motives of anybody else who has taken the other side. And I deeply regret, Mr. Bono, that you have decided to bring personalities into this because this lowers the debate on what should be how the copyright laws should be balanced for both users as well as producers of music.
Mr. COBLE. I thank the gentleman.
The gentleman from California.
Mr. BONO. Mr. Chairman, I could respond and to go on
Mr. COBLE. If the gentleman will suspend, Mr. Bono, I'll recognize Mr. Berman, and then I'll get back to you in just a minute.
Mr. BONO. Oh, OK.
Mr. BERMAN. The other Californian.
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Mr. Chairman, One point I did want to make: When the gentleman from Wisconsin talks about arbitration versus the rate court and methods for determining payment for music, I think that it is very important to remember that a major portion of his legislation exempts music communicated by electronic device through transmissions of musical works from any payments whatsoever. That is a key element of his legislation.
Before we get off into discussions about a rate court versus arbitration of thousands of possible disputes, we have to remember the fundamental part of the legislation is to exempt from any payment whatsoever. We're not talking about rate courts versus arbitration; we're talking about a statutory exclusion from the copyright law for a large amount of this music, and I think that that is a critical thing to remember as we proceed on this.
Thank you, Mr. Chairman.
Mr. DELAHUNT. Mr. Chairman.
Mr. COBLE. The gentleman from Massachusetts.
Mr. DELAHUNT. Yes. As I'm sure you remember, Mr. Chairman, we had a very informative field hearing on related issues in Nashville, and I understand that this is an issue that has provoked some contention and some passion. At the same time, I think that it behooves the members of this panel to remember that we're here today to listen. I'm sure that those passions will be pronounced during the course of a markup on this bill. I suggest that we proceed with the witnesses.
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Mr. COBLE. I thank the gentleman.
Folks, this has the trappings of a very spirited day. I have no problem with that. As the gentleman from Massachusetts said, we had a spirited hearing in Nashville, and I suspect that it will be equally spirited today, but I am going to try to keep anybody from slugging one another, if we can do that. The parliamentarian advises me that slugging one another violates the rules. So, folks, let's try to do this in an evenhanded way.
Mr. Bono, you and Mr. Sensenbrenner, you all OK now? Everybody ready to roll?
Mr. BONO. Mr. Chairman. May I
Mr. COBLE. I recognize Mr. Bono.
Mr. BONO. Yes, my closing paragraph was not directed at anyone personally. My point, sir, was that songs are personal property and we, especially on this aisle, claim to be defenders and protectors of personal property. My point was that if we turn around nowand this has nothing to do directly with discussing the billif our point is to not take awayany Membersto take away personal property, I think that that is hypocritical of us.
Mr. COBLE. Well, if the gentleman would yield for a minute, Mr. Bonoand let me put this to the panel: How about removing the word ''hypocrite'' from your statement, Mr. Bono?
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Mr. BONO. I'd be happy to do that.
Mr. COBLE. Let's do that. And without objection, it is so ordered.
I repeat that it is good to have everybody here. I want to repeat my request, folks, about the 5-minute rule. You will know that your 5 minutes have expired when you see that the red light before you has illuminated. Now at that point, you will not be keel-hulled if you do not abruptly stop, but I would appreciate your recognizing at the time that the meter is running.
The lady from the Copyright Office, the Register of Copyrights.
STATEMENT OF MARYBETH PETERS, REGISTER OF COPYRIGHTS, COPYRIGHT OFFICE OF THE UNITED STATES, LIBRARY OF CONGRESS
Ms. PETERS. Thank you. Chairman Coble, members of the subcommittee, I am pleased to testify on H.R. 789, the Fairness and Music Licensing Act, which raises substantial domestic and international issues. I had understood that the hearing would focus on the amendment to section 110(5), and my remarks are aimed at that issue. I have, however, submitted an analysis of the entire bill for the record.
A copyright law is one of the most important pieces of legislation that a government can enact. The copyright law of a country reflects that nation's principles and attitudes. In the United States, our Founding Fathers recognized the significance of copyright in the first article of our Constitution which gives you, the Congress, the power to promote knowledge, as well as cultural and educational development, by granting authors exclusive rights in their creative efforts for limited times.
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Copyright protection provides compensation to composers and lyricists for their time, effort, and talent in creating a work. The elemental fairness of compensation is clear, but the importance of copyright goes far beyond this. The prime value of a strong copyright system is its benefit to the public in providing incentives for the creation and dissemination of works of authorship.
Copyrighted works are different than manufactured goods like cars and computers. Unlike these goods, copyrighted goods grow in value the more they are used. The composer's opportunity for compensation is tied directly to repeated uses in many different marketplaces.
With respect to music, the public performance right is the most important right of the copyright bundle of rights. It represents the largest source of income for its owner.
The present copyright law, which was enacted in 1976, recognizes the importance of this right. Section 106(4) gives copyright owners a very broad public performance right. There are, of course, exceptions to this right. Most are detailed and complex and refer to specific categories of works and narrowly delineated types of uses.
The current exceptions which were debated over a 20-year period, represent a careful balancing of interests between right-holders and users. With respect to commercial uses, the exemptions have been narrowly drawn to ensure that they don't substitute for a meaningful commercial exploitation.
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The proposed amendment to section 110(5) represents a major shift in the balance struck in 1976. It would fundamentally change the nature of section 110(5) which today is reflected in the name given to that provision which is known, as Mr. Coble, has indicated, as the homestyle-small-commercial-establishment, or mom-and-pop-store exemption. In H.R. 789, it is named the business exemption.
Section 110(5) today allows transmissions embodying a performance of a work to be communicated to the public without the copyright owner's consent and without payment, when certain conditions are met. Mr. Coble set out these conditions. It's that the communication must be done by a single receiving apparatus of a kind commonly used in a private home. There cannot be any direct charge for seeing or hearing that transmission and there can be no further transmission of the copyrighted work to the public.
The House report in 1976 explains that section 110(5) exempts small commercial establishments whose proprietors merely bring on to their premises standard radio or television equipment and turn it on for their customers enjoyment. H.R. 789 would remove two of the conditions and thereby significantly broaden section 110(5) by extending the scope of the exception to any performance of a musical work received by broadcast, cable, satellite, or any other transmission, as long as no admission fee is charged to see or hear the transmission and the initial transmission itself was properly licensed. Thus, businesses of any size, including large, national chains, could use copyrighted music for free in order to entertain their customers and thereby stimulate sale of their own goods or services, a financial benefit that does not depend on the existence of an admission charge. Moreover, this amendment could supplant existing background music services and other licensing arrangements that provide revenue for songwriters and copyright owners todaya result that Congress sought to avoid in 1976.
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Let me quickly turn to the international considerations. The Berne Convention for the Protection of Literary and Artistic Works requires member states to provide authors of musical works the exclusive right of public performance, communication to the public, including by loudspeaker or by broadcasting. In addition, the Agreement on Trade-Related Aspects of Intellectual Property, TRIPS, requires WTO member countries to confine limitations or exceptions to rights to certain special cases which do not conflict with the normal exploitation of a work and do not unreasonably prejudice the legitimate interest of the right holder.
Last month, after receiving a complaint from the Irish Music Organization, the European Commission opened an investigation of U.S. licensing practices for European music as they relate to existing section 110(5). The complaint alleges that the United States is currently in breach of its obligations under the Berne Convention and the TRIPS agreement and asserts that the proposal to broaden the exemption, if enacted, would further damage the economic interests of copyright owners.
The breadth of the proposed amendment to section 110(5) goes much further than any exemption that has been considered as a small exemption or minor reservation permitted by the Berne Convention. Despite this, if Congress decides to amend this provision, the Copyright Office believes that a reasonable exemption which is narrow in scope and which complies with the standards of Berne and TRIPS could be crafted. The Copyright Office would be pleased to assist the committee in any way toward achieving that goal.
Page 20 PREV PAGE TOP OF DOC [The prepared statement of Ms. Peters follows:]
PREPARED STATEMENT OF MARYBETH PETERS, REGISTER OF COPYRIGHTS, COPYRIGHT OFFICE OF THE UNITED STATES, LIBRARY OF CONGRESS
Mr. Chairman, members of the Subcommittee, thank you for the opportunity to testify today on this proposed legislation, which would have a significant impact on the U.S. copyright system. Although I understand that this hearing will focus on section 2(a) of H.R. 789, which would expand the ''homestyle'' exemption of existing section 110(5), I will address the full scope of the bill in my written statement.
The Copyright Office has serious concerns about the substantial broadening of the existing exemptions for the public performance of musical works that would be accomplished by this bill, and about certain aspects of the restraints that would be imposed on the business operations of the organizations that license such performances on behalf of the authors, composers and other copyright owners. Our concerns involve both domestic considerations, and the implications for the United States in connection with its international treaty obligations.
The substantive provisions of H.R. 789 can be divided into three categories: (1) new or expanded exemptions to the public performance right; (2) a new limitation on which parties may be liable for infringing public performances; and (3) regulation of the conduct of business by performing rights societies. I will analyze each in turn from a domestic perspective, providing some technical and historical context, and then discuss the international implications.
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(1) New or Expanded Exemptions
Section 2 of the bill would place the following new or expanded exemptions in section 110 of the Copyright Act: (1) an expansion of the existing ''homestyle'' exemption in section 110(5), dealing with communications to the public of transmissions embodying a performance or display of a work; (2) an expansion of the existing exemption in section 110(6), dealing with performances at annual agricultural fairs and similar events; (3) an expansion of the existing exemption in section 110(7), dealing with performances in record stores to promote record sales; and (4) a new exemption for performances at children's camps.
The right of public performance is a core right for the owners of copyright in musical works. Public performance is one of the major ways in which these works are exploited, and the largest source of income for their owners. Most of the exceptions to this right are collected in section 110 of the Copyright Act. These exceptions are detailed and complex, referring to specific categories of works and narrowly-delineated types of uses. Their scope was thoroughly debated during the 20-year consideration of the general copyright revision completed in 1976. They represent a hard-fought, careful balancing of interests between right holders and users.
The existing exceptions share certain common characteristics. Generally, they either accommodate a particular public interest type of use, or are otherwise calibrated to cause minimal economic impact on the copyright owner. Thus, several relate to specific non-profit, educational or charitable uses; others narrowly limit the circumstances of the use to ensure that it does not substitute for meaningful commercial exploitation.
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The changes proposed in section 2 of H.R. 789 would fundamentally alter the nature of section 110. It would no longer be limited to non-profit and minor small business exceptions, but would allow businesses of any size to make significant commercial uses of musical works without permission or payment. This represents a major shift in the balance struck in 1976.
Expansion of ''homestyle exemption''
Section 2(a) of the bill, entitled ''Business Exemption,'' would amend section 110(5) to expand the existing ''homestyle'' exemption. This exemption allows transmissions embodying a performance or display of a work to be communicated to the public without the copyright owner's consent in certain circumstances. Under current law, there are three important limitations on such communication: (1) it must be done through a single receiving apparatus of a kind commonly used in private homes (hence the term ''homestyle''); (2) there must be no direct charge for seeing or hearing the transmission; and (3) the transmission must not be further transmitted to the public.
As explained in the legislative history to the 1976 Act, the purpose of section 110(5) is to exempt from copyright liability anyone who merely turns on, in a public place, an ordinary radio or television receiving apparatus of a kind commonly sold to members of the public for private use . . . [T]he clause would exempt small commercial establishments whose proprietors merely bring onto their premises standard radio or television equipment and turn it on for their customers' enjoyment, but it would impose liability where the proprietor has a commercial 'sound system' installed or converts a standard home receiving apparatus (by augmenting it with sophisticated or extensive amplification equipment) into the equivalent of a commercial sound system. H. R. Rep. No. 1476, 94th Cong., 2d Sess. 87 (1976). Congress intended to cover uses that were ''remote and minimal,'' where ''in the vast majority of cases no royalties are collected today.'' Id at 86.
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The proposed amendment would significantly broaden this exemption by removing two of its limitations: the use of a single receiving apparatus of a kind commonly used in private homes, and the ban on retransmission. It would exempt any communication by any electronic device of a transmission embodying a performance or display of a nondramatic musical work by the reception of a broadcast, cable, satellite or other transmission, as long as no admission fee is charged to see or hear the transmission and the initial transmission itself was properly licensed. For example, a national restaurant chain could install a sophisticated professional loudspeaker system in each of its restaurants, and enhance their ambiance by providing a musical background for diners, transmitted from a radio station without any compensation to the copyright owners. The proposed exemption might also permit free use of music that is communicated not only by radio or television, but through new technologies such as digital computer networks.
Unlike the other section 110 exemptions, this exemption would not further nonprofit public interest goals, or be limited in its economic impact. It would allow business entities of any size to use copyrighted music for free in order to entertain their customers, and thereby stimulate sales of their own goods or servicesa financial benefit that does not depend on the existence of an admission charge. It could also lead to the result that Congress sought to avoid in 1976, supplanting existing background music services and other licensing arrangements that provide revenue to copyright owners today.
On the other side, the need of users for such a broad exemption has not been established. The financial impact of the present system on business users seems limited. It is our understanding that the amounts involved are small for each individual establishmentsomewhere in the range of a dollar or two a day for each of the three licensing organizations. In the aggregate, however, these licensing fees represent a significant source of income for copyright owners.
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For these reasons, the Copyright Office opposes enactment of section 2(a) of H.R. 789 in its present form.
Expansion of agricultural events exemption
Section 2(b) of the bill, entitled ''Agricultural Events,'' would amend existing section 110(6), which exempts government and nonprofit sponsors of annual agricultural or horticultural fairs or exhibitions from liability for performances of nondramatic musical works, including under doctrines of vicarious liability or related infringement for performances by concessionaires, business establishments, and other persons at the event. The amendment would broaden the coverage of the exemption from agricultural or horticultural fairs or exhibitions taking place once a year to any ''agricultural or horticultural fair, convention, meeting, event, or exhibition.'' This language is ambiguous; it is unclear whether the term ''agricultural or horticultural'' modifies the terms ''convention, meeting, event, or exhibition.'' In addition, the amendment would further exempt the event sponsors from liability under the doctrine of contributory infringement-a doctrine that conditions liability on both knowledge of and participation in an act of infringement.
Like the section 110(5) exemption, the current section 110(6) is circumscribed to conduct that has minimal economic impact on the copyright owner. Removal of the ''annual'' limitation, and the inclusion of conventions, meetings and all types of events in the exemption, would lead to a much greater impact. Business conventions or other meetings involving thousands of paying participants might be entitled to perform music without authorization or payment. The Copyright Office cannot support such an expansion.
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Expansion of promotional exemption
Section 2(c) of the bill, entitled ''Exemption Relating to Promotion,'' would expand existing section 110(7), which permits unlicensed performances of nondramatic musical works by stores, when done solely to promote sales of copies or records embodying those works. The amendment would extend eligibility for this exemption beyond stores selling music or records, to cover any establishment that performs the works to promote sales of audio and video equipment. It would also remove the restrictions that require promotion to be the sole purpose of the performance, and that require the performance to take place ''within the immediate area where the sale is occurring.''
Although the uses permitted today under section 110(7) are commercial in nature, they relate directly to the promotion of sales of copies or recordings of the copyrighted works being used. Consequently, the diminution of licensing revenue to copyright owners can be expected to be offset by increased sales of copies of their works. Exempting performances that promote sales of unrelated consumer electronic products such as televisions and stereos cannot be justified in the same way.
Moreover, the spatial limitation in the existing exemption ensures a close tie between the performance and the product being promoted. The result of its removal, combined with the deletion of the word ''sole'' and the allowance of purposes beyond the promotional, is that music could be used generally to entertain and attract customers by any type of business, as long as the business places on sale even a single device used in the performance.
Page 26 PREV PAGE TOP OF DOC Again, the effect of the proposed expansion would be to grant all business entities the right to use copyrighted music for free anywhere on their premises, in order to enhance their own sales. The Copyright Office therefore cannot support this provision.
New exemption for children's camps
Section 2(d) of the bill, entitled ''Performances at Children's Camps,'' would create a new exemption for performances of nondramatic musical works at organized children's camps if the children sing the work, play games or dance to it, or if the performance is instructional. It appears to be the outgrowth of media coverage last year of ASCAP's communications with Girl Scout camps regarding their performance of musical works.
The uses that would be permitted by section 2(d) seem more closely related to public interest uses than the business exemptions in sections 2 (a) and (c). But many summer camps are operated by for-profit businesses. Yet, unlike existing exemptions in section 110 for similar purposes, the proposed exemption is not subject to any limitation on the type of entity that is eligible. To the extent that a new exemption is warranted, it would be more appropriate, and more consistent with the general approach of section 110, to limit it to nonprofit entities, and to performances made ''without any purpose of direct or indirect commercial advantage,'' as required by sections 110 (4), (8), and (9).
It is not clear, however, why even a narrower version of this exemption is needed. Existing paragraph (4) of section 110 already exempts most nonprofit performances that take place at children's camps. It allows unlicensed live performances of nondramatic musical works, when they are done without any purpose of direct or indirect commercial advantage and without payment of any compensation for the performance to the performers, promoters, or organizers, if two conditions are met: (1) there is no direct or indirect admission charge; and (2) any proceeds above and beyond costs are used exclusively for educational, religious or charitable purposes and not for private financial gain (unless the copyright owner has served a specific notice of objection in a prescribed form and manner).
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(2) Limitations on Liability
The bill also contains a carve-out from existing doctrines of third-party liability for various parties who own or manage the premises on which infringing performances take place. Section 7 would eliminate the possibility of imposing liability for performances on landlords, convention organizers and sponsors, facility owners, and similar parties, under theories of vicarious liability or contributory infringement based on the party's right or ability to control, or actual control over, the premises or their use. To qualify for the exemption, the contract granting the right to use the space must prohibit infringing public performances, and the party relying on the exemption must not exercise control over the selection of works performed.
This proposal would effect a major change to U.S. copyright law, with implications that go beyond the music licensing issues addressed in the bill. It represents a significant derogation from the well-established doctrines of vicarious liability-and contributory infringement, applicable to all types of uses of all categories of works.
Under the doctrine of vicarious liability, a party that has the right and ability to control infringing activity, and receives a direct financial benefit from the infringement, is held liable for the infringement. Shapiro. Bernstein and Co. v. H.L. Green Co., 316 F.2d 304, 307 (2d Cir. 1963). The doctrine of contributory infringement imposes liability on parties that have knowledge of, and induce, cause, or materially contribute to an infringement. Gershwin Publishing Corp. v. Columbia Artists Management. Inc., 443 F.2d 1159, 1162 (2d Cir. 1971). These are circumstances where it has long been considered just and appropriate to impose liability for the infringing acts of others. See Sony Corp. v. Universal City Studios. Inc., 464 U.S. 417, 435 (1984); 3 Melville B. Nimmer and David Nimmer, THE LAW OF COPYRIGHT §12.04[A] (1996); H.R. Rep. No. 1476, 94 Cong., 2d Sess. 61 (1976) (noting statutory recognition of doctrine of contributory infringement in 1976 Copyright Act).
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The bill would give immunity from these doctrines to one particular type of business activity for one particular type of use of one particular type of work. No justification has been advanced for this special treatment, and immunity could be provided for knowing, profit-making conduct by a commercial entity that may be the only financially responsible party involved in an act of infringement.
(3) Regulation of Business Operations of Performing Rights Societies
Other provisions in H.R. 789 regulate the manner in which performing rights societies conduct their business. Section 3 of the bill would require binding arbitration of rate disputes involving performing rights societies, such as ASCAP, BMI and SESAC, at the request of the music user, and would limit the amount of damages for past infringement in such a proceeding. Section 4 would require these societies to offer per programming period licenses for radio broadcasters as an alternative to blanket licenses, with limitations on the license fees that could be charged. Section 5 would mandate public dissemination by the societies of information about the works in their respective repertoires both on-line and in hard copy form, updated every three months, as well as documentation regarding their licenses with their members. It would also restrict their ability to participate in an infringement action or charge a fee for a per programming period license if these requirements are not met.
The Copyright Office has concerns about the impact of a number of these provisions on the practical ability of copyright owners to enforce their rights and obtain a fair return for the use of their works. These concerns arise in part from the nature and history of collective licensing in this country.
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As a practical matter, performing rights must be exercised collectively. Musical works are performed all around the country, in large and small establishments of varying types, often without advance planning or advertising. Individual composers and music publishers cannot monitor all uses, negotiate with all users and collect royalties. The only feasible way for them to enforce their rights is to rely on performing rights societies like ASCAP, BMI and SESAC. The mechanism of collective licensing for the public performance of musical works is widely utilized around the world.
Collective administration of rights has been successful in large part because it minimizes transaction costs for both copyright owners and users. It allows copyright owners to enforce their rights and profit from their works without the prohibitive expense of finding and negotiating with multiple users; it allows users to lawfully perform musical works in public without the difficulty of obtaining permissions from multiple copyright owners.
The performing rights societies are responsible for developing a workable mechanism for licensing multiple and far-flung performances of numerous short works, including a simple and generally applicable fee structure and a reliable basis for the distribution of royalties. In establishing a fee structure, they negotiate collectively with industry associations of user groups. Businesses like restaurants or nightclubs typically utilize a ''blanket license,'' setting a single fee for unlimited performances of all works in the society's repertoire during a certain period of time (usually a year). The result is a reasonable approximation of the value of all of the performances as a group.
There has been a long history of challenges to both ASCAP and BMI under the antitrust laws, and antitrust restraints have shaped the operations of these organizations. Today, both ASCAP and BMI operate under consent decrees. The restraints in the decrees include a prohibition against licenses of more than five years duration, and a requirement that a list of repertoire be maintained and available for inspection. Since 1950, music users have been able to seek determination of a reasonable license fee for ASCAP works in the federal court for the Southern District of New York; in November 1994, BMI's license fees were also placed under that court's jurisdiction. Thus, substantial safeguards already exist against abusive practices or unreasonable charges.
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Under H.R. 789, dissatisfied users could instead seek to resolve their differences over rates through arbitrators who are instructed to determine ''fair and reasonable fees.'' The resulting multiplicity of proceedings could cause great expense and lead to widely divergent rulings. Under the consent decrees, in contrast, similarly situated parties must be treated the same, with all determinations made by the single rate court. This court has expertise and provides continuity and consistency in its rulings, thereby promoting settlements.
In addition, H.R. 789 would sharply limit the amount of damages that could be recovered by a music copyright owner for past infringement. In a (mandatory) arbitration proceeding prior to court action, section 3 of the bill limits potential damages to the amount that a license would have cost for the infringing performance. In a ''court-annexed'' arbitration, the amount cannot exceed two times the ordinary blanket license fee for the years in which the performances occurred.
Under current law, copyright owners are entitled to recover, in lieu of actual damages, statutory damages between $500 and $20,000, with a potential rise to $100,000 in the case of willful infringement. Limiting the possible monetary recovery for past infringement to the license amount removes any incentive to obtain a license in advance. In order to avoid such perverse incentives, courts have held that damages should be set at an amount high enough to create a meaningful financial difference between compliance with the law and infringement. See, e.g., International Korwin Corp. v. Kowalczvk, 855 F.2d 375, 383 (7 Cir. 1988); Iowa State Univ. Research Foundation v. American Broadcasting Cos., 475 F. Supp. 78 (S.D.N.Y. 1979), aff'd, 621 F.2d 57 (2d Cir. 1980).
Page 31 PREV PAGE TOP OF DOC With respect to radio broadcasts, under current law and practices broadcasters can obtain three different types of licenses for the performance of musical works: (1) direct licenses from the copyright owner; (2) per program licenses from a performing rights society; or (3) blanket licenses from a performing rights society. The bill would mandate that copyright owners make available, at the broadcaster's option, a per programming period license with detailed constraints on the price that could be charged. In the view of the Copyright Office, as a matter of general policy, the government should not interfere in the marketplace and place limitations on the contractual freedom of copyright owners and users to negotiate terms and conditions for the use of copyrighted works. Today, such governmental constraints have been imposed only in the context of antitrust law, through the operation of the consent decree under the jurisdiction of the federal court in New York. We also question the limitations on fee-setting, which, when combined with the mandatory nature of the per programming period license, appear to have the potential to greatly reduce the income generated for copyright owners under the current system, as well as the economic feasibility of a system that may require monitoring the broadcasts of every radio station in America.
Finally, we have concerns about section 5's restrictions on the participation by a performing rights society in an infringement suit or the charging of a per programming period license fee. The result might be to penalize a blameless composer for an error or omission by the society, and make it impossible as a practical matter to enforce his or her rights.
(1) New or Expanded Exemptions
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Several provisions of this bill also raise concerns from the perspective of the obligations of the United States under international treaties.
The Copyright Office believes that several of the expanded exemptions, if passed in their current form, would lead to claims by other countries that the United States was in violation of its obligations under the Berne Convention for the Protection of Literary and Artistic Works, incorporated into the Agreement on Trade-Related Aspects of Intellectual Property Rights (''TRIPs'') of the Uruguay Round of GATT. Berne requires member states to provide to authors of musical works exclusive rights of public performance, communication to the public, and broadcasting, including ''the public communication by loudspeaker or any analogous instrument transmitting, by signs, sounds or images, the broadcast of the work.'' Berne Articles 11 and 11bis. In addition, TRIPs Article 13 requires World Trade Organization members to ''confine limitations or exceptions to rights to certain special cases which do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the right holder.''
As to the proposed expansion of the homestyle exemption, we see significant problems. An exception this broad appears to be outside the scope of the permissible ''small exceptions'' to the Berne rights of public performance and communication. Allowing virtually every business to play music to its customers through loudspeakers or audiovisual devices would invite a difficult case against the United States for violating our TRIPs obligations.
Similar arguments could be made about the other exceptions to the public performance right in the form proposed in H.R. 789, particularly the promotional use exemption and the other exemptions not limited to non-commercial uses.
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These concerns as to the international implications are not purely theoretical. Last month, after receiving a complaint from the Irish Music Rights Organization (''IMRO''), the European Commission opened an investigation of U.S. licensing practices for European music as they relate to the exemption in existing section 110(5). The complaint alleges that the United States is currently in breach of its obligations under the Berne Convention and TRIPs Agreement, and asserts that last year's legislative proposals to broaden the exemption, if enacted, would further damage the economic interests of copyright owners. During the past year, in connection with a review of the copyright laws of all developed countries in the TRIPs Council of the World Trade Organization, several countries questioned the United States as to the permissibility and status of those bills.
The Copyright Office nevertheless believes that a reasonable exemption of narrower scope could be crafted to clarify permissible conduct by small businesses that would clearly comply with the standards of Berne and TRIPs. We would be pleased to assist in formulating the criteria for such an exemption, as was proposed in the 104 Congress in S. 1619, the Music Licensing Reform Act of 1996.
(2) Regulation of Business Operations of Performing Rights Societies
Three other provisions of H.R.789 may also raise international problems: (1) the provision in section 3 that provides for mandatory binding arbitration to resolve disputes between performing rights societies and users relating to fees for both past and future performances; (2) the provision in section 3 that limits the damages available to copyright owners in a mandatory arbitration proceeding; and (3) the provision in section 5 that bars infringement actions and fee collection by performing rights societies for the public performance of works that have not been identified and documented as required by that section.
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The Copyright Office is concerned that these provisions could invite claims by our trading partners that the United States is violating its obligations under the TRIPs Agreement to ''make available to right holders civil judicial procedures concerning the enforcement'' of copyrights, and to provide authority to judicial authorities to order an infringer to pay ''damages adequate to compensate for the injury the right holder has suffered.'' TRIPs Arts. 42 and 45. (The term ''right holder'' is defined in the TRIPs Agreement, fn. 11, to include associations having legal standing to assert rights). Similarly, the requirement that works be identified and documented as a precondition to suit or fee collection by performing rights societies could subject the United States to claims that it is violating the Berne Convention's prohibition of formalities imposed on the enjoyment and exercise of rights. Berne Art. 5(2).
In sum, the Copyright Office has significant concerns about a number of the provisions of H.R. 789 from a policy and international perspective. We do believe, however, that acceptable compromise solutions are possible in at least some of these areas. These would include the scope of the homestyle exemption in paragraph 110(5), and aspects of the administration of the collective licensing system. We would be happy to work with Congress and the affected parties to assist in finding such solutions.
Mr. COBLE. Thank you, Ms. Peters.
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STATEMENT OF ROBERT STOLL, ADMINISTRATOR, OFFICE OF LEGISLATIVE AND INTERNATIONAL AFFAIRS, U.S. PATENT AND TRADEMARK OFFICE
Mr. STOLL. Good morning, Mr. Chairman and members of the subcommittee.
Thank you for this opportunity to present the administration's view on H.R. 789, the Fairness and Music Licensing Act of 1997. I am pleased to appear today on behalf of Assistant Secretary and Commissioner Bruce Lehman, who regretfully had a prior engagement this morning.
Last week, the Patent and Trademark Office Museum opened a new exhibition entitled, ''Three Part HarmonyPatents, Trademarks, and Copyrights in the Musical World,'' an exhibition which underscores the importance of music in our society. Musicians, lyricists, songwriters, and composers harness their creative talents because they can earn a constitutionally-granted complete or partial living from their talents. Without the economic benefits provided by strong copyright protection, a songwriter cannot afford to exploit his or her creative side. This is why the administration opposes H.R. 789. In particular, the administration strongly opposes enactment of any bill containing language that so significantly limits one of the basic copyright rights by amending section 110 of the Copyright Act as contemplated by H.R. 789.
Proponents of H.R. 789 claim that the current Copyright Act is unduly severe to restaurant owners. On the contrary, the current act, in granting copyright owners of literary, musical, dramatic, audiovisual, and other works the exclusive right to publicly perform their copyrighted work, recognizes a small business or homestyle exemption. This narrow exemption for small, public gatherings is created according to the legislative history, to exempt from copyright liability anyone who merely turns on, in a public place, an ordinary radio or television receiving apparatus of a kind commonly sold to the public for private use. In other words, the rationale was that the secondary use of a transmission by turning on an ordinary receiver in public is so remote and minimal that no further liability should be imposed.
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Today we are not speaking of a remote and minimal use as described in 1976 in the legislative history. Rather, proponents of H.R. 789 are seeking a barn door exemption whereby even the music played in a restaurant as a major attraction of that establishment is exempt from any obligation to pay the copyright owner for its use. Drawing a line between those that charge admission and those that cover their expenses through higher-priced food and drinks is illusory. The real issue is whether a copyright owner is entitled to his or her statutory rights and, by extension, to profit from his or her creativity.
The exemption of an owner of a restaurant or bar to publicly perform copyrighted music is not the only issue addressed in this bill. It seems that much of H.R. 789 is about regulating the business practice of the performing rights societiesASCAP, BMI, and SESAC. To that I take note of two recent license agreements. The first was made between the societies and the National Licensed Beverage Association on the subject of qualifications for exemptions from music licensing fees. Certainly a large majority of establishments fall under these new, broad guidelines which exempt establishments smaller than 3,500 gross leasable square feet when using six or fewer speakers and when using three or fewer televisions of 55-inch screen or smaller. The second, concluded just this week, was between ASCAP and the American Camping Association. While not endorsing these particular accords per se, we applaud efforts by the private sector to negotiate licensing schemes which recognize the right of copyright owners to remuneration for public performances of their music.
Finally, I am concerned with our international standing should H.R. 789 be enacted. Other countries collect royalties for the public performance of music in their restaurants, bars, and similar establishments. U.S. songwriters and composers collect a good deal of money from such performances because of the popularity of American music throughout the world. This bill is likely to raise concerns with our trading partners, and our trading partners may allege that several of the changes to the Copyright Act proposed in this bill are inconsistent with our obligations under the Berne Convention for the Protection of Literary and Artistic Works and of the Agreement on the Trade-Related Aspects of Intellectual Property known as the TRIPs Agreement.
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As you may know, Mr. Chairman, attached to the TRIPs Agreement is a mechanism for the resolution of disputes. The first panel convened to consider an intellectual property question just last month gave the United States a victory over India in a patent law dispute.
We do not support the enactment of this legislation which may be seen by our trading partners as violating our treaty obligation and risk being brought before a similar dispute resolution panel.
I thank the chairman for his leadership in considering the issues raised by H.R. 789, and urge this subcommittee to review these issues closely before changing the balances that are currently struck in our copyright laws.
I would be pleased to address any questions concerning this H.R. 789, and am, of course, available to this committee for further inquiries.
Thank you, sir.
[The prepared statement of Mr. Lehman follows:]
PREPARED STATEMENT OF BRUCE A. LEHMAN, ASSISTANT COMMISSIONER OF PATENTS AND TRADEMARKS
Mr. Chairman and Members of the Subcommittee, Thank you for this opportunity to present the Administration's view on H.R. 789, the ''Fairness in Musical Licensing Act of 1997.''
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BACKGROUND ON THE ADMINISTRATION'S POSITION
The Administration does not support the ''Fairness in Musical Licensing Act of 1997.'' The Administration strongly opposes enactment of language that would amend section 110 of the Copyright Act as contemplated in H.R. 789. I appreciate this opportunity to summarize the Administration's views on the bill, and in particular, sections 2 and 7 which most concern us.
The ''Fairness in Musical Licensing Act of 1997'' effectively strips music copyright owners of one of their fundamental rights.under section 106(4) of the Copyright Act of 1976the right of copyright owners of literary, musical, dramatic, audiovisual and other works to publicly perform their copyrighted work or to authorize such performances by others.
The public performance right is not an unbridled one, however. The 1976 Copyright Act includes minor exceptions to the public performance right, one of which is codified in section 110(5) and is commonly referred to as the ''small business'' or ''home-style'' exception.
Section 110(5) provides:
Notwithstanding the provisions of section 106, the following are not infringements of copyright:
(5) communication of a transmission embodying a performance or display of a work by the public reception of the transmission on a single receiving apparatus of a kind commonly used in private homes, unless
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(A) a direct charge is made to see or hear the transmission; or
(B) the transmission thus received is further transmitted to the public.
Section 110(5) exempts from liability those parties that publicly perform a work by using a ''single receiving apparatus of a kind commonly used in private homes'' to receive a transmission of the work. For instance, a small restaurant that plays music from the radio using a home-style radio would not violate the public performance under the section 110(5) exemption.
At the time of the enactment of this explicit exception, the Report of the House Committee on the Judiciary explained that,
[I]ts purpose is to exempt from copyright liability anyone who merely turns on, in a public place, an ordinary radio or television receiving apparatus of a kind commonly sold to members of the public for private use.
The basic rationale of this clause is that the secondary use of the transmission by turning on an ordinary receiver in public is so remote and minimal that no further liability should be imposed.
H.R. Rep. No. 941476, 94th Cong. 2d Sess. 87 (1976).
When a party may take advantage of this exemption is determined by the courts considering the following factors:
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whether the receiver and other equipment itself are generally sold for commercial or private use;
the number of speakers that the receiver can accommodate; the number of speakers actually used;
the manner in which the speakers are installed;
whether the speaker wires are concealed; the distance of the speakers from the receiver; and
whether the receiver is integrated with a public announcement system or telephone lines.
In applying the tests in section 110(5), the most significant issue the courts have confronted has been, first, to determine whether a ''receiving apparatus'' is the ''kind commonly used in private homes.''
In addition, where the defendant is a corporation that operates several stores, courts have had to determine whether to focus their analysis on whether each individual store is entitled to the exemption or whether the corporation as a whole is entitled to the exemption. Two courts that have decided this issue have focused on the individual store.
Finally, the courts must determine how small the business must be to take advantage of the exemption. The courts usually look to the physical size of the business; the physical size of the area covered by the performance; the revenues of the business; and the number of customers served.
Page 41 PREV PAGE TOP OF DOC In order to manage the right of public performance, copyright owners for more than 80 years have organized their interests in the form of collecting or performing rights societies, such as ASCAP, BMI or SESAC, which collect royalties for songwriters. In addition to policing the performance rights of their members, these societies also benefit the users of the works. Without the performing rights societies, for many users there would be an inordinate expense and chaos associated with seeking permission to perform a work protected by copyright, in which users would have to identify and locate each copyright owner. Thus, these societies can provide an efficient service for both owner and user of a copyrighted work.
Because the courts have had difficulty in setting clear guidelines for the application of the section 110(5) exception, the American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music, Inc. (BMI), the Society of European Stage Authors and Composers (SESAC) and the National Licensed Beverage Association (NLBA) have negotiated a private agreement on the qualifications for exemption from the payment of music licensing fees under section 110(5). The agreement exempts an eating and drinking establishment that (1) is smaller than 3500 gross leasable square feet; or (2) uses six or fewer speakers, with no more than four speakers in one room; or (3) uses three or fewer televisions of 55 inch screen size or smaller, with no more than two televisions in one room. The performing right societies have also discussed a similar arrangement with National Restaurant Association and others, but no agreement has been reached to date.
The business practices of ASCAP and BMI, are a separate question from the rights they manage. ASCAP and BMI are subject to consent decrees issued by the U.S. District Court of the Southern District of New York. The U.S. Department of Justice monitors compliance with those decrees. In general, these consent decrees guarantee that the rights granted to ASCAP and BMI are nonexclusive and that ASCAP and BMI do not discriminate in their licensing practices. The consent decrees also provide a mechanism by which potential licensees may have the court set a reasonable license fee.
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Most of the criticisms of the practices of the performing rights societies has focused on charges that ASCAP and BMI engage in ''double dipping,'' by collecting royalties from radio and television broadcasters who pay for the rights to air music and then collect a second time from business that air the broadcasts. In addition, businesses have contended that (1) ASCAP and BMI use ''heavy handed tactics'' to collect royalties; (2) the consent decrees are ineffective because to challenge a royalty rate a business must litigate the case before the rate court in New York, which is often more expensive than the potential savings that could be obtained with a new rate; (3) the per program license is too expensive and burdensome to be a real alternative to the blanket license offered by ASCAP and BMI; and (4) ASCAP and BMI fail to provide up-to-date lists of their repertoire to businesses.
ANALYSIS OF H.R. 789
In broad terms, H.R. 789 attempts to extend the rationale set forth in the legislative history, that a public secondary use of an ordinary, private-style radio broadcast is too remote and minimal to impose further liability, to apply to non-remote and non-minimal public secondary uses. Music transmitted via professional-type equipment in restaurants is neither remote nor minimal, it tends to create a vital element of what is known as ''atmosphere'' and can be that element which determines success or failure of an establishment.
Section two of H.R. 789 would amend section 110(5) of the Copyright Act to allow certain restaurant and bar owners to perform musical works without authorization from the copyright owner or the copyright owner's agent, without compensation to the copyright owner, and without any liability under the Copyright Act. Section two of the bill would also broaden the existing exemptions in sections 110 (6) and (7) of the Copyright Act and would add a new section 110(11), which would exempt performances at children's camps.
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Specifically, section 2(a) of H.R. 789 would significantly reduce the level of copyright protection currently available to copyright owners of musical works by allowing others to perform their works without compensation or authorization, unless an ''admission fee'' is charged or the transmission is not licensed. In my opinion, this reduction is not justified. Although I understand that the proponents of H.R. 789 fear that the copyright owners of musical works or their agents, the collecting societies, may abuse the performance right granted to them by the copyright law, I believe that eliminating the right, in respect of bars and restaurants, is not appropriate. Furthermore, the attempt to carve out those public performances for which the music transmitted is a stated attraction by restoring rights copyright owners where ''admission fee'' is charged, is a bad idea. It is, in essence, a flashing red light warning those clubs that charge admission fees to collect revenue by simply offering higher prices for food or drinks.
The Administration also opposes the changes to copyright law proposed in section 2(c). Section 2(c) would alter the existing exemption in section 110(7) of the Copyright Act by applying it to any establishment that sells audio, video or related devices. Altering the 110(7) exemption in this manner would unduly broaden the exemption by allowing any store that sells any device capable of rendering a performance to benefit from this exemption, such as supermarkets, department stores and computer stores among others.
With respect to sections 2(b) and 2(d) the Administration also has some concerns. Sections 2(b) would alter the existing exemption in section 110(6) of the Copyright Act for agricultural events in a manner that I believe may unduly broaden the exemption. Section 2(d) would add a new exemption for children's camps to section 110 of the Copyright Act. While the Administration agrees in principle to the exemption of performances at certain children's camps, the specific language in the proposed change is too broad because it leaves several terms undefined and does not limit the exemption to not-for-profit children camps. First, we understand not-for-profit camps to fall under the exemption in section 110(4). Second, we believe the determination of appropriate licensing fees, if any, should be a matter resolved by the private sector parties involved. We note the agreement reached in July, 1997, between ASCAP and the American Camping Association concerning the licensing of paid performances at children's camps through which the private sector arrived at a solution to this issue.
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Finally, section 7 is of significant concern to the Administration. Section 7 would overturn existing case law applying the common law doctrines of vicarious and contributory liability to acts of copyright infringement. There is no justification for such a radical change in existing law that the Administration strongly believes is based on good policy rationale.
The United States joined the Berne Convention for the Protection of Literary and Artistic Works on March 1, 1989. At that time, the Administration and the Congress reviewed the 1976 Copyright Act to determine what provisions would require modifications to meet our new Berne Obligations. It was determined then that section 110(5) was consistent with Articles 11 and 11bis of the Berne Convention.(see footnote 1) This determination was not based on the text of any of these Articles, but rather on the implied exceptions to the Berne Convention recognized by the Berne Members.
Principally, these implied exceptions are based on the notion that Berne Members may have exceptions to the public performance right in their national legislation, provided the exceptions are de minimis.
Our trading partners are likely to allege that several of the changes to the copyright law proposed in section two of the proposed bill may be inconsistent with our obligations under the Berne Convention and the Agreement on Trade-Related Aspects of Intellectual Property (the TRIPs Agreement) administered by the World Trade Organization. If H.R. 789 is enacted, and we undermine the rights of copyright owners of musical works to perform their works in public, in particular at a restaurant or bar as envisioned by section 2(a) and at the establishments covered by section 2(c), we are seriously concerned that they will claim that we are in violation of our international commitments under both the Berne Convention and the TRIPs Agreement, the latter of which contains a similar right under Article 14(3).
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H.R. 789 unfairly limits the exclusive right of a copyright owner in his or her work. In sum, it does not appear that such a special carve-out from the level of protection granted to copyright owners of musical works is justified.
For years, Congress has introduced legislation addressing the music licensing issue. In the last Congress, Representative Sensenbrenner introduced a version of H.R. 789 and Senator Thomas introduced S. 1137, which would have amended section 110(5) of the Copyright Act to allow certain restaurant and bar owners to perform musical works without authorization from the copyright owner or the copyright owner's agent, without compensation to the copyright owner, and without any liability under the Copyright Act. These bills would also have amended section 504 to permit a ''general music user'' to initiate binding arbitration of royalty rate disputes with performing rights societies. At the time, the Administration opposed both bills as potentially being inconsistent with U.S. obligations under Article 11(1) of the Berne Convention and the TRIPs Agreement. As a result of the Administration's objections and other concerns, Senator Hatch introduced S. 1619 as compromise legislation. Nevertheless, inasmuch as this version of H.R. 789, as introduced in the 105th Congress, is much broader than the previously version, the Administration continues to remain opposed to the current proposed legislation.
I thank the Chairman for his leadership in considering the issues raised by H.R. 789 and urge this Subcommittee to review these issues very carefully before tampering with the balances that are currently struck in our copyright laws. I would be pleased to address any questions concerning this H.R. 789.
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Mr. COBLE. Thank you, Mr. Stoll.
Ms. Peters, let me put a two-part question to you. You mentioned the European Community's allegation that existing section 110(5) possibly violates international treaty obligationsthat's the homestyle exemption. Do you think that the allegation has merit (A). And (B), share with us in some detail the legislative history behind section 110(5).
Ms. PETERS. OK. I clearly believe that existing section 110(5) does not violate the obligations that we have under the Berne Convention. In fact, there was an ad hoc committee that looked at the existing copyright law before we joined the Berne Convention. One of the things the committee looked at was section 110(5). The committee concluded that the law, as it was drafted and the way the case law was developing at that time, limited the exemption to very small establishments with the type of equipment that you see in homes. There have been a couple of cases that have gone beyond that, but I strongly believe that the existing section 110(5) is fine, given what is required by the Berne Convention, and may be similar to exemptions that you see in a few other countries.
The legislative history was a very longactually this issue was pretty much resolved in the middle of the 1960's. The question was, What kind of exemption should there be for very small establishments? And the types of establishments that they talked about were hair-dressing salons, my dentist officeI am very pleased that he turns on the radio while he's drilling my teethand, basically, beauty shops, very tiny establishments where there isn't very much economic impact and the price of the license would be large compared to the amount that would be collected. The legislative reports specifically talk about factories, restaurants, bars, and those kinds of establishments where you would expect to find a license.
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It's interesting, while the law was going through, the Supreme Court in 1975, heard a case which is known as the Aiken case. The 1909 law was applicable, but the Supreme Court looked at the then draft bill and said, under the proposed section 110(5), we believe that the facts existing in this case would fall within section 110(5). The conference report says that the facts in the case representthe outer limits of 110(5). That is, an establishment of about 1,000 feet, 620 feet which are related to the restaurant, and with four speakers. And I can honestly say that most of the courts have stayed within those limits.
So, it was really a small establishment of exemption that was carefully crafted. The concept was any major, significant, commercial exploitation clearly must be controlled by the copyright owner.
Mr. COBLE. Thank you, Ms. Peters.
Mr. Stoll, I realize that we live in a global environment today, but should not we determine what scope of copyright rights and exemptions are best for our country as a matter of domestic policy, rather than allow the content of our law to be dictated by other countries? And I know that I sound like an isolationist, but let me hear from you about that.
Mr. STOLL. Sir, I believe we do, but there are international consideration when developing domestic policies. As you were asking earlier such matters might include the European Union's complaint based on Ireland and whether or not we would be successful in that type of argument, I agree that we would. But we also have a significant use of songwriters' works in other countries and they collect fees from some of these countries. Extending what are considered to be the de minimis exemptions in our present law to cover those in this bill would make it very difficult for us in an international basis to collect those royalties when there is contention about our own exemptions. The monies coming from other countries are receipts that are coming into this country, so the international aspect does affect domestic gross receipts based upon these bills.
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Mr. COBLE. I thank you, sir. And my red light is just before illuminating, so I will conclude my questioning. And in the order of appearance this morning, I will recognize the gentleman from Massachusetts, Mr. Delahunt.
Mr. DELAHUNT. Thank you, Mr. Chairman.
As I am reading the summary of the testimony that was proffered earlier by Mr. Stoll, and I'm quoting here, ''Section 2(a), the administration opposes this provision. Section 2(b), the administration opposes this provision. Section 2(c), the administration opposes this provision. Section 2(d) the administration opposes this provision. Section 7, the administration opposes this provision.''
Is it a fair statement that it would be the position of the Office of Patents and Trademarks that, if this proposal, this bill, should become law, that it would be the position of your office to recommend a Presidential veto?
Mr. STOLL. That's a very tough question to ask, but while you are correct that each section is opposed, I would like to clarify that it is not my office that has opposed each of these sections, but that it is the administration that is opposing each of these sections. So I would believe that it is fairly safe that, since I see none that we support, that it is probably likely that there could be an administration veto. But it is premature because I am sure that there will be changes at markup and many different positions weighing-in at different times.
Page 49 PREV PAGE TOP OF DOC Mr. DELAHUNT. Well, let me suggest to you, Mr. Stoll, there might not be any changes at markup.
Mr. STOLL. You are asking me to speculate, but I would say that your speculation is probably correct, sir.
Mr. DELAHUNT. Well, thank you.
And another sentence in the summary of testimony, and again I'll quote, ''The extension of this principle to popular restaurants or bars tips the balance scales in favor of these establishments against the copyright owner in his or her constitutionally-granted right.''
Has your office reviewed this proposal in terms of its constitutionality?
Mr. STOLL. Yes, sir. Article 1, section 8, to promote the useful arts.
Mr. DELAHUNT. Have you reached a conclusion as to the constitutionality of this bill?
Mr. STOLL. Not one that we have cleared through the administration, sir.
Mr. DELAHUNT. Well, I know that you haven't cleared it through the administration, but has your office reached a conclusion?
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Mr. STOLL. We have made a determination that it is constitutional
Mr. DELAHUNT. That it is constitutional?
Mr. STOLL. But we believe that it probably does violate some of the provisions of the Berne Agreement.
Mr. DELAHUNT. Of the Berne Convention. Thank you; that's all.
Mr. COBLE. I thank the gentleman. The gentleman from Wisconsin, Mr. Sensenbrenner.
Mr. SENSENBRENNER. Thank you, Mr. Chairman.
Mr. Stoll, last week, I received a letter from the Assistant Attorney General for Legislative Affairs in the Justice Department that says, in part, I quote, ''Because certain complaints that the Division,'' meaning the Antitrust Division, ''receives are recurring and because the industry has changed substantially since the decrees were entered and last modified in November 1995, the Division initiated a comprehensive review to determine whether the two decrees had been effective in preventing ASCAP and BMI from unreasonably restraining competition in music licensing and whether any modifications to the decrees are warranted. That investigation is continuing.'' And then the letter that the Justice Department sent to me talks about most of the major issues contained in H.R. 789.
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Has the Patent and Trademark Office contacted the Justice Department for their input before you reached the determination that you have announced to the committee?
Mr. STOLL. Sir, our testimony gets cleared through the entire administration.
Mr. SENSENBRENNER. That's not my question, sir.
Mr. STOLL. I'm not privy to
Mr. SENSENBRENNER. Did you talk to the Justice Department about this?
Mr. STOLL. No, sir.
Mr. SENSENBRENNER. The Justice Department is a part of the administration, too.
Mr. STOLL. We recognize that there are ongoing investigations at the Justice Department, but we are not privy to what the nature of those are.
Mr. SENSENBRENNER. Mr. Chairman, at this point I would ask unanimous consent that the letter to me, dated July 7, from Assistant Attorney General Andrew Fois, be included in the record.
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Mr. COBLE. Without objection, that will be done.
[The information follows:]
Hon. F. JAMES SENSENBRENNER, JR.,
|U.S. Department of Justice,|
|Office of Legislative Affairs,|
|Washington, DC., July 7, 1997.|
U.S. House of Representatives,
DEAR CONGRESSMAN SENSENBRENNER: This letter responds to your request for information about the recent enforcement activities of the Antitrust Division of the Department of Justice with regard to the longstanding consent decrees entered against the American Society of Composers, Authors, and Publishers (ASCAP) and Broadcast Music, Inc. (BMI), the two largest performing rights organizations (PROs) in the United States.(see footnote 2) These consent decrees resolved separate antitrust cases filed by the Department against ASCAP and BMI. U.S. v. ASCAP, Amended Final Judgment, Civ. No. 1395 (S.D.N.Y., entered March 14, 1950, amended February 19, 1993); U.S. v. BMI, Amended Final Judgment, Civ. No. 1835 (S.D.N.Y., entered December 29, 1966, amended November 18, 1994). The decrees contain numerous provisions intended to limit the ability of the organizations to exercise market power over music users and to unreasonably restrain competition among their members to license compositions.
The core provisions of the two decrees are similar. Both require that members grant the organization only a non-exclusive right to license their works, leaving individual members free to license music users directly on independently negotiated terms. Both require that per-program licenses be offered as a genuine economic alternative to the blanket license. Both have a non-discrimination provision that require similarly situated licensees be accorded equal licensing terms, and both require that license fee disputes be settled by the United States District Court for the Southern District of New York. The ASCAP decree also includes provisions related to the organization's internal governance, not contained in the BMI decree, that are intended to limit ASCAP's ability to exercise market power over its members.
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The antitrust Division plays a continuing role in overseeing and enforcing the decrees. In that regard, the Division frequently receives complaints concerning the activities of the PROs, as well as requests for comment or intervention in disputes involving the PROs. The Division regularly evaluates all of the complaints it receives, and where necessary, conducts a follow-up investigation to determine whether enforcement action is necessary. A majority of the complaints that the Division receives involve factual disputes in which there is no appropriate role for the Division. The Division has not initiated any enforcement actions with respect to either decree in the past two years.
Because certain complaints that the Division receives are recurring and because the industry has changed substantially since the decrees were entered and last modified, in November 1995 the Division initiated a comprehensive review to determine whether the two decrees have been effective in preventing ASCAP and BMI from unreasonably restraining competition in music licensing, and whether any modifications to the decrees are warranted. That investigation is continuing.
Currently, the Division is assessing the evidence it has gathered and evaluating the factual and legal bases that would support various modifications to the decrees. The purpose of this letter is to inform you of some of the issues that are involved in our assessment of the decrees.
The ASCAP decree requires that ASCAP keep available for public inspection a list of all musical compositions in its repertory. U.S. v. ASCAP, 195051 Tr. Cas. (CCH) 62,595 (S.D.N.Y. 1950) SXIV. ASCAP complies with this provision by maintaining a card catalogue of all the works in its repertory at its headquarters in New York. BMI's decree does not contain a comparable provision. In recent years, both ASCAP and BMI have created repertory databases that are accessible through the Internet, and both have toll-free telephone numbers for repertory questions. BMI also offers a CDROM and a 25-volume printed listing of its repertory. However, these databases are incomplete, and both ASCAP and BMI reserve the right to sue for unlicensed use of a song whether or not the song is listed in the database.
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Many music users have complained that, despite these repertory listing, they are not able to determine easily what compositions are in each of the PROs' repertories, and that as a consequence, it is difficult for them to avoid taking a blanket license from both PROs because the risk of inadvertent infringement is too great. Consequently, the Department is considering whether the consent decrees should be modified to require more complete disclosure of the PRO's repertories, or to minimize the risks associated with inadvertent infringement by music users who make a good faith effort to determine whether compositions are in a PRO's repertory.
Both ASCAP and BMI are required by the decrees to offer two types of licenses: blanket and per-program. A blanket license authorizes a user to make unlimited use of any song in the PRO's repertory for an extended period of time, usually one year. This type of license may be efficient for certain music-intensive users (e.g., all-music radio stations) or users who have little control over their music use (e.g., a nightclub that does not know what a band will play during a live performance). A per-program license is a blanket license for a limited and specific program or period of time, in increments of one hour for ASCAP and fifteen minutes for BMI. The user is authorized to perform any composition in the repertory as often as it wants during the specified time period.
Both decrees require that the per-program license be offered as a ''genuine choice'' relative to the blanket license. This requirement is intended to enable music users to license some of the music that they use directly from the copyright holder, while obtaining a per program license to cover music they are unable to license directly. From a competition standpoint, the availability of a per-program license is important because the ability of music users to negotiate for a license directly with the copyright holder may constrain the ability of the PROs to exercise market power over music users.
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Many music users have complained that ASCAP and BMI have refused to offer per-program licenses at rates that make the per-program license a genuine choice for those users. For example, ASCAP refused to offer a per-program rate to cable stations until ordered to do so by the Courts. U.S. v. ASCAP, 782 F. Supp. 7780 (S.D.N.Y. 1991), aff'd, 956 F.2d 21 (2d Cir. 1992). Until recently, per-program rates for local television stations and for radio stations were several times the equivalent blanket rate, so that only stations that could license substantial amounts there programming through some alternative to the PRO could of economically opt to use a per program license. These per program rates, however, were reviewed by the court and found to be consistent with the requirements of the consent decrees. The Department of Justice is considering whether any changes to the consent decrees are needed to ensure that the per program license is in fact a genuine choice, and that the ability to directly license the performing rights to musical compositions is an effective constraint on the ability of the PROs to exercise market power.
The Antitrust Division is also evaluating complaints by some music users that the PROs refuse to offer any type of license other than those required by the decree. These music users, who generally exercise a great deal of control over their music use, would like to purchase licenses that only cover the music that they actually use. However, there has been extensive litigation concerning this issue, and the courts have consistently concluded that the PROs' refusals to offer additional types of licenses do not violate the antitrust laws or the consent decrees. CBS, Inc. v. ASCAP, 400 F. Supp. 737 (S.D.N.Y. 1975), rev'd, 562 F.2d 130 (2d Cir. 1977), rev'd 441 U.S. 1 (1979), original opinion aff'd, 620 F.2d 930 (2d Cir. 1980), cert, denied, 450 U.S. 1050 (1981), Buffalo Broadcasting Co. v. ASCAP, 546 F. Supp. 274 (S.D.N.Y. 1982), rev'd, 744 F.2d 917 (2d Cir. 1984), cert, denied, 469 U.S. 1211 (1985). U.S. v. ASCAP, 1971 Tr. Cas. (CCH) 74,491 (S.D.N.Y. 1971).
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Both consent decrees establish ''rate courts'' in the Southern District of New York, which in essence provide compulsory arbitration, under federal rules of discovery, for all disputes over the rates charged by the PROs. Having a single forum for resolving disputes ensures that outcomes are consistent and facilitates compliance with the non-discrimination provisions of the consent decrees. However, many uses have complained that the rate courts are too slow, expensive, and inaccessible to offer a reasonable remedy for users who believe that their license fees are excessive. For example, one proceeding to establish reasonable blanket and per-program fees for local television stations took seven years. U.S. v. ASCAP, 1993 Tr. Cas. (CCH) 70,153 (S.D.N.Y. 1993). For smaller music users such as restaurants and nightclubs, the costs of litigating in federal court in New York City are likely to be prohibitive compared to the costs of their licenses. The Antitrust Division is considering whether modifications to the decrees are warranted to facilitate dispute resolution concerning license fees.
The ASCAP and BMI decrees require that ''similarly situated'' users be charged the same rate. This provision is intended to protect smaller users from discrimination. Under this provisions, industries have developed joint negotiating groups that bargain with the performing rights organizations on behalf of their industry. In some instances, subgroups of the negotiating groups have complained that their interests are not fairly represented and have tried unsuccessfully to engage the PROs in separate negotiations. The rate court is currently considering a complaint that alleges separate negotiations are a requirement of the existing ASCAP consent decree. The Department of Justice is considering the issue in a broader context and will evaluate whether changes to the consent decrees are warranted.
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In evaluating these and other complaints about the effectiveness of the consent decrees, we are attempting to determine not only whether there are continuing competitive problems in the musical performing rights industry that should be addressed, but also whether those problems could be remedied effectively by modifying the decrees, or whether a legislative solution would be more appropriate.
Please let us know if we can be of further assistance to you during your consideration of legislation in this area.
|Assistant Attorney General.|
Mr. SENSENBRENNER. This letter, Mr. Stoll, I think very clearly shows many of the concerns that have been brought to the attention of the authors of H.R. 789 have warranted an investigation by the Justice Department. It is my hope the administration will get its act together, because the Justice Department is supposed to be enforcing the antitrust laws relating to the consent decree between the U.S. Government and both ASCAP and BMI.
Mr. BERMAN. Would the gentleman yield for a question? I just want to see if I could get a copy of that letter now.
Mr. SENSENBRENNER. I will be very happy to give you a copy of the letter.
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Secondly, Mr. Stoll, could you please say what your specific objections are to local arbitration rather than having anybody who has a dispute with ASCAP or BMI having to go to New York City and appear before the rate court?
Mr. STOLL. Sir, we haven't looked conclusively at local arbitration yet. We are analyzing to see whether there are benefits to it or not. It is something that is currently under review in both my office and through the administration. So, I don't have an answer for you to that.
Mr. SENSENBRENNER. Now, finally, you claim that H.R. 789 would be detrimental to international agreements. Aren't there other provisions of U.S. intellectual property law that cause us problems internationally, such as the United States's unwillingness to accept the notion of moral rights?
Mr. STOLL. Yes, sir, there are provisions.
Mr. SENSENBRENNER. And we have rejected what our foreign trading partners have asked that we do in providing intellectual property protection for moral rights because that is a policy decision that has been made by the Congress and the administration jointly throughout the year?
Mr. STOLL. Yes, sir, we believe moral rights profection under current law meets our Berne obligations.
Page 59 PREV PAGE TOP OF DOC Mr. SENSENBRENNER. So, it seems to me that Congress ought to determine, under the provisions granted to it in the Constitution, where these protections extend and under what terms rather then having the Berne Convention or any other international agreement do that. Isn't that correct?
Mr. STOLL. I agree, sir.
Mr. SENSENBRENNER. I thank the gentleman for his answers and yield back the balance of my time.
Mr. COBLE. I thank the gentleman. The gentleman from California, Mr. Berman, is recognized for 5 minutes.
Mr. BERMAN. Well, thank you very much, Mr. Chairman.
I'd like to ask the Register of Copyrights just a couple of questions. It's dangerous because I don't know the answers to them, and I hate to ask those kinds of questions.
The earlier testimony that there is now a complaint that the homestyle exemption itself is violative of Berne, and you conclude that you are able to
Ms. PETERS. Defend
Mr. BERMAN [continuing]. That the United States is able to defend against that complaint. And as I understand you conclude that, if a bill were to pass that had as broad an exemption as provided for in section 2, thatwell, I'll let you just answer the question. What is your conclusion about your ability
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Ms. PETERS. I'm not sure. What I said was that it goes substantially further than any provision that has been considered to fall within the acceptable small exemptions. You can draw your owm conclusion.
Mr. BERMAN. Are there any countries that adhere to Berne, that are signatories to Berne, that have an exemption as broad as that proposed in section 2?
Ms. PETERS. Not that I am aware of, no. If you read the complaint, it talks about the ability to license works and to exploit them. When you deny that right especially for commercial purposes that is when the use is to serve consumers, it is not, in fact, an acceptable exemption. I don't know how that will play out.
Mr. BERMAN. The chairman asked a question earlier regarding who should decide how our copyright-holders are compensated; should it be a domestic decision? I take it that the Berne Convention, its provisions, its amendments, are all done, in a sense, by consensus, and the U.S. ability to oppose and therefore preclude from amendment any provision of the Berne Convention. Is that a fair conclusion?
Ms. PETERS. That's true, but, remember, the Berne Convention contins broad language and countries have the ability to legislate within that, and small exception are allowed. The question then is how countries implement that and whether or not under the World Trade Organization TRIPS Agreement it violates the allowable small exceptions.
Mr. BERMAN. I am very familiar that there is a strong notion of national determinations of adherence to Berne provisions.
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But let me ask you, if the European countries all use the performing rights organizations as a mechanism for negotiating appropriate payments, I assume for the same reason that we do, that otherwise there is no realistic way to compensate the writers of music. Is that a
Ms. PETERS. That's absolutely true. And the interesting thing is, that both sides of the negotiations are more or less equal. The large, performing rights society that really stands for small authors, unknown as well as famous composers. On the other side of the table is an equally strong organization.
Mr. BERMAN. That's right.
Ms. PETERS. That usually is a restaurant association or a bar association.
Mr. BERMAN. And we're going to hear testimony later, I take it, about an agreement that was worked out between these performing rights organizations and the National Licensed Beverage Association. As I understand it, those provisions do go beyond the homestyle exemption in existing law.
Ms. PETERS. That is correct.
Mr. BERMAN. Is it viewed that an exemption which is negotiated between the parties authorized to bargain on behalf of the copyright-holders, that kind of an exemption or payment schedule is given greater weight in the context of looking at Berne?
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Ms. PETERS. This would be a private agreement between the parties. So it wouldn't be in the U.S. law. It does go significantly beyond, and in fact, the Congressional Research Service did a study on that agreement and concluded that about 62 percent of the restaurants and 71 percent of the bars would be exempt under that scenario.
Mr. BERMAN. And because it was a private agreement, a complaint against the United States would not stand?
Ms. PETERS. That is correct.
Mr. BERMAN. Thank you very much, Mr. Chairman.
Mr. COBLE. I thank the gentleman. The gentleman from California, Mr. Bono, is recognized for 5 minutes.
Mr. BONO. Thank you, Mr. Chairman.
Is the country of China pirating copyright presently?
Ms. PETERS. Yes.
Mr. BONO. Does the administration oppose this piracy?
Ms. PETERS. Everybody opposes that piracy.
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Mr. BONO. What constitutes piracy by the administration's view as far as China is concerned? What are they doing to term them ''pirating?''
Mr. STOLL. We are in continual discussions with the Chinese, and we're actually pressuring them very strongly not to take unauthorized
Mr. BONO. I understand, but how are we getting the word ''pirating?'' What are they doing? Are theyis that because they are taking and using copyright and intellectual property without compensation?
Mr. STOLL. Correct.
Mr. BONO. Well, isn't there some confusion, then, because the administration and this whole country is somewhat outraged that China is using copyright without compensation, and aren't we talking about the same thing here with this bill, about using copyright without compensation? I mean, if they are taking something that doesn't belong to themis taking a radio that is not meant for commercial use and using it for commercial use, wouldn't that be the equivalent of pirating?
Mr. STOLL. Yes, sir. What we argue is that the exemptions as broadened by this bill are more than the de minimis amount is acceptable under the Berne Convention and that it would cause us problems internationally with respect to a broader taking.
Mr. BONO. Thank you. That's my point. We're outraged by pirating by the Chinese, but we're talking about legalizing pirating here in America, which to me is a direct contradiction of copyright law.
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Does any other nation in the world give an exemption to the copyright laws as broad as what is being proposed in this Congress?
Mr. STOLL. No.
Mr. BONO. None in the whole world?
Mr. STOLL. None that I am aware of.
Mr. BONO. Aren't we now attempting to kind of get a universal agreement about copyright, so that we are all on the same page? It seems that when we talk about the Berne Treaty and we talk about the homestyle exemptionnow the other guys are saying, ''Now wait a minute, I don't even know if you can give that home exemption because that islegally now you are in violation.'' It's kind of funny that there is a reversal there. But that is somewhat of a different issue.
Where did the word ''homestyle'' come from? Does anyone know the original use of the word ''homestyle?''
Ms. PETERS. Yes, it comes from the limitation to the kind of equipment that you normally would have in your private home. The legislative history talks about taking the radio that you have in your home and bringing it to your office to hear, so that your customers could hear it too. So, that's why it is ''homestyle.'' It is home-type equipment. It limits the type of equipment that you have. If you amplify it or you put it into a commercial sound system, you are not covered by the exemption.
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Mr. BONO. I respectfully ask for 30 seconds more.
Mr. COBLE. Without objection.
Mr. BONO. Thank you.
Doesn't that suggest that, clearly, the radio is not to be used for anyone else for commercial use? The music on the radio, isn't that what that would mean when we say ''homestyle?'' Wouldn't that be the definition of that?
Ms. PETERS. Yes, and, remember, the license for broadcast only covers reception in the home. It doesn't cover any commercial use of it. This exemption says that if all you do is bring your radio or record player into a very small establishment for a few people, we're going to exempt that.
Mr. BONO. Has technology changed since 1976?
Ms. PETERS. Significantly.
Mr. BONO. Thank you.
Mr. COBLE. The gentleman's time has expired. The gentleman from Indiana is recognized for 5 minutes.
Page 66 PREV PAGE TOP OF DOC Mr. PEASE. Thank you, Mr. Chairman. I appreciate the time and expertise of these witnesses and those that are to come. And because we still have a number who have come from a long distance, I am going to limit my questions and instead make one observation.
Ms. Peters and her staff have been conducting, earlier this year and continuing now, one of the most professionally-presented seminars that I have attended on intellectual property law. Many of you on this committee are attorneys, and we have to have continuing legal education credits to keep our licenses, and I thought that this was a good one to go to because, though I have background in the field, my legislative director and I have been attending. I just wanted to commend personally the professionalism of your staff and the tremendous expertise that they have and the assistance that they have provided to many of us on this committee, and to me personally, as we have endeavored to understand this subject better.
Ms. PETERS. Thank you very much, Mr. Pease. I certainly appreciate that.
Mr. COBLE. I thank the gentleman. The gentleman from Utah, Mr. Cannon.
Mr. CANNON. Thank you, Mr. Chairman.
A couple of quick questions. Do either of you have a sense of the order of magnitude of the balance of payments that American artists receive as opposed to foreign artists? And, secondly
Page 67 PREV PAGE TOP OF DOC Ms. PETERS. Obviously, American artists are going to get significantly more.
Mr. CANNON. It seems to me that that would be the case.
Secondly, could you describe what would happen in an office setting? I take it from your earlier comments that if a person in a cubicle had a radio there, that that would be exempt. If five people are listening to a common radio, I assume that would also be exempt. Is there a point at which you have 5 or 20 or 50 employees that are listening that it becomes nonexempt?
Ms. PETERS. No. The key issue is, is it public? And public is when there is a performance that takes place outside the family and its normal circle of acquaintances. A restaurant or the Library of Congress, is a public place. This exemption doesn't go to the number of people assembled; it goes to the type of equipment that you have. If you have home-type equipment you would only have a certain marked number of speakersso the sound it only can carry only so far.
Mr. CANNON. Thank you. That's all.
Mr. COBLE. Ms. Peters, could you or Mr. Stoll, even though you don't have it at your fingertips now, in response to Mr. Cannon's first question try to assemble some numbers on that?
[The information follows:]
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Hon. HOWARD COBLE, Chairman,
|U.S. Department of Commerce,|
|Patent and Trademark Office,|
|Washington, DC, August 26, 1997.|
Subcommittee on Courts and Intellectual Property,
Committee on the Judiciary,
DEAR MR. CHAIRMAN: This is in response to your and Mr. Cannon's inquiry, during the July 17, 1997, subcommittee hearing on music licensing, regarding the balance of payments received by American and foreign recording artists.
Information provided to us by ASCAP and BMI indicates a favorable annual balance of over $300 million. ASCAP, in calendar year 1996, received over $126.5 million in royalties for the public performance of U.S. music abroad and paid to foreign collecting societies approximately $25 million for the public performance of foreign music in the U.S. Comparable figures for BMI for 1996 are $105 million and $13 million, respectively. The combined net receipts for the two major collecting societies amount to $193.5 million.
In addition, many U.S. music publishers have foreign subsidiaries that belong to the foreign collecting societies and, therefore, collect money directly from those societies. ASCAP estimates that the foreign subsidiaries collect nearly as much directly as is paid to ASCAP by the foreign societies, i.e., somewhat less that $126.5 million. Accordingly, the total net U.S. receipts are in excess of $300 million.
Page 69 PREV PAGE TOP OF DOC We hope that the above is responsive to your inquiry.
cc: The Hon. Chris Cannon.
|Robert L. Stoll,|
|Administrator for Legislative and|
Mr. COBLE. The gentleman from Massachusetts, the ranking member of the subcommittee.
Mr. FRANK. Thank you, Mr. Chairman. I'm sorry I was late, but I had a Democratic whip meeting, a prior commitment.
But just to follow up on that to help me understand the distinction that Mr. Cannon was raising, if under current law, could you have a radio in the kitchen of the restaurant, so that the people cooking, and whatever, would be able to listen but not out where the paying customers would come in so that
Ms. PETERS. Absolutely.
Mr. FRANK. And that would be the distinction, that it was not an inducement to the paying customers, but
Ms. PETERS. Well, the difference, of course, is that in the kitchen it may still be a public performance, but the performance would probably be exempt from liability. It's public because the people in the kitchen are probably not your relatives. Now if it was a small, family-owned kitchen
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Mr. FRANK. It depends on the ethnicity?
Ms. PETERS [continuing]. And everybody who was in the kitchen was your family, yes, maybe.
Mr. FRANK. Butwell, suppose it is not. Obviously, they are not all your relatives.
Ms. PETERS. Then it would be covered by section 110(5) today.
Mr. FRANK. Well, I haven't been to continuing education classes, so I haven't the faintest idea what that means. [Laughter.]
Ms. PETERS. No, what sectioy 110(5) says is that if what you have brought on the premises on a commercial establishment is a home-type receiver and the equipment, for example the receiver and the speakers, are limited to a home-type of sound system, then any performance from that equipment is exempt as long as you don't charge to hear that music, and you don't transmit it further.
Mr. FRANK. So, that is the key. It's not the question of the people whoit's not the nature of the people, whether they are your workers or your customers. That is irrelevant.
Ms. PETERS. No. In this case, no.
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Mr. FRANK. Thank you.
Mr. COBLE. I don't want to nitpick this or drag it on eternally, but I want to extend Mr. Frank's question. As opposed to his radio in the kitchen, could you also have a radio at the cash register, Ms. Peters, and it would be equally exempt?
Ms. PETERS. Yes.
Mr. COBLE. OK. Folks, thank you all for being with us. I appreciate that.
And the second panel, if you all will make your way to the table while I introduce the witnesses.
Our next panel will consist of Mr. Wayland Holyfield, who is president of the Nashville Songwriters Association International. Mr. Holyfield will be testifying on behalf of the American Society of Composers, Authors, and Publishers, known to us as ASCAP. He is serving a term as a member of the board of directors of the Nashville Music Association and the Country Music Foundation Advisory Committee. He is also a member of the National Academy of Recording Arts and Sciences. Wayland's recordings include, ''Could I Have This Dance?'' and ''You're the Best Break This Ol' Heart Ever Had.''
Our second witness on this panel will be Mac Davis, who is a songwriter testifying on behalf of Broadcast Music, Inc., BMI. In the late 1960's, Mac wrote three hits for Elvis Presley: ''In the Ghetto,'' ''Memories,'' and ''Don't Cry, Daddy.'' Since then, he has written hits for Kenny Rogers, Bobby Goldsboro, O.C. Smith, and most recently, Dolly Parton.
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Our third witness on this panel is Pat Collins who is senior vice president of licensing for SESAC, Inc. He was a partner in the Washington office of the multistate law firm Kerland, Campbell & Keating from 1978 to 1995. He is also an adjunct professor of law at Georgetown University.
Our final witness on this panel is Debra Leach, who is executive director of the National Licensed Beverage Association. She is also on the board of the Responsibility Hospitality Institute, the Skyranch Foundation, the World Association of the Alcohol Beverage Industries, and the North American Partnership for Responsible Hospitality.
We have written statements of all these witnesses on this panel, and I ask unanimous consent to submit into the record in their entirety. I will again remind our witnesses of the 5-minute rule. If you can comply with that, we will be appreciative.
It is good to have you all with us. Even though it is time-consuming, I wanted to read your detailed biographies for the benefit of the uninformed in the audience, so they will know more about who you are.
Mr. Holyfield, why don't we start with you? It is good to have you with us.
STATEMENT OF WAYLAND HOLYFIELD, SONGWRITER AND PRESIDENT, NASHVILLE SONGWRITERS ASSOCIATION INTERNATIONAL, ON BEHALF OF THE AMERICAN SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHERS (ASCAP)
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Mr. HOLYFIELD. Thank you, Chairman Coble and members of the subcommittee. I am delighted to be here on behalf of songwriters.
My name is Wayland Holyfield, and I am a member of the board of directors of the American Society of Composers Authors and Publishers known as ASCAP. I am also president of the National Songwriters Association International. But most of all, I am here as a songwriter.
Except for this attempt by the NRA and others to use my property for free, I doubt a few of you have ever heard of me. But I think that you might have heard of some of my songs like, ''Could I Have This Dance?'' performed by Ann Murray, ''Rednecks, White Socks and Blue Ribbon Beer,'' sung by Johnny Russellmy first hit, which is always a wonderful thing to have happen. But it is the fate of most of us to stay in the background. The overwhelming of us don't share in the fame or the glamour that the performers of our songs realize. Most of us struggle to earn a living from songwriting, but that is OK; we're doing something that we love.
What is not okay and what we don't love is always having to defend our right to earn fair compensation from the use of our songs against those who benefit from that use, but don't want to pay.
I say ''our songs'' because that is what they are. They are our property. Is that what the American people have been saying in recent elections? Is this getting the Government off our back? Is this the free market at work? I don't think so.
Page 74 PREV PAGE TOP OF DOC H.R. 789 represents Government interference in the marketplace at its worst. It is Government price-fixing, and it is a bad bill. As you might say, Mr. Chairman, it is a dog that just won't hunt.
Somehow I thought this bill is called the fairness in music licensing bill. May I suggest that ''unfairness in music licensing'' would be a better title, and I know a thing or two about titles.
Mr. Chairman and members of the subcommittee, the proponents of this bill try to justify their greed by saying that they are just out to take care of small, mom-and-pop establishments. They somehow try to paint us, the songwriters, as some big, evil New York and Hollywood monster called ASCAP, BMI, and SESAC. But the truth is, we're songwriters. We're the smallest of small business men and women. We are ASCAP and BMI and SESAC. So don't let the NRA make us out to be the bad guys; we're just not.
We're individual American songwriters who have made American music the most popular in the world. Our efforts should be the pride of all Americans. Instead, here we are defending ourselves against legislation which would take our property and give it for free to people who would profit from it. And that's the whole deal about why we're here.
How much money are we talking about? The NRA's own 1996-dated publications show that the total cost for music and entertainment from restaurants was between three-tenths and seven-tenths of 1 percent of total expenditures.
ASCAP's data shows that the average licensing fee for restaurants is $1.58 per day. That is less than the cost of a tall cola where I come from.
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Though the cost to the user is minuscule, the collective loss of income to thousands of songwriters would be devastatingcollective here because we have a system where our people go out into the field and collect monies that are due us under the copyright law. And I keep hearing all of this talk about strong-arm tactics and bullying. It reminds me of, in Tennessee, if you don't have a fishing license and you are out there fishing, and the game warden comes by, you get nervous and you get itchy, and you start pointing at that game warden and saying that he is the bad guy. I don't have a license, so he makes me nervous. And I think that a lot of what we are having here is that sort of thing.
Mr. Chairman, may I point out that ASCAP has repeatedly tried to negotiate a commercial settlement with the NRA. It has successfully done this with the National Licensed Beverage Association and dozens and dozens of other organizations. But officials of the NRA told us in 1995, ''We do not wish to negotiate with you under any circumstances.'' They still refuse to negotiate. They insist on legislation in what should be a commercial dispute.
Mr. Chairman and members of the subcommittee, on behalf of America's songwriters, we ask that you reject H.R. 789 for what it isblatant Government interference in a commercial dispute and the unjustifiable taking of private property to be used for profit. H.R. 789 is about simple greed, the greed of those who give lipservice to support of the marketplace and opposition to Government interference, but want the Government to give them a free ride when they use the property of othersthe irony of it all.
They've tried to paint this thing as a David-and-Goliath issue with ASCAP, BMI, and SESAC as the big, bad giant. May I suggest the opposite may be true? And just remember who the songwriter was in that battle. And I might point out that David won that fight.
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Thank you, Mr. Chairman.
[The prepared statement of Mr. Holyfield follows:]
PREPARED STATEMENT OF WAYLAND HOLYFIELD, SONGWRITER AND PRESIDENT, NASHVILLE SONGWRITERS ASSOCIATION INTERNATIONAL, ON BEHALF OF THE AMERICAN SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHERS (ASCAP)
My name is Wayland Holyfield. I am a member of the Board of Directors of the American Society of Composers, Authors and Publishers, known as ASCAP. I am also President of the Nashville Association of Songwriters International. But above all, I am a songwriter.
Except for this attempt by the NRA and others to use my property for free, I doubt if any of you ever would have heard of me. But I think you might have heard of some of my songs like ''Could I Have This Dance,'' performed by Ann Murray, or ''Red Necks White Sox and Blue Ribbon Beer'' sung by Johnny Russell, and I might suggest, plenty of patrons in cafes and taverns all across this country.
That is the fate of most songwritersdespite wide-spread popularity of their workto be in the background. The overwhelming majority of us share in neither the fame nor the glamour nor the fortune that the performers of our songs realize. Indeed, most of Us struggle to earn a living from songwriting. But that's o.k. We're doing something we love. What's not o.k., and what we don't love, is always having to defend our right to earn fair compensation from the use of our songs against the claims of those who benefit from that use but don't want to pay for it.
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I say ''our songs'' deliberately, because that is what they are, ours. Just as any other product which human beings create belongs to them, those songs are our property.
And H.R. 789 is about the government seizing our property and giving it away, not even under government power of eminent domain, but through legislative interference in a commercial dispute.
Mr. Chairman and Members of the Committee, the proponents of this bill try to justify their greed by saying they're just out to take care of small ''Mom and Pop'' establishments. They somehow try to paint us, the songwriters, as some big, evil, New York and Hollywood monsters called ASCAP, BMI and SESAC. But the truth is we songwriters are the smallest of small businessmen and women. We are ASCAP, BMI and SESAC, and we're not monsters at all! So don't let the NRA make us out to be the bad guys because we're not. We are American songwriters who have made American music the most popular in the world. We have done it without government assistance. There is neither a minimum price for a song nor a minimum wage for a songwriter, nor a requirementas there is in other countries like Canada and Francethat broadcasters play a minimum quota of our music. Yet despite our struggles there is not a place on this planet which you will visit without hearing American music. Yes, we have done that. We have spread American culture. We have contributed year in and year out to the positive side of our nation's balance of payments. And we have done it at enormous sacrifice.
Our efforts should be the pride of all Americans. Instead, we are here defending ourselves against legislation which would take our property and give it for free to people who profit from it. Rather than receive praise for our achievements, we would be punished. Is this what the American people have been saying in recent elections? Is this the reward for our sacrifice and entrepreneurship? Is this what America was ever about? Is this the free market at work? Is this getting government off our backs and out of our pockets? The answer to all these questions is no. H.R. 789 represents government interference in the market-place at its worst! It is governmental price fixing; it is ''Big Brother'' entering into a purely market-place dispute and siding, ironically, with groups renowned for their opposition to government interference in the market-place.
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Mr. Chairman and distinguished Members of this Committee, the supporters of H.R. 789 have engaged in the classic and reprehensible ''straw man'' technique of political attack. They know that they can't pick on songwriters because Americans would balk at the unfairness of such an attack. So instead they have tried to make this a fight with ASCAP, BMI and SESAC. They hope that their target audience won't notice that the performing right organizations are merely the representatives of the songwriters and that songwriters couldn't possibly track the use of their music and earn a living without them. But please don't be fooled. The attack on ASCAP, BMI and SESAC is in reality an attack on each and every songwriter in this country.
Mr. Chairman, let's consider what our music does for businesses represented by the National Restaurant Association, which has stated repeatedly that this music is only ''incidental'' and that therefore they shouldn't have to pay for it. The overwhelming reality is that this music helps them sell! It enhances their atmosphere! It makes customers linger and spend! It contributes to their bottom line. If it did none of those things, the complaints of our adversaries could easily be resolved. They could turn the music off. Or, as Justice Holmes said of restaurant owners in their dispute with songwriters almost 80 years ago, ''If music did not pay, it would be given up.''
Mr. Chairman, during the long course of this struggle songwriters have faced not merely the strength of powerful organizations, but outright distortions of the truth-by these organizations and their allies. Let me furnish you with examples:
1. Mr. Sensenbrenner circulated a ''Dear Colleague'' letter earlier this year asking support for his Orwellian misnamed ''Fairness in Music Licensing'' bill, H.R. 789. Among the many attacks in his bill on songwriters, there is a section which would exempt restaurants from payment for radio and TV music. His letter goes on to cite the licensing fees paid by the Dubliner Tavern in D.C. as an example of our ''unfairness,'' claiming that payments by the Dubliner come to $3,000 per year. The truth is, Mr. Chairman, that the fees paid by the Dubliner are about half that. But more important, they are paid for live music, a type of music that would be left untouched by his bill.
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2. The NRA has claimed that the exemption we offered, which the Congressional Research Service said would exempt over 65% of all restaurants in the United States, is unacceptable because the gross square footage includes parking lots. Mr. Chairman, that is an out and out lie.
3. The NRA claims ASCAP and BMI ''arbitrarily'' set fees. Yet the NRA refuses to negotiate a mutually acceptable fee schedule. So they want to have it both ways: we are arbitrary for setting fees ourselves, but they refuse to negotiate the fees with us.
4. The NRA claims the licensing agreement we negotiated with the National Licensed Beverage Association lasts only for a year. In fact, it is a 3 year agreement.
5. The NRA claims they can't find out what's in the repertories of ASCAP, BMI and SESAC; they say that if only they knew what was in those repertories they could choose specific music and thereby deal with only one performing right organization. This, of course, is another ''straw man.'' In the first place, they could not control what comes in over the radio. So if they want to use radio music, they can't choose between us. But note the following: A license fee gives the right to use all our music as frequently as the licensee wants. Furthermore, all three organizations make their repertory information available by mail, 800 telephone numbers, and over the Internet. In other words, it is available right now without legislation. But really, Mr. Chairman, has anyone in this room ever heard a restaurant patron say ''I've heard enough BMI, I now want you to play some ASCAP music.'' Or, ''I think I've had enough ASCAP songs, I want some SESAC songs.'' This is an absurd argument on its face. Patrons ask for the songs they know, not for the music in the repertory of an organization they never heard of. But Mr. Chairman, if users wanted to turn the radio off and use tapes and CD's and construct their musical profile so as to use the music of only one performing right organization irrespective of what their patrons wanted to hear, that can be done right now, without legislation, because each performing right organization provides the access to repertory information they seek.
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6. The NRA claims fees are excessive. Mr. Chairman, their own 1994 survey of the economics of the restaurant business gives the lie to this claim. Their survey broke down the expenditure dollar of restaurants by percentage for everything that is spent. This survey showed that for restaurants in which the average check per person was under ten dollars, the total cost for music and entertainment was but three tenths of one percent, and for restaurants in which the average check per person was over ten dollars, but seven tenths of one percent. Note please, Mr. Chairman, that this is the total cost for music and entertainmentincluding the amounts paid to musicians and for equipmentnot just for licensing fees. Now if they really want to get some relief from you, they ought to ask you for an amendment which would cut the amounts charged by food suppliers, because that turns out to be the largest cost they have, as high as 29% of their expenses.
7. The NRA claims it doesn't want to negotiate an agreement because the terms might change at the end of the agreement. In other words, unless we agree to a fee in perpetuity, they claim they would somehow be treated unfairly. I ask you how many commercial agreements do any of you know of which set prices for products in perpetuity? I thought we were committed to a free market.
Mr. Chairman, when a bar or a restaurant or a retail establishment plays my music, or that of my colleagues, they are doing so for one reason: to enhance their bottom line. Our music is being used for the profit of the establishments' owners, and simple fairness demands that we be compensated for that use.
Over and over and over again, we have tried to settle this dispute with our opposition through commercial negotiations, just as we have done with many other groups over the years. Just as we did last year with the Radio Music Licensing Committee representing the overwhelming majority of radio stations in this country. Just as we did this year with the National Licensed Beverage Association, the group which began this whole fight over music licensing. The Executive Director of the National Licensed Beverage Association said of the agreement which she signed with the performing right organizations, ''We got more out of this agreement than we ever could have gotten out of legislation. This is definitely the way to go.'' But Mr. Chairman, the NRA told us in 1995, ''We do not wish to negotiate with you under any circumstances.'' Despite all the efforts of Members of this House and the other body, they have not budged from that stance. Such an arrogant stance should be not be rewarded.
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Mr. Chairman, this legislative ''taking'' of our property began with the cry that the ''mom and pop'' restaurant needed relief when they played radio or TV music. You know that in an effort to help the so-called ''mom and pops,'' we offered to exempt such uses at all eating and drinking establishments 3,500 sq. ft. or less, and we included an exemption based on equipment, regardless of size. The Congressional Research Service reported that the 3,500 sq. ft. figure would have exempted 65.2% of all eating establishments and 71.8% of all drinking establishments. Clearly, we took care of the ''moms and pops.'' But for the NRA it wasn't enough! Their representative went before the House Small Business Committee last year and said ''we want more.'' Ironically, the commercial agreement negotiated with the NBLA granted the 3,500 sq. ft. exemption as part of the package. However, NRA members are ineligible because their leaders want Congress to do their work for them.
We have offered time and again, and we repeat that offer before you now, to meet with them anywhere, anytime, anyplace to settle this dispute in the marketplace, where it should be settled. Congress should not be in the business of fixing prices for my music any more than it should be fixing any other prices.
Mr. Chairman, ASCAP, BMI and SESAC are not the real targets here. American songwriters and publishers are the real targets of these music users. ASCAP, BMI and SESAC are invaluable organizations for music creators. We cannot know who is using our music in our own hometowns let alone throughout the United States and the world. Without these organizations, we would be broke. And for the music user, this service, which gives unlimited access to huge repertories for modest feesthe average payment to ASCAP is $1.58 per dayis also indispensable. For if every restaurant and radio station had to track down every owner of the copyrighted music they wanted to use, they would find the task impossible, and they would lay themselves open to copyright infringement suits from a multitude of copyright holders. This is the most efficient system for clearing the use of music that ever has been devised. It is used throughout the world. To complain that those who own musical property are somehow not entitled to fair compensation because they belong to organizations without which they could never be compensated for the use of their music is ludicrous.
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Now, Mr. Chairman, I'd like to address the NRA's red herring of a demand for local, individual arbitration for each restaurant throughout the country. There are really two aspects to that demand.
First, there is the question of the determination of the facts which tell you how much an individual restaurant should pay under the uniform nationwide rate schedule. For example, one such fact is the seating capacity of the restaurant. As ASCAP has said time and time again, we would be happy to have disputes over those facts resolved through arbitration on a regional basis. But as always, the NRA is not interested in negotiating anything.
Second, there is the question of the determination of the rate schedule itself. That is an entirely different matter, and let me tell you why.
Under the normal workings of the copyright law, if a restaurant owner in Los Angeles wanted to perform my song ''Only Here for a Little While,'' he would have to come to me, in Nashville where I live, and get a license from me, at a rate I would determine. If he didn't like my price quote for the use of my property, his only option would be not to use it.
But I simply don't have the resources to find and negotiate individually with that restaurant, let alone every restaurant in the country that wants to use my music. And, assuming that the restaurant owner wants to obey the law, that restaurant does not have the resources to find and negotiate with me and every other songwriter of the works he wants to perform in advance of the performance (or, for that matter, at any time).
Page 83 PREV PAGE TOP OF DOC That is why we have a system of collective licensing through performing rights societies like ASCAP and trade associations of users, a system that exists in every civilized country. Under that system, I, and every other individual songwriter member of ASCAP, gave something up by joiningthe right to say no to any particular use, and the right to set an individual price for the performance of my music. In exchange, I and my colleagues got a means of nationwide licensing of our music and the practical ability to earn a living from our craft.
But that restaurant owner, and all other users, made a similar trade. They received the benefit of an administratively simple, cost-efficientt method of obtaining all the property that they need through one ASCAP license, at a reasonable fee. But that system only works if they, too, negotiate for a license on a collective basisin their case, by having industry-wide negotiations on rate determination proceedings by their trade associations, which represent the full spectrum of restaurateurs across the country. That is exactly what has happened with our deal with the NLBA, and with countless other trade associations and industry-wide negotiating committees.
It is this copyright owner collective-to-copyright user collective system of licensing which has allowed the copyright law to work in this area. My colleagues and I have agreed to give up our exclusive rights and give a license to whoever wants one, even before an agreement on price exists. My colleagues and I have agreed that the price charged will be uniform throughout the country, to protect individual users against discrimination and abusive pricing. And to ensure that reasonableness and uniformity, my colleagues and I have agreed that one court, which has developed over fifty years of immense expertise in this area, will set the price if we cannot agree. The essence of this system is that both the negotiations and, heaven forbid, any litigation over price, should be between my collective associationASCAPand the users' collective association, whatever it may be Those user associations, which have immense resourcesfar greater resources than ASCAP, I might addshould hardly complain about going to that expert court for a rate determination in light of the expense they impose upon me and my colleagues to locate them throughout the length and breadth of this land, and try to persuade them to take a license to which they are automatically entitled if they but ask. If they don't want to do that, let their individual members obey the law by coming to meand every other songwriterindividually before they use my music. They can't have their cake and eat it too.
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And, I should add that this system ensures that ASCAP's rates will not only be reasonable, but also uniform and non-discriminatory throughout the country. As the U.S. Court of Appeals for the Fourth Circuitwhich sits in Richmond, Virginiahas said in looking at this very issue in 1994, that desirable uniformity would be lost, and an immense expense unjustifiably imposed on my fellow songwriters and me, if the NRA' demand were to be law.
In sum, the NRA's complaint that its individual members can't participate in the rate determination process is a red herring. If the NRA would only do its job, and sit down at the bargaining table with usas the NLBA has done to the great advantage of its membersthere would be no need to waste time on this issue.
Mr. Chairman, many accusations have been made about the performing right organizations. One is that they are monopolies. It is interesting to note that the United States is virtually the only country in the world which has more than one licensing organization. Actually, we have three which compete vigorously with one another. Moreover, the two largest operate under consent decrees for the protection of the users of music and those whose music is used. These decrees guarantee fairness and non-discrimination in the licensing system, and in the case of ASCAP, accuracy in the distribution of the funds received for the use of music. Indeed, as mentioned earlier, the most recent agreement between ASCAP and the Radio Music Licensing Committee representing over 9,000 radio stations was1 reviewed by the Federal Court which has jurisdiction over the consent decree. The Court found it to be both fair and non-discriminatory. We can only wonder what the reaction of the National Restaurant Association would be if the government decided that the nature of their business was such that they would have to seek government approval for the prices they charge their customers and government approval for the method in which they distribute their income. Yet those are constraints performing right organizations operate under.
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Mr. Chairman, I do wish to address three additional points for the record:
First, I am fully aware of, and fully support, the testimony given in Nashville by my colleague Robert Sterling about the provisions of H.R. 789 which would do such serious harm to the writers of Christian music. These provisions are sponsored by so-called ''religious broadcasters'' who are nothing but commercial broadcasters who use a very worthwhile format for their own commercial profit making ends. That they hide behind the cloak of religion to pursue even greater profits at the expense of the individuals who toil to create inspirational Christian music is, to me, reprehensible. There is absolutely no justification for the radical reduction in the already reasonable license fees paid for the use of the property created by these hard-working and devoted American Christian songwriters. And we should not lose sight of an important pointwhile these religious format commercial broadcasters make it seem as if they are only seeking a break for their particular stations, their legislative proposal would radically reduce the license fees paid by all radio broadcasters. I hope you are as outraged by this proposal as I amit should be emphatically rejected.
Second, I also want to strongly endorse the testimony given by Ed Murphy of the NMPA and my colleague Paul Williams and others who are urging Congress to enact the ''cure'' for the dreadful decision in the La Cienega case, a decision completely at odds with the practices of the music industry, the Copyright Office, and the now 20-year-old precedent of the Rosette case. It is, to me, unconscionable that the copyrights of America's great music should be put in jeopardy. It is not merely the music publisher who is at riskevery song has one or more writers, and we earn our daily bread from our copyrights. As this legislation overwhelmingly passed the House last year, it is noncontroversial, to say the least, and should be speedily enacted. On behalf of ASCAP's songwriters and publishers, I want to thank you for your consistent leadership on this issue, and to commend both you and Congressman Bono for introducing legislation to resolve this dilemma, and Congressman Conyers for his strong interest in this matter.
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That brings me to my third point, the term extension legislation. Here, too, I want to endorse the testimony of Frances Preston, President of BMI and others who support this much-needed legislation. Notwithstanding the carping of some who take a flawed theoretical view rather than a practical one, this legislation is eminently sensible. Again, on behalf of ASCAP's songwriters and publishers, I wish to commend Congressmen Bono and Gallegly for introducing term extension legislation in this Congress. Who would not support legislation which will so beneficially enhance our balance of payments with our European and other worldwide trading partners?
There is a final point I wish to make, Mr. Chairman. I find it reprehensible, to put it mildly, that those who want the enactment of H.R. 789 continue to attempt to hold the La Cienega and term extension legislation ''hostage'' unless their greed is satisfied. This is just the sort of nonsense that outrages the American people, who have made very clear their disgust with Congressional inaction and gridlock. I hope, Mr. Chairman, that the wiser and saner heads that you and the majority of your colleagues have on these matters will prevail, and we will see the speedy enactment of the La Cienega and term extension legislation.
In sum, Mr. Chairman and Members of the Committee, we ask that you reject H.R. 789 for what it is: blatant government interference in a commercial dispute, and the unjustifiable taking of private property to be used for profit. H.R. 789 is about simple greedthe greed of those who give lip service to support of the market-place and opposition to government interference, but who want the government to give them a free ride when they use the property of others.
Page 87 PREV PAGE TOP OF DOC Mr. COBLE. Thank you Mr. Holyfield.
STATEMENT OF DEBRA LEACH, EXECUTIVE DIRECTOR, NATIONAL LICENSED BEVERAGE ASSOCIATION
Ms. LEACH. Mr. Chairman and members of the subcommittee, my name is Debra Leach. I am the executive director of the National Licensed Beverage Association. NLBA was founded over 50 years ago and represents the interests of the retail alcohol beverage hospitality industry. Our over 16,000 members throughout the United States include bars, taverns, restaurants, liquor stores, hotels, nightclubs, bowling centers, private clubs, gas stations, literally any retailer who is licensed by their State to sell beer, wine, and liquor.
I am accompanied today by Ken Rehm, NLBA president and the owner of two sports bars in Cincinnati, OH, and John Chwat, our Washington lobbyist.
Mr. Chairman, you and the members of your committee have my written testimony and my addendum. I'd like to use my time to highlight some of the concerns that we have with testimony that you will hear from the next panel and to give you a bit of a background as to why we are here.
NLBA was the first group to identify the issue of music licensing and the concerns of our members in 1992. At that time we were alone. We were leaders in urging the hospitality industry to form a coalition. After several years of legislative inaction, we were urged by our members, this subcommittee, and Members of Congress, to resolve this issue, to compromise, to come to an agreement outside of the legislative arena. We urged other members of the coalition to join us, and they refused. We were told to ''do what you have to do.''
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So we left the coalition and joined the three dozen other organizations that are listed in my written testimony that have negotiated successfully with the PRO's. During 1996, at the urging of our members, this subcommittee, and Members of Congress, we met, individually, separately, and repeatedly during that year with each of the PRO's to establish our common ground.
Some of the members of this subcommittee have alleged their antitrust concerns. Let me assure you that the three separate agreements were reached individually and under advice of counsel. My written testimony fully describes the NLBA agreement, as does our newsletter, which was mailed to all 16,000 of our members and to the press.
It will be alleged that our total gross square footage range chart includes parking lots and private living quarters. I promise you that it does not. This is a business arrangement, and it was reached for the purpose of licensing the music use of the commercial establishment only.
One clarification that I would like to make on the exemption provision is that any size establishment, even if it is 100,000 square feet, can now be exempt under our provision, because our provision clearly outlines and clearly details the number and the size and the type of equipment that an establishment of any size can have in order to be exempt. This is the issue that originally brought us before this committee to clarify, and we accomplished that goal.
There are concerns that these agreements have a limited term. Every contract has a beginning and an end. Let me assure this subcommittee that during the term of our agreements we will gain more experience in order to build on with our next agreement.
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Later you will hear from a former NLBA State affiliate, the Tavern League of Wisconsin, that our agreements stink. If only their members knew how much it could help them, they would sign up and join with us, as many of our members have done.
I'd like to submit into testimony a letter that we have received from one of our members telling us how much this has helped her not only in not having to enter into any negotiations with ASCAP and BMI, but also that she's discontinued another music service that she had, because our agreement includes all music uses and it saved her several hundred dollars.
Some of the witnesses will leave you with the impression that the use of radio and television is not addressed, and in our agreements it clearly is. And it is stated in our submitted testimony and in our newsletter.
Mr. Chairman, we did stay in that woodshed that you mentioned, and we stayed there until we came out with an agreement that we could all live with and that we could all sign. The NLBA only exists to serve its members, and our agreements accomplish that.
I have a few items that I'd like to submit into the permanent record, if you will allow me.
Mr. COBLE. Well, what are the items?
Ms. LEACH. This is a letter that I wrote to Members of the House and Senate on H.R. 789 in November 1995. I also wrote a letter to the former chairman of this committee in January 1996 discussing our agreement; and an article that was published in association management magazine in May 1997 about the ASAE agreement that it reached with BMI, and the letter from our member which clearly emphasizes how she feels about our plan.
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Mr. COBLE. Without objection.
[The information follows:]
To: Members of the House and Senate;
|National Licensed Beverage Association,|
|Alexandria, VA., November 13, 1995.|
From: Debra Leach, Executive Director;
Subject: H.R. 789/S. 1137, the Fairness in Musical Licensing Act.
The National Licensed Beverage Association (NLBA), which represents independent business establishments in the hospitality industry, would like to set the record straight on recent events relating to the proposed changes to the music copyright law and correspondence being distributed on Capitol Hill by representatives of the Music Licensing Fairness Coalition.
The NLBA has been an active member of the Music Licensing Coalition and, in fact, three years ago, prior to the formation of the coalition, identified the issue of revising the music copyright law as it relates to the ''homestyle exemption,'' which exempts small businesses from paying music copyright fees to ASCAP, BMI and SESAC, the three performing rights societies. Our association has consistently recommended to Congress that the 1976 copyright law on the ''homestyle exemption'' relating to the use of televisions and radios in our establishments requires legislative clarification.
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Despite repeated attempts by the NLBA to urge the coalition members to resolve their individual differences with the performing rights societies and negotiate a legislative clarificationas requested by Rep. Carlos Moorhead (RCA), the chairman of the Subcommittee on Courts and Intellectual Property, the coalition refused to negotiate. The leadership of the House and Senate committees urged a negotiated solution on this legislative issue. Finally, after three recent attempts to urge negotiation were rebuffed by the coalition, on October 27, the NLBA, ASCAP, BMI and SESAC met in Washington, D.C., and negotiated a clarification to the copyright law and issued the attached press release and copy of the proposed legislation. The NLBA has withdrawn from the Music Licensing coalition.
The coalition is opposed to this legislative compromise that we have reached with the performing rights societies. The coalition's statement in its November 8 letter is misleading, because the exemption proposed by the NLBA is not specific to our membership but, rather, speaks to all small businesses, whether retail or eating and drinking establishments. It is a significant change to existing music copyright law.
Finally, the coalition seems to be pursuing a course of preventing this legislative compromise from being considered by Congress. We met with several members of the House and Senate, including Sen. Brown. We informed him that the proposed language would cover most of the small business establishments throughout the state of Colorado and urged him to release his hold on the copyright extension language (H.R. 989/S. 483) and to support this narrow clarification of the homestyle exemption as being in the best interests of our small business establishments.
Page 92 PREV PAGE TOP OF DOC We believe the Music Licensing Coalition continues to present to Congress inconsistent positions regarding music licensing copyright legislation.
The NLBA believes it is important to seek a responsible solution to this issue. Do not deny independent business owners the substantial savings they will accrue though the passage of this legislative compromise. We urge the 104th Congress to expeditiously approve the Small Business Music Licensing Exemption Act of 1995 and sent it to the White House to be signed into law.
NEW AGREEMENT TO SIMPLIFY MUSIC LICENSING PROCESS
BY R. WILLIAM TAYLOR, CAE
ASAE is pleased to announce a breakthrough agreement on music licensing. Working with our meeting industry partners Meeting Professionals International, the Professional Convention Management Association, and the Religious Conference Management Association, ASAEthrough its general counsel, Jerry Jacobsled negotiations that resulted in a mutually beneficial agreement with Broadcast Music, Inc., a music licensing organization with more than 2.5 million songs in its repertoire.
This agreement represents a move toward simplicity and lower costs in the area of music licensing. I am especially pleased with BMI's cooperation and genuine understanding of the meeting industry throughout the process of negotiating an agreement. ASAE welcomes BMI as a true partner to the association community.
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The final agreement sets out terms for a new music licensing blanket agreement for meetings, conventions, and exhibitions. This new blanket agreement has been simplified significantlyso must so that it actually fits on two sides of a letter-size page. The rates for this blanket music licensing agreement have been cut in half for live performances of BMI music at meetings, and the minimum rate to be paid for a licensing contract has been decreased from $175 to $100. Association chief executive officers and meeting professionals who use the BMI license will receive a CDROM, permitting an easy determination of what music is licensed from BMI under the agreement (which will also permit a careful association executive to deal only with BMI for the licensing of copyrighted music). A number of other favorable provisionstoo numerous to mention hereare part of the contract. For more information about this agreement, please contact ASAE Government Affairs by calling (202) 6262818 or sending an e-mail message to firstname.lastname@example.org.
I would like to personally thank ASAE General Counsel Jerry Jacobs for his hard work in leading the effort to forge this landmark agreement. Jerry's persistence, along with the diligence of representatives from ASAE's meeting industry partners and BMI, proved invaluable.
Rep. CARLOS MOORHEAD, Chairman,
|National Licensed Beverage Association,|
|Alexandria, VA., January 17, 1996.|
House Courts and Intellectual Property Subcommittee,
U.S. House of Representatives,
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DEAR CHAIRMAN MOORHEAD: The National Licensed Beverage Association, which represents the retail alcohol beverage industry, is grateful for your continued interest in the music copyright issue, especially as it relates to the homestyle exemption in Section 110(5) of the copyright law. We are greatly disappointed that the October 1995 legislative agreement reached between our industry and the performing rights societies, which would clarify the homestyle exemption, did not move forward in the last session of Congress. We believe the language of this agreement has broad support from small and medium-sized retail establishments throughout the hospitality industry. As the new session begins, we seek your support for enacting the terms of that agreement into music copyright law.
For many years, the NLBA has informed Congress that Section 110(5) of the 1976 copyright law needs legislative clarification on the types of television and radio equipment used by our hospitality industry establishments. The October 1995 compromise was reached in total accord with the performing rights societies and was an historic step forward to clarify this portion of the copyright law.
It is also encouraging to the NLBA and its allies in the hospitality industry that the performing rights societies have agreed to this legislative compromise language. This legislative compromise to Section 110(5) is, we believe, fair to all retailers in our industry, including those who have thus far resisted any changes.
Therefore, as you develop your music copyright agenda for 1996, we strongly urge you to pass the pending copyright term extension legislation embodied in H.R. 989, which you introduced on March 2, 1995, and to incorporate the attached compromise language that our industry and the performing rights societies support. We wholeheartedly support the quick passage of H.R. 989 as amended and seek to have it passed in the Senate and sent to the President for signature into law.
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We commend you and your staff for considering this issue and stand ready to assist you in any way we can to move this legislation to final passage.
To: Debra Leach;
|Washington, DC., July 15, 1997.|
From: Lynne Breaux;
Subject: NLBA Music Licensing Agreement.
Tunniclif's Tavern joined the NLBA's Music Licensing Agreement to save money and eliminate confusing ASCAP and BMI billing procedures, as well as, the occasional ''personal visit.'' This agreement, in fact, saves this neighborhood restaurant money and not only with BMI and ASCAP. The agreement also enabled us to discontinue a music recording service, at additional monthly savings. We are obviously pleased with the NLBA's Music Licensing Agreement and our decision to join the program.
[The statement of Ms. Leach follows:]
PREPARED STATEMENT OF DEBRA LEACH, EXECUTIVE DIRECTOR, NATIONAL LICENSED BEVERAGE ASSOCIATION
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Mr. Chairman and Members of the Subcommittee. My name is Debra Leach and I am the executive director of the National Licensed Beverage Association. The NLBA was founded over 50 years ago and represents the interests of the retail alcohol beverage hospitality industry. Our over 16,000 members throughout the United States include bars, taverns, restaurants, liquor stores, hotels, nightclubs, bowling centers, private clubs, gas stationsany retailer who is licensed by their state to sell beer, liquor, and wine. I am accompanied today by Ken Rehm, NLBA President and the owner of two sports bars in Cincinnati, Ohio, and John Chwat, our Washington lobbyist.
The NLBA appreciates the opportunity to testify once again before your subcommittee on music copyright issues. We appeared once before on this same issue in early 1994 and we believe that our testimony today will bring a unique perspective to the Members of the Subcommittee on how to address issues involving proposed music copyright law revisions.
Mr. Chairman, the issue facing the subcommittee at this hearing and in the remaining days of this session of Congress is simply whether federal legislation is needed to amend music copyright law or whether groups can negotiate privately with the Performing Rights Organizations (PROs): the American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music Inc. (BMI), and SESAC, Inc., to reach a commercial agreement in the free marketplace. We believe the answer is for negotiations rather than legislationworking out our differences in the marketplace rather than relying on government intervention.
Recently the NLBA concluded an historic agreement with all three PROs that was achieved by much ''give and take'' from both sides. It was an agreement accomplished without federal legislation and in the spirit of compromise. A solution that benefits our membership in the hospitality industry, and songwriters.
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Many groups in Washington, D.C., over the past several months have informed this Subcommittee and other Members of Congress that they are unable or unwilling to negotiate with the PROs and seek accommodation on music licensing issues. We disagree.
In fact, the NLBA is not alone in believing that compromise and negotiations in a free marketplace can solve these types of issues without resorting to legislation. For example, we are joined by the following organizations that have master licenses with one or more of the PROs: American Callers Association, American Council on Education, American Hotel & Motel Association, American Music Operators Association, American Society of Association Executives, American Symphony Orchestra League, Amway, Arena Football League, Callerlab, Continental Basketball Association, East Coast Hockey League, Football Bowl Association, Ice Skating Institute of America, Independent Background Music Association, International Association of Amusement Parks and Attractions, International Association of Fitness Professionals, Jazzercise, Inc., Major League Baseball, Major League Soccer, Music Educators National Conference, Music Teachers National Association, National Association of Country Western Dance Teachers, National Association of Professional Baseball Leagues, Inc., National Association of RV Parks and Campgrounds, National Ballroom and Entertainment Association, National Basketball Association, National Clogging & Hoe-down Council, National Federation of Music Clubs, National Hockey League, National Hot Rod Association, Professional Rodeo Cowboys Association, Roller Skating Association, Shriners, and YWCA of the USA.
The listing above, Mr. Chairman and Members of the Subcommittee, shows quite clearly that organizations, such as our NLBA and others, are able to reach music licensing agreements without the need for federal legislation. Contractual agreements openly arrived at in the marketplace are in each organization's best interest.
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It is true that the NLBA brought to the Congress over four years ago the problem our members were having in understanding the 1976 copyright law provision known as the ''homestyle exemption.'' Under this provision certain performances of music on radios and TVs of the type commonly found in the home but used in commercial establishments, such as bars and restaurants, are exempt from music licensing fees. Determining when a particular radio or television is exempt caused us at that time to support changes in the music copyright law.
In the beginning it was very lonely and no one joined our cause. In fact for a few years we were alone arguing our case to this Committee and met several times with former Chairman William Hughes (DNJ). Later, several groups became interested and a Music Licensing Coalition was formed. Within a very short time it involved many organizations that had nothing to do with our hospitality industry concerns with the equipment exemption. We were faced with religious broadcasters' concerns, large retail chains, horse raceways, auditorium owners and managers, and others. Our concerns were only a small part of what other, larger groups desired in changes to music copyright law.
Throughout our membership in this coalition we urged compromise, negotiation, and reconciliation with the PROs. This position was consistent, Mr. Chairman, with your predecessors, former Chairmen William Hughes and Carlos Moorehead. We tried time and time again to focus the coalition's retail hospitality groups on the issues we believed were important to pursue, but to no avail. The Coalition had long ago lost sight of the fundamental issue that brought us to this subcommittee four years ago. Specifically, the problem of determining when a particular radio or television performance is exempt from music licensing fees, either because of the number of TVs, radios and speakers, the size of the TV screens, or the very nature of the components of the sound system. We argued for a change in the copyright law. After several years of continual stalemate, the course we faced in the NLBA was quite simpleour membership wanted a resolution to the issue of licensing fees rather than continuing a legislative battle without an end in sight; the performing rights organizations wanted us to work with them to resolve our differences; and selected Members of Congress, including two past Chairmen of this subcommittee, urged us to sit down with the PROs and negotiate our differences. In summary, Mr. Chairman, the NLBA, urged on by all of these forces, took the step to reach out to all three PROs in the fall of 1995. We are glad we did. What we have found is that the recent NLBA agreement concluded with all three of the PROs has brought our members a unique opportunity.
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I would like to now briefly describe for you, Mr. Chairman and the Members of this Subcommittee, the provisions of the historic NLBAPROs music licensing agreement and answer any questions you might have on this agreement.
In October 1995, NLBA and the three Performing Rights Organizations met in Washington, DC, for the purpose of defining for possible legislation the radio and television homestyle exemption in terms on which all four organizations could agree. After several hours of negotiation, we agreed that two types of establishments would be identified: retail, meaning liquor stores, convenience stores, shoe stores, etc., and eating and drinking establishments, such as bars, taverns, restaurants, etc.
We then agreed on several other points. We agreed that: (1) if radio and/or television were the only sources of licensable music, and (2) no direct charge is made to see or hear the transmissions, and (3) the transmissions are not transmitted beyond the establishment, then (4) a total exemption from the necessity for paying music copyright fees for radio and television use would be permitted if certain other requirements were met. We defined those requirements as follows and agreed that any uses over these limits would be licensable.
Eating and drinking establishments:
1. All places 3500 square feet of gross leasable space or larger are totally exempt for: (a) 6 external radio and/or TV speakers with no more than 4 in any one room, and (b) 3 televisions with screen sizes of 55 or smaller with no more than 2 TVs in any one room.
Page 100 PREV PAGE TOP OF DOC2. All places smaller than 3500 square feet are totally exempt from any music licensing fees for radio and TV use.
1. All places 1500 square feet of gross leasable space or larger are totally exempt for: (a) 4 external radio or TV speakers, and (b) 2 televisions with screen sizes of 55 or smaller.
2. All places smaller than 1500 square feet are totally exempt from any music licensing fees for radio and TV use.
The significance to our agreement is not lost to those who truly understand music copyright lawthat is, we have achieved through this agreement what we sought in 1993a clearly defined equipment definition and exemption requirements not found in the homestyle exemption language in present law. Most importantly, Mr. Chairman, when you read the above requirements carefully, any establishment of whatever size, 3,500, 10,000, 20,000, or larger, can have a specified number of radio and TVs exempt from fees. This was our cause and we are proud that we have solved it for our members without legislation.
The four organizations then attempted to have the homestyle clarification language introduced into legislation. After it became clear to the leadership of the NLBA and the PROs that clarifying the homestyle exemption through legislation did not appear feasible, we decided to negotiate a group licensing agreement for NLBA members that would not only include the exemption language but establish a fee structure for licensable music uses and resolve other issues as well.
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Over several months we met individually with representatives from each of the three PROs. We successfully negotiated separate agreements that meet the needs of both the on-premise members of the NLBA and the songwriters of the PROs.
The new agreement, retroactive to January 1, 1997, is administered by the NLBA. The agreement contains two parts: (1) the clearly defined radio and TV exemption and (2) a user-friendly, administratively simple, fee structure for both live and recorded music based on ranges of square footage. Each of the two licenses includes all three of the PROs repertories.
It is expected that the volume of members availing of the discounted fees offered in this agreement will continue to result in reduced performance rights fees for many NLBA members, but each NLBA member retains the option to enter individual ASCAP, SESAC, and BMI licenses at non-discounted rates.
In addition to providing this comprehensive performance rights license package, NLBA and the PROs are working together to provide value-added packages for those who choose the group agreement. For example, studies on how music can enhance business and advice on how to use music to increase profits will be made available to NLBA member participants. Also, the four organizations will work together with NLBA's affiliate organizations to educate current and potential members about the agreement's benefits and their legal requirements.
We presented the music licensing agreement to our members in April's newsletter (attached) and we have received a positive response. We have processed numerous applications for either the exemption or the license, depending on their establishment's music usage. We are convinced that we have negotiated a better deal for our members than we could have ever achieved through legislation. Also, we are hopeful that over time this new partnership will result not only in increased federal law compliance by our members but better business relations between our members and their former adversaries.
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We welcome the opportunity to provide the Subcommittee with any information regarding our testimony today. It is our belief, Mr. Chairman, that based on a Congressional Research Service study requested by a Senator last session of Congress, well over 75 percent of the food and beverage outlets around the country would benefit greatly from this ELBA agreement. While it is not a perfect agreement, it is our best effort to achieve a compromise by both sides without involving the Congress.
Again, thank you, Mr. Chairman and Members of the Subcommittee for this opportunity to testify at your hearing.
Mr. Chairman and members of the Subcommittee, I would like to add to my testimony today the following points which were not included in my original statement presented to the Subcommittee for distribution.
Questions have been asked about whether our agreement includes arbitration language and whether the NLBA is concerned about arbitration. We are concerned about arbitration and this issue has been addressed in our agreement with the PROs so that our members can easily and inexpensively be heard in the event of a dispute. Each of the PROs has agreed to establish a joint panel for the purpose of reviewing members' complaints and seeking solutions. We believe this will be sufficient.
Another matter relates to the role of a rate court in New York that determines fees for licensing. The NLBA's rates are based on clearly defined ranges of square footage and published for all to see. There is no flexibility/negotiating. The fees are firm and the exemption requirements are firm. Therefore our members will not need a rate court.
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On the issue of off-premise members, we identified in the legislative compromise retail stores in this category because many of our members have off-premise accounts, liquor stores, convenience stores, etc. The on-premise members were the ones having the most problems with music licensing and therefore were a priority. As we said in our newsletter, we have always reserved the right to address the off-premise licensing at a later date.
Finally Mr. Chairman, we believe that the leadership of the NLBA recognized that music is the legal property of the songwriter, who is also a small business person. Our agreement acknowledges that there is a mutual benefit to both small business people, the NLBA member and the songwriter, to work out a mutually agreed upon licensing system where both sides benefit from the compromise.
Mr. COBLE. Mr. Davis, I am told that you are on a tight schedule. Is that correct? I mean, do you need to bolt and run?
Mr. DAVIS. There's no way I'd run from this, Mr. Chairman.
Mr. COBLE. OK. I was going to say that, if you were, I would recognize you next, but OK. Mr. Collins?
STATEMENT OF PATRICK COLLINS, SENIOR VICE PRESIDENT FOR LICENSING, SESAC, INC
Mr. COLLINS. Good morning, Mr. Chairman and distinguished members of this subcommittee.
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My name is Pat Collins, and I am senior vice president for licensing of SESAC. SESAC is the second oldest, but by far the smallest, of the three performing rights societies. We are privately-owned, entrepreneurial in spirit, and very much a service organization. We are proud to represent thousands of talented songwriters, including Bob Carlyle, the author of the current smash hit, ''Butterfly Kisses,'' and many well-known artists whose songs regularly appear on the charts, including Bob Dylan, Neil Diamond, and many others.
The service that we provide is somewhat unique in that both the creators of music and those that chose to perform copyrighted music are our clients. For the music user, we provide a low-cost, convenient license that authorizes the performance of all of the compositions in our repertory. For the songwriting community, we provide an agency service that assists in the collection and distribution of music licensing royalties.
Though the copyright law requires music users to obtain permission in advance from the copyright owner, as a practical matter, music users choose to obtain licenses through the three performing rights organizations: SESAC, BMI, and ASCAP. Business operators choose this method of licensing because it is the most convenient and the least expensive method available to comply with the copyright law.
For many decades the practice in the licensing arena was for the performing rights organizations to contact music users individually and to explain the reasons for and the benefits of obtaining a performing rights license. For many years this practice of individual and personalized service, though costly and time-consuming for the licensing organizations, was successful. However, as the number of businesses performing copyrighted music grew, so did the number of businesses using copyrighted music without appropriate permission. It became apparent that licensing music users on a one-to-one basis is not always the most effective way in addressing industry-specific concerns.
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Educating and licensing music users through industry associations, however, has emerged as a preferred method of meeting the needs of music users. Licensing agreements can be constructed in such a fashion as to address and meet the needs of the specific industry. For example, during the past six to eight months, SESAC had successfully completed negotiations with the Television Music License Committee on behalf of 1,100 local television stations, the Rollerskating Association, representing more than 900 roller rinks, and with the National Licensed Beverage Association, as you have just heard. All of these agreements have been concluded by SESAC without regulation and without the need for legislation.
At SESAC, we have been very successful in meeting the needs of music users. We are confident that the answer to the performing rights licensing issues and concerns lies not in the radical change to the copyright law, but rather in the positive outcomes of honest, above-board negotiations.
Regrettably, the National Restaurant Association and members of their coalition have declined to enter into such negotiations with SESAC, in spite of our repeated efforts to engage these groups in such discussions. There is no doubt in my mind that they have resisted negotiations because they still believe that they can get a windfall for their members from Congress relieving them of their clear obligation under the copyright law.
One is compelled to wonder about the motivation of these groups. Is it to seek effective solutions to their members' legitimate concerns? Or is it to avoid paying fair and reasonable license fees for the use of copyrighted music?
Page 106 PREV PAGE TOP OF DOC Legislation is not needed to resolve business issues between the parties. Communication is. Legislation is not needed to arrive at reasonable compromise. Negotiation is.
Right now, by pressing for extreme legislation, the National Restaurant Association and their coalition are asking Congress to impose far more favorable terms than can fairly be obtained at the bargaining table.
Mr. Chairman, speaking from 24 years of performing rights licensing experience, I can say with confidence that negotiated, industrywide licenses, such as the agreement reached with the NLBA and others, are an effective and efficient method to meet the needs of the music user community. Passing legislation such as H.R. 789 would not address the specific, yet very different, concerns that exist among the many different industries that rely on music to help them be successful. And it certainly would not address the education issues that truly lie at the heart of this dispute. Instead, passing this legislation would result in an erosion of copyright protection for songwriters and a windfall profit for these music users who would be able to lawfully avoid paying for the commercial use of a songwriter's property, the very music they create.
In closing, I urge this subcommittee to send a strong signal to the industry supporting this legislation to meet at the bargaining table with the licensing agencies and to arrive at negotiated solutions to these business issues that divide us.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Collins follows:]
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PREPARED STATEMENT OF PATRICK COLLINS, SENIOR VICE PRESIDENT FOR LICENSING, SESAC, INC.
My name is Patrick Collins. I am the Senior Vice President of Licensing for SESAC, Inc. I very much appreciate the opportunity to submit this prepared statement on behalf of SESAC in connection with the Subcommittee's consideration of music licensing and related copyright issues. After briefly describing SESAC, my prepared statement will be divided into two portions. The first presents my understanding, as a twenty-four-year veteran of the performing rights industry, of the historical context of pending disputes between music users and performing rights licensing organizations. The second portion presents SESAC's analysis of and position on pending music licensing and related copyright legislation.
SESAC was founded in 1930 and is the second oldest of the U.S. music performing rights societies. Although SESAC is the smallest of the three performing rights organizations, SESAC has been growing rapidly in recent years and it now represents thousands of songwriters and music publishers numbering among them major artists in all musical genres.
Notable today among SESAC's growing roster of top songwriters is Bob Carlisle (composer of the current #1 smash Contemporary Christian and cross-over pop hit ''Butterfly Kisses''), along with a strong representation of other well-known Christian and Gospel writers and artists including 1997 Grammy and Dove awards winner Shirley Ceasar, 1997 Dove Award winner and Grammy Award nominees The Newsboys, 1997 Dove Award nominee Petra, 1997 Dove Award nominee Margaret Becker, and 1996 Dove Award winner Reggie Hamm; a strong representation of leading jazz artists including 1997 Grammy Award winner Cassandra Wilson and the legendary Ornette Coleman, honored just last week at Lincoln Center in New York City; a strong representation of leading Nashville-based songwriters including Peter McCann ''Right Time of the Night''), Gene Nelson (''Eighteen Wheels and a Dozen Roses''), Mercury recording artist Mark Wills, Angela Kaset (''Something in Red'') and 1996 Grammy Award nominee Karen Taylor-Good (''Not That Different''); a strong representation in Latin music including 1997 Billboard Latin Award winners for Producer of the Year and Songwriter of the Year (Marco Antonio Solis) and Publishing Corporation and Publisher of the Year (Fonomusic, Inc.); network television songwriter and band leader Paul Shaffer; and two of the best-known and most successful popular U.S. songwriters of the last quarter century, Bob Dylan and Neil Diamond.
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In terms of the search for a resolution of the controversy over pending music licensing legislation, I believe that SESAC, as a privately-owned company, has the entrepreneurial flexibility to assist in fashioning a legislative and/or business compromise that could break through the current impasse. SESAC has had substantial success in the past few years in fashioning mutually satisfactory licensing arrangements, without the need for government intervention, with a number of leading industry groups including the Television Music License Committee representing the nation's local television broadcasters. Moreover, as I will discuss below, SESAC was instrumental over the last two years in fashioning compromise music licensing legislation, working with the National Licensed Beverage Association, that addresses and resolves several of the key issues currently dividing the parties before this Subcommittee. This year SESAC followed up on this promising legislative compromise by negotiating a private licensing agreement with the licensed beverage industry. Separate agreements were also negotiated between the NLBA and the two other performing rights organizations.
OVERVIEWTHE HISTORICAL CONTEXT OF PENDING DISPUTES BETWEEN MUSIC USERS AND PERFORMING RIGHTS LICENSING ORGANIZATIONS
As a veteran of the performing rights industry, I believe that I am uniquely qualified to communicate to you an accurate analysis of the circumstances and atmosphere that exists within the marketplace today between performing rights organizations and music users. My remarks will be candid and will represent my experienced views and opinions on why we find ourselves here today.
I began my career in 1973 as a licensing and collection agent for ASCAP. For the next 20 years I rose through the ranks to become ASCAP's Director of Licensing for all non-broadcast businesses, many of which would be impacted by H.R. 789. Based on my years of experience I seriously doubt that the proposed legislation will have any impact on the real issues at hand. The changes proposed in H.R. 789 would prohibit the creators and lawful owners of copyrights from benefitting from the commercial exploitation of their intellectual property, yet would do nothing to address the real problems that exist in the marketplace.
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Today, many businesses, perhaps thousands of businesses from the industries represented by the supporters of H.R. 789, are using copyrighted music without the appropriate permission. I cannot recall a single instance when a music user from the industries supporting this legislation initiated negotiations directly with a group of songwriters or music publishers to obtain permission to perform copyrighted compositions. The practical method for obtaining permission to perform copyrighted music is accomplished through performing rights licenses issued by SESAC, BMI and ASCAP. The reality is that voluntary compliance with the copyright law is at levels far below those desirable, notwithstanding that the level of music license fees paid in the United States is among the lowest in the world.
The questions that we have to ask are why is the level of voluntary cooperation with the performing rights organizations so low and how do we remedy the situation? I have studied these questions for many years and have developed the following opinion.
One must understand the environment that has existed in the marketplace for the better part of six decades. In the early years performing rights licensing organizations were understandably concerned with the expedient licensing of the public performances of their members' copyrighted compositions and with returning the largest amount of dollars to songwriters and music publishers in the form of royalties. Consequently, little effort or resources were allocated to educate music users about the complex matters of copyright or the responsibilities placed upon music users to obtain permission prior to the performance of copyrighted music. Likewise, the music licensing organizations did little to publicly market the benefits of the blanket license. In lieu of a marketing strategy, the licensing organizations chose to hire field representatives and later telephone licensing representatives. The responsibility to educate music users became the responsibility of these licensing personnel.
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A typical scenario would be that the performing rights organization would learn of a restaurant, a tavern, night club or retail business that was performing copyrighted music without the appropriate license. A field representative would visit the business location and offer a license to the music user that would authorize the lawful performance of the compositions represented by the licensing organization. A frequent response from the music user was to claim that it was unaware of the Copyright Act and unaware of its responsibilities under the law. Therefore, the music licensing organization felt compelled to expend significant energy, time and financial resources to persuade the music user to obtain a license. This time-consuming process of having to educate, almost on a one-to-one basis, is now recognized as being inefficient and often ineffective in assuring compliance with the copyright law. Most often, the music user would delay obtaining a performance rights license for many months and in some instances years. The only recourse that the performing rights organizations had was to file a lawsuit alleging infringement of copyright. The licensing organizations did not wish to be viewed as being litigious and therefore continued with the same licensing strategy and filed lawsuits only as a last resort.
As we progressed through the 1960's and 1970's, more business owners came to learn about performing rights organizations and about their obligations under the law to obtain a license. However, the frequent practice on the part of many restaurants, taverns, and nightclubs of delaying bringing themselves into compliance with the copyright law continued to be a common approach and a constant drain on the resources of licensing organizations. As the performance of music in public gathering places became more widespread and the number of businesses performing music without a license increased, the performing rights organizations stepped up their licensing activity.
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On behalf of SESAC I submit that it is not the law that has to be changed, but rather the process of educating music users concerning their obligations under the copyright law. The performing rights organizations can no longer continue to attempt to educate music users on a one-to-one basis. Instead, the performing rights organizations must seek to educate music users through industry associations that represent the vast majority of music users.
Recognizing the seriousness of the situation that exists in the marketplace today, the performing rights organizations have with increasing frequency approached industry associations seeking cooperation and partnership in the licensing process. Many associations have come to recognize the benefits of educating their constituents and/or simply looking out for the best interests of their members and they have decided to sit down at the negotiating table with each of the performing rights organizations to arrive at acceptable and mutually beneficial accords. Among such industry groups are the American Hotel & Motel Association, the Roller Skating Association and the American Music Operators Association, to name but a few.
Unfortunately, the National Restaurant Association and other members of that Coalition have repeatedly declined invitations by SESAC to sit down and discuss the relevant issues and to jointly seek solutions that would respect each other's positions. SESAC has actively sought to engage these groups in discussions that would resolve the current impasse. Earlier this year we redoubled these efforts in response to an initiative by Senator Lott, only to be rebuffed once again by these associations.
Speaking on behalf of SESAC, I can tell you that we are confident that the answer to the industry issues and concerns lies not in radical changes to the copyright law but, rather, in the positive outcomes that will be the result of honest, above-board discussions and negotiations with the industry leaders who represent the supporters of H.R. 789.
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This is not pure conjecture. Sitting in this room and at this table are executives affiliated with the National Licensed Beverage Association, an industry association that represents 16,000 restaurants, taverns and liquor outlets throughout the United States. The three performing rights organizations met with NLBA executives and attorneys and reached a compromise on the types of performances of copyrighted music that would voluntarily be exempted from licensing by the performing rights organizations. We were successful in reaching an understanding that meets the needs of songwriters, music publishers and music users. This agreement, now available to all NLBA members, provides for reduced fees, better representation, and virtually eliminates the one-on-one discussions between the music user and the agent for the copyright owner that so many of the sponsors of the legislation find invasive and stressful. Most importantly, included in the agreement reached with the NLBA is a fundamental commitment by each side to keep an open forum for dialogue and to communicate regularly with each other, particularly on the economic issues that will impact the small businesses that we both represent.
Mr. Chairman, I am confident that the agreement reached between the NLBA and the performing rights organizations can be an effective model for the resolution of similar issues of concern to the groups sponsoring this legislation.
The compromise concessions reached over the bargaining table with the NLBA have in fact been criticized by some in the international copyright community. Our European friends are unhappy with the compromise, but they would be devastated by passage of this legislation. Indeed many scholars have concluded that passage of H.R. 789 would violate current international treaties and agreements and would ultimately significantly reduce the amount of license fees paid to our songwriters and copyright holders for performances of copyrighted music abroad.
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Passing further legislation will not increase compliance with the law, will not address the education issue that is really at the heart of this matter, and will only result in an erosion of copyright protection for songwriters, and a windfall profit to music users that would be allowed to commercially benefit with payment of license fees for the use of copyrighted music. The international complications of such legislation could prove problematic for the ability of the United States to ensure copyright protection for U.S. works abroad, as any decision to expand the scope of the exemptions under current law will affect the royalty payments to our copyright holders and to the rights holders of foreign copyrights whose music is performed here in the U.S.
One thing that is abundantly clear to the performing rights organizations and particularly SESAC is the recognition that business strategies that prevailed in the marketplace for so many decades cannot continue. The performing rights organizations are prepared now and have been prepared for the past two years to meet with responsible representatives of the supporters of H.R. 789 to reach effective solutions that address the perceived heavy handedness of the licensing agencies, to develop educational and industry wide beneficial strategies that will increase voluntary compliance with the copyright laws and to deliver blanket authorizations to businesses in all industries in a non-invasive, efficient and cost effective manner.
To the distinguished committee, to my industry colleagues and to our potential marketplace partners at the National Restaurant Association and National Retail Federation, I say that what is at stake is far more than dollars, far more than the inconvenience of having to obtain a license to perform copyrighted music. What is at stake is the protection of the creative American genius. If not for ourselves then for our children and our children's children we must protect and safeguard intellectual property and the genius of songwriting. America's greatest export is the fervor for freedom and the protection of the rights of the individual. Passage of H.R. 789 threatens a dismantling of these safeguards and suggests to the world that copyright is a devalued concept in America.
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In closing, I urge this Subcommittee to send a strong signal to the industries supporting the proposed legislation to meet at the bargaining table with the performing rights societies in order to resolve the issues that divide both sides and not to rely on this Subcommittee or the Congress to pass this unwise and unwarranted legislation.
OVERVIEW OF LEGISLATIVE ANALYSISVITALLY IMPORTANT COPYRIGHT BILLS ARE BEING HELD HOSTAGE BY SPECIAL INTERESTS
As one of the three U.S. music performing rights societies, SESAC's operations would be fundamentally and adversely affected by passage of H.R. 789. The many insupportable provisions of H.R. 789 have been identified not only by others in the industry but also by neutral observers including the Commissioner of Patents and Trademarks on behalf of the Clinton Administration and the Register of Copyrights. On the basis of such objective assessments, and also for the reasons articulated at greater length in SESAC's Analysis of Pending Legislation, Sections I, II and III, below, the unavoidable conclusion, SESAC respectfully submits, is that H.R. 789 does not merit the support of this Subcommittee whose mandate is to protect and preserve the nation's intellectual property.
The many questionable provisions of H.R. 789 in SESAC's view represent an overreaching wish list of interest groups which, in order to promote the narrow interests of their constituents in continuing to resist the licensing of and payment for their public performances of copyrighted music, have supported a bill that would abrogate fundamental principles of U.S. copyright law. The proposed undermining of copyright by H.R. 789 is so extreme that, as both the Commissioner and Register have pointed out, the bill is not only questionable by U.S. standards, but it also represents a clear threat to the international copyright obligations of this country.
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As further evidence of their overreaching, the narrow interests that are pressing H.R. 789 have apparently recognized that they are unlikely to gain sufficient support for their bill on its merits. They have therefore adopted a strategy of holding hostage other critically important copyright legislation (including term extension and the La Cienega billssee Legislative Analysis, Sections II and III, below), with the result again of undermining the vital economic interests of this country, foreign and domestic.
ANALYSIS OF PENDING LEGISLATION
I. H.R. 789
Section 2: New and Unduly Expanded Exemptions to the Public Performance Right
The Register of Copyrights and the Commissioner of Patents and Trademarks have made clear in recent submissions to Congress that H.R. 789 represents an unprecedentedand unwarrantedattack on and diminution of the performing rights of songwriters and music publishers traditionally recognized in U.S. copyright law and in international copyright treaties. Both the Administration and the Copyright Office recorded their strong opposition to these measures in letters to Chairman Coble.(see footnote 3) As the Register of Copyrights has forcefully noted commenting on the several expanded exemptions proposed in Section 2 of the bill, ''[t]he changes proposed in section 2 . . . would fundamentally alter the nature of section 110. It would no longer be limited to non-profit and minor small business exceptions, but would allow businesses of any size to make significant commercial uses of musical works without permission or payment. This represents a major shift in the balance struck in [the Copyright Act of] 1976.''
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Dramatic Expansion of the ''Homestyle'' Exemption Under §110(5).As I noted in my preliminary remarks, SESAC and the other performing rights organizations have attempted to respond flexibly to the major push by the National Restaurant Association and other proponents of music licensing legislation with respect to an expansion of the so-called ''homestyle'' exemption. Although the precise percentages have been debated, there is no dispute that the compromise, which SESAC and the other performing rights organizations negotiated some time ago with the National Licensed Beverage Association, would exempt a very substantial number and percentage of small commercial establishments such as restaurants and retail stores. Exempt commercial establishments would be enabled to perform music on limited, but nonetheless rather extensive sound or video systems well beyond the ''outer limit'' of the original notion of the ''homestyle'' exemption as adopted in the 1976 Copyright Act. Such a compromise exemption is already taxing the limits of U.S. international treaty obligations with regard to reciprocal protection of foreign copyrights in this country, both with respect to the size and number of establishments exempted and with respect to the types of equipment that can be employed without license.
Once again overreaching, and not content with exempting (as has been estimated) two-thirds or more of its member restaurants and bars, the NRA and other proponents of extreme music licensing legislation have now proposed in Section 2(a) of H.R. 789 to entirely exempt businesses regardless of their type or size, and regardless of the sophistication, scope or capacity of the audio or video equipment that they may use, thus enabling all commercial business establishments to retransmit broadcast, cable, satellite or other transmissions, without license or payment, so long as they do not charge an ''admission fee'' to see or hear a scheduled performance of the transmission and so long as the original transmission is licensed.
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Summing up its opposition to such an extreme measure, Commissioner Lehman on behalf of the Administration aptly noted, with ''confiden[ce],'' that ''our trading partners are likely to . . . claim that we are undermining the rights of copyright owners of musical works to perform their works in public, in particular at a restaurant or bar . . . in violation of our international commitments under the Berne Convention.''
For these reasons, SESAC opposes such an expansion of the ''homestyle'' exemption of §110(5).
Expanded Exemption for Agricultural Fairs and Other Conventions, Meetings, Events and Exhibitions Under §110(6).In further reaching out to maximize exemptions from the obligation to seek authorization for public performances of musical works, the proponents of H.R. 789 seek in Section 2(b) to expand the existing, modest exemption for annual ''agricultural or horticultural fair[s] or exhibition[s]'' conducted by a ''governmental body or a nonprofit agricultural or horticultural organization.'' The limited, nonprofit element has now been expanded and clouded with the proposed additional of coverage of any such event, regardless of its frequency and by including not only fairs and exhibitions, but also ''convention[s], meeting[s and] event[s].''
As the Register of Copyrights has advised the Subcommittee, ''[t]his language is ambiguous; it is unclear whether the term 'agricultural or horticultural' modifies the terms 'convention, meeting, event or exhibition.' '' If so construed, the nonprofit aspect of this provision could be eviscerated resulting, according to the Register, in ''a much greater impact'' because ''business conventions or other meetings involving thousands of paying participants might be entitled to perform music without authorization or payment.'' The Administration also agrees that proposed H.R. 789 ''would unduly broaden the [existing] exemption.''
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For these reasons, SESAC opposes such an expansion of the agricultural and horticultural exemption of §110(6).
Open-Ended Expansion of the ''Promotional'' Exemption Under §110(7).Yet again, in Section 2(c) of H.R. 789, the proponents of evisceration of the music performing right have sought to wrench a narrowly recognized exemption from its moorings and to largely swallow up the limited rule permitting promotional performances in record and sheet music stores in favor of a far wider range of commercial establishments that would be permitted to perform music without payment or authorization. As the Register has noted, the current exemption, while it does favor commercial establishments, at least confines that benefit to situations where loss of performing rights fees will arguably be offset by the promotion, in a direct and limited fashion, of additional sales of copies or recordings of the copyrighted works. H.R. 789 would expand the exemption to include promotion of ''audio, video or other devices'' providing no countervailing profit to the copyright owner.
Beyond this, Section 2(c) further dilutes the limited concept of a promotional exemption by proposing the open-ended extension of the exemption to all establishments rather than just ''vending'' establishments, to any area of the establishment rather than to ''the immediate area where the [promotional] sale is occurring,'' and so long as there is any arguable purpose of promotion as opposed to the current requirement that promotion be the ''sole'' purpose of the performance. Thus, not surprisingly, the expanded promotional exemption would even apply to restaurants or other establishments that use music but that are not normally known for their sale of records or playback devices yet that could purport to sell such items simply in order to circumvent any limiting effect of the expanded promotional exemption.
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The net effect of all of these proposed amendments would assure, as the Register has noted, that an exemption currently limited to ''performances in record stores to promote record sales'' would be transformed into a free license ''to all business entities . . . [to use music] generally to entertain and attract customers . . . anywhere on their premises . . . so long as the business places on sale even a single [record or] devise used in the performance.'' Accordingly, both the Register and the Administration have expressed their opposition to the provision.
For these reasons, SESAC opposes such an expansion of the ''promotional'' exemption of §110(7).
New and Unnecessary Exemption for All Children's Camps Under §110(11).The proposed exemption of ''Performances at Children's Camps'' is of a piece with many of the other provisions of H.R. 789i.e., it is both overbroad and unnecessary and again reflective of an impetus to block the lawful and perfectly appropriate efforts of performing rights organizations to protect the copyrights of songwriters and music publishers. Both the Administration and the Register of Copyrights agree that §110(11) is overly broad because, among other reasons, it fails to distinguish between for-profit and nonprofit camps. SESAC also agrees with the Register that there would be no need for an exemption limited to nonprofit camps because §110(4) ''already exempts most nonprofit performances that take place at children's camps.''
For these reasons, SESAC opposes the creation of a special exemption for children's camps under a new §110(11).
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Sections 35: Unprecedented Federal Legislative Regulation of Music Performing Rights Societies
H.R. 789 undertakes to legislate a far-ranging and intrusive federal regime regulating the operations of performing rights societies. Section 3 would impose binding arbitration for ''general [as opposed to broadcast] music users'' and set up unprecedented limitations on the rights of copyright owners to collect damages for infringement by general users of protected performing rights; Section 4 would purport to establish and micromanage the details of ''radio per program licenses;'' and Section 5 would involve Congress in the details of user access to performing rights repertory information and licensing forms, while restricting the ability of performing rights societies to participate in infringement actions and to collect certain license fees if their obligations under Section 5 were not met. The Copyright Office has stated its concerns as to the adverse impact of these provisions ''on the practical ability of copyright owners to enforce their rights and obtain a fair return for the use of their works.'' The Copyright Office has also expressed concern that such restrictions ''could invite claims by our trading partners that the United States is violating its [various international copyright treaty] obligations . . .''
Section 3: Mandatory Arbitration of Performance Right License Fees and Unprecedented Restrictions on Copyright Actions and Remedies for Infringement of the Performing Right.Section 3 would not only impose binding arbitration on the relations between all of the performing rights societies and their potential licensees, but it would purport to arbitrarily limit the damages for copyright infringement that songwriters and music publishers could seek, in an arbitration initiated by the music user to no more than the cost of the license and potentially less than the cost of the license and in a copyright infringement action to no more than two times the annual license fee regardless of the number of infringements or the length of time that a business performed copyrighted music without appropriate permission. Passage of such provisions would invite music users to gamble that being found guilty of copyright infringement will be less expensive than complying with the copyright law in the first instance, notwithstanding the general principle that the cost of failing to comply with the copyright law should be greater than the cost of compliance so that there is a meaningful financial incentive for prompt and effective compliance with legal obligations established under the copyright law. Such binding arbitration would also have the potential to create inconsistent obligations on covered performing rights organizations from one state or locale to another.
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Finally, the arbitration provisions might also have a unique impact on SESAC because it could be read as imposing consent-decree obligations on SESAC. At present, the language of this provision is at best ambiguous in this regard, referring as it does to the ''entitle[ment]'' of the general music user to binding arbitration ''in lieu of any other dispute-resolution mechanism established by any judgment or decree governing the operation of the performing rights society.'' While SESAC believes this language was probably intended to confine the binding arbitration to those other performing rights organizations that are subject to consent decrees, the provision does not make this entirely clear and could be interpreted as generally imposing binding arbitration on all of the societies while giving to the music user the choice to seek such binding arbitration, in the case of ASCAP and BMI, ''in lieu'' of their other remedies under the consent decrees.
For these reasons, SESAC opposes the imposition under Section 3 of H.R. 789 of binding arbitration and other unwarranted restrictions on SESAC and the other performing rights organizations.
Section 4: Radio Per Program Licensing.The proposals in H.R. 789 with respect to ''per program'' licensing are also of special concern to SESAC. The Subcommittee's recent hearings on that issue in Nashville appropriately limited the inquiry to whether the practices of ASCAP and BMI with respect to per program licenses are in compliance with the consent decrees under which those two other societies operate. However, the provisions of H.R. 789 might go beyond this and impose per program requirements on SESAC as well. To impose such an unprecedented obligation on SESAC would have severe financial implications as the huge costs of administering this kind of license simply cannot be supported by the amount of license fees that are generated by SESAC's growing but currently still far smaller repertory than the larger societies that are governed by consent decrees.
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It may be that the per program provision will never be endorsed by this Subcommittee because it represents an overreaching attempt to legislate economic issues. The per program license is being pressed by the National Religious Broadcasters Music License Committee on behalf of businesses that, although their programming has a charitable flavor in that it is religious, are nonetheless commercial enterprises. In fact, many of these broadcasters are quite successful, as the sale of Pat Robertson's Family Channel for more than a billion dollars is but the most recent and notable example. Even religiously oriented programming should not be exempt from paying for the valuable goods or services that it uses in its business operations, including the intellectual property of the authors and publishers of religious and inspirational music. In the end, the economic contours of per program licenses would appear to be an issue best resolved either through business negotiations or in the court that is empowered to monitor and administer enforcement of the ASCAP and BMI consent decrees where in fact these issues are currently pending.
If, notwithstanding these points, there is at any point serious consideration given by this Subcommittee to the per program provision of H.R. 789, we respectfully request that, in addition to the issues noted above, further attention be given to the special issues that would be presented by the inapposite and inappropriate application of that measure as currently drafted to SESAC.
Section 5: Mandatory Access to Repertoire and Licensing Information and Additional Restrictions on Copyright Actions for Infringement of the Performing Right.SESAC and the other performing rights organizations already maintain and provide access to repertory information on-line and in other media. The performing rights organizations also routinely and customarily provide schedules of fees applicable to similarly situated music users. Section 5 would impose unnecessary and exceptionally costly and burdensome restrictions on the freedom of copyright owners to determine the precise fashion by which such information is maintained and disseminated and it then conditions exercise and enforcement of copyright rights upon the technical compliance with such measures.
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In a period when U.S. law has been moving toward the elimination of undue copyright formalities, these requirements would inappropriately press the law in the opposite direction. As the Register has noted, ''we have concerns about section 5's restrictions on the participation by a performing rights society in an infringement suit or the charging of a per programming period license fee. The result might be to penalize a blameless composer for an error or omission by the society, and make it impossible as a practical matter to enforce his or her rights.''
For these reasons, SESAC opposes Section 5 of H.R.789.
Section 6: Annual Reports by the Attorney General to Congress Regarding ASCAP and BMI Consent Decrees.Since this provision directly affects only ASCAP and BMI, we respectfully refer the Subcommittee to those organizations for their position on the proposal for annual reviews of the operation of their consent decrees.
Section 7: Unprecedented New Limitations on Third-Party Copyright Liability by Prohibiting ''Vicarious Liability.''In yet a further phase of their systematic and overreaching assault on the ability of songwriters and music publishers to effectively enforce their copyrights against those responsible for the unauthorized public performance of musical works for commercial purposes, the supporters of H.R. 789 would boldly reach out well beyond regulation of performing rights societies and their members or affiliates to propose the abolition of one of the fundamental general principles of U.S. copyright law with respect to ''vicarious'' third-party liability. As the Register has noted, ''[t]his proposal would effect a major change to U.S. copyright law, with implications that go beyond the music licensing issues addressed in the bill. It represents a significant derogation from the well-established doctrines of vicarious liability and contributory infringement, applicable to all types and categories of works.'' And as the Administration has advised, ''[t]here is no justification for such a radical change in existing law that the Administration strongly believes is based on good policy rationale.''
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For these reasons, SESAC opposes the overturning of existing law regarding vicarious and contributory infringement as proposed in Section 7 of H.R. 789.
II. Copyright Term Extension (H.R. 604 [Introduced by Rep. Gallegly]; H.R. 1621 [Introduced by Rep. Bono])
There is no need to restate here the powerful case for term extension. Congressmen Gallegly and Congressman Bono, together with the Chairman and the other members of the Subcommittee who have supported the legislation they have introduced, are to be commended for having taken a leadership role in pursuing this desirable amendment to current copyright law. The Subcommittee has already received extensive and persuasive testimony establishing the vital importanceboth for the principles of copyright law and for the economic interests of the United Statesof extending the term of copyright for an additional twenty years in order to bring U.S. law into conformity with the European Union. At the Nashville hearing it became evident that there is overwhelming support for this measure.
In light of an exchange at the Subcommittee's Nashville hearing evidencing an underlying dispute regarding the sharing of benefits as among producers, screenwriters, directors and actors in the motion picture industry, I believe it is important to assure the Subcommittee that in performing rights it is the longstanding practice for songwriters and music publishers to split their performing rights income 5050. This is generally the case even with respect to works made for hire, where the entirety of the author's copyright may be held by the songwriter's employer or another entity that had commissioned the work, for even in that case by tradition the performing rights revenue is shared equally among the writer-for-hire and the copyright owner.
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Accordingly, whatever may be the situation in the motion picture industryand it was confirmed at the Nashville hearing that motion picture producers have committed to negotiating an appropriate sharing arrangement with the other interested parties with respect to any additional revenues that may be realized during the extended termthe Subcommittee should be aware that there is no problem in music performing rights with respect to the equitable sharing of any benefits that may be realized during the extended term of copyright.
For these reasons SESAC urges this Subcommittee to report out a term extension bill without further delay and to do everything in its power to prevent this important measure from being further held hostage to music performing rights legislation which has no bearing whatsoever on the principle of term extension.
III. Reversal of La Cienega (H.R. 1621 ''[Introduced by Rep. Bono]; H.R. 1967 [Introduced by Rep. Coble])
As the Subcommittee well knows, in La Cienega Music v. ZZ Top, the Ninth Circuit unsettled decades of music industry practice, Copyright Office procedure and prior precedent (Rosette v. Rainbo, 2nd Cir. 1976) by interpreting the 1909 Copyright Act to require that, prior to 1978 (the effective date of the 1976 Copyright Act which changed the law to hold that no copyright notice was required on phonorecords), distribution of phonorecords constituted ''publication'' of the underlying musical compositions. Because it was common practice in the pre-1978 period not to put a separate copyright notice on phonograph records for the underlying musical compositions, the drastic effect of holding that publication of the phonorecord was publication of the composition would be to throw into the public domain, due to failure to publish with notice, an extensive body of copyrighted songs. Moreover, because the practice of publication in phonorecords without notice was so commonthat it can in no fashion be said that any legitimate interest has relied on the practice or the law to its detriment other than those whose otherwise valuable copyrights have now been placed in jeopardy. Indeed, the Copyright Office had confirmed and ratified this practice to the point that the Office evidently would not accept registrations for the underlying work based on publication of the phonorecord.
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The efforts of groups supporting music licensing legislation to thwart the commendable efforts of the Chairman and other members of the Subcommittee to reverse the potentially devastating effects of La Cienega is yet another example in SESAC's view of the unconscionable overreaching of those who insist upon holding hostage essential legislative action in order to force Congress to pass a music licensing bill that SESAC submits does not otherwise have or warrant support on its own merits. Indeed, so far as can be discerned, there is no opposition to the measure to reverse La Cienegasave perhaps for record pirates who have not had the temerity to come forward during the legislative process. And so, without definitive action in the immediate future to move a La Cienega bill forward an ever increasing number of valuable copyrights will be placed in jeopardy.
SESAC again urges this Subcommittee to report out a La Cienega bill without further delay.
In closing, I wish to thank the Chairman and the members of the Subcommittee for inviting me to present SESAC's views on the pending legislation and I commit that you will have the full cooperation of SESAC's executive team and my personal commitment to assist this Subcommittee in its endeavors to arrive at an acceptable outcome for all concerned.
Mr. COBLE. Thank you, Mr. Collins.
Mr. Davis is recognized for 5 minutes.
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STATEMENT OF MAC DAVIS, SONGWRITER, ON BEHALF OF BROADCAST MUSIC, INC. (BMI)
Mr. DAVIS. Chairman Coble, thank you for your kind words, and thank you for allowing me to testify here today.
I don't know if there is a copyright law involving testimony before the Congress, but Mr. Holyfield and I seem to have written the same speech. You'll hear from counsel, sir. [Laughter.]
Actually, I think that it is because we share the same fears.
I have come to Washington because I am concerned about H.R. 789. This bill would allow most businesses to use my music, my copyrighted personal property, for their commercial gain without making any payment to me. And that is why it is hard for me to understand why this bill is entitled the ''Fairness in Music Licensing Act.''
In many respects, my life and career have been blessed. I've written and recorded songs that I like to think have brightened someone's day. I've also gotten lucky and starred in a network television show that bore my own name. I've appeared in some motion pictures and on Broadway. But when I die, they'll just put ''songwriter'' on my tombstone because that is what I am. First and foremost, I am simply a songwriter. But because of my notoriety, I have been asked to represent and speak on behalf of the thousands of accomplished and aspiring songwriters who aren't as well known, and I consider it an honor to do so.
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We songwriters, along with our families, friends, and fans, make up a huge silent majority that still believe in a day's pay for a day's work. We still believe that taking someone's property without paying for it is wrong. When you hear a song sung by Elvis Presley or Celine Dion or Vanessa Williams or George Straight, do you ever hear someone say, ''Oh, Doc Pomus and Mort Shuman, I just love them,'' or ''Diane Warren and Harlen Howard, they are great''? Well, I seriously doubt it, because they are only the songwriters, the low men on the totem pole, the little tiny names in fine print and parentheses underneath the star's name on the label. They are the last guys to get credit and the last guys to get paid. They are the ones who create the music that fuels an industry the pours millions of dollars into the economy and generates millions and millions of dollars of taxes. Yet the songwriters get the very smallest piece of the pie, pennieswe are paid in pennies.
Well, I am here to speak for these people. We are not all millionaires. Ninety-nine percent of us are small business men and women barely able to eke out a living. It is not uncommon for a writer to hold down a couple of jobs just to make ends meet. And if it weren't for the performing rights societies like BMI, ASCAP, and SESAC who are out there fighting for our scraps, a big percentage of our income would be lost. In my case that income could mean a college education for my 6-year-old and 8-year-old sons. I am 55 years old, sirs. When I am 65, my boys will be college-aged. If H.R. 789 passes, what am I going to do?
I think that issue of protection of property rights has become blurred in this instance. It is similar to taking an acre of a farmer's land to build a public road; only in our case there would be no compensation at all for taking our property. I have got a good many friends in the restaurant industry, as all of you do, and a lot of them probably pay their licensing fees, but there are a bunch that don't. And when I pondered what I would say today, I kept thinking about this question of compliance.
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Has anyone ever looked at the money interest behind the Restaurant Association? I bet that you would find that they aren't all just little moms and pops across America. The moms and pops aren't complaining because our performing rights organizations have taken care of them. As you have heard, the NLBA has signed a binding, private business agreement that will allow songwriters to still get paid for their property while giving a break to the small businesses. Almost 70 percent of eating and drinking establishments are taken care of under these terms.
We songwriters affiliated with BMI didn't object to giving small businesses a break because a songwriter epitomizes the small business man or woman in America. In this agreement we have sided with the small businesses, but we can't give any more. We gulped hard when BMI negotiated the increase in square footage exemption to 3,500 square feet from the current 1,055. Remember, please, we don't work for BMI, ASCAP, or SESAC. They work for us. And I don't think that I want the negotiating any more of my property away.
But the example of this agreement makes it even harder to understand why an act of Congress is needed where private business negotiations have worked for 60 years and is still working. The process of music licensing agreements has traditionally been a nonlegislative, private business negotiation between two parties until the introduction of H.R. 789. This bill favors a coalition of businesses who want to use our property without paying for it. It takes away our right to control the use of our property. It runs counter to everything that we treasure about the desire to succeed in the free-enterprise system. H.R. 789 not only takes away our ability to negotiate a fair price, it takes away our property rights.
Page 130 PREV PAGE TOP OF DOC Mr. Chairman and members of the committee, there is no smaller business man or woman than the songwriter. Think about that, please, and say no to H.R. 789. Let us get on with the business of making the music that affects the lives of everyone in America, knowing that we will at least receive fair compensation for our efforts. The average restaurant pays more for parsley than it does for the enjoyment of music, and 99 percent of that parsley gets thrown in the trash. Please don't let them throw us into the trash along with it.
[The prepared statement of Mr. Davis follows:]
PREPARED STATEMENT OF MAC DAVIS, SONGWRITER, ON BEHALF OF BROADCAST MUSIC, INC. (BMI)
Chairman Coble, thank you for your kind words and thank you for allowing me to testify here today. I've come to Washington because I'm concerned about H.R. 789. This bill would allow most businesses to use my music, my copyrighted personal property, for their commercial gain without making any payment to me. That's why its hard for me to understand why this bill is entitled, ''The Fairness in Musical Licensing Act.''
In many respects, my life and career have been blessed. I've written and recorded songs that I like to think have brightened someone's day. I've starred in a network television show that bore my own name, and I've appeared in motion pictures and on Broadway. But when I die, they'll just put ''songwriter'' on my tombstone because first and foremost that's what I am. I am a songwriter. But because of my notoriety, I've been asked to represent and speak on behalf of the thousands of accomplished and aspiring songwriters who aren't as well-known, and I consider it an honor to do so. We songwriters, along with our families, friends, and fans, make up a huge ''silent majority'' that still believe in a day's pay for a day's work. We still believe that taking someone's property without paying for it is wrong.
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When you hear a song sung by Elvis Presley, or Celine Dion, or Vanessa Williams, or George Strait, do you ever hear someone say, ''Oh I just love Doc Pomus, and Mort Shuman,'' or ''Oh, Diane Warren, Harlan Howard, they're great!'' I seriously doubt it because they're only the songwriters. The low men on the totem pole. The little tiny names in fine print and parentheses underneath that star's name on the label. The last guys to get credit and the last guys to get paid. They're the ones who create the music that fuels an industry that pours millions of dollars into our economy and generates millions upon millions of dollars in taxes. Yet the songwriters get the smallest piece of the pie. Pennies. I'm here to speak for these people.
We're not all millionaires. 99% of us are small businessmen and women, barely able to eke out a livingit's not uncommon for a writer to hold down a couple of jobs to make ends meet. And if it weren't for the performing rights societies like BMI, ASCAP and SESAC, who are out there fighting for our scraps, a big percentage of our income would be lost. In my case, that could mean a college education for my 6 and 8 year old sons. I'm 55 years old, ladies and gentlemen. When I'm 65, they'll be college age. What am I going to do?
I think the issue of protection of property rights has become blurred in this instance. This is similar to taking an acre of a farmer's land to build a public road, only in our case, there would be no compensation for taking our property.
I've got a good many friends in the restaurant industry, as all of you do. A lot of them probably pay their licenses fees, but there's a bunch that don't.
Page 132 PREV PAGE TOP OF DOC When I pondered what I would say today, I kept thinking about this question of ''compliance.'' Has anyone ever looked at the money interests behind the Restaurant Association? I bet you'd find that they aren't all just little mom's & pop's across America. The mom's and pop's aren't complaining, because our performing rights organizations have taken care of them.
As you'll hear, the NLBA has signed a binding private business agreement that will allow songwriters to still get paid for their property while giving a break to the small businessesalmost 70% of eating and drinking establishments are taken care of under these terms.
We songwriters affiliated with BMI didn't object to giving the small businesses a break because the songwriter epitomizes the small businessman or woman in America. In this agreement, we have sided with the small businesses, but we can't give anymore. We gulped hard when BMI negotiated to increase the square footage exemption to 3,500 square feet from the current 1,055. Remember please that we don't work for BMI, ASCAP and SESACthey work for us. I don't think I want them negotiating any more of my property away. But the example of this agreement makes it even harder to understand why an Act of Congress is needed where private business negotiations have worked for 60 years.
The process of music licensing agreements has traditionally been a non-legislative, private business negotiation between two parties, until the introduction of H.R. 789. This bill favors a coalition of businesses who want to use our property without paying for it, and it takes away our right to control the use of our property. It runs counter to everything we treasure about the desire to succeed in the free enterprise system. H.R. 789 not only takes away our ability to negotiate a fair priceit takes away our property right.
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Mr. Chairman, Members of the Committee, there is no smaller businessman or woman than the songwriter. Please think about that and say no to H.R. 789 and let us get on with the business of making music that affects the lives of everyone in America, knowing that we will at least receive fair compensation for our efforts.
The average restaurant pays more for parsley than it does for the enjoyment of music, and 99% of that parsley gets thrown into the trash. Don't let them throw us in the trash, too.
Chairman Coble, Members of the Subcommittee, I'm Mac Davis and as a songwriter, that's the name you'll find on my copyrighted personal property. I am pleased to join you today to participate in this hearing on H.R. 789, a bill that would allow most businesses to use our music property for their commercial gain without making any payment to us. That's why it's hard for me to believe that this bill is entitled ''The Fairness in Musical Licensing Act.''
In many respects, my life and my career have been blessed. I've written and recorded songs that I like to think have brightened someone's day. I've starred in a television show that bore my own name and I've appeared in motion pictures . . . some of which were well received. And Mr. Chairman, I had the honor of portraying on Broadway one of the most visionary men this country has ever knownWill Rogers. I only have a limited time to speak so I won't go into all the ''Will-isms'' that come to mind on H.R. 789 I promise you Mr. Chairman.
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I do want to assure you though that if I stumble or stutter during my presentation this morning, it's not because I hesitate on answering your questions, but because I'm speaking for many thousands of accomplished and aspiring songwriters nationwide and worldwide.
It honors me greatly to speak for the men and women songwriters who aren't household names. Songwriters whose names are not known outside the music community, but whose private property . . . their songs . . . are well known and usually taken for granted. My voice today has to be their voice. Regrettably, this legislative process that has evolved is one whereby ''the known'' . . . ''the head-liners,'' . . . must speak for the unknownthe songwriters who along with their families and fans make up a huge ''silent majority'' that still believe in a day's pay for a day's work and that taking someone's property without paying for it is wrong.
The vast majority of my fellow songwriters are everyday, yet gifted, small business people. Citizens who hold personal property rights dear and who are dependent on the royalties for the public performance of their songs as a means of Income. Since the majority of writers' income comes from the public performance right, this is how they make their living. They are people who can't imagine either a Republican or Democrat controlled Congress passing a bill that would lessen their income in order to boost someone else's.
You see Mr. Chairman, I want to be very thorough this morning. We all applaud you for holding the first hearing on these issues by the 105th Congress. Hopefully, after all the testimony is in you will be able to distinguish between fact and fiction, between real fairness and special pleadings by special interests.
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The common thread that brings both pro and con points-of-view together today is an intangible that many find difficult to understand, appreciate and valuecopyright. I'm afraid, however, judging from the number of co-sponsors on 789, that far too many of your colleagues' allegiance to the protection of property rights gets blurred when the question shifts from an acre of land, lost from production by a government ''taking'' to a government authorized ''give away'' of our intellectual music property. At least, if the government takes away a farmer's acre of land to build a new road, the government compensates the farmer for that property. Here, the government will take away and not compensate us for it.
Why is it that the restaurant industry and the music industry seem to get along okay in real, regular towns, but here in Washington we're fighting one another tooth and nail? I've got a good many friends in the restaurant business as all of you do. A lot of them probably pay their licensing fees to the performing rights organizations, but there's a bunch that don't. I kept thinking about this question of ''compliance'' when I pondered what I would say today. One question in particular came to mind: ''Has anyone ever looked at the money interests behind the Restaurant Association?''
I think you'll find it is not the mom's and pop's across America, as the performing rights organizations have already taken care of them with the NLBA agreement.
BMI, ASCAP and SESAC have entered into a binding private business agreement with the National Licensed Beverage Association, represented today by Debra Leach, that will allow songwriters to still get paid for their property while exempting almost 70% of eating and drinking establishments from licensing fees. To reach that 70% (a figure arrived at by your own Congressional Research Service), the performing rights societies came close to doubling the existing exemptions for licensing within the U.S. Copyright Act.
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This is serious business, but it doesn't make sense to me why an act of Congress is needed. A public performing right is a constitutionally mandated right of the music creator to control the use of his or her music and to be compensated for that use. I must have missed the part about music being free of charge to a restaurant or department store for its commercial benefit and use if it's been paid for once already by the radio station for the station's own commercial use.
Let me talk through a sequence of events, comparable to music, that I think will help everyone understand how a songwriter views his or her property. Let's take a look at the National Football League. If a football game is played in Green Bay, Wisconsin, the football team and the NFL receive payment from those attending the game. Now, let's say this same game is broadcast by a television station. The television station pays for the rights to broadcast this game. The proceeds are shared by the football team and the NFL. Now, let's say that a satellite company will pay for the rights to televise the game, and the proceeds will be shared by the NFL and the football team. Now, let's assume that the same game is going to be shown in a restaurant or a bar, or tavern. The tavern will have to pay for the rights to show that same game to its customers. That's four times that the NFL and the team is getting pair the sense football game. Why, because in each instance, someone is commercially benefitting.
Now let's look at the proposed legislation. What does it do? It favors all copyright holders except songwriters and music publishers. Only songwriters and music publishers will be forced to give their property rights away. The NFL will continue to get compensation for the use of its property. Only copyright owners of music will not get compensated? Why? Perhaps because, the NFL is too powerful. Perhaps the football team is too powerful? Is that what this legislation is intended to do? Protect the powerful and penalize the smallest businessman aroundthe songwriter?
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Mr. Chairman, Members of the Subcommittee, H.R. 789 is premised upon an incredible amount of harmful innuendo. I'd like to also address another piece of propaganda that songwriters' adversaries make, especially the retailers, . . . that music in their establishments is ''incidental'' . . . that it adds no value and is as they say''just background music.''
If that's really the case, the Retail Federation must think us both deaf and blind. In reality, retail marketing professionals believe that their in-store music actually prompts shoppers to make a purchase. Some believe their so-called background music has such ''extra'' value that they have begun selling the music played in their establishments in compact disc format! Here, I've got one from the Starbucks Coffee Corporation, another from the Eddie Bauer stores, and here's one from the Limited's Victoria Secret chain. Mr. Chairman, these cd's aren't souvenirs, there's a reason they don't give them awaythese songs have value.
Let me wrap it up here Mr. Chairman by making one last important point on the BMI/NLBA agreement I mentioned earlier and one observation on this issue in general.
On the NLBA private negotiation, while our economy's been pretty good lately, it hasn't always been that way. That's why songwriters affiliated with BMI didn't object to giving legitimate small businesses a break on music licensing fees beyond the existing ''homestyle exemption.'' That's not to say that some of us didn't gulp hard when BMI negotiated to increase the square footage threshold to 3,500 square feet from the 1,055 square foot benchmark in the current law.
Page 138 PREV PAGE TOP OF DOC But with regard to the bigger picture of this fight, a fight that songwriters didn't start, let me remind everyone in this room of something that I think has been forgotten. BMI, ASCAP, and SESAC work for me and all the other American songwriters and composersnot the other way around. I'm fond of Frances Preston and all the BMI folks Mr. Chairman, but I don't necessarily think that I want them negotiating away anymore ''freebies'' of my personal property in the future. We have given enough. PER. 789 is a bad piece of legislation and enough is enough.
The process of music licensing agreements has traditionally been a non-legislative, private business negotiation between two parties until the introduction of H.R. 789. This legislation dictates that any form of transmission (radio, television, cable, satellite) of our music to an establishment (i.e., restaurants, nightclubs, taverns, retail stores) would be made free of charge. Why, why would Congress insert itself into a private business negotiation? H.R. 789 is nothing more than some kind of ''industrial policy'' piece of legislation that attempts to pick winners and losers. This bill doesn't level the playing field, it gives the other team an unlimited number of shots to get a first down. In short, it runs counter to everything we treasure about the desire to succeed and the free enterprise system. This bill not only takes away a songwriter's right to negotiate a fair price, but it takes away a property right. It does not allow us to say: ''No, you can't use my property'' or ''yes, you can use my property if you pay me'' or ''yes, you can use it for free.'' This bill takes away our right to control our music . . . our property.
Mr. Chairman, as I've stated, the public performance right is dear to songwriters. There was a song, that some believe to be a cornerstone of rock, called ''Louie, Louie'' written by Richard Berry. As is the case with many a songwriter trying to make-ends-meet, in 1959 Mr. Berry sold the publishing rights to Louie, Louie for the grand sum of $750 because he needed the money to get married. Yet, thirty-five years later that one tune has probably been recorded millions of times by surf, punk, hard-rock, soft-rock, rap, and reggae bands. Mr. Chairman, through all the ups and downs in his life the late Richard Berry never gave up his rights to royalties for the radio play of his property.
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The public performing royalty is an unknown. A songwriter has no knowledge whether or not his song will be a hit, but H.R. 789 would rob the music property owner of his ability to be paid for the use of his property by large corporations, such as clothing store chains and restaurant chains. These are not Mom and Pop operations. Some writers, like Cynthia Well, Barry Mann and Phil Spector who co-wrote the most played song in the BMI repertoire''You've Lost That Lovin' Feelin' '' have already been compensated for the performances of their song. So many others haven't but it's the hope and the dream that keeps them working at it. And in the meantime, some very wonderful compositions keep coming our way.
Mr. Chairman, if I write a song that proves not to be very popular or very good, it may just fade away and be forgotten. When, however, you and your fellow Subcommittee Members pass a law that isn't very popular, or isn't very good, it's hell trying to get it fixed right or off the books all together. Like the swallows that fly to Capistrano, it seems that in the summer and fall of every even numbered year, campaign commercials blanket the airwaves with a call to get the long arm of the government out of the daily lives of the people. Indeed, as former President Reagan said during his term in office, ''government interference in our lives tends to discourage creativity and enterprise and to weaken the private economic sector.''
Mr. Chairman, there is no smaller businessman or businesswoman than a songwriter. Please think about that before this committee ever comes close to taking any votes on H.R. 789.
Thank you very much.
Page 140 PREV PAGE TOP OF DOC Mr. COBLE. Thank you, Mr. Davis.
Folks, I want to examine each of you, so if you all could keep your questions terse, so I can beat the 5-minute rule, I will be appreciative.
Mr. Holyfield, does ASCAP instruct its field representatives on ways to educate music users about the legal property rights of songwriters? For example, when ASCAP goes into a restaurant to determine whether or not the licenses are up to date or are in order, do you explain to the restaurant owner what he has to do to comply?
Mr. HOLYFIELD. Yes, sir, there is a written procedure that all the field people have, because we look at the restaurants as our clients, you understand. These are very important people to us. We keep hearing about the idea of a suit and always threatening to sue. The only time that that comes is as a very last resort. The only reason that we have that threat of a suit is because, say I'm a beer vendor, and I pull up and deliver the beer and they don't pay for it, the next time I come by I have the recourse of not dropping off any beer. Or if I'm a parsley vendor, and I deliver the parsley and they don't pay for it, I have the right to not give them any more parsley until they pay up. When you are using music, that is not what happens in restaurant. They keep using that music over and over while we go through the process, and the process of trying to get them to comply with the law. It comes out that our only recourse at that point is the threat of a lawsuit for us to protect our own property rights.
Mr. COBLE. Mr. Davis, you indicate thatof course, we all know you are a songwriter and that the majority of your income from songwriting comes from public performances. Now, I'm not asking you, Mr. Davis, what you earn, but what percentage of your income do these royalties represent? From public performance?
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Mr. DAVIS. A conservative estimate is 10 to 15 percent.
Mr. COBLE. And what are the sources of your other revenue?
Mr. DAVIS. I have investments that I have made. As I stated, I am one of the guys that got lucky. I was one of the guys they had to name on the label. I recorded hits of my own. I had my own TV show. So, I have other sources of income, but that 10 percent of my income that I am getting for my music is what I'm puttingis my college fund for my kids. If I don't have that for the next 10 years, when they get to college age, then I'm going to have to find another way to send them to college.
Mr. COBLE. Now, Mr. Davis, you may not know the answer to this question, but if you dowhat has been the impact on your royalties from public performances as a result of the agreement between the NLBA and BMI?
Mr. DAVIS. At this point
Mr. COBLE. You may not know that.
Mr. DAVIS. At this point I couldn't tell you. All I know is that 3,500 square feet, which they've negotiated to change to, is a pretty good-size restaurant. That's bigger than probably 90 percent of the homes in America. That's a pretty good-size restaurant. And that's as far as I'm willing to go.
Page 142 PREV PAGE TOP OF DOC Mr. COBLE. I thank you, sir.
Mr. Collins, in your testimony, you indicate the possibility that the agreement between SESAC and NLBA could be in violation of our international copyright treaty obligations, but you didn't elaborate. Elaborate a little on that.
Mr. COLLINS. Mr. Chairman, I'm not an attorney. However, my understanding is that, should the section 110(5) exemptions be expanded, businesses here in America would be allowed to use music in those business environments without the need to pay, while our European friends in the European Union, with whom we have reciprocity, in those countries license fees would still need to be paid. And it would impact the distribution of license fees in terms of royalties that go back and forth across the water.
Mr. COBLE. Ms. Leach, I can imagine that administratively that this agrument would be a nightmare. Maybe it's not, but it seems to me that it would be rather burdensome. Who is the party that administers the NLBA's commercial agreement with the performing rights organizations? How do you do that logistically?
Ms. LEACH. My office does that. One of the things that is working well, so far at least, for our members is that we took the three agreementswe published a Readers' Digest version of those agreements, letting our members know the basic points of the agreements. In it we have one form for them to fill out that is very simple and very clear. It is one page. They put their name, their address, and their NLBA ID number, and from this we are able to gather all the information that we need. Then, by providing the right information to our computer software, divvies up the checks into each of the three PRO's and NLBA.
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Mr. COBLE. I see that my time has expired. The gentleman from Massachusetts, Mr. Frank.
Mr. FRANK. Thank you.
Actually, I agree with Bill. I'm struckit says that it only applies to the performance and display of a nondramatic musical work. So, apparently, even if this bill passes, then people who want opera with their dinner, I guess, just don't qualify. I'm just curious as to why we would exclude opera. But I guess we do.
I want to see if I've got this clear. What we're talking about is that under current lawlet me be clear here. Congress has never passed any kind of a special law dealing with restaurants. In other words, what we're talking about here is that, to the extent that you have a claim to be compensated, it's based under general copyright law. No one has singled out restaurants. Is that correct?
Mr. COLLINS. That is correct.
Mr. FRANK. So, I do go back. I guess I try to keep with the literature that some of my colleagues study, but sometimes I have this feeling that their editions have footnotes that aren't in my editions. So, apparently, in the free-enterprise texts, Milton Freedman and Ludwig von Meises, there is a footnote that says that this doesn't apply to restaurants. Because I would have to agree that what we're talking about here is that under existing copyright law, as applied to these commercial establishments, restaurants, which make money by providing a service to the public, cooked meals, that the public will pay for, under existing laws, they owe you money if they play your music. And we're being asked to legislate a special exception because the restaurant owners don't like the way the market system has worked. And I share your puzzlement as to why we want to do that. I don't know, maybe some of you would want to collaborate and do a dramatic musical work about this, because if you did a dramatic musical work it would, then be protected, even if this bill passed, and it could not be played in any of those restaurants. [Laughter.]
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And let me ask Ms. Leach, because I am in agreement with the othersyou represent some of the establishments here, and I gather that we're going to be told that it is important if you are running a restaurant or a tavernI see we have a tavern-owner hereto be able to play the music. And, apparently, people will tell us that if they are not allowed to play the music, it will be an interference with their ability to make a reasonable return in this restaurant.
Now you, representing people who are in this hospitality business, disagree with that. I'm wondering, are they exaggerating? Do you believe that people can, in fact, make these payments, or in the alternative, not have the music, and still do perfectly well in providing this service to the public?
Ms. LEACH. We have tried to give our members an option. They have the ability to still turn the music off, enter into private agreements with each of the PRO's or each of the individual thousands and thousands of songwriters or come into our agreement at reduced rates. It is our hope that, through the education of our members, that more of our members will comply.
Mr. FRANK. Well, let me ask youhow long is yourdo you have a lot experience in this? Have people had to go out of business because they couldn't afford the rates that Mr. Davis and Mr. Holyfield and Mr. Collins wanted? And they had to close their restaurant because they couldn't afford to pay them and no one would come in and eat there if they couldn't listen to nondramatic musical performances?
Page 145 PREV PAGE TOP OF DOC Ms. LEACH. I'm not aware of any.
Mr. FRANK. Yes, because I think that that seems to be verywhat we're talking about here is relative commercial advantage. This has been the rule for obviously many years, and it's not my impression that the restaurant business and the tavern business have been impossible to maintain. There appear to be a large number of people who quite successfully sell people food and drink and either pay for the music or don't play it. So, I was just wondering if there was any experience that suggested to the contrary.
Ms. LEACH. I don't have any letters in my file, of hundreds of letters from my members, that have told me of a business that has gone under because of this fee.
Mr. FRANK. Yes, generally, what we learn is that good news is no news. That is, if you haven't heard about that, it is probably because people have been able to live with it, and if there had, in fact, been a serious adverse economic consequence, then I think that you would have heard about it and many of us would have heard about it. I think that this is a case where I draw an inference from the absence of bad news.
Mr. PEASE [presiding]. The gentleman from Wisconsin, Mr. Sensenbrenner.
Mr. SENSENBRENNER. Thank you very much.
Page 146 PREV PAGE TOP OF DOC Mr. Holyfield, the consent decree under which ASCAP and BMI both operate prohibit either of the licensing organizations from entering into a license which discriminates between licensees similarly-situated. How do the agreements that ASCAP has negotiated with both the NLBA and the American Camping Association comport with this requirement, since the licensing agreements require the members who buy the licenses to be members of those particular organizations?
Mr. HOLYFIELD. I would like to consult with counsel, but I'm sure that the Justice Departmentthat we talked to them before we did this.
Mr. SENSENBRENNER. Could the counsel please identify itself for the record?
Mr. KOENIGSBERG. Yes, sir, Congressman. Thank you for allowing me to step over to the table. I'm Fred Koenigsberg with the firm of White & Case, and I'm counsel to ASCAP.
And the simple answer to your questions, Congressman, is that the agreements comport entirely with the consent decree. If any other associationlet's take the National Licensed Beverage Association agreementif any other association, for example, the National Restaurant Association, will agree to the same terms and conditions that the National Licensed Beverage Association has agreed to, will agree to do what the National Licensed Beverage Association will be doing under this agreement, then they can have the terms of that agreement as well.
Page 147 PREV PAGE TOP OF DOC Mr. SENSENBRENNER. Well, Ms. Leach testified that to get the license that is pursuant to the agreement between ASCAP and the National Licensed Beverage Association, you have to be a member of the National Licensed Beverage Association and put your NLBA number on the license application. Now, if a tavern is not a member of the NLBA, then they can't get this license. And isn't that a violation of the consent decree?
Mr. KOENIGSBERG. Absolutely not, Congressman. Absolutely not.
Mr. SENSENBRENNER. Well, why not? The taverns are similarly-situated, and if they get a license from ASCAP due to other methods, and they have to pay more for it, and I think that they probably will be looking at the fees in the applicationyou've got two taverns that are similarly situated; one is an NLBA member that gets it cheaper and one is a non-NLBA member that gets it more expensively.
Mr. KOENIGSBERG. Congressman, your very question answers the question. They are not similarly-situated because the other taverns that are not NLBA members are not members of associations that have made an agreement with ASCAP and that have provided various things to ASCAP under that agreement.
Let me give you an example, if I may, Congressman. You have noted, correctly, that the rate that an individual tavern which is a member of the NLBA is lower than the rate that a non-NLBA tavern would pay. Why? One of the reasons why is because, as Ms. Leach just said in response to a question from the chairmanthe NLBA is providing a certain clearinghouse service. It is providing a certain administrative service. ASCAP doesn't have to undertake those administrative costs, and therefore
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Mr. SENSENBRENNER. Mr. Koenigsberg, Mr. Koenigsberg, did you get clearance from the Justice Department on whether this violated the consent decree or not?
Mr. KOENIGSBERG. I did not get clearance from the Justice Department, but the Justice Department was fully aware, fully aware of the agreement.
Mr. SENSENBRENNER. So this is one of the things that the Justice Department is conducting its review on, according to the letter that I got from Assistant Attorney General Fois?
Mr. KOENIGSBERG. I don't think that is correct, sir. When I say that the Justice Department is fully aware, that is because we went to the Justice Department and told them what the arrangement was, what the terms of the agreement were. They understand it, they know it, and I haven't heard anything from them that tells me that it was anything violative of the law. Quite the contrary.
Mr. DELAHUNT. Will the gentleman yield?
Mr. SENSENBRENNER. My time is almost up. I'd be happy to yield.
Mr. DELAHUNT. Because within the letter that you submitted earlier in the record, that issue was addressed. And I would read it into the record at this point in time, if by unanimous consent I can have the time to read it in.
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Mr. SENSENBRENNER. Well, I ask unanimous consent that I be given 2 additional minutes.
Mr. COBLE [presiding]. Without objection.
Mr. DELAHUNT. And I'm reading from the letter that was introduced by Mr. Sensenbrenner.
''The ASCAP and BMI decrees require that,'' and I'm quoting, '' 'similarly-situated' users be charged the same rate. This provision is intended to protect smaller users from discrimination. Under this provision, industries have developed joint negotiating groups that bargain with the performing rights organizations on behalf of their industry. In some instances, subgroups of the negotiating groups have complained that their interests are not fairly represented and have tried unsuccessfully to engage the PRO's in separate negotiations.''
Mr. SENSENBRENNER. Well, reclaiming my time, I think that proves the point that there are different strokes for different folks and that that violates the consent decree.
Mr. DELAHUNT. It doesn'tagain, reclaiming my timeit doesn't reach a conclusion.
Mr. SENSENBRENNER. Well, I have the time. The letter that I got from Mr. Fois says that the Justice Department is looking into it.
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And I yield back the balance of my time.
Mr. COBLE. The gentleman from California, Mr. Berman, is recognized for 5 minutes.
Mr. BERMAN. Thank you, Mr. Chairman.
Just to continue on with this, if a restaurant decides it doesn't want to buy into the license thing, it wants to go out and make separate deals with every songwriter whose music it is going to play, then it is allowed to do that. Is that correct? And the fact
Mr. FRANK. Nodding is kind of hard to get into the record.
Mr. KOENIGSBERG. Yes. Sorry.
Mr. BERMAN. The fact that the fees are higher than the blanket fee does not mean that there has been a violation of the consent decree because the guy next door is getting the blanket fee and is paying much less in cost. Is that correct?
Mr. HOLYFIELD. That is correct.
Mr. BERMAN. The ''similarly-situated'' did not mean that you are protected against your own stupidity?
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Mr. HOLYFIELD. Yes, it's not meant to be unfair, but it is certainly meant to be a break for administrative costs and that sort of thing.
Mr. BERMAN. I think that it is useful to take one momentMr. Davis just mentioned it, and Ms. Leach testified extensively about it, but just to take one second and talk about the agreement. When we talk about ''similarly-situated''I was in the room with the gentleman from Wisconsin and the representatives of the National Restaurant Association where they rejected very specifically on its merits, as well as with argument, about how you have to deal with the religious broadcasters and other groups involved in the issue. They rejected arrangements that were very similar to the arrangement agreed to by the National Licensed Beverage Association. I could personally testify that this is not a case where one group is being offered some sweetheart deal in order to embarrass another organization. The National Restaurant Association wanted no part of anything like this.
I'd like to read some of the key provisions of what they would like no part of. As I understand it, this agreement exempts any establishment smaller than 3,500 gross square feet, as Mr. Davis said. Although, I hate to say it, I think that about 98 percent of all the homes are smaller than that, not 90 percent. And in addition, it isn't that it exempts them if they have one radio playing. It exempts them if it is 3,500 gross square feet or smaller if it is transmitted by a totaloh, no, I'm sorry. Let me put that differently. It's 3,500 square feet or less totally excluded, no matter what the heck you are doing, as long as you are not charging separately for the playing of the music. And if it is larger than 3,500 square feet, it is still exempt as long as the audio portion is transmitted by no more than six eternal radio and/or TV speakers with no more than four in any one room, and any visual portion is transmitted by no more than three TV's with no screen size greater than 55 inches with no more than two TV's in any one room, and no direct charges made to see or hear the transmission, and it is not transmitted beyond the gross square footage. So that there are provisions for exemption above 3,500 square feet under those conditions.
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I wonder if the average restaurateur who is a member of the National Restaurant Association understands, for the purposes of their playing of music, what kind of arrangement they could get through a negotiation process, which is done in every aspect of life, because no one expects thousands of songwriters or thousands of individual restaurants to be able to effectively negotiate this. This is why we have collective bargaining. This is why we have unions. This is why we have industry-wide bargaining in many particular areas of the private sector. If they could understand the kind of arrangement that they could get which would exempt them from any music licensing, and if by some chance your establishment decides that in order to attract customers it doesn't want to fit within these constraints in terms of limitations of number of radios or TV speakerslet's take a look at some of the kinds of annual fees we're talking about.
We're talking about fees starting in the hundreds and going into, in the case of the huge establishments, going up to $10,000 and $12,000 a year, for what I am told is an average of something like, in the smaller establishments, three-tenths of a cent per customer; and in the larger establishment, something like seven-tenths of 1 cent perI'm sorry, in the meals that are under $10, the average cost of this music is three-tenths of 1 penny, and in the meals above $10, approximately seven-tenths of 1 penny per customer meal. So, this is in reality what we are talking about.
And I just close with saying that huge numbers of members of the association that has most been pushing this legislation to exempt music from any payment would be exempted by the terms of negotiated arrangements if they would take advantage of it.
Page 153 PREV PAGE TOP OF DOC Thank you, Mr. Chairman.
Mr. COBLE. Permit me to insert an oar into the water, Howard. I think I understood you. But just to clarify in establishments less than 3,500 square feet, only music broadcast on television and radio is involved. Correct?
Mr. BERMAN. Yes, not live music.
Mr. COBLE. OK. I wanted to be sure of that.
Mr. BERMAN. Yes, even the NRA is not so audacious as to suggest, as I understand it, that live music should be exempt from payment.
Mr. COBLE. And you may have said that, Mr. Berman; I just wanted to be sure that it was clarified.
The gentleman from Virginia, Mr. Goodlatte, is recognized for 5 minutes.
Mr. GOODLATTE. Thank you, Mr. Chairman, and thank you for holding hearings on this important issue.
Ms. Leach, I am very interested in what you have accomplished, and I would like to know more about what the failings have been how and to reach agreement by the parties in other areas.
Page 154 PREV PAGE TOP OF DOC First, give me a better sense of how many bars and taverns are members of your organization. I know that you list 16,000 members, but you have quite a few other entities, gas stations, liquor stores, and such. How many of the 16,000 are bars and taverns?
Ms. LEACH. I don't know exactly because we keep our members all equal, but I would say the majority, 85 percent to 90 percent.
Mr. GOODLATTE. And of that, what percentage of all the bars and taverns in the United States? Would that be 8,000 to 10,000, whatever, that are members of your organization that are bars and tavernsdo you have any idea how many bars and taverns there are in the United States?
Ms. LEACH. No, I don't.
Mr. GOODLATTE. Does anybody on the panel know?
OK, can you tell me what the problem is from your perspective in terms of reaching agreement with other organizations, such as the National Restaurant Association. What aspects of your agreement do they not agree with?
Ms. LEACH. No, I don't know, quite frankly. Our agreement
Mr. GOODLATTE. We'll hear from them in the next panel, but I would like to have the benefit
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Ms. LEACH. One of the things that I think that a lot of people don't realize about our agreement is that our exemption is very broad, and if you had four TV's and you removed one, you would be exempt. I think that a lot of people would like to know that, for example. And that our fee structure, based on the gross square footage, includes all three of the PRO's and includes all music from all sources all the time.
Mr. GOODLATTE. Is there a size of bar or tavern below which there is no fee?
Ms. LEACH. For live or prerecorded?
Mr. GOODLATTE. For radio and television.
Ms. LEACH. Yes, that's the 3,500 square feet. If they are below that and they only have radio and television, they are totally exempt from licensing fees for the PRO's.
Mr. GOODLATTE. Did anybody else want to comment on that on this panel?
Mr. DAVIS. I've been, if I may, informed, hopefully correctly so, that the 3,500-square-foot limit entails approximately 70 percent of the restaurant eating establishments and drinking establishments in this country that would be exempt.
Page 156 PREV PAGE TOP OF DOC Mr. GOODLATTE. For a bar or a tavern, 3,500 square feet is pretty darn large.
Mr. DAVIS. It's huge. But that, at least that's what I have been informed, that 70 percent would be exempt.
Mr. GOODLATTE. Mr. Koenigsberg?
Mr. KOENIGSBERG. Congressman Goodlatte, thank you. Just to expand on what Mr. Davis said, the Congressional Research Service looked at this questionthis isn't our numberand they found that 70 percent of the bars and taverns in the country would be exempt at that 3,500-square-foot threshold, and 65.2 percent, not to be too precise about it, of the restaurants in the country would be exempt under that 3,500-square-foot exemption.
Last year there was a hearing by the Small Business Committee, and one of the Congressmen mentioned that to one of the witnesses for the other side and said, ''That sounds like a pretty good deal to me,'' and the response was, ''Well, yes, it is, but we want more.'' And I think that encapsulates the situation quite nicely.
Mr. GOODLATTE. From your perspectivemaybe you could outline what Ms. Leach couldn'twhat are the specific areas on which you can't reach agreement with the Restaurant Association? I'm going to give them their opportunity to tell us from their perspective as well, but how does Ms. Leach's agreement compare to what they want? What are the differences there?
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Mr. HOLYFIELD. Well, we're not sure because they refuse to negotiate. In my testimony, I said that they said, under no circumstances would we negotiate, and they're trying to do it through legislation. So we're not sure what areas there would be. Obviously, the agreement that we reached was one that we felt like, because of compliance, because we are small businessmen, as Mac pointed out, we understand; we empathize, but there's a limit on this. What we're talking about with this legislation goes way beyond what our agreement is here, and that takes away the mom-and-pop aspect of it, as far as I'm concerned.
Mr. GOODLATTE. Well, then, tell me the differences you perceive between the legislation and the agreement that you have with the National Licensed Beverage Association.
Mr. HOLYFIELD. I'm going to let counsel, if you're talking about specifics
Mr. GOODLATTE. I would love to have Mr. Koenigsberg tell me that.
Mr. KOENIGSBERG. Thank you, Congressman.
On the radio and TV music front, the legislation would exempt any use of radio or TV music; 3,500 square feet, 4,500 square feet, 15,000 square feet, 900 speakersit wouldn't matter. It would all be exempt. It would all be a free use of somebody else's property. And that's just on the radio and TV area. I mean, I'm not going into all the other little ''gee-gaws'' that are added onto
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Mr. GOODLATTE. I'm now continuing at the forbearance of the chairman, so you need to go on to the other differences that you see between the bill and the agreement that you've reached with Ms. Leach's organization.
Mr. KOENIGSBERG. Well, in terms of the agreement with Ms. Leach's organization, the bill only, I think, addresses the radio and TV music issue, but the agreement with her organization goes far beyond that, as Congressman Berman pointed out, to the rate structure, which is much, much lower than the otherwise applicable rate structure, and a very important point that
Mr. GOODLATTE. Well, let me understand that.
Mr. KOENIGSBERG. Sure.
Mr. GOODLATTE. How does thatis there a rate structure that you're comparing that with in Mr. Sensenbrenner's bill?
Mr. KOENIGSBERG. No, sir, Mr. Sensenbrenner's bill doesn't have a rate structure in it. I'm comparing it to the rate structure otherwise applicable to restaurants, bars, grills, taverns
Mr. GOODLATTE. In other words, you're saying that in order to reach agreement with her organization you made some concessions on those?
Page 159 PREV PAGE TOP OF DOC Mr. KOENIGSBERG. Oh, yes, sir, we certainly did, and we were happy to do it because we came up with an agreement that we think benefits everybody.
Mr. GOODLATTE. All right. Any other differences?
Mr. KOENIGSBERG. Oh, yes, I do think so, sir. Mr. Sensenbrenner's bill goes into this arbitration of rate issue. The point of this agreement, which addresses that issue, is that, because we have an agreement with rates that are so reasonable there is no necessity for anybody to even consider arbitration of rates, the agreement takes that issue off the table.
Mr. GOODLATTE. Any others?
Mr. KOENIGSBERG. I think those are the major points, Congressman. I'll give it more thought. We'll take a look word for word and perhaps respond in writing afterwards, if we could.
Mr. GOODLATTE. I think that would be very helpful, if you would.
Mr. KOENIGSBERG. Thank you, sir.
Mr. GOODLATTE. I mean, we need to find a basis for resolving this issue. Obviously, you've reached agreement with one organization. We want to know what the differences are, so that we can focus on those, in order to try to resolve this issue for everybody involved.
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Thank you, Mr. Chairman.
Mr. COBLE. I thank the gentleman.
The gentlelady from California, Ms. Lofgren, is recognized for 5 minutes.
Ms. LOFGREN. Thank you, Mr. Chairman.
I'm interested in how copyright-holders are approaching new technology. One of the witnesses later will talk about concerns that current arrangements, as well as the consent decree, put a damper on the development of new technology, and I'm wondering if Mr. Holyfield or Ms. Leach might address that issue.
For example, although we don't have it yet, within the next, I would guess, 18 months, maybe more, new generation flat panel display will be available. If the technology indevelopment becomes viable, we'll have the ability to have extremely large, light, flat panels, and I'm searching, since I'm new to this committee and new to this issue, for the rationale between limiting, for example, a TV set size as compared to limitations based on the size of an establishment. Can you address that?
Mr. HOLYFIELD. Well, I would like to say that it scares the heck out of us, and when you couple it with a bill like this, obviously, it could bewe don't know; it's such a dynamic thing. I'm going to let Mr. Koenigsberg address the technical aspects of what's being done right now to protect the songwriters. But, obviously, when you put the combination of a bill like this with the new technology, somebody's going to figure out to get to the people at the end of the food chain, which is usually the songwriter, and so that scares us.
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Mr. KOENIGSBERG. Congresswoman, I very much appreciate your question because it goes to a point that was a major source of discussion between ASCAP and the National Licensed Beverage Association, and I'm sure between the other organizations, although we weren't privy to their discussions. Let me focus on the size of the TV screen question. What we did when we sat down with the NLBA was we looked at the use of television sets in public establishments today, and the NLBA told us, for exampleand, Debbie, you may want to comment on thisthat there are a lot of bars and taverns out there that have several sets around the bar, so folks can watch whatever programs they want to watch at that time, and that should be exempt because they're relatively small sets. We said we were concerned about very large sets, where the TV becomes the focus of what folks are coming into this bar or restaurant
Ms. LOFGREN. So it's not an incidental use; it is the rationale for the attendance?
Mr. KOENIGSBERG. Exactly right. And then we took a look at the size of the set. What size are sets today that are being used? And that's how we came up with the 55-inch diagonal measurement, which I have a hunch would be larger than that picture of former Chairman Rodino up on the wall.
Mr. FRANK. No, nothing is allowed to be larger than the portraits of the former chairmen. [Laughter.]
Mr. KOENIGSBERG. And in terms of the very important part of your question, which goes to changing technology and what's coming up in the future, remember Ms. Leach's testimony that our agreement is for 3 years, because no agreement endures forever, and we have to see what our experience is.
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Ms. LOFGREN. So you believe that as the technology developsat some point very large, light, flat panels will be in everybody's home; that's going to be everywhereyou have the ability to reflect that in your ongoing arrangements?
Mr. KOENIGSBERG. That's certainly a possibility. I don't know which way we'll go, and I can't say which way it will go, but the ability to be flexible and respond to the needs of the users of music and the needs of the songwriters is what's built into
Ms. LOFGREN. If I may, since my time is running out and I know the chairman will let Ms. Leach take the committee's time, I'd like to ask a further question, which is: What steps are being taken by songwriters to protect themselves online through the use of watermarking technology and other technology that has become available in terms of absolutely encrypting and protecting one's material?
Mr. HOLYFIELD. I'd like for Mr. Koenigsberg, who's working on that as we speak
Mr. KOENIGSBERG. Yes, indeed, that is a very, very important issue to us. We know that this committee is looking at that issue. This committee looked at it in the past through the good offices of Congressman Goodlatte. We had many discussions on that issue and many other issues surrounding the protection of copyrighted works on the Internet and simultaneously the ability to use those works on the Internet for the benefit of everyone. I can't go into chapter and verse on that now because I think Congressman Coble would throw the gavel at me, but be assured that it is the hottest of hot issues with us, and we are actively looking at it and working with this committee
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Ms. LOFGREN. And are you looking at the watermarking technology specifically?
Mr. KOENIGSBERG. Well, we're looking at encryption, all sorts of encryption technologies, watermarking technologies, technologies that identify a copyrighted work and cannot be the anticountervention mechanism that would defeat that encryption, yes. Oh, yes, Ma'am.
Ms. LOFGREN. Thank you, and thank you, Mr. Chairman.
Mr. COBLE. I thank the lady. The gentleman from California, Mr. Bono, is recognized for 5 minutes.
Mr. BONO. Thank you, Mr. Chairman.
Mr. Holyfield, what percentage of the restaurants comply with current copyright lawcurrent?
Mr. HOLYFIELD. I've had a chance to look atI'm going to just go by what Mr. Kilgore's statement had to say, which was the NRA's presentation to you. In it, it said that the NRA represents 33,000 restaurant copies, which in turn own 175,000 restaurants or unitsI guess some of them are multiple owners, and so I guess that averaged more than, I don't know, four or five owners per restaurant, which isn't small mom-and-pop to me. But, nevertheless, what was intriguing was the fact that we know that we represent and license what'show many would we60,000, 50,000 to 60,000 that have a license with ASCAP
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Mr. BONO. OK.
Mr. HOLYFIELD [continuing]. A direct license. I'm talking about restaurants. So we're talking about over 100,000 people that do not have a license with us. Now either they're not using music at all or
Mr. BONO. Or they don't pay?
Mr. HOLYFIELD. Or they don't pay.
Mr. BONO. How long would you say that's been going on?
Mr. HOLYFIELD. Oh, foryou know, it's a long time. Someone made the comment that we're out there and it's an uneven playing field for us because we're the monopoly, but that's not true. We're the ones that
Mr. BONO. So there's a big percentage of restaurants that don't pay for the use of copyright. For a long period of time this condition has existed; correct?
Mr. HOLYFIELD. That's correct.
Mr. BONO. It's about 50 percent, do you think?
Page 165 PREV PAGE TOP OF DOC Mr. HOLYFIELD. You know, it could be more.
Mr. BONO. It could be more?
Mr. HOLYFIELD. I think it probably would be more.
Mr. DAVIS. So our attorneys, BMI, either we have more work to do, or whatever, but they inform me that it's only 25 percent compliance.
Mr. BONO. Onlywe are only getting 25 percent compliance, according to your
Mr. DAVIS. That is correct.
Mr. BONO. So 75 percent don't pay the songwriters right now. So we're losing 75 percent, songwriters are losing 75 percent of their revenue, or thereabouts? I mean, that's a ballpark estimate.
Mr. COBLE. Sir, will you will identify yourself for the record?
Mr. BERENSON. Yes, Chairman Coble. My name is Marvin Berenson. I'm general counsel of Broadcast Music, Inc. (BMI).
In answer to Congressman Bono's question, is really that a relatively small proportion of those restaurants and bars out there do comply. I always like to relate the story that I've never once come into my office on a Monday and saw a line of restaurant owners standing outside to sign license agreements. It's generally a situation where you have to find them, educate them, and I think both Mr. Holyfield and Mr. Davis before testified to this. You have to go through an education process, letterwriting, telephone-calling, and just do it over and over and over again. They just don't sign up a license very quickly. It's a very laborious task.
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Mr. BONO. That's an expense that songwriters have to undertake?
Mr. BERENSON. Yes, this is basicallythe cost of this is borne by the songwriters, Congressman.
Mr. BONO. Quick question: Are all of your songwriters rich?
Mr. HOLYFIELD. No, as you might know, when we talk about the smallest of the small businesses and risk-reward, I would daresay that I can't think of any profession that would have a higher risk-reward, and sometimes the reward gets taken away by bills in Congress.
Mr. BONO. Would you say the amount of people that attain the success that Mac has is minuscule?
Mr. HOLYFIELD. Sure.
Mr. BONO. OK.
Mr. HOLYFIELD. But, you know, could I add something?
Mr. BONO. OK. I just want to ask a couple more questions.
Page 167 PREV PAGE TOP OF DOC Mr. HOLYFIELD. We're fortunate to be here representing the songwriters, and we're lucky. I've been lucky.
Mr. BONO. Right.
Mr. HOLYFIELD. And I recognize that I've been lucky, but there are a lot of our people who are still fighting the good fight, and that's why I think Mac and I are here. Somebody needs to tell their story, and they're out trying to write songs.
Mr. BONO. Mac, did you ever think you'd see this day?
Mr. DAVIS. No.
Mr. BONO. Me, neither. [Laughter.]
Mr. DAVIS. No, sir, this goes down in my little book of dreams. It's something I've looked forward to all my life.
Mr. BONO. I haven't looked forward to my book of dreams, but here we are.
Mr. DAVIS. And the beat goes on.
Mr. BONO. And the beat goes on.
Page 168 PREV PAGE TOP OF DOC And you were awere you a songwriting success overnight?
Mr. DAVIS. No, and I don't know any songwriter that is. I mean, it's probably happened, but I started writing songs when I was first able to whistle. I started putting words to them when I was 14. I got my first hit at the age of 28, which is 14 years later, and I put in countlesscountlesshours. I ruined a marriage sitting up until 3 o'clock in the morning trying to write songs, getting up at 6 o'clock in the morning writing songs, and thank God I have an understanding wife right now because I'm still doing that. I just happened to have found one that understands. And it is a thankless job for 99 percent of the songwriters in this country. They never make a penny.
Mr. BONO. Would you say that all of the songwriters that you know and the people that pursue that career pay incredible dues to get a song on the air or get it played or get someone to sing their song?
Mr. DAVIS. You know, it's the same any other small business. You have to pay your dues. You have to work long hours, and when you do, if you do get lucky and you get something that happens to become a hit, then the payoff is good, but most songs, we get them recorded and we have high hopes for them, and they don't become huge hits. Our only remuneration is what performances we do get, and that's where I refer to pennies and fractions of pennies, because that's really how we're paid. And the average songwriter, that's all he sees, is the pennies end of it. I've seen an awful lot of checksan awful lot of checksframed on guys' walls for 29 cents, 41 cents, because it's the only check they ever got for their efforts, but they're pretty doggoned proud of it.
Page 169 PREV PAGE TOP OF DOC Mr. BONO. Thank you. Thank you, Mr. Chairman.
Mr. COBLE. Mr. Bono, I was going to mention earlier, for the benefit of the uninformedand there is probably no one here who does not know it, but you come to the table uniquely wearing two hats. You are a former restaurateur and, of course, a performer as well. So you come with a double-edged sword, I guess, Sonny. I don't know whether that's an advantage or a disadvantage.
But, folks, at this juncture, I think this is a good hearing. We've been very deliberate. Nobody been's bull-whipped yet, and I don't think that's going to happen. We are plowing ground that needs to be plowed. This issue has no airing and no hearings in recent years. So this is something that needs to be done, and I hope that it will be a productive day.
The gentleman from Massachusetts, Mr. Delahunt.
Mr. DELAHUNT. Yes, thank you, Mr. Chairman.
I'd like to go back to the language in the letter addressed to Mr. Sensenbrenner regarding the monitoring and review of the ASCAP and BMI decrees. And as you heard, we have a disagreement as to the interpretation of that letter.
In my readingwell, first, let me begin by asking you to restate the position of the PRO's that, in fact, you are willing to sit down and come to the table and negotiate an agreement with the NRA; is that a fair statement, an accurate statement?
Page 170 PREV PAGE TOP OF DOC Mr. HOLYFIELD. Yes, obviously, because we've already done it with several dozens of other organizations.
Mr. DELAHUNT. Because, again, I want to ask you to comment, Mr. Holyfield, and possibly counsel, that my reading of, again, the letter to Mr. Sensenbrenner is that some subgroups within the industry have complained that their interests have not been adequately represented by the industry associations, and that they're looking for further negotiations as a subgroup.
It's not that ASCAP is unwilling to sit down and negotiate.
Mr. HOLYFIELD. That's true.
Mr. DELAHUNT. And I'd ask counsel to amplify Mr. Holyfield's short answer.
Mr. KOENIGSBERG. Absolutely, and I'll try to keep it short, too. Congressman, it reminds me of the story of the two actors who haven't seen each other for a time and run into each other on the street. One says, ''How are you doing?''
The other guy says, ''Great. I just signed a million dollar deal with MGM.''
The first guy says, ''Congratulations. That's terrific.''
Page 171 PREV PAGE TOP OF DOC And the next guy says, ''Yes, if only I could get MGM to sign.''
ASCAP will meet anywhere any time with the National Restaurant Association or any other trade association that wants to negotiate with us. That's what our business is; that's the way we represent people like Mr. Holyfield, and the way BMI represents people like Mr. Davis, and the way SESAC represents its affiliates. Anywhere, any time, with no preconditions, we will sit down and negotiate a license agreement. That's what we're here for.
But, in the words of an old ASCAP song, ''It takes two to tango.'' And if the other side says to us, as they said to us in a letter, ''We will not negotiate with you under any circumstances,'' we're left standing there saying, gee, if we only could get them to sign; we're willing to do it.
Mr. DELAHUNT. So that the language in the letter that states, ''The rate court is currently considering a complaint that separate negotiations are a requirement of the existing ASCAP consent decree,'' you don't have any problems with that?
Mr. KOENIGSBERG. We have no problems with that.
Mr. DELAHUNT. You would welcome negotiations?
Mr. KOENIGSBERG. Absolutely. With open arms, sir; yes, sir.
Mr. DELAHUNT. Such as is done in the course of collective bargaining?
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Mr. KOENIGSBERG. Exactly right, sir. That is
Mr. DELAHUNT. And, in fact, the PROs in many respects are analogous to labor unions, representing working men and women?
Mr. KOENIGSBERG. I think in a sense we are in that we're representing, as you say, working men and women, and in another sense we're different in that we are representing individuals who are owners of private property and who seek compensation from those who use their private property for their own commercial advantage.
Mr. DELAHUNT. And those individuals would have minimal power within the marketplace to negotiate without the performing rights organizations? Mr. Holyfield. Mr. Davis. I'd welcome a comment from either one of you.
Mr. HOLYFIELD. Well, I would say that would be the definitive end of the food chain, because without the collection
Mr. DELAHUNT. You wouldn't stand a chance?
Mr. HOLYFIELD. We wouldn't have a chance to, if somebody wanted to use one of my songs, and for me to have to negotiate withwell
Mr. DELAHUNT. With a large corporation or a conglomerate?
Page 173 PREV PAGE TOP OF DOC Mr. HOLYFIELD. You can imagine how that would go. And that's what we are. That's what I point out: We are ASCAP and we are BMI; we are a whole bunch of small business
Mr. DELAHUNT. One final question. It was stated earlier that the PRO's have indulged inI don't know what the exact terminology was, but heavyhanded collection practices, strong-arm methods, if you will. And, yet, again in the letter to Mr. Sensenbrenner, I don't see any evidence of that, because I want to read into the record, ''The Division''meaning the Antitrust Division of the Department of Justice''regularly evaluates all of the complaints it receives, and where necessary, conducts a followup investigation to determine whether enforcement action is necessary. A majority of the complaints that the Division receives involve factual disputes in which there is no appropriate role for the Division. The Division has not initiated any enforcement actions with respect to either decree''and, again, they're referring to both ASCAP and BMI''in the past 2 years.''
Do you have problems from vendors in terms of complaints about collection practices? Let's get that out on the table now, because I'm sure we're going to hear this on the next panel.
Mr. HOLYFIELD. No. The proceduresand you can correct me, Mr. Koenigsbergthe procedures are deliberately vendor-friendly that we have. Obviously, there could be an occasion of somebody twisting what happened, but, generally speaking, the procedures are very fair. From a personal point of view, as I talked about, I would love for us to see it a little more aggressive, but I understand that some of thisI mean, it's our money; they're using our property and not paying for it. So I think Mac and I would like sometimes for us to be more aggressive, but we do understand the situation.
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And it's like I said about somebody fishing without a license. I think a lot of that is where this comes in. The game warden comes up and they get a little nervous and all of a sudden turn the table and make the guy that's trying to uphold the law the bad guy.
Mr. KOENIGSBERG. If I could add, Congressman, directly in response to that point, let me take the example of dancing schools, which ASCAP has licensed for 20 years now, after negotiating with the committee representing all sorts of dance associations. In 1991, Dance Magazine ran an article saying that they shouldn't have to pay for the use of music, and ASCAP's then-president, Morton Gould, and members of ASCAP's staff went to see the folks at Dance Magazine, and they said, well, we've got these stories of harassment. And ASCAP wrote them a letter that said: Any incidents of harassment, bullying, or anything like that, pass it along to us, so we can investigate it, because we won't tolerate that sort of thing.
And in the 6 years since, there has been deafening silence from them. We have not had one response to that. We'll give you that correspondence for the record, if the chairman will allow.
[The information follows:]
Hon. HOWARD COBLE, Chairman,
|A S C A P,|
|New York, NY., July 31, 1997.|
Subcommitee on Courts and Intellectual Property,
House Judiciary Committee,
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DEAR MR. CHAIRMAN: We submit this statement for the record in response to certain points made by the proponents of H.R.789, and also to answer, as best we can, those questions addressed to ASCAP by Members of the Subcommittee.
Mr. Chairman, the proponents of H.R.789 had hoped to prove in your hearings that they required an expansion and clarification of 110(5) of the copyright act and relief from travel costs incurred to contest fees. Instead, the hearings demonstrated the following:
1. The organizations represented by the proponents consist of businesses which depend upon the performance of music for commercial benefit;
2. There exists a massive non-compliance problem by tens of thousands of restaurants which places the real burden of travel not upon them, but upon songwriters who must hire representatives to travel throughout the country to find and try to license these non-compliers;
3. The amounts of money being contested by H.R.789's proponents are insignificant to them, but collectively important to the livelihood of songwriters;
4. The NRA still refuses to engage in commercial negotiations despite our repeated offers, the example'' of successful negotiations with many other groups, and the overwhelming desire of most Members of Congress that they do so.
There are two common threads which are woven through the testimony of the four witness who appeared before you in support of H.R.789. The first is the clear dependence of the groups they represent on the performance of music, and the second is their demand that they not pay for that music upon which they depend. We do not need to cite evidence of the latter as that is obvious to all. But we cite the following in support of the former:
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1. Peter Kilgore, of the National Restaurant Association, states on page one of his testimony: ''Restaurants and music share a long history.'' We ask, why is that? In the question and answer period, Kilgore responded to a question by Congressman Frank about the worth of music as follows: ''I think to the extent that radios and televisions are on that there obviously is some purpose in doing so and some benefit . . . there is some residual at least business benefit otherwise people wouldn't . . . (use them).''
2. Pete Madland of the Tavern League of Wisconsin, epitomized, in an unfortunate way, this dependence on music and desire not to pay. In April and May of 1996, he asserted both in writing and over the telephone that he was no longer using music. ASCAP, believing him, terminated his license retroactive to January 1, 1996 and gave a refund. Mr. Madland was untruthful. He has continued to use music without an ASCAP license.
3. Gary Shapiro, President of the Consumer Electronics Manufacturers Association, stated on page seven of his written testimony: ''Many (trade show producers) . . . banned all music from their shows. This deprived exhibitors and the attending public of their rights (emphasis added) to hear licensed music or even public domain works.'' We ask: do they have a right to hear but do not have an obligation to pay for licensed music? And, from his written statement on page eight: ''Without the ability to see or hear (emphasis added) a demonstration (of audio and audio-visual equipment), . . . few consumers would buy the device to hear the performance.'' That is exactly the reason why the use of musical property should be paid for.
4. Thelma Showman's written statement said on page two ''In most cases, dance cannot be taught without music, cannot be performed without music.'' We couldn't say it better.
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We would now like to respond specifically to assertions made by these four witnesses:
I. TESTIMONY OF PETER BILAORE OF THE NATIONAL RESTAURANT ASSOCIATION
Mr. Kilgore states in his written testimony that NRA consists of 33,000 companies which in turn own 175,000 ''units.'' The total number of ASCAP restaurant licensees does not exceed 70,000 and we do not know if all these licensees are members of the NRA. This means that over 100,000 NRA restaurants are not licensed by ASCAP to perform music.
Why is this the case? Certainly some may not use music, but our experience is that most do, and they overwhelmingly seek to avoid their legal obligations to take licenses for music. Thus, they do not request licenses but force us to spend large amounts of our members' money to find them, document their music usage, and attempt to convince them to obey the law and take licenses. Our licensing representatives must travel the length and breadth of the United States to do so. What Mr. Xilgore has inadvertently done is point up the enormous lack of compliance with the copyright law which permeates his organization's membership.
In light of the huge financial burden which this noncompliance puts on the performing right organizations, as well as the burden necessitated by travel around the country to argue copyright infringement cases when music users continue to perform music while refusing to pay for licenses, Mr. Kilgore's complaints about travel to contest fees are totally unfair. His members, not ours, are violating U.S. law and Congress should not reward them for doing so.
Page 178 PREV PAGE TOP OF DOC These hearings further have shown that the National Restaurant Association continues to adopt a position that it will not negotiate a commercial agreement in the face of dozens of commercial agreements which have been negotiated with other organizationsthis despite the expressed willingness of one of his fellow panelists, Mr. Pete Madland of the Tavern League of Wisconsin, to engage in commercial negotiations.
There are glaring ironies here: The NRA, which in all other instances objects to government interference, now want. government, in the form of Congress, to interfere and dictate the terms of this commercial dispute. The additional irony is that the National Restaurant Association is seeking to expand a legal exemption at the same time its members refuse to honor their existing legal obligations to be licensed for the use of music.
In the last Congress, the performing right organizations, ever mindful of Congress' preference for private agreements, and this Subcommittee's direction to all parties to negotiate, offered to enter into binding contracts with the National Restaurant Association and other organizations to arbitrate disputes over fact on a regional basis. It bears emphasizing that such agreements would have had the force of contract law and would have allowed Congress to concentrate valuable time and energy on issues of greater importance than requiring arbitration of licensing fees, which average less than $3.00 a day. The 4th Circuit Court of Appeals (located in Richmond, Virginia, not New York!) found that the system of arbitration demanded by the NRA would impose ''staggering burdens'' on songwriters, and undermine the requirements in the consent decree that similarly situated users be treated alike.
In the face of the intransigence of the NRA we see no reason why such conduct should be rewarded.
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II. TESTIMONY OF PETE MADLAND, OWNER OF PETE'S LANDING AND PRESIDENT OF THE WISCONSIN TAVERN OWNERS LEAGUE
Mr. Madland made assertions in his appearance that undermine his credibility. He raised the issue of access to repertory information in his complaint about the treatment of one of his members. The subcommittee may know that the performing right organizations make their repertories available by 800 number, computer, modem, over the internet, and by mail. What they may not know is that last year, in Wisconsin, a law was passed based on negotiations between the PRO's and music user groups which, among other provisions, requires that we provide repertory information, updated annually, to the Wisconsin Secretary of State for the use of those who wish to know what is in our repertories. Mr. Madland's group took no part in those negotiations. What is of much greater interest is that a check with the Wisconsin Secretary of State's office during the week of July 17th hearings revealed that not one request for repertory information has been received since the information was filed last year.
Mr. Madland was asked what percentage his licensing fee was of his gross income. He answered ''one percent.'' However, when later asked what his gross revenue was, he backtracked and admitted that his fee was only ''one-tenth of one percent.''
Later in his testimony, Mr. Madland asserted that his objection to paying licensing fees was based on the fact that he had six televisions and only used them to show football games; that they were not turned on if football was not being played. However, when he was asked by Congressman Berman whether or not he retained the services of a disc jockey, he was forced to admit that he did, and further admitted that the disc jockey was hired to play music, not to comment on football games.
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We are submitting a written communication from Mr. Madland to ASCAP which followed his receipt of his April 1996 bill for his license. The Subcommittee will note that Mr. Madland asserted on it that he no longer used music for entertainment and therefore no longer wished to be licensed. Additionally, we are submitting written notes of a telephone conversation by one of our licensing representatives with Mr. Madland in which he affirmed orally that he no longer had karaoke or any entertainment. As a result of both his written and oral assertions, ASCAP terminated his license retroactive to January 1, and gave him a refund. Unfortunately, Mr. Madland was untruthful. BMI checked and found that, contrary to his assertions, he was indeed still using music. The licensing fee that Mr. Madland pays is only for BMI music. Thus he is violating his legal obligation to pay for a license from ASCAP. Indeed, before the hearing Mr. Madland was advertising both disc jockey and karaoke at his establishment despite his denial to Mr. Berman that he used karaoke. An advertisement touting entertainment at his establishment, Pete's Landing, which appeared in a July 14 publication is enclosed.
III. GARY SHAPIRO, PRESIDENT OF THE CONSUMER ELECTRONICS MANUFACTURERS ASSOCIATION
Mr. Shapiro complained in his testimony that ASCAP and BMI have different size standards for licensing televisions. He must be unaware of the facts. In the 104th Congress, ASCAP, BMI, and SESAC offered a uniform equipment exemption which would have permitted televisions up 55 in size. The licensing agreements which ASCAP, BMI, and SESAC concluded with the National Licensed Beverage Association, include that 55 inch standard. Yet Mr. Shapiro supports the NRA's refusal to engage in commercial negotiations which could lead to a resolution of his complaint. Further, Mr. Shapiro's assertion'' that payment of licensing fees, which average less than $3.00 a day, would deter bars and restaurants from purchasing the latest in audio visual equipment, which can cost up to thousands of dollars per receiver, is absurd on its face.
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Mr. Shapiro, in his role representing trade show exhibitors, went on to characterize the licensing activities of the performing right organizations as ''triple dippings'' because, he claimed, ''the Convention Center pays, the exhibitor pays, and the trade show is asked to pay.'' Again, Mr. Shapiro is at best confused. ASCAP licenses convention centers only for events that the convention center produces or Presents. These licenses do not cover trade shows which are Presented by outside companies rather than the owner of the convention center; these trade shows are responsible for their own activities. Just as Mr. Shapiro complains that it would be too much of a burden for trade show operators to know what the myriad exhibitors are doing within the show they are staging, so too does ASCAP find it both highly cost inefficient and prohibitive to try to license the hundreds or thousands of exhibitors which may take part in a trade show. Indeed, the trade shows will bar access to ASCAP representatives and so make it impossible to determine which exhibitors are using music unlawfully. ASCAP does not license exhibitors but the trade show operators who are earning a profit from those exhibitors whom they permit to use our music.
Mr. Shapiro complains about the licensing of appliance stores or others who sell audio or audio visual equipment. Once again we find Mr. Shapiro confused about the actual situation. For example, ASCAP does not license Circuit City, Nobody Beats the Wiz/The Wiz, Electronic Express, Radio Shack, Best Buys, or HiFi Buys. ASCAP at one point did license Incredible Universe, but for live music only. At that time Incredible Universe was in 17 locations. All locations have been closed but one, and the fee has correspondingly been reduced.
Finally, Mr. Shapiro cited two cases to support his contentions regarding vicarious liability. Perhaps he is unaware of, or completely ignored, the most recent decision on this matter rendered by The 9th Circuit Court of Appeals in 1996 in Fonovisa, Inc. v. Cherry Auction Inc. The court held the operator of a flea market liable for copyright infringement at one of the exhibitor's booth.
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IV. THELMA SHOWMAN
Ms. Showman pays ASCAP $44.37 a year. When Congressman Cannon asked Ms. Showman if that fee also covered any recitals which her dance class might put on, she professed not to understand the question. The answer is that it doesthe $44.37 covers every use of music which she makes.
Unfortunately, Ms. Showman is being used by Dance Magazine in a campaign they began in 1991 to exempt all dancing schools for the use of music. That campaign alleged heavy-handed conduct on the part of licensing people. Upon being made aware of the article alleging this conduct, the then President of ASCAP, the late Morton Gould, one of America's most distinguished composers and conductors, met with the officials of Dance Magazine. He indicated clearly that we were interested in any instances of misconduct by our personnel as we would discipline those involved; that misconduct or abusive tactics were not acceptable as operating practices by ASCAP management. ASCAP asked for specific information about any alleged abuses. Mr. Gould's position on the licensing obligations of dance schools was made clear in a letter to Dance Magazine, and ASCAP's desire to respond to instances of abusive conduct was confirmed in a letter by its then Deputy General Counsel, Richard Reimer. Mr. Reimer's letter was acknowledged in the same issue of Dance Magazine. Suffice it to say that in the six years since that offer was made, not a single instance of misconduct has been reported to our offices.
V. CONGRESSMAN SENSENBRENNER MADE FOUR PARTICULAR STATEMENTS THAT REQUIRE COMMENT
Page 183 PREV PAGE TOP OF DOC 1. Congressman Sensenbrenner asserted that the Justice Department is ''investigating'' the agreement we have with the National Licensed Beverage Association. That is not true. The Justice Department has had an ongoing review of the consent decrees of both ASCAP and BMI in which all aspects of the decrees are being examined. As Mr. Koenigsberg stated, ASCAP submitted the NBLA agreement to the Justice Department. The Justice Department has not objected to the agreement and we have no reason to believe that it will.
2. Congressman Sensenbrenner suggested that we are in violation of the consent decree's non-discrimination provisions as to ''similarly situated'' users by not offering everyone the same exemption terms included in the ELBA agreement. Unfortunately, The Congressman is confused as to the meaning of ''similarly situated.'' The NLBA commercial agreement goes well beyond the specifics of the exemption. It involves the scope of the license, rates, administrative matters, and reflect. Concessions both aides made on all issues. For example, the agreement with the NLBA includes an important provision in which they are responsible for collecting fees from their members. Since neither the National Restaurant Association, nor the Wisconsin Tavern League, nor any other organization which is part of their so-called coalition has agreed to similar terms, they are not similarly situated. That is the plain fact. And, as Mr. Koenigsberg stated, if he did so agree, they could enjoy all the benefits of the agreement.
3. Congressman Sensenbrenner suggested that contrary to the international obligations we have, Congress can basically do what it pleases on this matter. Laying aside the fact that Mr. Sensenbrenner voted for adherence to the Berne Convention when that matter came to the floor of the House of Representatives in 1988, and the fact that the Berne Convention imposes certain obligations upon its signatories, Congress can indeed do what it wishes. But by doing so in contravention to international agreements, the U.S. is laid open to retaliation by foreign countries. The complaint filed with the European Union by IMRO, the Irish Performing Right Organization, is supported by every other performing right organization in Europe, and makes clear that passage of H.R. 789 will lead to retaliation and a case before the World Trade Organization. This only underscores the folly of ignoring international obligations which the United State has assumed willingly, and by an overwhelming vote of Congress.
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4. Moreover, Congressman Sensenbrenner compares apples and oranges when he indicates that we have been unwilling to write into our law ''moral rights'' such as that which our European contraparts have urged upon us. Congress found that the moral rights provisions of the Berne Convention do not require enactment of additional protections in U.S. law, i.e., our existing legal protection does not leave us vulnerable to a complaint before the W.T.0 as would H.R. 789. Moreover, The TRIPS agreement excludes moral rights from the jurisdiction of W.T.O. whose scope of action is limited to economic questions such as those raised by H.R. 789. We would hope Congressman Sensenbrenner will urge the coalition which he has supported for 3 years to do exactly what Mr. Pete Madland, the witness from his own state said he was willing to do, and that is to sit down and negotiate a commercial agreement with the performing right organizations.
Mr. Chairman, we are pleased to take this opportunity to respond to particular questions that were posed to us.
I. Congressman McCollum sought an answer to a question about how much of the income of songwriters would be represented by the 30% of those establishments that would still be responsible for licensing fees. That question is very difficult to answer in that licensing fees, other than those agreed to with the National Licensed Beverage Association, are not based on size, but on the capacity of the establishment and the type of music used. As a practical matter, a larger establishment is undoubtedly one with a greater capacity, but we cannot identify that with precision. While larger establishments, if their size parallels larger capacity, would undoubtedly pay more than their smaller counterparts which are exempt under the terms of the National Licensed Beverage Association agreement, the total of those in the exempt 70% is probably considerably greater than those in the remaining 30%. Thus, the amount lost may well be more as a result of the exemption than that which will still be paid by those not exempt. However, we would make this observation: Our willingness to negotiate with the National Licensed Beverage Association led to an agreement which offered benefits to our members which we felt compensated for the loss in revenue resulting from the exemption.
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Congressman McCollum sought information on the Olive Garden, Outback Steakhouse, Cracker Barrel, and Shoney's. With respect to the Olive Garden restaurants, none are licensed directly by ASCAP. They use background music services such as ''MUZAK,'' and it is the background music service, rather than the restaurant, which is licensed. With respect to Outback Steakhouse, none are licensed directly by ASCAP as they also use licensed background music services. In the case of Cracker Barrel, an agreement with the corporate owner was entered into covering 299 locations for what is termed ''mechanical music;'' i.e., radio, tapes or compact discs. The annual rate for each of those restaurants is $157.50, i.e., 43 cents a day. With respect to Shoney's, 3 Shoney Inns are licensed under the agreement that ASCAP has with the American Hotel and Motel Association. No Shoney's restaurants are licensed by ASCAP.
II. Congressman Goodlatte inquired about the differences between the draft of a bill which Congressmen Moorhead and Sensenbrenner agreed upon last year and the agreement between the PRO's and the NLBA.
First, there was a difference in the small business exemption. The agreement with the NLBA includes provisions which go beyond the exemption question and provide benefits which are not included in any legislative proposal, such as rate concessions.
Second, the Moorhead draft included a provision for arbitration of fact. The NLBA agreement, because of its simplicity, clarity and uniformity, needs no such provision.
Third, the Moorhead draft included a provision on access to repertory information. The NLBA agreement does not, for the PRO's all make their repertory information available by a variety of user friendly means.
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We appreciate having this opportunity to comment on issues raised at your July 17th hearing.
INSERT OFFSET RING FOLIOS 1 TO 5 HERE
Mr. BERENSON. Congressman, on behalf ofmay I just, on behalf of BMI, state: Any business, through the years you're going to have complaints, and manythese complaints would be forwarded to me. I would contact the potential BMI customer and say, ''What is the complaint? Who was involved?'' And, invariably, when push comes to shove, no names; just allegations.
I think it was said by one of the panelists before: We try to educate the user. The person is hostile to us. They don't want to pay. What is incredible is, Congressman, that although the user does not realize it, if a user such as a bar or restaurant wants to comply with the copyright law, wants to be a law-abiding citizen, the performing rights organizations perform a service to that organization, because without a PRO, if the user wanted to comply with the law, that user would have to go to the songwriter or the music publisher for each song. So, you know, ''It takes two to tango.'' I think it isas someone from ASCAP mentioned, it's an ASCAP song. But whenever push comes to shove, no backup information; just mere allegations.
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Mr. COLLINS. Mr. Congressman, if I might, I have, I believe, an interesting comment on that or two.
Mr. COBLE. Mr. Collins, if you'll suspend just a minute, let the record show that Mr. Berenson, the general counsel of BMI, was the last spokesperson.
Mr. Collins, proceed.
Mr. COLLINS. Thank you, Mr. Chairman.
In testimony that you'll hear later today from Peter Kilgore, included in that testimony, I believe, is a reference to SESAC, and quote, ''an agent who had just come into his bar demanding that he sign a license.'' I can state for the record that SESAC doesn't have any field agents. Moreover, we don't have any field agents in Los Angeles. So this is the type of complaint that I think is more common than a complaint of substance.
In the second instance, I would like to make a comment that businesses that obtain licenses for the right to perform copyrighted music and that pay license fees will virtually never hear from a licensing representative, be it a visit or a telephone call, other than to conduct normal service-type calls: How are things going? What's going on?
Again, we are the pure service business, because we provide a service to both the music user and the songwriter. And so I say if those businesses who are using music had a license agreement, there could be no complaints of harassment because they wouldn't actually see a representative on a business call, nor would they hear from one on the telephone.
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Thank you, Chairman.
Mr. DELAHUNT. Thank you.
Mr. COBLE. I thank the gentleman. The gentleman from Indiana is recognized.
Mr. PEASE. Thank you, Mr. Chairman.
I'm not sure to whom this question should be directed, probably one of the attorneys for the associations. It deals with the consent decree and the provision in the consent decree that all these matters that end in dispute be resolved in the Southern District of New York. I'm very sympathetic to the property rights arguments that are made here, but I'm also concerned about access to justice and the cost of having to go across country, if you're a small operation, to litigate what you think are your rights.
Can you explain for us the rationale behind this portion of the consent decree and its impact in the real world?
Mr. HOLYFIELD. I would like Mr. Koenigsberg to address the technical part, but could I say something about
Mr. PEASE. Please.
Page 189 PREV PAGE TOP OF DOC Mr. HOLYFIELD [continuing]. The travel concerns? We have travelI have concerns about travel, too, because all over the country we have people who are not complying with the law, and they're using our music without paying. We have field representatives or we do have other ways of going about trying to collect that, but it's a very expensive proposition. So not only do we have to send people to New York; we have to send people to California, Milwaukee, everywhere, and it's darned expensive. And who's paying for it? We are, the songwriters.
Now, as far as the rate, the technical part about the rate court, Fred, would you
Mr. KOENIGSBERG. Congressman, I appreciate very much the question. I would note, parenthetically, to start, that in the last Congress we offered to contract with anybody on the other side who wanted it on arbitration of facts, the facts that determine what the rate would be on a regional basis. We offered it contract, and we were turned down flat on that.
And as Ms. Leach's testimony, I think, also notes, the question becomes irrelevant once agreement is reached. But when we look at the consent decree and the concept behind it, as we understand it, and, obviously
Mr. COBLE. Mr. Koenigsberg, if you would suspend for just a moment, you were turned out flat by whom?
Mr. KOENIGSBERG. By everyone on the other side, including the NRA and all the other associations.
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Mr. COBLE. I thank you.
Mr. KOENIGSBERG. In the normal run of events, the copyright law says that the individual restaurant should get the permission from the individual songwriter before they perform the song; otherwise, they're violating the law. Now Mr. Holyfield and Mr. Davis have told you that they can't do that by themselves, and as the Congressman pointed out in his questioning, they need an organization that can do that on a nationwide basis. They give up something to be able to do that. They give up the right to say no. Through ASCAP and BMI, the songwriters cannot turn down anybody for a license. They give up the right to seek a higher price on their ownfor if a user has an ASCAP license, the user wouldn't bother going to the songwriter unless it thought it could get a lower license fee and the songwriter's music was the only music the user was performing. So the songwrit giving up something in exchange for being able to deal through this collective organization.
The individual music users, similarly, are getting something, as we've just heard, from the performing rights organizations. They're getting a service that is vital to them, that they really need if they want to perform music. This is a very valuable something that's being given to them.
But the way the model should work is that their association, their organization, should negotiate on their behalf with the songwriters' organization. When you're talking about two associations negotiating, it really doesn't matter where that is. And what you have in the rate court is New York is 50 years experience in the case of ASCAP and several years in the case of BMI, and expertise in knowing how these organizations work.
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Congressman Coble, at the beginning of the session, you mentioned an idea that you have, and it's the first time we've heard of it, and it really goes to your question, Congressman. I think it was the first time I heard that from your lips, and, obviously, we have to give it thought. I will tell you that, obviously, we are very skeptical of changing something that works which protects the vital interests of songwriters. But I want to tell you, Congressman Coble, because you asked about it, that recognizing your fairness and the expertise of your staff and of all the members of this committee, we will be happy to talk with you about a way to work through the situation as long as it protects the vital interest of the songwriters. I hope that's responsive to your question, Congressman.
Mr. PEASE. It's responsive to the question; it's not responsive to the larger policy issue, but I didn't ask you that, and I guess that's for us to resolve.
Thank you, Mr. Chairman.
Mr. COBLE. I thank the gentleman.
And I say to the panel, I didn't mean to spring that on you all this morning. This idea just came to me this week, and I have really not published it to third parties. It extends what the gentleman from Indiana was voicing in his question, perhaps to insert some equity and fairness in getting into courtthe old circuit-rider approach, that was my idea.
Page 192 PREV PAGE TOP OF DOC The gentleman from Utah, Mr. Cannon, is recognized.
Mr. CANNON. Thank you, Mr. Chairman.
Let me say that I appreciate these hearings, and I do believe that this is an important issue that needs to be aired.
And to the panelists, this has been very informative and I really appreciate hearing from you. I am going to apologize in advance. I have another conflict coming up, but I'm anxious to hear the next panel, and so that we might pursue that a little bit, I'm going to forgo my questioning.
Mr. COBLE. I thank the gentleman. The gentleman from Florida, Mr. McCollum.
Mr. MCCOLLUM. Thank you very much, Mr. Chairman.
Just a couple of questions: First of all, Ms. Leach, the National Restaurant Association says they've asked for a copy of the agreement with your organization, but it hasn't been sent to them so far. Is there a problem with letting them have a copy of it?
Ms. LEACH. We have sent our newsletter, either a copy of it by fax or the actual newsletter itself, to every single person who has requested it from our office.
Mr. MCCOLLUM. Maybe they're talking about an actual written, formal agreement. Is there such a thing, and would that be protected, or could they see a copy of it, if they
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Ms. LEACH. Well, there are three written agreements, one with each of the three societies, and they are proprietary to our organization.
Mr. MCCOLLUM. So they would not be something you'd want to release to them; is that correct?
Ms. LEACH. That's correct.
Mr. MCCOLLUM. One of the concerns that was expressed by the National Restaurant Association was the fact that they have to negotiate three separate agreements, and they were apparently asking for some antitrust exemptions to be able to negotiate collectively with the three organizations. I'm just wondering if either of the two that are represented here today would have a problem if a law was passed that permitted a joint, collective negotiation of an agreement together rather than three separate ones, that make an explicit exemption to the antitrust laws.
Mr. HOLYFIELD. I'll let our antitrust expert talk to that.
Mr. MCCOLLUM. Fair enough.
Mr. KOENIGSBERG. Let's not get carried away.
Congressman, with respect, I don't think that's such a good idea, and I'll tell you why. First of all, because I don't think antitrust exemptions of that sort, as a general matter, should be given. I don't particularly want to know what BMI and SESAC's concerns are and what their pricing structure is, and I don't want them to know what ASCAP's pricing structure is.
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Beyond that, I would suggest, with respect, that Ms. Leach can testify here today that dealing with the three organizations is not a big deal, is not a problem, and there's no great difficulty in conducting three negotiations
Mr. MCCOLLUM. OK, I hear your point. Now let me ask one other question then, relative to ASCAP particularly. The National Restaurant Association says that your organization, as well as the other two, have said that, despite any negotiations or agreements that are made, the law still needs to be clarified; that it's vague and ambiguous. Now I know there are things that you will disagree with, huge things. We already know that. Is the law vague and ambiguous? Regardless of whether you agree with the bill that's out here, do we need to clarify the existing section 105?
Mr. KOENIGSBERG. Last yearor maybe it was 2 years ago; I've lost track nowwhen there was no break in the negotiation process at all, we said we can clarify the law on the radiooverspeaker type of exemption, if that will put an end to this as a matter of a package. That didn't work.
But what did work was sitting down and negotiating and clarifying the question in that way. So I think the answer now is that, if we can only have a negotiation and resolve this matter, that will end it, and there's no need for tampering with the copyright law, especially when we hear the testimony of the Register of Copyrights and of the Patent and Trademark Office that to expand the exemption significantly in the law may cause us to be in conflict with our treaty requirements
Page 195 PREV PAGE TOP OF DOC Mr. MCCOLLUM. So what you're saying is that you don't think we ought to clarify the law. Let's assume you never reach one. The National Restaurant Association can sit there and say, ''We're going to litigate until hell freezes over.'' Do you think the law ought to be clarified if that's their position?
Mr. KOENIGSBERG. I think when they have an opportunity to resolve the matter without having to amend the law, taking such an unreasonable position does not justify an amendment to the law.
Mr. MCCOLLUM. Well, let me ask one last thing before my time runs out. The size question, 3,500 square feet, are we talking about restaurants like Cracker Barrel, Outback Steakhouse, Olive Garden? Are they larger than 3,500 square feet in terms ofdo we know?
Ms. LEACH. I can only answer for our members, and our members have alcohol beverage licenses, so it excludes the restaurants that do not have an alcohol beverage license.
Mr. MCCOLLUM. I understand that, but I'm just looking at square footage size, and I can ask the NRA folks that in a minute, but I was curious to know what percentage and what size restaurants, and so I can visualize it, and maybe other members could, tooare these national chains that we're talking about? Are they just big, individual restaurants that wouldn't be affected by the 3,500 and the six external speaker questions? Or are theseyou know, how ordinary are these to the average Joe out there, the ones that would bethat wouldn't come in the parameter of an agreement like this? And what percentage of the music license revenue is coming from restaurants that are greater than 3,500 square feet in size?
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Ms. LEACH. According to the Congressional Research Survey that was done, 70 percent of bars and restaurants fall into this category, and I think that's a pretty significant number.
Mr. MCCOLLUM. Well, it is significant from a numbers standpoint, but what about how it impacts the organizations, again, like ASCAP or SESAC? How does itwhat percentage of the music licensing revenuesmaybe Mac Davis knows thatwhat percentage comes from these larger restaurants that probably, you know, are really the crux of what the problem is here?
Mr. DAVIS. You know, I don't know what everybody's rate structures are, but, you know, just common mathematics, 70 percent of the establishments that are required by law to pay us for the use of our property are not going to have to pay us. So whatever those figures are is irrelevant; it's 70 percent less income than we should be making on our property, and we're willing to give that up. I personally wish we didn't have to do that, but we are willing to do that
Mr. MCCOLLUM. I understand.
Mr. DAVIS. [continuing]. In order to get some agreement.
Mr. MCCOLLUM. I understand, Mr. Davis, and I know I'm on borrowed time here, but what my point is is that it may not be 70 percent of your income. If 70 percent of the restaurants are smaller ones, it could be that a higher percentage, maybe the 30 percent that are excluded are 90 percent of your income; I don't know, and that's the reason I asked the question.
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Mr. DAVIS. That's what I stated. I just said that it was 70 percent of the people that should be paying us.
Mr. MCCOLLUM. Yes, right.
Mr. DAVIS. Whatever amount they should be paying us, 70 percent of them are not going to
Mr. MCCOLLUM. But nobody here on the panel knows what percentage of the income comes from the other 30 percent of the restaurants?
Mr. COLLINS. Speaking for SESAC, I don't have any of that information here, but, typically, these are generally types of restaurants that are more often found to be using music. You mentioned, I believe, the restaurant, Shoney's, and maybe one or two
Mr. MCCOLLUM. Well, I mentionedyes, I was looking at the national chains that everybody identifies with: Cracker Barrel, Shoney's, Outback, Olive Garden, those kind. I don't know whether we're talking about them or we're talking about great big restaurants that are maybe only a few of them, but not really chains.
Mr. COLLINS. I think 3,500-square-foot restaurants to the general public, are all considered great big, giant restaurants.
Page 198 PREV PAGE TOP OF DOC Mr. MCCOLLUM. I understand, but are these 3,500-square-foot restaurants? I don't know. You don'tdo you know? Yes, sir?
Mr. KOENIGSBERG. I don'tI've been in some of them, and when I think about their size, I think some of them may be smaller than 3,500 and many of them may be larger than 3,500, but in terms of your question about numbers, I think I can give you an educated estimate of how much money you're talking about, in answer to your question. And that educated estimateand now forgive me for not being able to be more preciseis a number in seven figures. I think, annually, you're talking about millions of dollars to songwriters that would be lost if there was a total exemption, as opposed to the exemption that's
Mr. MCCOLLUM. But is it a big percentagein other words, is it a larger percentage that would be lost than is affected by the 70 percent of the restaurants we're talking about
Mr. BONO. Would the gentleman yield?
Mr. MCCOLLUM. I'll be glad to yield, Mr. Bono.
Mr. BONO. I don't know howthat's an impossible question you're asking because the way a restaurant site is picked is the location, the availability of space etc. A Cracker Barrel may take one restaurant that's 2,000 square feet and then in another county or a few miles away take another restaurant that is 5,000 square feet. I think the point they're trying to make is that the biggest percentage of restaurants, be they Cracker Barrel or whatever, come within the 3,500 square feet. I happen to agree with Mac; I don't thinkI still don't understand why they get an exemption, but
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Mr. MCCOLLUM. Well, I'm not sure I do either. I'm just trying to figure out why the
Mr. BONO. Well, I don't think
Mr. MCCOLLUM [continuing]. How much of the business
Mr. BONO. My point is, there isn't a standard. Even with the corporations that have standardized restaurants, Olive Garden, or whatever, they have to pick a site that's available to them that they think is commercial. That site can range in size. One standard doesn't exist. I think you're asking a question that's impossible to be answered.
Mr. MCCOLLUM. Reclaiming the little timeand I'm going to yield back; I understand I've run over well, but I just wanted to make the point that it isn't that I disagree or don't understand with what Mr. Bono just said; it's certainly true. I was just trying to get a picture of how much money we're dealingwhat percentage of the whole deal we're talking about, and how important the above 3,500 figure really is, just trying to put it in perspective. I didn't get a good answer to that, but I
Mr. DAVIS. May I give you one, or attempt to, through my attorney, Mr. Berenson? I think
Mr. MCCOLLUM. You may if the chairman has the time; otherwise, we'll just let you submit it later.
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Mr. COBLE. What I would suggest, Mr. McCollum, is to put this question to the panel: Can you all crunch some numbers and maybe give us at least some better figures which we could grasp, in response to Mr. McCollum's question?
Mr. HOLYFIELD. Yes, sir.
Mr. COBLE. Try to do that and submit that to us, if you will.
Mr. MCCOLLUM. Thank you very much. I've run well over my time. I appreciate it, Mr. Chairman.
Mr. COBLE. Well, that's no problem, Mr. McCollum.
I think Mr. Bermanis he here? Mr. Berman, did you have another question you wanted to ask?
Mr. BERMAN. Yes, earlier we were talking about similarly-situated and different strokes for different folks. When Mr. McCollum is told by the National Restaurant Association that their problem is they want to do one agreement with all three performing rights organizations, and they tell me that they're not authorized to negotiate anything, and they can't negotiate anything, I wonder just about who is similarly-situated and who's getting a different
Mr. MCCOLLUM. Would the gentleman yield? They didn't tell me anything. I'm just reading their testimony, the written testimony you've got in front of you. I was just looking at it.
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Mr. BERMAN. Well, if their written testimony is that they prefer to negotiate one big agreement covering all the songwriters and any of the performing rights organizations, it is directly contrary to their position with me and my meetings with them and Mr. Sensenbrenner over the last year or 2 years ago, and in meetings in my office, where they've taken the''We're not a negotiating organization; we're just an association. We don't do that negotiating stuff. We're not interested in that. We're not authorized to do that.'' It's been a totally different position.
Mr. BONO. Will the gentleman yield?
Mr. BERMAN. Yes, if it's all right with the chairman, I'm happy to.
Mr. COBLE. Let's do it hurriedly.
Mr. BONO. OK. I just want to concur with you that we have worked together in some instances trying to create a negotiation, and every attempt of a negotiation that we have gone after has been flatly refused. Any negotiation in our last term seemed to be thoroughly and utterly out of the question, which we found amazing.
Mr. COBLE. Well, we'll have one more panel with which to negotiate.
Mr. Holyfield, let me put a final question to you. I was taking notes from each of you. You gave the figure, $1.58. What, again, does that represent?
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Mr. HOLYFIELD. That would represent the amount of money that would be an average amount of money per day that a restaurant would pay for the use of its ASCAP licensing fee.
Mr. COBLE. So that would be tripled, then, to take in the other
Mr. HOLYFIELD. Well, I don't know what the other
Mr. DAVIS. No, we're less at BMI, sir. Pardon me for interrupting.
Mr. COBLE. All right.
Mr. HOLYFIELD. I just don't know.
Mr. COBLE. That responds to the question.
And I thank the panel for being with us today.
I will introduce the third panel and final panel as they make their way to the podium.
The first witness on our final panel is Mr. Peter Kilgore, who is general counsel to the National Restaurant Association.
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The second witness on this panel will be Mr. Pete Madland, who owns and operates Pete's Landing in Chetekis that correct, gentlemen, ''Chetek?''Chetek, WI.
Mr. SENSENBRENNER. That's God's country there.
Mr. COBLE. Pardon?
Mr. SENSENBRENNER. That's God's country there.
Mr. COBLE. ''God's country,'' Mr. Sensenbrenner advises me.
Mr. Madland has been in the hospitality industry for over 19 years, and currently serves as president of the Tavern League of Wisconsin, a 4,000-member trade association representing the licensed beverage industry in that State.
Our third witness on this panel is Ms. Thelma Showman, who is owner of the Thelma Showman School of Dance in Broken Arrow, OK.
And our final witness on this panel will be Mr. Gary Shapiro, who is the president of the Consumer Electronics Manufacturers Association, a sector of the Electronics Industry Association, and chairman of the Home Recording Rights Coalition. He is chairman of the board of trustees of the International Association for Exposition Management Foundation.
We have written statements from each of the witnesses on this panel and I ask unanimous consent to submit them into the record in their entirety.
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Again, folks, it's good to have you all with us, and if you will remember the red light and do as well as you can to abide by it Mr. Shapiro, why don't we start with you, sir?
STATEMENT OF GARY SHAPIRO, PRESIDENT, CONSUMER ELECTRONICS MANUFACTURERS ASSOCIATION, AND REPRESENATIVE, INTERNATIONAL ASSOCIATION FOR EXPOSITION MANAGEMENT
Mr. SHAPIRO. Thank you, Mr. Chairman and members of the panel. I am president of the Consumer Electronics Manufacturers Association
Mr. COBLE. Mr. Shapiro, if you'll suspend for a moment. If you all have a different choice of order, it makes no difference to me. That's fine, we'll go from my left to my right.
Mr. SHAPIRO. My members make the consumer electronics products. Without our products, very little music would be heard and very few CD's would be sold.
Thank you very much for allowing me to make remarks today.
As a trade association, we also operate several trade shows, including one of the world's largest, the Consumer Electronics Show held every January in Las Vegas. In that role, I'm also appearing today on behalf of the International Association for Exposition Managers, of which I am a member.
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On behalf of both these associations, which are members of the Fairness in Music Licensing Coalition, I urge you to support H.R. 789 in its entirety. This legislation is really nothing more than the equivalent of a very modest taxpayers' bill of rights for the millions of entities who under present law must pay the copyright societies. These societies have much of the power of the Internal Revenue Service and none of the fairness, openness, or accountability one expects from the Government.
The reality is that, to the average American, copyright law is a very arcane subject. Witness the attorneys who dominated the last panel. The average consumer does not understand that a waiter in a restaurant cannot even sing ''happy birthday'' without paying ASCAP, or that if you have a fundraiser or even a business holiday party where there is music, the copyright societies are entitled to demand payment.
This legislation is simply an effort to place some common-sense limitations on the enormous market power of the collective music licensing organizations. While we support H.R. 789 in its entirety, I want to highlight four issues, the first being the homestyle exemption, which has been so much discussed and so much litigated, and the fact is it does discriminate against new technology.
Section 2 of the bill very reasonably replaces this exemption with a clear, more easily-applied test that does not discriminate against new technology. All the parties appear to agree that an exemption for homestyle products is appropriate. Indeed, the statute says that, the existing statute.
Page 206 PREV PAGE TOP OF DOC The challenge with existing law is it is subject to differing interpretations. We need a simple test. H.R. 789 provides that the exemption is appropriate as long as the transmission itself is properly licensed and there is no charge to hear the music or watch television.
Now the fact is that home theater has exploded in American homes, so we need a change, because ASCAP and BMI take the position, in various negotiations on how they seek licensing fees that the maximum single receiver exemption is for either a 27-inch TV set or 36-inch TV set; the societies themselves don't agree.
And that's not even common in terms of the American public. The American public last year, 2 million different American consumers bought TV sets larger than 30 inches. The music licensing societies say these don't qualify for the homestyle exemption. And I should emphasize that these are television sets, where the primary significance of the large screen is a larger picture, not more prominent music.
And given our national goal of a rapid transition to digital television, this legislation takes on special importance. Bars, restaurants, health clubs, and other establishments will be the first purchasers of HDTV. Their display of this new product will encourage consumers to buy their own. Given their track record, it's easy to conclude that ASCAP and BMI will demand royalties for performances on HDTV. This will discourage their use and work against our national goal. Together with the burden of larger sets, this burden, ASCAP and BMI policies, will hurt our move to digital television.
And I might also note there's a special deal with hotels, where if you have a larger TV set, the hotel has to pay more.
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We ask you to amend section 110(5) to ensure the licensed performance may be received and played without regard to the technology that is used.
My second point goes to trade shows, and that a trade show operator should not be held liable for infringing performances by exhibitors they cannot control. The reality is there's sometimes triple-dipping going on here: The convention center pays; the exhibitor pays, and the trade show is asked to pay. And as a trade show operator, you have no idea what music your exhibitors are playing.
How have trade shows responded? One survey shows that 38 percent of them have banned music. I know that musicians around the country are being told not to perform because they cannot perform in trade shows.
My third point is that demonstrations of equipment should not give rise to liability. ASCAP has taken a position that, if you are a retailer selling TV sets, you cannot use the TV set without paying them. This is patently absurd and against a court decision.
And, finally, and significantly, the Department of Justice should be required to take a more active role in this. The music licensing system requires much greater scrutiny than it now receives. ASCAP and BMI and SESAC are government-sanctioned revenue collectors, like the IRS. However, there is little, if any, government scrutiny of their conduct. The societies are not required to disclose their revenues or other finances, the rationale for imposing particular fees, their salaries, their administrative costs. With power comes obligation, and when that power stems from an act of Congress, which this does, a much higher level of obligation is appropriate.
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I have negotiated with ASCAP and BMI. I have tried to find out what other entities or other industries are paying them. It's very difficult to find out. As you heard here today on the prior panel we can't even find out what the private deal is between the association and the three entities. You have to be a member of that association, and we don't know what those fees are.
Given this extraordinary monopoly power; and revenue-raising privilege, it is appropriate that the Department of Justice simply report to Congress every year as to what's going on.
Thank you for this opportunity. I'd be pleased to answer some questions.
[The prepared statement of Mr. Shapiro follows:]
PREPARED STATEMENT OF GARY SHAPIRO, PRESIDENT, CONSUMER ELECTRONICS MANUFACTURES ASSOCIATION, AND REPRESENTATIVE, INTERNATIONAL ASSOCIATION FOR EXPOSITION MANAGEMENT
Mr. Chairman, my name is Gary Shapiro. I am President of the Consumer Electronics Manufacturers Association (CEMA). CEMA is the trade association for the consumer electronics industry, with over 350 members who manufacture television sets, stereos, radio receivers, video recorders, personal computers and multimedia devices, among other things. In fact, without our products, very little music would be heard and very few CDs would be sold. Our members represent roughly 250,000 U.S. manufacturing jobs. Thank you for inviting me today to present the views of those manufacturers on the important issues of music licensing fairness.
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CEMA itself operates several trade shows, including one of the largest, the annual Consumer Electronics Show in Las Vegas each January. In that role, I also am appearing here today to present the music licensing concerns of the International Association for Exposition Management (IAEM), of which I am a member. IAEM is a professional association with over 4,000 members involved in all aspects of the exposition industry. At the ITEM, I have served as chair of the Foundation as well as chair of the Government and Industry Affairs Committee.
On behalf of both of these associations, I urge you to support H.R. 789.
H.R. 789 represents a necessary and reasonable approach to address real abuses of the monopoly power granted by Congress to the collective licensing organizations. It is nothing more than the equivalent of a modest taxpayer's Bill of Rights for the millions of entities who, under present law, must pay the copyright societies. These societies have much of the power of the IRS and none of the fairness, openness or accountability one expects from the government.
The reality is that to the average American, copyright law is an arcane subject. The average consumer does not understand that a waiter at a restaurant cannot sing ''Happy Birthday'' without paying ASCAP; or that if he or she organizes a fund-raiser or business holiday party with music the copyright societies demand payment.
H.R. 789 is simply an effort to place some common sense limitations on the enormous market power of the collective music licensing organizations and to achieve some reason and balance between the important rights of copyright holders(see footnote 4) and the equally important rights of the American public.
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While CEMA supports H.R. 789 in its entirety, I am here to discuss four issues:
the ''homestyle exception'' contained in section 110(5) of the Copyright Act is ambigious and discriminates against new consumer electronics technology, and should be changed to focus on how the devices are used;
the law governing the vicarious liability of trade show operators is full of uncertainty and risk, and should be clarified to place responsibility on the entity that actually engages in infringing performances, not on the trade show operator who has no real ability to control infringing performances;
case law has already held that performances of copyrighted works for the purpose of demonstrating consumer electronics devices are fair use, but the performing rights organizations refuse to accept this result. Congress should put this issue to rest once and for all; and
the music licensing system requires much greater scrutiny and oversight than it now receives.
Before I turn to these issues, it is important to put them in context. The law has fostered a system that concentrates exceptional market power in the hands of collective licensing organizations. These organizations, particularly ASCAP and BMI, have become extraordinarily adept at exploiting that power, often directing that power at those who cannot control performances of music, thereby forcing them to buy ''protection'' from each organization. The issues discussed at this hearing today are only partially copyright issues. Each one also raises important antitrust concerns relating to how the marketplace does and should function.
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THE ''HOMESTYLE EXEMPTION'' LEADS TO LITIGATION AND DISCRIMINATES AGAINST NEW TECHNOLOGY
Section 110(5) of the Copyright Act exempts performances by the receipt of transmissions ''on a single receiving apparatus of a kind commonly used in private homes.'' Because it focuses on the nature of the receiving apparatus rather than the nature of the use or of the user, this provision leads to litigation and discriminates against new consumer technologies.
Section 2 of the bill replaces the homestyle exemption with a clearer more easily applied test that does not discriminate against new technology. All interests appear to agree that an exemption is appropriate and reasonable. The challenge with existing law is that the language is subject to differing interpretations, and indeed, this provision has sparked much litigation(see footnote 5) and therefore, a simpler test is necessary.
H.R. 789 provides that the exemption is appropriate as long as the transmission itself is properly licensed and there is no charge to hear the music or watch the television.
Given the explosion in home theater systems in American homes(see footnote 6) this provision is critical. It is a clearer, simpler and fairer test than the present inconsistent implementation by courts and collective licensing organizations.
What is sold to the public today bears no resemblance to what was commonly sold in 1976. So in order to avoid the ambiguity that traditionally leads to litigation, Section 2 of the bill sets out a much more specific and fairer test.
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For example, despite the increasing consumer in-home popularity of large screen TVs, ASCAP and BMI have taken the position that any TV screen larger either than 27'' or 36'' is not ''commonly used in private homes, depending on the organizationthey don't even agree.'' In fact, larger screen sizes are increasingly common in homes. Just last year, our industry sold over two million sets 30 inches and over to American consumers, yet ASCAP maintains these sets do not qualify for the homestyle exemption. In addition to businesses who would not otherwise need a license, the hotel licenses offered by both ASCAP and BMI provide for significant fee increases where large screen television sets are used, further discouraging their use. I should emphasize that these are television sets, where the primary significance of the large screen is a larger picture, not more prominent music.
Given our national goal of rapid transition to digital television, H.R. 789 takes on special importance. Bars, restaurants, health clubs and other establishments will be the first purchasers of HDTV. Their display of this new product will encourage consumers to buy their own. Given their track record, it is easy to conclude that ASCAP and BMI will demand royalties for performances on HDTVdiscouraging their use, and working against the national goal of rapid transition to digital television. Together with the burden on larger sets, ASCAP and BMI policies will aggressively thwart our move to digital television.
Copyright liability should not be imposed because a certain technology is chosen to make a performance. Congress should amend section 110(5) to ensure that licensed performances may be received and played without regard to the technology that is used.
TRADE SHOW OPERATORS SHOULD NOT BE LIABLE FOR INFRINGING PERFORMANCES BY EXHIBITORS THEY CANNOT CONTROL
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It is well settled that traditional landlords are not liable for infringing public performances by tenants. Unfortunately, those who lease space to exhibitors at trade shows are, under the current law, subjected to significant uncertainty, unreasonable risk and outrageous fee demands. In 1994, for example, two different district courts reached opposite results on the question. Compare Artists Music, Inc. v. Reed Publishing (USA), Inc., 31 U.S.P.Q.2d 1623 (S.D.N.Y. 1994) (trade show operator, like landlord, not vicariously liable), with Program Intern. Pub. v. Nevada/TIG, Inc., 855 F. Supp. 1314 (D. Mass. 1994) (trade show operator would be vicariously liable).
The simple fact is that trade show operators lack the ability to control the specific works being performed by exhibitors. In this respect they are indistinguishable from landlords, who are not subject to vicarious liability. While contracts may be structured to provide some control over the exhibitor's conduct, contract rights typically do not extend to control over the music performed. Even where contracts provide a theoretical right to control performances, those contract rights are, as a practical matter, unenforceable. Exhibitors have the fundamental right to perform public domain works and works that are licensed (either by a performing rights society or directly from the copyright owner or other person authorized to grant such a license). The show operator is in no position to know what music will be performed or whether the tenant, lessee or exhibitor is licensed.
As a result of these uncertainties, show operators must secure licenses from both ASCAP and BMI, and the organizations are able to demand fees that are outrageously high, and totally devoid of justification. The truth is, music is peripheral to any show. Whereas a sports arena may be charged a few hundred dollars a year and host scores of events, ASCAP and BMI seek thousands of dollars for even a single trade show. They can obtain such fees not as a result of performances by the show operator, for which we are willing to pay, but because of the threat of liability for the performances by exhibitors.
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In the late 1980s, when ASCAP and BMI started demanding thousands of dollars for each large show from every trade show producer, many (38 percent according to one survey) simply banned all music from their shows. This deprived exhibitors and the attending public of their rights to hear licensed or even public domain works. ASCAP and BMI simply do not have the right, and should not be given the power, to control or cause the prohibition of the performance of all music.
The entity that actually engages in music performances is in the best position to control what is performed and make rational economic decisions regarding the value of music. That entity, the exhibitor, should bear the responsibility for its own conduct.
DEMONSTRATIONS OF EQUIPMENT SHOULD NOT GIVE RISE TO LIABILITY
H.R. 789 makes it clear that a retailer demonstrating consumer electronics hardware is exempt from having to pay a licensing fee. To us, this is common sense. Without consumer electronics devices, there would be no sales of CDs, and few performances of music for which fees are paid. Without the ability to see or hear a demonstration, few consumers would buy the device to hear the performance.
In fact, the only courts to have considered the issue have determined that equipment demonstration performances are fair use.(see footnote 7) But absent a clear statement in the Copyright Act, ASCAP has continued to insist that equipment demonstrations give rise to liability for performance royalties. This is a perfect example of why music licensing legislation is needed. Just as booksellers should not have to pay publishers for the reading that goes on in bookstores, equipment sellers should be permitted to demonstrate their equipment.
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THE DEPARTMENT OF JUSTICE SHOULD BE REQUIRED TO REPORT TO CONGRESS
The music licensing system requires much greater scrutiny than it now receives. ASCAP and BMI are government sanctioned revenue collectors. Yet unlike the IRS, there is little, if any, government or public scrutiny of their conduct.
The societies are not required to disclose their revenues and other finances, their rationale for imposing particular fees, or their salaries and administrative costs. With power comes obligation, and when that power stems from an act of Congress, a much higher level of obligation is appropriate.
As an example, I'm sure the members of this committee recognize the inherent unfairness in the process of negotiation with a party who has monopolistic power. With no other marketplace available, it is easy for the monopolistic party to dictate terms. So, if I wanted to say no to ASCAP, I won't use your music or pay a fee, what are my choices? I can go to BMI, but, guess what? The BMI will not protect me if I can't control what music is played or determine what music is licensed by ASCAP. And this is all done with Congress' blessing.
Given the extraordinary monopoly power and revenue raising privilege granted by Congress to the music licensing organizations, a first and extremely modest step is for the Department of Justice to report annually to Congress on their operations and compliance with antitrust requirements.
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Thank you for this opportunity. We urge you to consider our views on this issue. H.R. 789 is a modest and fair compromise balancing the legitimate interests of copyright owners and the American public.
Mr. COBLE. I thank you, Mr. Shapiro.
STATEMENT OF PETER MADLAND, RESTAURANTS-TAVERN OWNER, CHETEK, WI, ON BEHALF OF THE TAVERN LEAGUE OF WISCONSIN
Mr. MADLAND. Thank you, Mr. Chairman. Thank you, Committee, and especially Mr. Sensenbrenner, for bringing this issue up.
Let me introduce myself as president of the Tavern League of Wisconsin, representing approximately 4,000 tavern owners in the State of Wisconsin. I've been in the business for 19 years, and own a bar and restaurant in Chetek.
I think the thing that's been lacking here today so far is a touch or reality. We've been talking about a lot of things here. The reality is we do pay. I think Mac Davis should be rewarded, and Mr. Holyfield should be rewarded, for their artist works, and we do pay. We pay for jukeboxes; we pay for bands; we pay for DJs; we pay for karaoke; we pay for music. We do pay. So make no mistake about it.
Page 217 PREV PAGE TOP OF DOC The reality of the situation is we get brochures sent to us from ASCAP and BMI saying, ''Join us, join us, join us, and you're going to fine. You don't have to sign any contracts. The rates that you pay are all equal around the country, and we have access to repertoire; you just ask and we'll provide it.'' That's what they want you to believe.
Here is the reality: One customer, one member of mine, Dave Wiggenowski, after 1 year of paying ASCAP, decided, no, I'm not going to pay anymore. Why? Because he asked for access to repertoire. He wanted to know who ASCAP represents. His response was, ''We can't tell you. That would take a truckload. You go to our office and you can find out.''
As a result, Mr. Wiggenowski has been threatened verbally. A newspaper article, quote, unquote, ''Dave Wiggenowski, tendering his crowded Madison bar several years ago, when a man entered and pointed a finger at him, 'I want to talk to you now or you're going to go to Federal prison.' ''
This is the reality: 55 letters, about six or seven different rates that they want him to pay; contracts that they want him to sign. And, yet, no repertoire
Mr. COBLE. Mr. Madland, who made the threat that he would go to Federal
Mr. MADLAND. A representative from ASCAP, sir.
Dave Wiggenowski's crime at his place was that he had a 48-inch TV. That's what they were going to put him in jail for. That's what they threatened to lock up his business for. That's what they told his employees, to start looking for another job because he's going to be closed down. That's his crime.
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I don't think we should have to pay for TV or radio. Why? I believe it was about 20 years ago there was already an agreement that says: All radio musical broadcasts are not subject to royalties. There has also been an agreement that has homestyle exemptions that does not allow you or does not force you to pay for radio or TV, incidental use of either one.
The fact is this should be expanded. Why should someone who has two TV's be free of paying fees and the person who has three TV's be threatened to go to jail? That's not correct. That's not the way it should be.
The deal that was reached with NLBA is a lousy deal, and I'll be the first to say it. Why? Well, first off, 50 percent of the people in my organization are exempt already. They're small, mom-and-pop operations, and they're not paying. If I go to them and say, ''We reached a wonderful deal with ASCAP and BMI; give me $30''they are not correct when they say places under 3,500 are exempt. They are not exempt. They each have to pay $30, which isn't a lot of money, but, doggone it, in principle it means a lot, because they shouldn't have to pay it. But they want $30, a portion of which will go to NLBA, and the rest will go to the music licensing associations.
Secondly, in my situation, in my bar, years ago I used to have live music, and I would pay between the two PRO's approximately $800 for licensing fees. Now if I would go and join NLBA, so I could be part of this deal, with my gross square footage of my place, I'm going to have to pay over $10,000, and that is my basement, my bathrooms, my coolers, my kitchen, my storage, and everything. My bar and restaurantor my bar, actually, where entertainment did take place, takes up about 20 percent of my building, and yet they want me to pay for the square footage of the whole thing.
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And, lastly, why I think this deal is lousyand I want to quote an official from the NLBA in Wisconsin, quote, from The Milwaukee Journal, '''We, NLBA, has become the collection agency for the music licensing organizations. They can get rid of all their field people, and everybody saves money,' was how Howard Cheats, the head of the Wisconsin NLBA described the deal.'' ASCAP and BMI must love this kind of deal.
The issue is a very, very complicated one, but let's keep in mind we do have 134 cosponsors to this bill. There was a national survey that said 72 percent of the people agreed that restaurants and bars should not have to pay for use of radio and television. These are your constituents that say this. I don't know what they do for contributions, but they're your constituents, and I think you, as Congress people, should listen to them.
And the biggest message here I think find out today is that there is a problem out there, and, doggone it, we have to fix it. Thank you.
[The prepared statement of Mr. Madland follows:]
PREPARED STATEMENT OF PETE MADLAND, RESTAURANT-TAVERN OWNER, CHETEK, WI, ON BEHALF OF THE TAVERN LEAGUE OF WISCONSIN
I would like to thank the Committee for the opportunity to appear before you today to discuss the issue of music licensing. My name is Pete Madland. I own a small restaurant/tavern in Chetek, Wisconsin and serve as the President of the Tavern League of Wisconsin. The Tavern League is a 4,000 member trade association comprised of tavern/restaurant owners throughout Wisconsin. Our Association greatly appreciates the work Congressman Sensenbrenner is doing to give us a voice in Washington.
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With the exception of Congressman Sensenbrenner, no other member of this committee has ever heard of Pete Madland. There are thousands of ''Pete Madlands'' in your congressional districts and very few, if any Mac Davises. We are your constituents, please listen to us.
I believe that songwriters, composers and performers should be fairly compensated for their work. The key word here is fair. Forcing me and other small business owners to pay hundreds of dollars in fees for turning on a TV or radio is unfair.
I am testifying on behalf of the thousands of small business owners who have been subject to the coercive and disruptive tactics of music licensing companies. A company representative can show up unannounced and demand fee payments for watching a football game. In order to justify the collection of the fee, the company agent tells me that the patrons at the tavern are being entertained by the National Anthem, the half-time show, or any other background music.
Rate sheets are produced based on occupancy and, if the payment is not received in a timely manner, a letter threatening legal action soon follows. If a settlement is ever reached with one music licensing company, you can bet that a visit from another company is soon to follow to squeeze more money out of the pockets of small businesses. If the consequences were not so great, this whole thing would be laughable. But unfortunately, that is the reality out there today. Big business preys on small business to collect every dime they can because it is legal. Tavern owners cannot afford to hire an attorney to travel to New York to defend themselves over a $350.00 fee and, ultimately, many succumb to the pressure and fork over the fee.
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Being forced to pay anywhere between $300$1,000.00 a year to simply turn on a TV or radio is wrong. Your constituents believe it is wrong and you should change it. In a national survey conducted by Fabrizio McLaughlin and Associates earlier this year, 72 percent of the voters agreed that taverns/restaurants should not be forced to pay the fees for TVs and radios. Most people cannot believe such a law exists. I have been in this business for 19 years and I still cannot believe they can get away with this.
Even the industry itself cannot justify the need or reason to pay fees for radios or TVs. In a Milwaukee Journal article, Bill Thomas of ASCAP says the $300.00 or $400.00 a year is not a lot of money and tavern owners should just pay the fees. I can understand that $400.00 is not a lot to the superstars they represent but to the small Mom and Pop operators I represent, it is a lot of money. We work hard to make an honest living in Wisconsin and to have some guy walk in your tavern and demand hundreds of dollars because you are watching a Packer game or listening to the radio is wrong. Or the comments of Jim Steinblatt, ASCAP communications director who uses the following analogy: ''I tell people it's like a library card. You're not paying for a specific song, you're paying for the right to use all those songs.'' I wish they treated it like a library card; at least those are free.
What is even more astonishing is that I would have to travel to a court in New York to dispute any of their fees. I would love to hear someone on this committee explain why they would not support local arbitration. What is going on here? How did a law like this ever pass? Under current law, any one of your constituents must travel to New York to defend themselves. Disputes should be arbitrated locally, not in New York.
Page 222 PREV PAGE TOP OF DOC We support a legislative solution to establish a fair system to collect legitimate fees for music licensing companies. If I have a band on a Saturday night, I should be required to pay fees. Congress has already created the home style exemption. We urge you to expand this to address the issue of background music from radios and TVs.
Lastly, I would like to address the so called ''deal'' on music licensing. There is a reason no other association has joined with the National Licensed Beverage Association, or ''NLBA,'' in their dealbecause it stinks. ''We've [NLBA] become the collection agency for the music licensing organizations. They can get rid of all their field people and everybody saves money, was how Howard Tietz, the head of the Wisconsin NLBA affiliate, described this deal. ASCAP and BMI must love this kind of a deal. I cannot begin to understand what is in this deal for tavern owners. The people I represent would have my head if I told them we get to serve as a collection agency for ASCAP and BMI.
Thank you again for the opportunity to testify today. I urge you to support Congressman Sensenbrenner's bill to provide Fairness in Music Licensing. By supporting this bill, you will demonstrate your support for small business owners in your districts and your local Girl Scout troops.
Mr. COBLE. Thank you, Mr. Madland.
STATEMENT OF THELMA SHOWMAN, OWNER, THELMA SHOWMAN SCHOOL OF DANCE, BROKEN ARROW, OK
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Ms. SHOWMAN. Good morning, Mr. Chairman and members of the subcommittee. I want to thank you for allowing me the opportunity to testify on the issue of music licensing.
My name is Thelma Showman, and I'm the owner of the Thelma Showman School of Dance in Broken Arrow, Ok. I currently teach 17 pupils in my school, and I'm testifying today on behalf of myself, as well as the 13,000 other dance schools around the country.
I am 81 years old and I have been teaching for 45 years. Teaching is my greatest love. It keeps me young. I am here today because the copyright law concerning music for classroom use is very unfair to small businesses like mine.
I had acquired many, many records before an ASCAP representative called on me. Those records had no information about ASCAP or BMI or music licensing information. I asked the representative to tell me which records were his and which were not. He said the burden would be on me and my fine would be $10,000 if I used just one record. Then he sat down in my home, crossed his legs, and said, ''I will not leave without a check.'' I've paid his fee.
Shortly after, BMI called on me. They demanded double the price. I have been paying that also. I do not use BMI music.
The music licensing agents threaten and intimidate our teachers. They come into the classroom and frighten the children. They get away with this because small businesses like mine have no realistic way to dispute their authority.
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There's a tremendous amount of confusion over current copyright law. Even ballet schools which primarily use music which is in the public domain are being harassed.
Dance Magazine ran a story on this subject and have collected 7,000 petitions and letters. Now that's a pretty strong sign that things are going wrong.
Most teachers of dance are engaged in teaching as a small business. Our schools are small. Our space restrictions make it difficult for us to increase the number of pupils we teach. Similarly, it's impossible to extend the number of hours we teach after school. There are only so many hours the students can set aside for class lessons. Yet, the fee for a license to use copyrighted music in the classroom continues to escalate with no explanation and no accountability.
As professional dancers, we strongly support the payment to artists for using their copyrighted music for public performances, such as recitals. What we are objecting to, however, are fees that make no sense, especially the extra fees charged to rehearse the music in the classroom. This is unfair. In my case, I don't even charge for the recitals, but I'm still required to pay to rehearse.
In most cases, dance cannot be taught without music. It cannot be performed without music. The 13,000 dance educators in America and our 2,600,000 students are avid consumers of sheet and recorded music. We pay royalties with every purchase of music we make; it's built-in cost.
Page 225 PREV PAGE TOP OF DOC As this subcommittee considers music licensing legislation, I beseech you to exempt the classroom use from the copyright law. Thank you.
[The prepared statement of Ms. Showman follows:]
PREPARED STATEMENT OF THELMA SHOWMAN, OWNER, THELMA SHOWMAN SCHOOL OF DANCE, BROKEN, ARROW, OK
Mr. Chairman, and members of the Subcommittee, I want to thank you for giving me the opportunity to testify on the issue of music licensing.
My name is Thelma Showman and I am the owner of Thelma Showman School of Dance in Broken Arrow, Oklahoma. I currently teach 17 pupils at my school and am testifying today on behalf of myself as well as the 13,000 dance schools around the country. I am 81 years old and have been teaching dance for 45 years. Teaching is my greatest love; it keeps me young. I am here today because the copyright law for classroom education is very unfair to small businesses like mine.
Several years ago an ASCAP representative showed up at my dance school. By that time I had acquired many, many records to use in my classes. Naturally, many of these were older, containing no mention of ASCAP or BMI, no information on music licensing, period. I asked the representative to tell me which records belonged to ASCAP and which did not. The burden was on me to figure that out, he saidand the fine for not paying the fee would be $10,000. I paid him the fee he demanded. Shortly afterward, another music licensing representative showed up at my school. Again, no information about which songs he licensedthe only difference in this case was the agent would not leave without a check in his hand!
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The music licensing agents rely on threats and intimidation to do business. They get away with this because small businesses like mine have no realistic way to dispute their authority. There's a tremendous amount of confusion over current copyright law. Even ballet schools, which primarily use music that's in the public domain, are being harassed. Dance Magazine ran a story on this subject and got more than 7,000 petitions and letters in response. That's a pretty strong sign that things are going wrong.
Teachers of dance are engaged in teaching mostly to children. These are small businesses with tight limitations: Our schools are small, and space restrictions make it difficult for us to increase the number of pupils we teach. Similarly, it's nearly impossible to extend the number of hours we teach after school. There are only so many hours students can set aside for dance lessons. Yet, the fee for a license to use copyrighted music in the classroom continues to risewith no explanation and no accountability.
As professional dancers, we strongly support payments to artists for using their copyrighted music for public performances, such as recitals. What we are objecting, however, are fees that seem to make no senseespecially the extra fees charged to rehearse the music in a classroom. This is unfair. In my case, I don't even charge for the spring recitals we put on each year but I am still required to pay to rehearse.
In most cases dance cannot be taught without music, cannot be performed without music. The U.S.'s 13,000 dance educators and our students are avid consumers of sheet and recorded music. We pay royalties with every purchase of music we make; it's a built-in cost. As this Subcommittee considers music licensing legislation, I urge you to exempt classroom use from copyright law.
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Thank you, Mr. Chairman.
Mr. COBLE. Thank you, Ms. Showman.
STATEMENT OF PETER KILGORE, GENERAL COUNSEL, NATIONAL RESTAURANT ASSOCIATION, AND MEMBER, FAIRNESS IN MUSIC LICENSING COALITION
Mr. KILGORE. Mr. Chairman, members of the subcommittee, thank you for giving me the opportunity to appear before you today on behalf of the National Restaurant Association and as a member of the Fairness in Music Licensing Coalition. I have a prepared statement that is detailed and that has been submitted for the record.
The National Restaurant Association first became involved in Federal music licensing legislation in 1994, at the request of our members. It has, and continues to be, a grassroots, membership-driven issue. It is at the behest of these members that we are participants, along with more than 30 other separate industry groups, in the Fairness in Music Licensing Coalition, including the NFIB, the National Retail Federation, funeral directors, dentists, flower shops, and a host of other industries that are concerned about the licensing practices of the societies and certain statutory provisions under current Federal copyright law.
While my written statement contains details about the matters that I am asking this committee to consider, my opening statement will focus primarily on two of those issues: first, the exemption issue. In 1976, Congress determined that royalty payments for the playing of music over radios and TV's in commercial establishments would not be required in all circumstances. That provision, which is codified at 110(5) of the Copyright Act, unfortunately, was not clearly written. Indeed, in the ensuing 21 years since enactment of that provision, the courts have not been consistent in regard to the scope of what Congress intended. This has resulted in confusion and inconsistent applicability by the music societies as to what businesses would be licensable.
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Consequently, this association and the coalition, of which we are apart, and, importantly, all three of the major music societiesASCAP, BMI, and SESAChave represented to this Congress that section 110(5) of the Copyright Act needs to be legislatively changed. It has nothing to do whatsoever with respect to negotiating positions in the last Congress. It has to do with an identification of a problem that needs correction, and each of the societies signed a letter representing what that problem is. That problem exists today, and it still needs correction.
So we are askingwe, the National Restaurant Association; we, the coalitionare asking this committee to get on the wagon, to clarify the scope of the exemption under 110(5) and to correct the problems that the Congress in 1976 created.
The second major issue that I would like to at least address in my opening statement concerns arbitration of rate disputes. I receive each year, at least since I have been the general counsel of the National Restaurant Association, hundreds of calls on music licensing from members of our association. Far and away, most of those calls concern the fairness of the dispute of the rates that are being mandated against those businesses. It has nothing whatsoever to do with facts, as has been stated by the earlier panel.
For example, in regard to the size of the business, there's just a matter of taking out a yardstick and measuring it. I get no calls on that. It has to do with the rate disputes, and that focuses on the mechanism at least with respect to two of the three major societies in how that is resolved.
Page 229 PREV PAGE TOP OF DOC And I emphasize to this panel that we have to separate the arbitration issue into two basic component parts. The first, which concerns ASCAP and BMI, concerns their consent decrees. The second concerns SESAC, which is under no Federal court consent decree.
Let me first address ASCAP and BMI. As I mentioned, they are currently governed, as far as their rate disputes, by the Federal court in New York City. Each decree mandates that any rate dispute that a music user has must be resolved in the U.S. district court in New York City. License fee disputes usually involve fees ranging from a few hundreds to perhaps a few thousand dollars.
However, for a business in California or in Florida or in Indiana, or virtually in any other place, to resolve this issue by going to the rate court in New York City is cost-prohibitive. I have been told directly by an attorney in New York City, whom I called in regard to the estimated cost to bring a rate dispute before the rate court what the estimation would be. This attorney has handled matters before the rate court. He told me, for a single-issue item that would not be complex, the range of just legal costs, pushing aside all of the other costs the business would incur by challenging it in New York City, would range between $10,000 and $25,000. The $25,000 would be the upper end from the standpoint if you had to go to trial. When you compare that against what the rate dispute concerns, it virtually makes the mechanism of going to the rate court nonexistent.
Now let me turn to the other component of the arbitration issue, and that's SESAC. Currently, SESAC, as I mentioned, is not under any Federal court consent decree. The question that was raised to me by a hotelier in a call in May of this year directly impacted this question with respect to SESAC. And that isand push aside the question about whether the person was an agent; that's just a technical term. The SESAC representative contacted this hotelier's about his bar and, because there were several TV's that were turned on in the bar, demanded that that hotelier sign a licensing agreement. The hotelier, in what he told me, told this SESAC representative, ''I already have separate licensing agreements with BMI and ASCAP. Why do I have to have another one with you?''
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His response was, the agent or the representative's response, whatever term you want to use, that, because one of our songs may, by chance, be played over the TV at some point when you have it on, you have a licensing agreement obligation with SESAC.
Then came the rate that he had to pay, and this manager of the hotel said to me it was so outrageous; it was out-of-line with what he was going to have to pay with ASCAP or BMI, and yet the expectancy of anything of SESAC coming over the TV was much lower. He said, ''I want to know what I can do in regard to challenging that rate and getting this matter resolved.'' And he further said, ''I understand that with BMI and ASCAP I have to go to New York City,'' and he said, ''Quite frankly, that's why I signed the agreements,'' because it was going to be, as he put it, cost-prohibitive to go to New York City and dispute those issues.
But with SESAC, that was a question that I was puzzled about, because you don't go to New York City, to the Federal rate court, because SESAC is under no Federal court consent decree. So the next question is, Where do you go? There's no contract that exists with SESAC at that point. So you cannot go into State court or even perhaps Federal court on a diversity of citizenship basis because there's nothing for the court to decide, no justiciable issue that's before the court at that point. All you have is a business dispute, that one business agent wants a certain price for selling its goods, and the recipient doesn't want to buy it at that cost. So it's not a justiciable controversy, as we say in law.
So the question this hotelier again asked me is, ''What right do I have?'' I'm not sure, to frankly tell you the truth. We've had our outside intellectual property counsel look at the issue, and the only opinion that he had on it was that perhaps you could file an antitrust action against SESAC, and of course we all know what that would involvemany years of litigation, huge litigation costs, all over a small license fee.
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So the bottom line is that to resolve licensing fee disputes with SESAC, legislation is also needed so as to include all of the music societies. And I want to close by emphasizing that: all of the music societies would be subject to a legislative solution, and we are not talking about just SESAC, ASCAP, and BMI. There are more music societies out there than just those three. Granted, that's 90-some percent of the market with those three, but it's not 100 percent of the market.
I want to thank the committee for allowing me to appear today, and particularly to Congressman Sensenbrenner for all the opportunities he has given us to have input on this issue. Thank you, Mr. Chairman.
[The prepared statement of Mr. Kilgore follows:]
PREPARED STATEMENT OF PETER KILGORE, GENERAL COUNSEL, NATIONAL RESTAURANT ASSOCIATION, AND MEMBER, FAIRNESS IN MUSIC LICENSING COALITION
Mr. Chairman, members of the Subcommittee, thank you for giving me the opportunity to appear before you today on behalf of the National Restaurant Association and the Fairness in Musical Licensing Coalition. I have a prepared statement I would like to submit for the record.
The National Restaurant Association first became involved in federal music licensing legislation in 1994, at the request of our members. It has and continues to be a grassroots, membership-driven issue. It is at the behest of these members that we are participants, along with more than 30 other separate industry groups, in the Fairness in Musical Licensing Coalition.
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The National Restaurant Association represents some 33,000 restaurant companies; together these companies represent 175,000 units. We are a large industry dominated by small businesses. According to the most recent Census figures, more than nine out of ten eating and drinking places have fewer than 50 employees. More than two out of three have annual sales under $500,000. More than four out of ten operate as sole proprietorships or partnerships. It is on behalf of these restaurateursour membership generally, but particularly the tableservice restaurants who are among the most frequent users of musicthat I appear here today.
Restaurants and music share a long history. Many of today's popular musicians and songwriters got their start in small bars and clubs around the country. Our members do not have a problem with songwriters. Our problem is with the three major music licensing monopolies that represent themnamely, ASCAP (the American Society of Composers, Authors and Publishers), BMI (Broadcast Music, Inc.) and SESAC. And our problem is not necessarily with the heavy-handed tactics used by these groupsalthough in the last two years 23 states have passed laws in an attempt to police the tactics these groups use to set and collect their fees.
The problem shared by Coalition members, Mr. Chairman, is with federal copyright law, and the need, as agreed to by all parties (including the three major licensing societies), to change the law.
In 1976 Congress amended the Copyright Act to exempt from copyright infringement certain commercial businesses playing radio and television transmissions. 17 U.S.C. Section 110(5) exempts from copyright infringement any
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communication of a transmission embodying a performance or display of a work by public reception of the transmission on a single receiving apparatus of the kind commonly used in private homes, unless
(A) a direct charge is made to see or hear the transmission; or
(B) the transmission . . . is further transmitted to the public.
In 1976, Congress clearly rejected the concept that all commercial use of music that comes over radio and television is licensable. This provision exempts from copyright infringement certain commercial playing of TVs and radios by businesses for the enjoyment of their customers.
Yet in the 20+ years since Congress established this exemption, confusion has resulted from the language used in the statute. A big source of confusion has been knowing what constitutes a ''single receiving apparatus of the kind commonly used in private homes.'' In the 1976 House Judiciary Committee Report outlining the proposed exemption, the panel drew on the facts of the 1975 U.S. Supreme Court case of 20th Century Music Corp. v. Aiken, 422 U.S. 151. In that casewhere the Supreme Court decided the store should be exempt from licensing fees for radio musicthe store had 620 square feet of public area and used a radio with four speakers. However, the Committee noted in its Report that the exemption was not necessarily limited to these particular circumstances and should be based on any number of factors, including business size, physical arrangement, noise level of areas in the establishment where the transmissions are made, etc. The Report also indicated the exemption would apply to establishments that were ''not of sufficient size'' to justify a subscription to a commercial background music service.
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The confusion of the statutory wording, combined with the numerous factors listed in the legislative history of this provision, have resulted in inconsistencies in how courts define the exemption's scope. For example, in Sailor Music v. The Gap Stores, 516 F. Supp. 923 (S.D.N.Y.), a store with 2,700 square feet and four speakers was ruled too large to qualify for the exemption. However, in Springsteen v. Plaza Roller Dome, Inc., 602 F. Supp. 1113 (M.D.N.C.), a case involving a radio with six speakers played over 7,500 square feet, a court ruled that the exemption applied. Still other courts have ruled that the deciding factor should be the type of equipment used, not the size of the establishment, e.g., BMI v. Claire Boutique, 949 F. 2d 1482 (7th Cir. 1991). Indeed, as stated by yet another court, Edison Brothers Stores v. BMI, 954 F.2d 1419 (8th Cir. 1992): ''If Congress intended to impose physical size limitation . . . it might easily have written it into the statute . . . The statute focuses on the equipment being used.''
Clearly, the confusion Congress created 20 some years ago needs to be fixed legislatively. Even the three major societies have admitted this. In their July 24, 1995, letter to former Chairman Carlos Moorhead, ASCAP President and Chairman of the Board Marilyn Bergman, BMI President and Chief Executive Officer Frances Preston and SESAC Vice Chairman Vincent Candilora acknowledged the problems with 1 10(5). Here's how they themselves described the current exemption:
Section 1 10(5) is ''vague and has lead to much litigation''
''because of the vagueness of the statutory language the different performing rights societies may apply different standards as to what is licensable, causing confusion''
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''as to TVs, the exemption has not meaningfully reflected actual use''
Their conclusion was unequivocal and absolute: ''Section 110(5) should be amended to establish crystal clear standards.'' The National Restaurant Association and the Fairness in Musical Licensing Coalition strongly agree with the music licensing societies that the current exemption must be amended through legislative action.
LOCAL ARBITRATION OF RATE DISPUTES
In my capacity as legal counsel for the National Restaurant Association, I receive hundreds of calls each year from our members on music licensing. Far and away, their top complaint is with the rates they are being asked to pay by the societies. Increasingly, these rates seem arbitrary and unfairyet business users of music have little choice but to pay what's demanded.
The problem is best highlighted by a call I recently received from a hotel manager in Los Angeles. He had signed two separate license agreements with ASCAP and BMI for TVs he had in his bar-and for which he charged no cover. He had substantial disagreement over the license fees with both ASCAP and BMI, but was told by them to either pay the fee or shut the TVs down unless he wanted to contest the fees before the rate court in New York City. Since the legal costs would far exceed the license fees even if he won, he simply paid.
But that wasn't the end of his problems. He called me not to reiterate his concerns and frustrations over the fee disputes with ASCAP and BMI, but to ask me what options he had with the third major society, SESACwhose agent had just come into his bar demanding that he sign a license with them as well, at what he believed to be an outrageous fee. He was told it made no difference that he had paid separate fees to ASCAP and BMI; he still had to pay SESAC, the agent said, since one of SESAC's copyrighted works could be played over the sports channels he turned on for his customers.
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When he asked the SESAC agent what his options were in contesting their unreasonable fee, the response was similar to what he had heard from ASCAP and BMI.
The above is a fairly typical situation. If I may, let me use this illustration to examine the hotelier's problems as they relate to all three major music licensing organizations.
A. ASCAP and BMI Consent Decrees.
Under federal copyright law and according to the consent decrees that govern ASCAP (U.S. v. ASCAP, CA No. 1395) and BMI (U.S. v. BMI, CA No. 1835) the music licensing societies set the terms, conditions and rates of their contracts. Business owners can't turn down the contracts and go elsewhere for better rates or service, since ASCAP and BMI collectively have the major control of their market. If this hotelier questions or wants to challenge a fee, he must go to New York to have the case heard.
Under both ASCAP's and BMI's consent decrees, any fee dispute must be resolved in a single federal court in the U.S. authorized to hear such disputes, located in New York City. If one of your constituentswhether their business is in California, Wisconsin, Florida, Indiana, or anywhere elsehas a problem with a particular rate, their only option is to litigate the dispute, however, unlike most other business disputes, which are heard by courts in the home state, these cases require the business to litigate in a New York City rate court.
In a personal meeting with Congressman Watt of North Carolina a few months ago, I was asked why a constituent in his North Carolina district could not simply contest in a court in North Carolinawhich is what happens in most other business disputes. The reason: the federal court consent decrees. The Justice Department, in a July 7, 1997, letter to Congressman Jim Sensenbrenner, states the same answer I gave Rep. Watt: that the consent decrees ''require that license fee disputes be settled by the U.S. District Court for the Southern District of New York.'' Several federal courts of appeal have also indicated this conclusion, including the court of appeals controlling Congressman Watt's state. See, e.g. Center City Music v. Kisner, 23 F.2d 400 (4th Cir. 1994).
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Clearly, challenging a music license fee in New York City is out of the question for most small business owners. A restaurant in North Carolina or a hotelier in California, for example, would faceas estimated for us by an attorney in New York City who has handled disputes in the rate courtlegal costs of up to $25,000 to mount a challenge against ASCAP or BMI. Clearly, the costs and time for a business owner to resolve a licensing fee dispute far outweigh the cost of paying the fee. Thus, businesses effectively have no choice but to pay the fee demanded.
We are here today to ask that Congress change the law to allow rate disputes with ASCAP and BMI as well as all other music licensing societies to be settled locally. The National Restaurant Association and the Fairness in Musical Licensing Coalition strongly believe this must be part of any legislative solution considered by the Subcommittee.
The music licensing societies say this is totally unacceptable. In the July 24, 1995, letter to former Chairman Carlos Moorhead, and signed by ASCAP, BMI and SESAC, the societies state:
The compulsory arbitration proposed by the coalition is . . . totally unacceptable. Procedures already are available to any music user for court determination of a reasonable fee . . . in [New York] federal court.
The societies argue that rate arbitration is not only unnecessary, but harmful. They state that the only fair way to resolve disputesno matter whether that dispute is in Alaska or Maineis to funnel all complaints through a single court and a single judge in New York City. They also allege that the process of arbitration would result in unfair and discriminatory pricing. Their positions do not square with the facts.
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First, arbitration is nothing new. BMI's consent decree, as written in 1966, required all music licensing contracts negotiated by BMI to carry a provision requiring parties to submit to arbitration, under the rules of the American Arbitration Association (AAA) for ''all disputes of any kind'' (Part VIIc). That presumably included arbitration of rate disputesand it meant that numerous arbitrators (not just a lone judge) were potentially involved in resolving disputes. While that decree was amended in 1994 (apparently as a result of a BMI petition to the court) to exclude fee disputes from arbitration and require them to be resolved by the rate court as with ASCAP's consent decree, the fact remains that BMI's consent decree recognized arbitration as the way to resolve disputes for almost thirty years.
Second, the societies say rate arbitration is unacceptable because it would result in discriminatory fees to similarly-situated users. This is highly speculative. Moreover, Section VIII(a) of the BMI decree notes that ''different rates or terms shall not be considered discrimination'' if such differentials are ''based upon applicable business factors.'' If a rate dispute makes it to rate court today, music societies have to explain to the judge why they proposed a certain rate. Businesses have an opportunity to argue why they think the rates are too high. There is no reason to assume that arbitration would not result in the same approach.
There is one other apparent precedent for arbitration on music licensing fees. Under the copyright amendments a few years ago, ASCAP, BMI and SESAC were required to submit to arbitration in cases where jukebox operators had disputes over their licensing agreements.17 U.S.C. Section 116. Other music users who do business with these organizations should have the same option.
Page 239 PREV PAGE TOP OF DOC Beyond this, Congress needs to examine whether the New York rate court is effective as a mechanism to resolve rate disputes. As noted above, the societies claim that there are ''procedures available to any music user for court determination of a reasonable fee.'' Yet even ASCAP noted in a 1986 Copyright Journal article that over the first 35 years of ASCAP's consent decree only 40 requests for rate court action had been filedand none of these had gone as far as a court decision. In its July 7, 1997, letter to Congressman Sensenbrenner, the Justice Department itself commented on the slow speed at which rate requests are resolved:
many users have complained that the rate courts are too slow, expensive and inaccessible to offer a reasonable remedy for users who believe that their license fees are excessive. For example, one proceeding . . . took 7 years. U.S. v. ASCAP, 1993 Tr. Cas. (CCH) P 70, 153 (S.D.N.Y.1993).
It's clear that, for all intents and purposes, the rate-court option is not accessible to the vast majority of music users.
Finally, the above discussion concerns ASCAP and BMI, which operate under court-ordered consent decrees. When it comes to SESAC, there is a slightly different twist since SESAC is not governed by federal court consent decrees requiring that rate disputes go to the New York City court. For this hotelier, there really is no legal safeguards. And essentially no reliable options. The dispute is over the rate, and is not a question of a breach of contract since none has been agreed to, nor is it a question of federal copyright violation but is simply a dispute that the price is unacceptable. Thus, there appears to be no judicial forum for the music user, unless he/she perhaps wants to go to the long and expensive route of filing an antitrust suit against SESAC. The bottom line is that SESAC can take legal action if the business refuses to paybut the business has no similar legal recourse. It is imperative that Congress clarify that rate disputes with all of the societies may be resolved through local arbitration.
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ACCESS TO REPERTOIRE
The Coalition believes user-friendly access to the full content of the repertoires of the music licensing societies is essential for several reasons. Fundamentally, a purchaser has the right to know what material is being licensed and what the purchaser is paying for. A purchaser should have the right to rely on that information in making purchasing and performing decisions. Second, to foster competition in music licensing, music users must have all information relevant to making an informed choice regarding licenses. If a restaurateur can identify music in the different repertories, he or she can choose among societies. If users are kept in the dark, they are forced to purchase licenses not to perform musical compositions, but to buy themselves ''protection'' from the licensers. This is not right. Third, as pointed out in the Justice Department's July 7,1997, letter to Congressman Sensenbrenner, while the societies (ASCAP and BMI) have recently created repertory databases accessible through the Internet, and also have toll-free telephone numbers for questions:
These databases are incomplete, and both ASCAP and BMI reserve the right to sue for unlicensed use of a song whether or not the song is listed in the database.
Over the past few years, the music licensing societies have moved closer to the position of the Coalition in at least accepting the basic premise that user-friendly access to repertory information is needed. However, significant areas of disagreement remain. Neither ASCAP nor BMI is willing to identify its entire repertory, thus in many cases leaving the user in doubt about which organization licenses which songs. The Coalition believes it is essential that a strong incentive be created to ensure that the societies keep their repertory lists current, complete and accurateand that users can rely on the information contained in these lists.
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Currently, landlords and convention owners are held liable for the music played by a tenant or exhibitor. Like many other trade, industry and other associations, the National Restaurant Association pays music licensing fees for the music that may be played by exhibitors during our annual trade show in Chicago. As stated by one court, Shapiro, Bernstein and Co. v. H.L. Green Co., 316 F. 2d 304 (2d Cir. 19 ):
Even in the absence of actual knowledge . . . liability [will be imposed]. . . . Thus, it is well settled that third parties may be vicariously liable for the infringing acts of others.
We would like to see the Subcommittee consider legislation to restrict the liability of landlords and convention owners and thereby force the music licensing societies to collect royalties from the exhibitors themselvesthe ones who actually play the music.
DEPARTMENT OF JUSTICE OVERSIGHT
Under both ASCAP's consent decree U.S. v. ASCAP, No. 1395 (S.D.N.Y. 1995) and BMI's consent decree U.S. v. BMl, No. 1835, the U.S.Department of Justice has certain oversight responsibilities as to licensers' practices in obtaining music licenses. (See, for example, paragraphs XVI of the ASCAP decree and XI of the BMI decree).
Page 242 PREV PAGE TOP OF DOC The Fairness in Musical Licensing Coalition believes it is an essential and proper function of the Congress to be kept regularly apprised of the activities the Department of Justice has undertaken to enforce the consent decrees.
Several times over the course of the last two years, the National Restaurant Association has communicated (in meetings and through correspondence) with the U.S. Department of Justice's Antitrust Division regarding the tactics and procedures used by the music licensing societies in obtaining music licensing agreements. We have submitted considerable information which we believe indicates numerous consent decree violations. We have also undertaken studies of our members on issues suggested by the U.S. Department of Justice. We have shared the results of those studies with the Antitrust Division.
While it is unlikely that the U.S. Department of Justice would keep the National Restaurant Association (or any Coalition member) informed of its investigations, it is clear that they should inform the Congress of the state of those investigations. Indeed, it is unfortunate that the Department of Justice was not able to be present at this hearing.
WHY PRIVATE COMMERCIAL AGREEMENTS WON'T WORK
Last April the National Licensed Beverage Association (NLBA), a former member of the Coalition that broke away almost two years ago to attempt to work out a private deal with the three major societies, announced that it had finally reached an agreement with all three societies after almost two years of negotiations. While the National Restaurant Association has requested a copy of this purported agreement(s), nothing has been forwarded to us to date. Nevertheless, the National Restaurant Association (other Coalition members have been approached as well) has been urged to also drop out of the Coalition and negotiate a separate private commercial agreement with each of the three major societies and forego encouraging Congress to enact legislation. This approach will not resolve the many issues addressed in H.R. 789 for several reasons.
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First, a private agreement will not resolve the uncertainty about the scope and applicability of the statutory exemption under Section 110(5) of the Copyright Act. As we have pointed out, all parties, including the three major societies, have presented to the Congress that a legislative change is needed to correct the problem Congress created in the 1976 amendment to the Copyright Act.
Second, for our Association to negotiate a restaurant industry-wide prototype agreement would necessitate three separate negotiations and (presumably) three separate agreements: One with ASCAP, a second with BMI, and yet a third with SESAC. In February 1997 the three major societies suggested that the National Restaurant Association do this, insisting however, that there had to be three separate negotiations due to the antitrust concerns that would otherwise arise.
Indeed, the U.S. Department of Justice clearly indicated this potential problem in regard to private commercial agreements with the societies in its June 13, 1995, opinion letter to Chairman Moorhead. DOJ stated that as long as:
[d]iscussions . . . are limited to efforts to petition the government for legislative action, generally [they] are not proscribed by the antitrust laws. . . . Of course, if . . . discussions go beyond developing legislative proposals, normal antitrust standards would apply.
Finally, while we have not seen the NLBA collective prototype agreement(s) with the three major societies, we do wish to raise certain points to the Subcommittee that should be explored just from the material we have seen issued by the NLBA regarding this agreement(s).
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An agreement covering rates for all three societies raises serious antitrust concerns. Congressman Sensenbrenner has asked the Justice Department to look into this.
NLBA information says the license fee for members with all three societies will be based on a business's total square footage, which includes areas where the music is neither heard nor played (e.g., parking lots, bathrooms, etc.). Why should a business have to pay a rate based on areas where the music is not heard or where customers are not permitted? NLBA says the exemption (in part) will include any business with less than 3,500 square feet. Nevertheless, to obtain the exemption under the agreement necessitates that the user sign the agreement and pay an annual fee of $30. Due to the uncertainty of the scope of the 110(5) exemption, the question this Subcommittee should explore is whether music users who would perhaps otherwise be exempt under law being encouraged to sign the agreement and pay a $30 fee exemption? If so, we respectfully point out to the Subcommittee the rate court's recent admonition to ASCAP in U.S. v. ASCAP, CA No. 1395 (S.D. NY 1995): ''ASCAP has no right to demand royalty payments for music users that are exempt from copyright liability. . . . If there is no exposure to copyright there is no need for a license . . . [and] ASCAP may not include programs . . . that are not subject to copyright liability. . . .''
Unlike the stability of law, the NLBA prototype agreement can be changed or eliminated in the future at the total discretion of any one of the societies. The NLBA information states: ''ASCAP, SESAC and BMI will be unlikely to renew this special program if members don't take advantage of this significant offer.''
Page 245 PREV PAGE TOP OF DOCThe NLBA agreement may not resolve all licensing fee obligations for music users. The reason for this is that other music licensing societies exist and are continuing to be formed.
The NLBA says its agreement consists of two parts: a part explaining the scope of the exemption and a part that allegedly reduces license fee rates. However, four of the five remaining provisions in the legislation are not addressed in the legislationlocal arbitration of fee disputes, access to repertory, per-program licenses for specialty broadcasters, and vicarious liability.
A private commercial agreement will not correct the legislative problem Congress created some 20 years ago; will not correct the problems in industries unable to reach agreement with each of the three major societies; will not correct the problems with other licensing societies besides ASCAP, BMI or SESAC in the scope of the exemption applied to their members' copyright applicability; and will not, even as to those industries that reach consensus on the scope of the exemption with ASCAP, BMI or SESAC, solve the problem for those businesses rejecting the prototype private commercial agreement reached by their industry association.
Mr. Chairman, I want to stress for the record how much we would like to work with you, Mr. Sensenbrenner' the other members of the Subcommittee, and the music licensing societies to craft a legislative solution to these problems. We, and the Coalition of which we are a part, have offered in writing to meet with each of the major societies. The societies, however, have refused our offer.
Page 246 PREV PAGE TOP OF DOC The bottom line, Mr. Chairman, is not the price that our members are asked to pay for a music license. And we are not asking to change the fine for copyright infringementwhich today stands at as much as $20,000 per violation. What we are concerned about is the inherent unfairness of having to go to a court in New York City to dispute a license fee charged by ASCAP or BMIor, in the case of a rate dispute with SESAC, having nowhere to go at all. We are concerned about the confusion with current law and its outdated exemption for a television or radio ''of the kind commonly used in homes.'' (The immediacy of this particular problem is demonstrated by the fact that all sides agree that there is a role for Congress in settling that question). We are also concerned about many other fairness issues as outlined in this letter and as addressed in H.R. 789. (The National Religious Broadcasters, also members of the Fairness in Musical Licensing Coalition, have already provided the Subcommittee with their testimony as it relates to per programming licenses).
Mr. Chairman, we stand willing and ready to negotiate a legislative resolution. Thank you, again, for the opportunity to present this testimony.
Mr. COBLE. Well, thank you, Mr. Kilgore. We thank you all and the other panelists as well for having met with us today.
Mr. Madland, let me put the same question to you that I put to Mr. Davis. What percentage of your gross receiptsI'm not asking how much you earn, but what percentage goes to music licensing fees?
Mr. MADLAND. Right nowwhat percentage of my gross receipts? I don't have entertainment or anything. So I would say the percentage of my gross receipts that go to the PRO's are approximately 1 percent.
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Mr. COBLE. You head up the Tavern League as president. How many members of the Tavern League, Mr. Madland, are also members of the National Licensing Beverage Association?
Mr. MADLAND. Zero, none. I might add, Mr. Chairman, that since in the last 2 months, since the agreement with the NLBA became public, our membership in the Milwaukee area, where NLBA does have constituents, our membership in that area has tripled.
Mr. COBLE. Of the Tavern League, you mean, your group?
Mr. MADLAND. Right; that's correct.
Mr. COBLE. Mr. Kilgore, much has been said of the uniformity argument in defense of keeping one court with exclusive jurisdiction over rate dispute. Now, let's say there's a restaurant or a bar in Massachusetts of similar size and style as a bar in North Carolina. Why should they pay different licensing fees? And the reason I ask that, because that may well come into play, if you confer jurisdiction upon various and sundry courts throughout the land.
Mr. KILGORE. Well, I think part of the problem, first of all, is what factors would considered in regard to the payment of a license fee. Under the BMI consent decree, for example, business factors are enumerated as a distinction that would not make the rate distinction discriminatory, and those business factors certainly could involve a number of things, including perhaps the cost of business in regard to the locality between a business in North Carolina as well as one in New York City. So I think that those factors have to be considered and would be an element that would have to be evaluated in each circumstance.
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Mr. COBLE. And I'm not suggesting that that would be a problem. I could see that it might be.
Mr. KILGORE. Right.
Mr. COBLE. Uniformity is very important in the legal community.
Mr. KILGORE. If I may just add one other point, Chairman Coble, and that is the suggestion that you made with respect to arbitration I think is a huge step in the right direction. In regard to the uniformity of rates, the position of at least the National Restaurant Associationand I don't necessarily want to represent this as to the entire 30-some members in the coalition, but the problem doesn't primarily focus necessarily on the person that would be sitting doing the job, so to speak, although we think an arbitration situation as included in Congressman Sensenbrenner's bill, in fact, would end up with the same evaluation. That is, they wouldeach arbitrator would look at those business reasons and the decision would be based on that. So it would not be discriminatory.
But the problem in regard to using that mechanism focuses more on where it's going to be heard. As I say, I think your suggestion in regard to regional type of approach is a definite step in the right direction. Quite frankly, my impressionand this is just my impression, because we have not discussed it even internally at the National Restaurant Association, obviously, since it was just suggested, nor have I heard the suggestion discussed at all among the coalitionbut my impression that, while that's a good step in the right direction, I don't think that's going to satisfy the problem. Because if you have, for example, a small business in Utah, and if only have three or four regional areas where that judge is going to have to travel, and that business is going to have to go to Chicago, if that's one of the areas, that, in my opinion, is still going to be probably cost-prohibitive. I would like to see, if we're going to move in that direction, have it in the locality or at least State by State. So it would make it more
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Mr. COBLE. Well, we just started talking about it today. So we'll kick this around.
Mr. KILGORE. Right.
Mr. COBLE. Ms. Showman, let me ask you the same question I put to Mr. Madland and Mr. Davis. If you can, tell me what percentage of your gross receipts are earmarked for licensing fees, music licensing fees to ASCAP and BMI.
Ms. SHOWMAN. Well, I suppose 1 or 2 percent.
Mr. COBLE. One or 2 percent?
And the reason I ask these questions, folks is because, let's face it, we're talking about money. I think it's a fair question, and that's why I wanted to ask it to both sides.
Mr. Shapiro, this is a hypothetical. I see the red light's on, so I'll be quick, Mr. Frank. Do you feel that your group, the Consumer Electronics Manufacturers Association has a realistic chance, Mr. Shapiro, of striking some sort of an agreement with the licensing societies on an exemption for outlets, stores, commercial enterprises that only play TV and radio in conjunction with selling these devices? And the reason I ask that is because you are a little different from the restaurants. You're slightly in the anteroom maybe. What do you think in response to my question?
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Mr. SHAPIRO. I don't think there's a need to strike an agreement on that, because I think that's already existing law. The problem that retailers face, and others, is that they are hounded by ASCAP and they don't want to litigate it, and that is an issue. That is a very small part of the major problem, though, and that goes to the pervasiveness of our products in retail establishments, not only restaurants and bars, but other retailers, millions of other places. So that's just a very small part of the problem.
We're prepared to litigate that issue because we think the present law covers us, but it is an expensive thing to litigate and it shouldn't have to happen. It's just representative of the type of secrecy that ASCAP and BMI operate in, which requires a greater level of congressional scrutiny.
Mr. COBLE. I thank you, sir.
Mr. Frank, the gentleman from Massachusetts.
Mr. FRANK. Let me pick upso on the question of the right to show TV to someone who's come in to buy one, the law is pretty clear already? So you want us to write a law saying the law
Mr. SHAPIRO. The Sony Betamax case in a district court decision is clear on that point, that there is
Mr. FRANK. OK.
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Mr. SHAPIRO. Could I just finish the point? There is a fair use right, we believe, with respect to public performance.
Mr. FRANK. OK, but then you want the law to say the law is really the law? I mean, what would
Mr. SHAPIRO. Well, we want
Mr. FRANK. Why don't you just go enjoin them from harassing you?
Mr. SHAPIRO. Well, what we'd like to do is have ASCAP and BMI off our back, and we think
Mr. FRANK. Well, I understand that, but there's a lot of people I'd like to have off my back, and getting on each other's back is part of a free society. What I'm saying to you is, we're never going to pass a litigation-free law, and if you're sure that the law prevents that, take them to court, win, beat him. You're big guys, and, you know, you win one lawsuit, get an injunction somewhere, and I would think you would stop them. Because it's hard for us to keep passing laws thatat some point you've got to go to court on it.
Mr. SHAPIRO. Well, I have a letter from Mr. Fred Koenigsberg that goes back to 1988, and he says ASCAP disagrees with our position.
Page 252 PREV PAGE TOP OF DOC Mr. FRANK. Well, then, take them to court. What I'm saying to you is, if you believe the law is clearwell, let me go on
Mr. SHAPIRO. Mr. Frank, how do we take them to court?
Mr. FRANK. Oh, youone, somebody can get an injunction on behalf of people with standing who have been harassed. I'm not licensed to practice law in the District of Columbia, so I don't want to give you legal advice. [Laughter.]
But maybemaybe you've got some lawyers that are paid enough that would figure out how to do that.
Secondly, the way you take them to court is this: They come in and they say, ''We require you to pay,'' and you say, ''Never mind, the law's against you. Get out of my store, and don't bother me again.'' And let them take you to court, and then you defend against it. But if the law is really clear, then just call their bluff.
But I also want to know what your position was. Is it your position in terms of beyond that, beyond what's being shown in the stores, that any television or radio broadcast of music in a publicin a restaurant should not be subject to a license?
Mr. SHAPIRO. No, that is not our position. Our position, if there is a fee paid to go to that performance, that is
Mr. FRANK. OK, but there's no
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Mr. SHAPIRO. OrI'm sorry.
Mr. FRANK. I'm really serious; what about if there's a cover charge at the restaurant? Would that qualify as a fee for the performance?
Mr. SHAPIRO. That's up to you. I mean, the way the legislation is drafted
Mr. FRANK. Mr. Shapiro, I don't mean to be arrogant, but it's all up to us. [Laughter.]
Mr. SHAPIRO. And I'm very well aware of that.
Mr. FRANK. I understand. All right, but when we talk about no fee is paid, because there's no cover charge, no minimum, no separate fee, you would then say a restaurant or a bar could have as many radios and TVs playing music as it wished without having to pay any fee for that?
Mr. SHAPIRO. It's my positionit's our position that, indeed, we support the legislation as it is drafted
Mr. FRANK. But, please, Mr. Shapiro, that's a pretty straightforward question. I'm not trying to trick you. Are you in favor of the law being changed to say that if you run a restaurant or a bar, you don't have a minimum, there's no performance fee, that you could have as many radios and televisions as you want in that bar?
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Mr. SHAPIRO. Yes, given the fact that the
Mr. FRANK. OK, that's fine.
Mr. SHAPIRO [continuing]. Radio broadcast is already paid for
Mr. FRANK. ''Yes'' is very clear to me. I understand ''yes,'' very easy.
Mr. Madland, how much in dollarsthis is important to me to try to get an understanding. You have said, and I appreciate itand Ms. Showman also saidthat you had no objection to paying for live performances, et cetera. What would you be asked to pay, your establishment, for the right to run a radio or a TV? Can you give me an idea of the dollars we're talking about?
Mr. MADLAND. Under the current tables of ASCAP and BMI or under the NBLA agreement or
Mr. FRANK. Under any of them.
Mr. MADLAND. OK. To run the TV's I have, I'm guessing from each one probably about $250 to $300.
Page 255 PREV PAGE TOP OF DOC Mr. FRANK. A year?
Mr. MADLAND. A year per
Mr. FRANK. Under the National Licensed Beverage Association agreement, how much would it be to run a TV? Or a radio?
Mr. MADLAND. That I don't know for sure. I can see if I can
Mr. FRANK. Oh, OK, you seemed to me to be familiar with their agreement. So, I mean
Mr. MADLAND. Yes, I know what
Mr. FRANK [continuing]. You knew it was $30 a year
Mr. MADLAND [continuing]. I have to pay if I have live music, sir.
Mr. FRANK. No, but I didn't ask you that. I understand that, Mr. Madland.
Mr. MADLAND. I understand.
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Mr. FRANK. But what I'm suggesting is that I think we are not talking about very large amounts of money, but I'd like to know what that is. Well, let me ask you this
Mr. MADLAND. The square footage, sir, would equal a little over $10,000 in my building.
Mr. FRANK. For what?
Mr. MADLAND. For
Mr. FRANK. A radio or a television?
Mr. MADLAND. For the TV's that I have. I have multiple TVs.
Mr. FRANK. You would have to pay $10,000 a year to whom to runfor how many TV's?
Mr. MADLAND. Six.
Mr. FRANK. You would have to pay $10,000well, all right, let's check that. You believe thatthis is under the National Licensed Beverage agreement?
Mr. MADLAND. Under the NLB agreement, based on square footage
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Mr. FRANK. Sir, I'm asking you how you would have to pay. I don't know why you
Mr. MADLAND. I'm sayingI'm telling you, under what I understand of this agreement, under the square footage table, my square footage in my building with my basement and everything is between 20,000 and 25,000 square feet, and according to this, my yearly fee is $10,316.
Mr. FRANK. Per television set or for
Mr. MADLAND. Not per television set. That would be for my establishment.
Mr. FRANK. Everything? You would have to pay $10,000 for everything?
Let me ask, if you weren't ablewell, let me ask Mr. Kilgore this. If a restaurant, not a bar, wasn't able to play the radio or the television, would that have a significant negative effect on their business? I've got to confess to my own bias here. When I go into a restaurant, I either want to talk to somebody or read, and I would probably pay more if they'd shut the darned thing off. [Laughter.]
But the question is, for restaurants now, is a radio or a television playing considered to be an important inducement to customers coming in?
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Mr. KILGORE. We haven't taken anywe haven't quantified that by any study in regard to our membership. So I would be just speculating, just as you are, obviously. I think to the extent that radios and TV's are on, that there's obviously some purpose in doing so, and some benefit presumably.
Mr. FRANK. That it probably does bringall right, because, frankly, it does seem to me from your
Mr. KILGORE. I don't want to say that it necessarily equates to the level that it brings in customers, but there is some residual, at least, business benefit; otherwise, presumably, they'd just turn it off. But that benefit may be comparable, for example, to the paint color on the walls or type of furniture used in the restaurant.
Mr. FRANK. They wouldn't do it? Well, it does seem to me, from the restaurant's standpoint, it's almost a two-edged sword, and there's not a good answer for you, because if shutting them off isn't going to affect your business, it's kind of hard to see what the problem is. But, on the other hand, if, in fact, they are an inducement, then it seems to me reasonable in a business relationship that people ought to pay something for the inducement.
Let me just say in closing
Mr. KILGORE. Well, let me just comment on that. Of course, the Congress determined 20-some years ago that in all circumstances, because the TV or radio is turned on, or whatever that scope of the exemption is, which we don't know for sure, that at least in some use of radios or TVs in a commercial establishment, that in fact you would not have to pay for the use.
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Mr. FRANK. Right. It's kind of abut, as you said, Congress made that an exemption from the general principle, and it does seem to me that there is a principle that says, if in fact you are using something else that's helping your business, it's not unreasonable for you to pay something.
But let me alsoI just want to make a general comment in closing, Mr. Chairman. Ms. Showman suggested it. The notion that someone would come into your home and say, ''I'm not leaving until you pay me,'' is outrageous, and I would have to say to people: Please do not hesitate, if you have been imposed in that wayand I don't doubt that there are people who represent ASCAP and BMI who are occasionally rude and offensive and obnoxious; I don't doubt that there are people who represent, frankly, some of us here who occasionally are rude and offensive and obnoxious, and even one or two of us might on occasion be one or two of the above. [Laughter.]
And I would urge you, because there is some legal coercion here, let us know about it. Let me just give you an example. I think one of thewell, no, you've got a petition in general, Ms. Showman; I mean a specific instance. I don't know how long ago that happened, but you write to me and give me the name of the person who sat in your house and said, ''I'm not leaving until you pay,'' and I will raise hell with the organization that chartered that person and say, ''Next time that happens I want that person fired, and you instruct your people that they are not to impose on individuals that way.''
And, you know, what I'm saying is that you've got to separate out the law from people who may badly carry it out. And I thinkwell, to just give you an example, I think they made a mistake when they went after the Girl Scouts, and I heard the explanations, et cetera, but after that was raised, they backed off. And so where there has been an impositionthat will happen with human beings doing thislet us know about it, but I don't think that's an argument for changing the law.
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Thank you, Mr. Chairman.
Mr. COBLE. I thank the gentleman
Mr. Shapiro, this is subject to interpretation, but I'm not as convinced as you are that the law is all this clear and lucid, but we can leave that for another day.
Mr. Sensenbrenner, the gentleman from Wisconsin.
Mr. SENSENBRENNER. Thank you, Mr. Chairman.
I know that the people on this panel are probably not uniquely qualified to answer this question, but I felt it had to be asked. Ms. Peters, the Register of Copyrights, talked about how nice it was to have background music when she went in to see the dentist. Do any of you think that the music was an inducement for her to come in to see the dentist? [Laughter.]
Let the record show that there was silence.
Ms. SHOWMAN. Show no.
Mr. SENSENBRENNER. I have one very quick question for Ms. Showman, and then I'd like to talk to Mr. Kilgore for a bit. When the ASCAP and BMI police paid a visit on you and got the money from you for their licenses, did they give you a list of what you bought, what repertoire you bought?
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Ms. SHOWMAN. No, and I asked for that specifically.
Mr. SENSENBRENNER. And what were youwhat was the answer?
Ms. SHOWMAN. He said that it was tothey had too many; they couldn't make a list of that many records, and I could call them when I wanted to know which record I was going to use.
Mr. SENSENBRENNER. So you got sold something, but you weren't told what you bought?
Ms. SHOWMAN. That's true.
Mr. SENSENBRENNER. OK. Now, Mr. Kilgore, we heard from the previous panel, almost ad nauseam, that the solution to this problem is not legislation particularly clarifying the homestyle exemption, but having all of the groups reach agreements with the licensing societies like the NLBA has done. What's wrong with that?
Mr. KILGORE. There are several things wrong with that. First of all, let me make sure that this panel understands, in regard to the general term ''negotiation'' and the allegations that were made by the other panel, that the National Restaurant Association, which seemed to be focused primarily on, rather than the coalition, of which we are a part, refused to negotiate.
Page 262 PREV PAGE TOP OF DOC We have offered to negotiate as recently as this past February in regard to the provisions that are subject to your bill or anything else, for that matter, in the context of legislation that we would propose. We have offered that time and again. In fact, in the last Congress we did sit down collectively with the societies and, indeed, did commence the negotiation at that time on the five major provisions in H.R. 789.
So when we talk about negotiations, I want to make sure, both with respect to the National Restaurant Association as well as with respect to the coalition, some 30 members in the coalition, that we have offered to negotiate, and in fact the refusal to negotiate with respect to the legislative approach has been from the other side. They will not negotiate a legislative solution; at least that's the answer we got last winter.
Now in regard to your specific question, as far as a commercial, private agreement, as I mentioned, there are several problems that we, the National Restaurant Association, as well as the some 30 other members of the coalition, have had with that approach. No. 1, that would not resolve the issue of the ambiguity, the inconsistency in the way the courts have construed section 110(5) of the Copyright Act.
They came to a private agreement in regard to, apparently, certain aspects of the exemptionwho were they going to exempt? I do find that a little bit ironical, No. 1, in regard to the NLBA agreement, which I have not seen, and apparently will not be able to see because they will not provide those. But just from theI'll use the term ''propaganda;'' it was suggested maybe I should be a little bit less direct on itinformation, whatever you want to say, but my understanding from the information that the NLBA has put out on that so-called agreement is that, even if you want to be exempt, you still have to pay something to be exempt, $30. Whether that makes you part of the agreement, whether that means you're licensable because you are paying a $30 fee, I don't know because I don't know what the specific terms are.
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But I do think that if, in fact, that is a provision in that agreement, there would seem to be an open question of whether in fact perhaps some of those businesses that otherwise would not be licensable under anybody's definition of 110(5) of the Copyright Act, whether that would be inconsistent with the law, and perhaps the Federal court consent decrees. But I think that goes back to apparently the overall approach and the examination that is currently being made by the Justice Department.
In any event, the point being, first, as far as a private commercial agreement, that's not going to resolve the problems with 110(5) of the Copyright Act, and what the societies have admitted in this July 24, 1995 letter to Congressman Moorhead, that allows them to have different applicability of what the copyright exemption is under 110(5)it won't resolve that.
Secondly, even as to those who signed the agreement, where does it leave those who don't sign the agreement? They may have those two basic provisionsagain, as I understand from the propaganda that was put out by the NLBA, it covers only two basic parts: rates, which of course we know essentially are not part of your bill, and, secondly, the provision with respect to the exemption. That's only one-fifth or one-sixth of your bill.
Your bill, and provisions which our coalition, and which this association is concerned with, far transcend just the issue of rates, which is not part of it, again, and the fact of what the exemption is. We have access to repertoire; there's a programming licensing issue; there's also, of course, vicarious liability. Those matters, as I understand it, are not touched on by the NLBA agreement.
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And, in fact, we know from the last Congress, on some of those basic issues, as far as negotiating a private commercial agreementnamely, arbitration being the one that immediately comes to mindthe societies represented that the arbitration approach, and I'll quote, was ''totally unacceptable to all three societies.'' So the question is, if we go to a private agreement in those provisions we offer, we've already been given the indication that some are not going to be on the table. So it's not going to be a resolution, even from a prototype agreement, which is exactly what it is. And I think this panel has to keep in mind that what was negotiated is not an agreement with any particular member of the NLBA, until that member agrees to be bound by that supposed contract. It is just thata prototype agreement that the association has negotiated, and they are suggesting to the industry.
We know from a letterwe being the coalitionthat we received from ASCAP, in response to our suggestion in February that we negotiate for a legislative solution, and why a commercial agreement wouldn't work, ASCAP wrote back to us and specifically indicated that they came to some private agreement on a program license with part of the industry that was affected by that. And they stated, as to that part of the industry, those members that didn't want to join it, we'll see them in court and have it resolved there. So we are not going to resolve all of the problems in regard to any type of private agreement, even if that agreement theoretically would cover all of the provisions that we are concerned in the bill that you introduced, which it would not; and, secondly, all the members would not necessarily join itin fact, have notand they still have the problems ongoing as to them.
Mr. COBLE. The gentleman from California, Mr. Berman.
Page 265 PREV PAGE TOP OF DOC Mr. BERMAN. Thank you, Mr. Chairman.
Mr. Kilgore, it seems to me that there's a little slipping and sliding going on here. First, there is a difference between arbitrating the nature of the exemption and the amount of payment. In other words, the terms of the collective bargaining agreement, we don't mandate arbitration for that in the private sector now, and the question of arbitrating the application of a signed agreement in a specific factual situation.
Mr. KILGORE. Well, let me ask, who's slipping and sliding, and where is the sliding occurring?
Mr. BERMAN. Well, let meit is one thing to talk about wanting 30,000 different arbitrations aboutor who knows how many would come from this kind of local arbitration, the question of how many square feet should be covered, and how many radios, and that is a negotiation process to produce an agreement.
Then the question of whether, in fact, the factual situation of the signatories to that agreement met those terms or not is a very different story. Your case for the problem of going to New York to litigate whether this guy should have paid the money he agreed to pay, whether he had too many radios, is a much better case than a notion that in a whole bunch of arbitrations all around the country, some arbitrator should be empowered to write the agreement between that particular restaurant and a particular performing rights organization.
Mr. KILGORE. Well, wait a minute. Let me clarify, because you have totally misrepresented what the position of the National Restaurant Association has been, clearly has been, as well as the coalition. The arbitration provision is what we support in H.R. 789.
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Mr. BERMAN. Arbitrate what?
Mr. KILGORE. Arbitrate the rates is what the problem is.
Mr. BERMAN. Arbitrate the rates?
Mr. KILGORE. Right, the rates is what the problem is. Now H.R. 789
Mr. BERMAN. No, no, no
Mr. KILGORE [continuing]. Does expand it, but the problem that's been identified, which we have complained about
Mr. BERMAN. Say this again?
Mr. KILGORE. The problem which has been identified
Mr. BERMAN. When you support a bill that exempts you from being charged anything, don't tell me the problem is how to arbitrate the rates. You're pushing a bill to exempt you from paying any rate.
Mr. KILGORE. Well, I'm confused, Congressman. Are we talking about the exemption issue now or are we talking about the arbitration
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Mr. BERMAN. Exactly. You're raising the smokescreen of traveling to New York to go to the Southern District and some supposed, and perhaps accurately, inappropriate tactics by staff from performing rights organizations, as a basis for pushing a bill that excludes you from paying anything for the rebroadcasting of radio and television music in your establishments.
Mr. KILGORE. Well, frankly, I think those issues are apples and oranges. The exemption issue is one issue; the arbitration of rates in New York City is an entirely different issue.
Mr. BERMAN. But my point is there's two different aspects of arbitration. One is to arbitrate the provisions that are obligated, and the other one is to determine whether it's the same thing, that you're arbitrating a dispute that comes within the meaning of the collective bargaining agreement, and arbitrating the collective bargaining agreement itself. In effect, what you're calling for is thousands of different arbitrations of collective bargaining agreements, a process that, if we developed it fully, would I think be shown to be as absurd as it sounds on its surface.
But, then, the second point is, when you talk about what you're willing to negotiate and what you're not willing to negotiate
Mr. KILGORE. Well, but keep in mind
Mr. BERMAN. Let melet me just
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Mr. KILGORE. Yes, but you're making comments and putting
Mr. BERMAN. Yes, that's right, I'm making comments, just like you did. Now I'll ask you a question, but let me just finish my point.
The second question and point is: You say, ''We're willing to negotiate the legislation; they're not.'' They say they're willing to negotiate the payment agreements; you're not. Is that a fairis that a fair summary?
Mr. KILGORE. We are not willingwe, the National Restaurant Association, in regard to that issueI only speak on behalf of the National Restaurant Association
Mr. BERMAN. Yes.
Mr. KILGORE [continuing]. Have not been willing to negotiate a private agreement, for some of the reasons that I expanded on in regard to Congressman Sensenbrenner's questions.
Mr. BERMAN. Right, yes. And you also say they're not willing to negotiate the legislation?
Mr. KILGORE. Well, they were in the last Congress, but they have refused to do so in this Congress.
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Mr. BERMAN. All right, OK, I guess
Mr. KILGORE. To my understanding.
Mr. BERMAN. All right, because there were discussions and negotiations about legislation in the last Congress.
Mr. KILGORE. Of course.
Mr. BERMAN. All right, because I
Mr. KILGORE. Which is a step backward from the society's standpoint
Mr. BERMAN. You were given your comment.
Mr. Madland, I'd like to ask you, what's the gross revenues of your establishment, Pete's Landing? Is that it?
Mr. MADLAND. OK, first off, I would like to say that I miscalculated, sir, when I said 1 percent. I know it is not a lot. I would say it's closer to one-tenth of 1 percent.
Mr. BERMAN. Yes, thank you.
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Mr. MADLAND. OK?
Mr. BERMAN. I was going toall right, that means that your gross revenues in Pete's Landing are $10 million?
Mr. MADLAND. No, no. If I would enter this agreement, sir, I would have to pay $10,000. I do not pay $10,000 now, as I stated earlier. My gross revenues at Pete's Landing right now is about $400,000. I pay approximately $500, sir.
Mr. BERMAN. You pay $500 on gross revenues of $400,000, which is pretty close to one-tenth of 1 percent. Now what agreement is it that makes you pay $10,000?
Mr. MADLAND. If I would enter into an agreement with NLBA, and based on the square footage of my place, because I have six TV's, I am not exempt under the 3,500-foot rule, OK, and I'm not exempt because I have more than three TV's, because I have six TV's and my total gross square footage, including my basement, my upstairs, my main floor, my storage, is over 20,000 square feet, that puts me in the category of paying a little over $10,000.
Mr. BERMAN. All right. I'd like to independently check that out, but we don't have time to do that right now. All I'm saying is, if under existing law you're paying, what, approximately $400
Mr. MADLAND. Five hundred and something.
Page 271 PREV PAGE TOP OF DOC Mr. BERENSON [continuing]. $500, and under some agreement you'd pay $10,000, I'd suggest you stick with existing law. [Laughter.]
Mr. MADLAND. I agree. I even figured that one out.
Mr. BERMAN. OK.
Mr. MADLAND. My point
Mr. BERMAN. What I don't understand is, why do you want to push a bill that keeps you from paying the $500, to provide the six televisions and all that goes with that for your customers?
Mr. MADLAND. My directions to my staff is the only time my TV's are on is for sporting events, and I don't think that, in all due regards to Mr. Davis and Mr. Holyfield, I don't think they or anyone else should receive royalties from my establishment because I watch a football game.
Mr. BERMAN. Mr. Davis. Oh, the previous witnesses, that's what you're
Mr. MADLAND. Correct.
Mr. BERMAN. That's what you're talking about? Even when there is music played on those
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Mr. MADLAND. ''God Bless America,'' ''The Star-Spangled Banner,'' and the half-time showsI don't think I should have to pay for that. My people do not come in and say, ''Did the 'Star-Spangled Banner' start yet?'' They come in and say, ''Did the game start yet?''
Mr. BERMAN. Do you do karaoke in your establishment?
Mr. MADLAND. No. I used to.
Mr. BERMAN. No?
Mr. MADLAND. I used to.
Mr. BERMAN. No? Do you have a DJ?
Mr. MADLAND. Yes, I do.
Mr. BERMAN. What, the DJ broadcasts football games?
Mr. MADLAND. No.
Mr. BERMAN. He plays music?
Mr. MADLAND. Correct.
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Mr. BERMAN. That's not television.
Mr. MADLAND. Correct.
Mr. BERMAN. So, I mean, what are we talking about here? We're talking about music in an establishment that's attracting customers; it's not about watching football games on television.
Mr. MADLAND. All ofare you talking about my establishment?
Mr. BERMAN. Thisyes.
Mr. MADLAND. OK. My establishment pays
Mr. BERMAN. That's yourI mean, you're the witness, not representing an association
Mr. MADLAND. Right.
Mr. BERMAN [continuing]. That you're
Mr. MADLAND. Right. I have just startedI starting DJing a while ago. I just put my TV's up a while ago. And right now I'm paying over $500. If I wanted to go under the NLBA agreement, I'd be paying over $10,000; that's correct.
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Mr. BERMAN. OK, that's interesting, and a point made already. But the disk jockey, once you pay that $500, you're entitled to use any music from the repertories of the performing rights organizations who you pay the fees to; is that correct?
Mr. MADLAND. That is correct.
Mr. BERMAN. And that covers your disk jockey
Mr. MADLAND. Yes, it does.
Mr. BERMAN [continuing]. And it covers the karaoke that you used to do, but don't do anymore, but might do in the future, and it covers the televisions; isn't that right?
Mr. MADLAND. Right.
Mr. BERMAN. Thank you. Thank you, Mr. Chairman.
Mr. MADLAND. But I might add, if I do not have a DJ, if I just had six TV's, under this agreement, I have to pay $10,000.
Mr. BERMAN. Ifif my mother had wheels, she'dwell
Page 275 PREV PAGE TOP OF DOC [Laughter.]
Mr. COBLE. I thank the gentleman. The gentleman from Virginia, Mr. Goodlatte.
Mr. GOODLATTE. Thank you, Mr. Chairman.
Mr. Madland, are you saying that under the agreement that the National Licensed Beverage Association entered into, you'd have to pay $10,000?
Mr. MADLAND. That's my understanding, yes.
Mr. GOODLATTE. So I take it that's one reason why you won't sign onto that. How many members of your Wisconsin Tavern League are there?
Mr. MADLAND. Approximately 4,000.
Mr. GOODLATTE. Four thousand members in the State?
Mr. MADLAND. Yes.
Mr. GOODLATTE. Are they all in the State of Wisconsin?
Mr. MADLAND. Yes.
Page 276 PREV PAGE TOP OF DOC Mr. GOODLATTE. Wow. [Laughter.]
Mr. MADLAND. The biggest one of its type in the country, sir. We have 13,000 bars.
Mr. GOODLATTE. In the State?
Mr. MADLAND. In the State of Wisconsin; more bars per capita than any State in the country. [Laughter.]
We consume more beer than any State in the country per capita, and we consume more brandy than the other 49 States combined, and we also have approximately the fourth longest life expectancy. [Laughter.]
Mr. SENSENBRENNER. He works for the chamber of commerce as well. [Laughter.]
Mr. GOODLATTE. So I take it that you're the bars that ''made Milwaukee famous;'' is that right? [Laughter.]
Mr. MADLAND. Yes, we're part of them, yes.
Mr. GOODLATTE. All right, OK, very good. Are there other aspects of this agreement that you can tell me about that you don't agree to?
Page 277 PREV PAGE TOP OF DOC Mr. MADLAND. Well, the
Mr. GOODLATTE. And let me ask you, is that primarily related to the live performances that you have at your place, the disk jockey or thethe $10,000, that can't be from having a couple extra TV sets above the limit that they have?
Mr. MADLAND. That would be for havingas I understand the agreement, I am not exempt because I have more than three TV's, and I also have a DJ, but even if I just had my six TV's, which is most of the time, I would have to pay, according to my square footage, $10,316.
Mr. GOODLATTE. How many square feet do you have?
Mr. MADLAND. Over 20,000.
Mr. GOODLATTE. You have 20,000 square feet, and yet your gross revenues are $400,000?
Mr. MADLAND. That's correct. I have a basement that is not finished off; most of it is storage. I have an upstairs. My wife does a lot of decorating in our place; upstairs is full of decorations and storage. I have a kitchen. I have a couple of walk-in coolers that are part of the square footage. I have bathrooms, and I havemy bar area seats approximately 42 people, and my restaurant area seats approximately 75 people.
Mr. GOODLATTE. Is it your understanding that the agreement that the National Licensed Beverage Association entered into is total square footage of the entire facility, not just the area that serves customers?
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Mr. MADLAND. It is gross square footage of the total areathat's my understandingincluding any patios that may be adjacent also.
Mr. GOODLATTE. All right. And, of the 20,000 square feet you have, what amount of that is used for customer service; in other words, the portion in which there are customers?
Mr. MADLAND. I'm guessing my bar takes up about one-fifth maybe, with my bar and my seating in my bar area
Mr. GOODLATTE. Four thousand? Four thousand square feet?
Mr. MADLAND. And I have a
Mr. GOODLATTE. You'd be over the limit either way?
Mr. MADLAND. Yes. But, obviously, my rates would be greatly reduced at 4,000 instead of 20,000.
Mr. GOODLATTE. OK. What percentage of your members of the Wisconsin Tavern League would fit into that same category?
Mr. MADLAND. I'm willing to guess that approximately 50 percent of our members would fit under the exemption, because they don't pay now, because theyour typical member is a downtown bar, corner bar, country bar; they have a TV; they have several barstools, and that's pretty much the extent of their business, and maybe a grill in the back. And the bulk of our members, I would say right now, do not pay anything, because by law they are exempt.
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Mr. GOODLATTE. All right.
Mr. Kilgore, can you tell me, from the perspective of your organization, where we stand on your efforts to reach an agreement on this, and what differences do you have with the agreement that was reached by this one organization?
Mr. KILGORE. With the NLBA?
Mr. GOODLATTE. Yes.
Mr. KILGORE. What efforts we've made to reach an agreement with them?
Mr. GOODLATTE. No, no. What efforts have been made to reach an agreement with the songwriters, and what differences do you have with the one agreement that has been reached with the songwriters?
Mr. KILGORE. Well, first of all, let me answer in reverse. As far as the NLBA agreement, we haven't seen the agreements. That's why I would only speculate in regard to the propaganda that they put out, but I'd be more than happy to comment on that.
Mr. GOODLATTE. Well, let me ask you, is this a secret agreement? Is this not readily available to you?
Page 280 PREV PAGE TOP OF DOC Mr. KILGORE. We've asked for it, and it was just represented in the previous panel that we would not be given it. It's, they term, ''proprietary,'' which I find curious because there are other association agreements which we have been given access to.
Mr. GOODLATTE. Have you asked ASCAP or BMI for it?
Mr. KILGORE. We have asked NLBA of it. We have not asked ASCAP or BMI, but I certainly will put that request right now.
Mr. GOODLATTE. Good. Thank you.
What about the differentyou may not be able to tell me too much about the differences that you have with it then, if you haven't looked at it.
Mr. KILGORE. Well, I think just some comments in regard to what I've seen them put out on it: No. 1, the NLBA indicates that the agreement contains two basic parts. One would concern rates; the other would concern the exemption. And our concern, both as to the National Restaurant Association, as well as the coalition, of which we are a part, is much broader than that. So that agreement, obviously, would not be satisfactory to all of the issues that are present, including a very tremendous issue, the arbitration of rates.
I think, secondly, that, as I mentioned before to Congressman Sensenbrenner, that there are provisions in there, for example, the rate, as I understand, apparently contrary to what the testimony I heard from the NLBA this morning, if I understood Ms. Leach's testimony correctly, the rate is based on the entire square footage of the restaurant, not just certain areas of it, and that would include the parking lot, the bathrooms, including, I might state, areas where clearly music is not intended to be heard, and perhaps is not heard.
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In fact, there's an example that the NLBA put out in some of this propaganda in regard to a bowling alley that had a small lounge, only a small part of the overall area in regard to the establishment, and the question they posed to their membership was: ''Well, since I only have that small area where I have a TV, why should I have to pay a rate based on the entire area?'' And the answer they gave is that all of this agreement may not be beneficial to all businesses.
Mr. GOODLATTE. Let me ask you this: During the last Congress, the previous chairman of this subcommittee was very close to offering legislation that he felt was a negotiated, compromise agreement between the various parties. At the last minute, that all seemed to fall apart. I wasn't directly involved in those negotiations, so I don't know what the status of it was. Are you familiar with such a
Mr. KILGORE. Are you talking about Chairman Moorhead's
Mr. GOODLATTE. Yes.
Mr. KILGORE. I am somewhat familiar with it. I don't think a bill was ever introduced.
Mr. GOODLATTE. No, it was not introduced. Can you tell me how that legislation differs fromor the idea behind that legislation which didn't take place differs fromthe agreement that you understand that the National Licensed Beverage Association has?
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Mr. KILGORE. Well, I think it differs totally. And that is, first of all, the exemption was not what apparently the NLBA has come up with. It was broader than that.
Secondly, it contained provisions, many provisions, which, again, apparently, from not seeing the agreements, the NLBA agreement doesn't contain, including some type of access, guarantee of access, to repertoire, some type of dispute resolution mechanism other than having to go to New York City for matters as far as ASCAP and BMI. So I think, from my understanding, again, which the chairman at that point did not introduce, that that proposal that he had put out to the various parties was just entirely different, far more expansive than what I understand the NLBA agreement to be.
Mr. GOODLATTE. Some of the previous witnesses have said that the National Restaurant Association isn't willing to negotiate on this. Is that true? What is your perspective on that?
Mr. KILGORE. Is or is not?
Mr. GOODLATTE. Is not.
Mr. KILGORE. Willing to negotiate on what?
Mr. GOODLATTE. On resolving this whole issue.
Page 283 PREV PAGE TOP OF DOC Mr. KILGORE. Well, of course; I mean, we proposed that as part of the coalition, meeting at the table with ASCAP, BMI, and SESAC, the three major societies, to negotiate the provisions, just as we had started to do in the previous Congress. That's been refused by the three societies.
Mr. GOODLATTE. When's the last time you had an open negotiating session with them?
Mr. KILGORE. The last Congress.
Mr. GOODLATTE. The last Congress? So there hasn't been anything recently? Would you bewould your organization be prepared to sit down with them again, if this
Mr. KILGORE. To work for a legislative solutionwe have suggested dates; we would be willing to sit down instantaneously with them.
Mr. GOODLATTE. OK. OK, thank you, Mr. Chairman.
Mr. COBLE. Thank you, Mr. Goodlatte.
The gentleman from Massachusetts, Mr. Delahunt.
Mr. DELAHUNT. Yes, thank you. Thank you, Mr. Chairman.
Page 284 PREV PAGE TOP OF DOC And, Mr. Madland, I was very upset to hear that Wisconsin is ahead of Massachusetts when it comes to long, long life. [Laughter.]
Mr. MADLAND. I would be, too. We're very proud of that.
Mr. DELAHUNT. I can't findthat's some testimony that really does, to be perfectly candid, lack some credibility with this Irishman from Boston. [Laughter.]
I now understand, however, why Mr. Sensenbrenner has introduced this legislation. [Laughter.]
That answers a lot of the questions that I have.
Let me ask you thisI mean, $500 with a DJ, with use of thewith full use of the license, I mean, as a businessman, you don't consider that a lot of money, do you, really?
Mr. MADLAND. I fully expect to pay for using a DJ or a band or karaoke.
Mr. DELAHUNT. Right.
Mr. MADLAND. I have no problem with that. My problem is with paying for commercials on TV's, things like that. That's where I have a problem. I'm a small businessman. I think these
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Mr. DELAHUNT. Let me ask this: Your opposition, I presume, is different than Mr. Kilgore's, because he's talking about legislation, but would the Wisconsin Tavern League, with all its members, be willing to sit down with ASCAP and the other PROs and negotiate your own agreement to deal with that issue on a private, commercial basis?
Mr. MADLAND. Most certainly.
Mr. DELAHUNT. Well, you know, I mean, I think if I were you, at the conclusion of this hearing, I'd go over and talk tohas your position changed or do you still have theafter your aide came over and whispered in your ear, do you still have the same position? [Laughter.]
Mr. MADLAND. Yes, I do. Great.
Mr. DELAHUNT. Well, then, I would respectfully suggest that you go and you talk to these folks, and see if your association can work out a private, commercial agreement.
You know, I understand Mr. Kilgore's position in terms of being willing to negotiate on legislation that Mr. Sensenbrenner has proffered, because it certainly benefits the trade association that he represents. So whatever would come out of that negotiations would certainly be an improvement over the current status of the law.
Mr. KILGORE. Well, plus, the other 30 members of the coalition, I might add.
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Mr. DELAHUNT. Let me ask a question about the coalition, now that you raise it. I presume that the coalition is funded?
Mr. KILGORE. I am counsel, or have been at least kind of counsel to the coalition. Details in regard to the funding of the coalition, or even listing all of the members, I wouldn't have direct knowledge on. So I really can't answer that question.
Mr. DELAHUNT. But you're here representing the coalition today?
Mr. KILGORE. I am here representing the National Restaurant Association as a member of the coalition.
Mr. DELAHUNT. As a member of the
Mr. KILGORE. Right.
Mr. DELAHUNT. As a member? And I presume you're not doing this on a pro bono basis, Mr. Kilgore? [Laughter.]
Mr. KILGORE. Well, I'm in-house now; so I'm
Mr. DELAHUNT. You're in-house counsel?
Page 287 PREV PAGE TOP OF DOC Mr. KILGORE. Yes, right.
Mr. DELAHUNT. So as part of the National Restaurant Association, your time is being paid for by them, in behalf of this coalition that you have referred to, but you can't enumerate each and every member of the coalition?
Mr. KILGORE. We can provide that list, if you would want it.
Mr. DELAHUNT. Well, I'd appreciate that list.
Mr. KILGORE. Sure.
[The information follows:]
Mr. DELAHUNT. But I'd also appreciate, too, in terms of the funding for the coalition, is that primarily coming from the National Restaurant Association, if you know?
Mr. KILGORE. I don't know.
Mr. SHAPIRO. Could I try to answer it then? I don't think
Mr. DELAHUNT. I'm directing my questions to Mr. Kilgore, and if I have a question for you, Mr. Shapiro, I'll pose it later.
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Mr. KILGORE. I justmy understanding, just from my counsel, is that there are no costs
Mr. DELAHUNT. You have a counsel also?
Mr. KILGORE. I do. But, certainly, we can provide that
Mr. DELAHUNT. From the National Restaurant Association or from the coalition?
Mr. KILGORE. From the National Restaurant Association.
Mr. DELAHUNT. Thank you.
You know, my problem with negotiating, in terms of the legislation, to expand exemptions, really comes back to the testimony of Ms. Peters about the implications in terms of the Berne Treaty, the Berne Convention. You know, I presume that we're, as she saysunder the current law, questions are being posed, but the agreements that have been entered into with NBLA don't affect our status in terms of the treaty because they're private, commercial agreements. If this Congress proposed legislation that expanded those exemptions, we could run afoul very easily of our treaty obligations, and really get ourselves into a bind.
I think that's a problem, one problem, that I have with this legislation, to be perfectly candid. I think we've got to put it in context.
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Mr. KILGORE. Well, my understanding from the testimony of the Copyright Office this morning is that that isn't a definitive conclusion at this point; that that's something that apparently there's been some allegations about that, but it hasn't been finally decided. So I agree
Mr. DELAHUNT. But you
Mr. KILGORE [continuing]. I think that that's a matter that clearly
Mr. DELAHUNT. Right.
Mr. KILGORE [continuing]. This committee and the Congress needs to straighten out in regard to
Mr. DELAHUNT. No, I understand that. I mean, but it goes beyond just simply the National Restaurant Association and the coalition. This has implications in terms of protecting our intellectual property on an international level that, by the way, has provided us with some solace in terms of our trade deficit, because that's one segment of our economy where we do have a competitive advantage.
Mr. KILGORE. Well, but I think you also have to keep in mind as well that that shouldn't tie the hands of the Congress to straighten out the problem your predecessors, or at least most of your predecessors, created 21 years ago, and that is the ambiguity in regard to what the scope of what that exemption is. It may perhaps impact where you want to clarify, as the societies have asked, or take that exemption, but it doesn't stop you in the first instance
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Mr. DELAHUNT. Oh, I understand that our hands
Mr. KILGORE. Right, but whether that being the
Mr. DELAHUNT [continuing]. That our hands are not tied. Yet, at the same time, this is an issue. Any change in the current status of the law has implications that are far-reachingfar-reaching.
Mr. KILGORE. Well, depending on what
Mr. DELAHUNT. And my sense is that many from the first panel didn't have any question as to ambiguity. You know, ambiguity is to be resolved in most cases in a courtroom, if there's a legitimate disagreement in the course of a business relationship
Mr. KILGORE. Well, but that's the problem
Mr. DELAHUNT [continuing]. Just as very much as
Mr. KILGORE. But you've put your finger exactly on the problem, and that is, I think that that's not a correct statement of what the first panel said, but, in any event, it's certainly not a correct statement of the law, because under 110(5) the ambiguity in the language has had the courts all over the map in regard to where they think that scope
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Mr. DELAHUNT. You know, as the ranking member, Mr. Frank, said, there is no way that legislationthat if we passed legislation along the lines of this particular proposal, we would be litigation-free. There has never been, in my opinion, either at the State or the Federal level, legislation passed that hasn't been tested in court, and you know that.
Mr. KILGORE. I don't think there's any legislation that's ever been passed
Mr. DELAHUNT. Exactly.
Mr. KILGORE [continuing]. That in some manner hasn't been tested in court. So that would put this in no different a boat than any other legislation this Congress has passed.
Mr. DELAHUNT. Right. Thank you.
Mr. KILGORE. You're welcome.
Mr. COBLE. Mr. Madland, my friend from Massachusetts challenged the authenticity of your alcohol consumption numbers. I'm not challenging you; I'm asking: Did you say that you all in Badgerland have the fourth longest longevity rate in the country?
Page 292 PREV PAGE TOP OF DOC Mr. MADLAND. I know it's in the top 10, sir. I'd like to say fourth. It's fourth or fifth, somewhere around there, yes.
Mr. DELAHUNT. Maybe the Packers beat the Patriots in the Super Bowl. [Laughter.]
But that's where it stops, Mr. Madland. [Laughter.]
Mr. COBLE. And on that cheerful note, I'll recognize our restaurateur-performer, the gentleman from California, Mr. Bono.
Mr. BONO. Thank you, Mr. Chairman, eloquent as always.
Mr. Kilgore, when you talk about the ambiguity in the past congressional bill, are you talking about the homestyle language?
Mr. KILGORE. Yes.
Mr. BONO. Well, I think that the Copyright representatives cleared that up. It seems like the reason they used ''homestyle'' was, clearly, to indicate that the use should be similar to the use in a home, which would mean not for commercial use.
Mr. KILGORE. Well, I think, Congressman, you've put your finger on half of the problem, why the courts have construed it as an exemption use. And that is, some courts, like the Seventh and Eihgth Circuit Courts of Appeals, have determined that it's not the size of the business that determines whether the exemption applies, but it's the type of equipment that is used.
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Mr. BONO. Yes.
Mr. KILGORE. On the other hand, there are courts that say, no, it's the size of the business that determines it, and that's why you have ambiguity and inconsistent interpretations in regard to the homestyle
Mr. BONO. Yes. I'm not a lawyer, and thank you for that, but as far as I'm concerned, the reason they used ''homestyle'' is they meant use similar to home, and meant for noncommercial use. I think it's very clear that the point is that, if you're going to use it in the kitchen of restaurant or somewhere where it's not a commercial use of the radio, go ahead and let people have that. I think, out of kindness now, we're taking something and perverting it and twisting it. As far as the legal positions on that, you don't have to give me anymore, all right. I have my own legal position, and as far as I'm concerned, that's what that means. It's very clear and very simple.
Mr. KILGORE. Well, let me just add one thing, Mr. Bono, and that is that the societies have represented that that language is vague; that it's outdated with respect to TV's, and that it needs to be legislatively changed because the societies apply, may apply, different standards because of the vagueness of the language. So there's no disagreement, except apparently with you, that 110(5) needs to be changed.
Mr. BONO. I think it should be changed; I thin it should be taken away. [Laughter.]
Page 294 PREV PAGE TOP OF DOC Mr. KILGORE. Well, the 1976 Congress disagrees with you.
Mr. BONO. Yes, I understand. I disagree with Congress sometimes.
Do you feel an artist should get compensated for his work?
Mr. KILGORE. Pardon?
Mr. BONO. Do you feel an artist should get compensated for his work, for his performance work?
Mr. KILGORE. Yes.
Mr. BONO. You do believe that we
Mr. KILGORE. But I think it's too broad a question, and that is, not in all circumstances
Mr. BONO. That's a broad question?
Mr. KILGORE. No, I'm saying that the question is, in all circumstances, I would say no, because, again, in 1976 the Congress has already said, in all circumstances, the answer is no.
Page 295 PREV PAGE TOP OF DOC Mr. BONO. This is why I have such difficulty talking to lawyers
Mr. KILGORE. So I would agree with what theI would agree with what the
Mr. BONO [continuing]. Because they start spinning everything every kind of way, and we can't getwe can't talk English.
Do you think an artist should get compensated for their work, for the use of their work on a commercial basis? Forget the legalese; just answer the question.
Mr. KILGORE. I agree with what the Congress did in 1976, and that is, there is an exemption.
Mr. BONO. OK.
Mr. KILGORE. They do not get paid under all circumstances.
Mr. BONO. I won't ask it again because I can't get an answer.
Mr. KILGORE. I just said, no, I do not agree.
Mr. BONO. I make a request for 2 more minutes, Mr. Chairman.
Page 296 PREV PAGE TOP OF DOC Mr. COBLE. Without objection.
Mr. BONO. Mr. Madland, I am fascinated by some of your comments. You own a 20,000-foot establishment and you use 4,000 feet of that for commercial use?
Mr. MADLAND. I haveyes, that's about right. I
Mr. BONO. And you gross $400,000?
Mr. MADLAND. Correct.
Mr. BONO. Annually?
Mr. MADLAND. Right.
Mr. BONO. Is rent exceptionally cheap in your State?
Mr. MADLAND. No. If you could picture my place, I have a full basement that is what they call ''nonconforming use.'' I am zoned residential, not commercial.
Mr. BONO. Well, how many square feet is your basement?
Mr. MADLAND. How many square feet what?
Page 297 PREV PAGE TOP OF DOC Mr. BONO. Would you say your basement is on a ballpark basis?
Mr. MADLAND. I'm guessing probably 6,000, something like that; I don't know. Ithe 21,000 figure came from my insurance man. When I got this, I saidI called and I said, ''I want to know how much I'm paying for, how many square feet I'm paying for,'' because I wanted to put it into this equation, and that's the figure he gave me.
Mr. BONO. Well, thank you. It's fascinating because I've never heard of any restaurateur renting or buying 20,000 square feet and only using 4,000 square feet of it for commercial use. Frankly, we can't run the numbers, but I don't know how you possibly could be making any money.
Mr. MADLAND. I'm in a town of 2,000 people, and for me to have a restaurant with seating for 600 or 700 people would not be very profitable.
Mr. BONO. I understand. I just don't understand how those figures could compute into a profit on an annual basis.
Mr. MADLAND. I'd be more than happy to go home and remeasure for you, if that would
Mr. BONO. No, no, no, no. I just thought it wasit fascinated me. I've had three restaurants, and I wish I could do that
Mr. MADLAND. Yes.
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Mr. BONO [continuing]. Rent 20,000 and make money on 4,000; it's staggering.
Thank you, Mr. Chairman.
Mr. COBLE. Some have accused the Judiciary Committee of being the home of dull, complex, arcane information, but, Mr. Bono, I must say you and Mr. Sensenbrenner got us started off on a very lively foot today. It's a spirited hearing.
Mr. BONO. Thank you, Mr. Chairman.
Mr. COBLE. Mr. Cannon, the gentleman from Utah.
Mr. CANNON. Thank you.
I have five daughters, Ms. Showman, and they've all spent, or are spending, years of their life in dance, and there are a couple of questions I've actually just sort of wondered about. And I apologize about missing your testimony; I had to leave for just a few minutes; I got back as quickly as I could.
But I understand that you testified that between 1 and 2 percent of your revenue goes to pay for your music licensing; is that right?
Ms. SHOWMAN. My BMI and ASCAP yearly fee is equal to my electric bill for the summer months, if that helps you.
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Mr. CANNON. Yes, how much is that, more or less?
Ms. SHOWMAN. A hundred and fifty dollars.
Mr. CANNON. For the year?
Ms. SHOWMAN. Yes.
Mr. CANNON. And does that also pay for your dance reviews, your performances where parents are invited, things like that?
Ms. SHOWMAN. Does what pay for it?
Mr. CANNON. Does that $150 cover your performances, if you do those, for parents?
Ms. SHOWMAN. Well
Mr. CANNON. That's fine. Let me just say that I would never consider questioning your credibility, but when I read your testimony that you're 81 years old, both Mr. Pease and I had a problem with that, but I've decided that what I need to do is take up dance, and perhaps I'm tempted by brandy now, I will say. [Laughter.]
I just have one other
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Ms. SHOWMAN. But I don't understand your question.
Mr. CANNON. The question iswell, don't worry about it; I don't think we need to pursue that. [Laughter.]
It was probably inartfully asked.
Could I just pursue, Mr. Kilgore, just a little more, the question of compensation? I understand that you are representing NRA; you are in-house with NRA.
Mr. KILGORE. Right.
Mr. CANNON. And I take it, of the other members of the coalition, there are also lawyers who are working on the issue?
Mr. KILGORE. Yes.
Mr. CANNON. And none of them arethose are all paid by their respective organizations?
Mr. KILGORE. Well, they aren't paid by us. I have no idea how they're otherwise paid.
Mr. CANNON. But they're not paid by NRA?
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Mr. KILGORE. No.
Mr. CANNON. And then youthe NRA is not putting any money into a fund for the coalition; right?
Mr. KILGORE. No, I don't believe so, but, again, these are matters beyond my specific expertise.
Mr. CANNON. Right.
Mr. KILGORE. But I do not believe so, yes.
Mr. CANNON. But isI'm wondering, is the NRA moving the issue forward or is the coalition? If the coalition is, then I would expect that you've met with other lawyers from other elements of the coalition to strategize and move things forward?
Mr. KILGORE. Well, the coalition has been behind Congressman Sensenbrenner's bill. We, as part of the coalition have pushed it. So I guess the answer to both questions is, yes, we have done so, as well as the coalition. As far as who's the leadingare you asking, who's the leading proponent of it?
Mr. CANNON. Yes, I'myes.
Mr. KILGORE. There might be argument, I suppose, within the coalition as far as who's taking the lead on it. The chairman of the coalition is a member of the National Restaurant Association, if that would help.
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Mr. CANNON. And you must have a working group of some sort that gets together occasionally. How many people join that group, and who are the people that are really pushing this, in addition to the NRA?
Mr. KILGORE. Working group within the coalition or within
Mr. CANNON. Right.
Mr. KILGORE [continuing]. The National Restaurant Association?
Mr. CANNON. Within the coalition.
Mr. KILGORE. I wouldn't be sure of that. I don't know that, because the last time the coalition has met, I wasn't there. In fact, I haven't been at the last meetings of the coalition for the better part of a year
Mr. COBLE. Would the gentleman yield?
Mr. CANNON. Certainly.
Mr. COBLE. Could you make that available to Mr. Cannon, Mr. Kilgore?
Page 303 PREV PAGE TOP OF DOC Mr. KILGORE. Sure, we can certainly do that.
[The information follows:]
MUSIC LICENSING FAIRNESS COALITION
American Dental Association, American Greyhound Track Operators Association, American Horse Council, American Society of Association Executives, Bowling Proprietor's Association of America, Circuit City Stores, Inc., Club Managers Association of America, Consumer Electronics Manufactures Association, Hair Cuttery, Inc., International Association of Amusement Parks and Attractions, International Association of Assembly Managers, International Association of Exposition Management, International Council of Shopping Centers, International Health, Racquet and Sportsclub Association, International Mass Retail Association, International Planned Music Association, Laurel Park, Muzak, National Association of Beverage Retailers, National Association of Retail Druggists, National Association of Home Builders, National Automobile Dealers Association, National Federation of Independent Business, National Home Furnishings Association, National Religious Broadcasters Music License Committee, National Restaurant Association, National Retail Federation, National Retail Hardware Association, Passenger Vessel Association, Pimlico Race Course, Small Business Survival Committee, and Society of American Florists.
Mr. CANNON. And then let me just follow up with one final question. As you've been talking about, as you've talked about negotiating or not negotiating
Mr. KILGORE. Right.
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Mr. CANNON [continuing]. With the PROs, would youhas thathave you been speaking about NRA or for the coalition?
Mr. KILGORE. For the coalition.
Mr. CANNON. So you have gotten together and taken a position at least as to how you will negotiate?
Mr. KILGORE. Well, I think in regard to the continuation of negotiations, that was just done by a phone call; it was not done by an actual meeting, at least a meeting of which I was a part. I think it was just done pretty much by a phone call. But, in any event, I wasn't present, and it would be just, if there was a meeting, it would be just the fact that they were going to
Mr. SHAPIRO. Mr. Cannon, can I add to that, please?
Mr. CANNON. Certainly.
Mr. SHAPIRO. Thank you. We are a member of the coalition; the North American Retail Dealers Association is a member of the coalition, represented by themselves, as well as the American Society of Association Executives, which was referred to in prior testimony on another panel as having entered an agreement with BMI. Just because you have an agreement does not mean you don't support the legislation; plus, you will get many, many other statements from other associations and organizations that support the legislation. The coalition, to my knowledge, has not pooled funds or collected money from anyone. This is truly a grassroots efforts involving many industries, and the reason is because millions of businesses are affected by these laws.
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Every corporate meeting where there is music can be asked to pay ASCAP or BMI. How we get a form that we have to fill out and say when there was music, even at our holiday party. So this is a very wide-sweeping law that Congress has passed in 1976, and it's being enforced by the music licensing agencies. And that's why there's provisions which really don't affect any of us individually, such as the antitrust scrutiny, which we think is very important.
Mr. CANNON. Thank you. Let me just, in closing, say that it is a very important issue. It's a matter of deep concern with lots of problems, I think many of which have been illuminated today, and I thank you, the panelists, for having come and shared your views with us.
Thank you, Mr. Chairman.
Mr. COBLE. Thank you, Mr. Cannon.
Mr. Delahunt, do you have more questions?
Mr. DELAHUNT. Yes, I just have one question, and Mr. Cannon's line of questioning to Mr. Kilgore prompted the question. Mr. Madland, you have a copy of the NBLA agreement?
Mr. MADLAND. I have what they've published and sent out, yes.
Mr. DELAHUNT. I see. So that might not be the whole agreement then; that might be just the rate schedule?
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Mr. MADLAND. Well, I can, if you may, if you would, I can just read it very quickly to you.
Mr. COBLE. Well, I don't know that we have time right now.
Mr. DELAHUNT. No, that's fine, because if it's proprietary, I was going toand you had the agreementI was going to suggest you hand it to Mr. Kilgore, but
Mr. KILGORE. What I'm seeing, that's not an agreement. That may be some page or something of an agreement.
Mr. MADLAND. No, I stated earlier they wouldn't distribute the agreement.
Mr. DELAHUNT. OK, thank you.
Mr. COBLE. I think we're on a vote. We're going to have to wrap this up, folks.
Without objection, I have just received today a letter from the law firm representing the North American Retail Dealers Association endorsing this bill, and without objection, I will introduce this into the record.
Page 307 PREV PAGE TOP OF DOC [The information follows:]
Hon. HOWARD COBLE, Chairman
|Goldberg and Associates, PPLC,|
|Washington, DC, July 16, 1997.|
Subcommittee on Courts and Intellectual Property
Re: Fairness in Musical Licensing Act of 1997 H.R. 789.
DEAR MR. COBLE: This letter is submitted on behalf of the North American Retail Dealers Association (NARDA) for consideration by the Subcommittee on Courts and Intellectual Property in connection with the Fairness in Musical Licensing Act (H.R. 789).
By way of background, NARDA is an international organization which represents more than 2,500 independent dealers who shell and service a variety of consumer electronics, home appliances, computers, furniture and similar products. The vast majority of NARDA members operate in the United States and are thus impacted by H.R. 789.
While NARDA supports H.R. 789 in its entirety, and urges the Subcommittee to approve the legislation, the Association is particularly interested in Section 2(c) of the bill, which would amend a long-standing provision in the federal Copyright Act (17 U.S.C. §119(7)). As currently written, this provision states that an infringement does not occur when a retailer (referred to as a ''vending establishment'' in the Act) performs a nondramatic musical work for the sole purpose of promoting the retail sale of copies or phonorecords of the work, and where the performance is not t4ransmitted beyond the place where the establishment is located and is within the immediate area where the sale is located.
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Section 2(c) of H.R. 789 would extend this non-infringement protection in current law to those retailers who ''perform'' a nondramatic musical work for the sole purpose of promoting the retail sale of the audio, video or other devices (e.g., television sets, compact disk or cassette tape players, stereo tuners and similar products) used in the performance.
As anyone who has ever purchased a TV set, CD player, tuner, record turntable or other such device can attest, one of the key elements in the purchase is the sound quality of the device. and the only way to determine the sound quality prior to purchase is to have the retailer demonstrate the device. That is precisely the reason that virtually all retailers who sell these devices have more than one TV set and often more than one CD player or tuner playing at all times.
Just as the current §110(7) recognizes that the promotion of the sale of recorded copyrighted musical works is importantso important that an exemption from copyright infringement rules is warrantedso too is it important to encourage the promotion of the sale of those devices which will play the copyrighted musical works in the customer's home.
That is the purpose behind section 2(c) of H.R. 789.
It should be pointed out that, in the only known court case in which the issue of ''fair use'' by the retail seller of a product was considered, the court's pronouncement on the subject, while tending to be favorable to the position advocated by NARDA, was insufficient, in our opinion, to make adoption of Section 2(c) unnecessary. See Universal City Studios v. Sony Corp., 480 F. Supp. 429, at 4567 (C.D. Cal. 1979).
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Section 2(c) would further delete the requirement in current law that the performance of nondramatic musical works be ''within the immediate area where the sale is occurring.'' The evolution of central check-out counters in virtually all retail stores across the country means that, in perhaps a majority of instances, a sale of a consumer electronics device might actually take place several feet from where the product is displayed, thus raising issues ripe for litigation over what constitutes the ''immediate area'' of a product display.
Section 2(a) of H.R. 789 would eliminate the current ''home style receiver'' exemption in 17 USC §110(5)an exemption which has been the source of much litigation and interpretation by the music licensing societies and replace it with an exemption related to the use of the performance. While NARDA supports this provision, we would suggest that it is too restrictive for current technology. As drafted, Section 2(a) only exempts the ''communication'' of a ''reception,'' whether by broadcast, cable, satellite or other transmission. While this may be intended to parallel the ''home style receiver'' exemption in current federal law, neither current law nor Section 2(a) would exempt a retailer who has a home-style CD or cassette tape player behind a checkout counter. Since many CD and cassette tape players are now sold as a single unit in combination with a receiver, it is not clear whether current law or Section 2(a) would act to exempt the playing of a CD or cassette tape. For that reason, NARDA urges that any revision to §110(5) include the playing of nondramatic musical words via any device, subject to the type of limitations contained in Section 2(a).
In conclusion, Mr. Coble, NARDA and its 2,500 retail members urge the Subcommittee to promptly approve H.R. 789.
Page 310 PREV PAGE TOP OF DOCSincerely,
Mr. COBLE. I thank all of you. You've been a patient audience today.
Let me say this to you: My friendly dogs, to whom I referred earlier, my restaurant friends, my ASCAP, my BMI friends;
Mr. DELAHUNT. And the beer drinkers of Wisconsin also, Mr. Chairman.
Mr. COBLE. By all means. But, folks, I find it interesting that all these good buddies of mine come to me, ''Well, you can't talk to that other gang; they won't talk to you.'' Now that may well be true, but if I were BMI, ASCAP, and the restaurateurs, and the electronics people, I believe I would rather go to the woodshed and hammer out some sort of an agreement, rather than have us up here hammer it outjust food for thought.
Now I want to revisit very briefly on the Nashville hearing. While copyright from extension has nothing to do with today's hearing, I would urge the studios, the performers, the screenwriters, the directors, to get their heads together and go to a similar woodshed. If I can help you to that end, I'll be glad to do it, because I'm sure some of you in the room are interested in that.
I very much thank all of you, and pardon the accelerated departure, but I've got to go vote. This concludes the oversight hearing on music licensing in restaurants and retails or other establishments. The record will remain open for 1 week.
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Thank you all for your attendance and your patience, and we stand adjourned.
[Whereupon, at 1:20 p.m., the subcommittee adjourned.]
A P P E N D I X
Material Submitted for the Hearing Record
PREPARED STATEMENT OF HON. JOHN CONYERS, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
I find it ironic that the very same people who complain so loudly and vociferously about the need to protect ''private property'' and to ''get off of our backs'' can support with a straight face a bill which would do the exact opposite.
H.R. 789, the misnamed ''Fairness in Music Licensing Act'' will exempt practically all restaurants from paying fees for the music played in their establishments. This bill ''rips off'' artists and shows no respect, but rather contempt for the notion of intellectual property. Instead of fostering negotiation and reconciliation it provides for a one size fits all government mandate.
I would urge the supporters of this ill-advised legislation to take a step back and consider the following facts:
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1. Artists have a right to be compensated for their works. Ninety percent of music writer make less than $10,000 a year. As Justice Oliver Wendell Holmes said in his 1917 U.S. decision regarding the use of music in restaurants, ''If music didn't pay, it would be given up. Music belongs to the person who wrote it. Writers have a right to make a living from the fruits of their labor.'' Most songwriters don't perform, therefore the income from licensing fees are critical to their incomes.
2. The cost of music to restaurants and bars is minimal. The September 1995 Restaurant Industry Operations Report from the National Restaurant Association states that music and entertainment only accounted for only three-tenths of one percent of expenditures for a full service restaurant. Where exactly is the hardship to the restaurant industry? The average fee paid by restaurants to one of the performing right societies is a mere $1.58 per day.
3. Current copyright law is well-established. When music is used in public in a commercial establishment such as a restaurant, the music becomes a commercial benefit and that user is required to obtain a license. I can not comprehend why some argue that the ''music'' played in a restaurant is ''merely'' incidental to the business. Most Americans do not chose a restaurant based solely on the food. The restaurant needs to have the right ''atmosphere'' and this includes the type of music being played. So, I ask, ''Why should artist give their music away for free?''
4. Finally, this is an area where further government involvement is unnecessary. The current copyright law recognizes the value in music copyrights and promotes a long-standing licensing system through which artists are compensated for commercial use of their works. The ''real'' dispute is between private property owners and the users of that property. Congress doesn't need to have a role. This dispute should resolved by negotiations not legislation.
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I urge this subcommittee to continue to protect artists from a direct attack on their income and encourage the parties to resolve this issue without drastic and unnecessary changes to the copyright law.
PREPARED STATEMENT OF THE NATIONAL FEDERATION OF INDEPENDENT BUSINESS
The National Federation of Independent Business (NFIB) is pleased to have the opportunity to submit comments concerning the need for fairness in musical licensing. NFIB is the nation's largest small business advocacy organization representing 600,000 small business owners in all 50 states and the District of Columbia. The typical NFIB member employs five people and grosses $350,000 in annual sales. NFIB's membership mirrors the nation's industry breakdown with a majority of its members in the service and retail sectors.
Fairness in music licensing is long overdue. For years, small business owners have suffered from unfair fines levied by the music societies simply for turning on the radio or television in their business. Under current law, the American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music, Inc. (BMI), SESAC (formerly known as the Society of European Stage Authors and Composers), and other music licensing organizations can demand payment for almost any music played in a place of business, be it live or rebroadcast no matter how many times royalties have already been paid. Under this system, businesses can be required to pay two, three, maybe four times for music aired on radio or television sets in public spaces, not to mention compact discs and cassettes. In the case of television, broadcasters have already paid sizable royalty payments to ASCAP and BMI to transmit this music.
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More troubling is the fact that many of these fees are arbitrarily levied by the music societies on small businesses. In Minnesota, ''Lenny's Cafe and Dance Barn'' is faced with thousands of dollars in fines from ASCAP simply for having the news playing on the television during the Persian Gulf War. Without presenting the owners with documentation of who ASCAP's clients are or which songs they represent, they demanded over $1,000 a year simply because the owners had a television playing for updates on the war. Because of the actions by these ASCAP representatives, ''Lenny's Cafe and Dance Barn'' has been without music or television since 1993. The owners have no protection against further fines by ASCAP and other music societies since these groups do not provide a list of artists and songs they represent or have established guidelines for assigning fees.
Owners and employers have virtually no recourse in disputing such rates since New York City is the only court in the United States that has jurisdiction over music licensing disputes. Since the vast majority of small business owners do not have the time or the money to travel to New York to challenge these absurd fees, small business owners outside of New York City have no realistic ability to dispute these unfair fines.
This year Congress has the chance to finally change this unfair system with H.R. 789, The Fairness in Musical Licensing Act of 1997. H.R. 789 is a fair and reasonable answer to reforming music licensing by clarifying the law and creating an exemption from the payment of royalties to these music societies for incidental music which is rebroadcast over radio and television. ''Incidental'' music played over radios and televisions that businesses play purely as background and do not charge customers for their listening pleasure, would be exempt from licensing fees. This would end the practice of charging businesses numerous times by each music society, who already receive huge licensing fees from radio and television stations.
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H.R. 789 would also ensure price equity and provide for local arbitration to resolve licensing disagreements. This legislation would require music licensing groups to provide business owners with product information on the artists and songs they represent. This would grant small business owners consumer protection from arbitrary fines for artists or songs that the music licensing groups do not represent.
The Fairness in Musical Licensing Act of 1997 would also make it easier for a small business owner to contest fees by setting up local forums for arbitration. No longer would a small business owner be expected to bear the expense of traveling to New York City to pursue his legal rights. This would ensure a more equitable system from arbitrary fees from the music societies by giving small business owners the means to challenge unfair charges.
Now is the time to reform music licensing. Even ASCAP, BMI, and SESAC in a letter to Congress acknowledged the need for clarification and standards to the current law. We urge you to respond to small business' call for fairness from the current arbitrary system and pass H.R. 789, The Fairness in Musical Licensing Act of 1997, this Congress. By passing H.R. 789, the cost of doing business would improvefor thousands of operators of bars, restaurants, and other small retail establishments that play radio or television in their business.
PREPARED STATEMENT OF THE AMERICAN HORSE COUNSEL
The American Horse Council appreciates this opportunity to present the views of the horse industry on H.R. 789, the ''Fairness in Musical Licensing Act of 1997.'' The issue of radio and television background music is becoming a costly and unreasonable burden to the industry we represent.
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The American Horse Council includes 185 equine organizations representing several hundred thousand horse owners and breeders and includes all breeds and disciplines. The horse industry in the United States supports approximately 1.4 million jobs, and pays $1.9 billion in taxes to all levels of government. Our member organizations and their members are involved in every facet of the horse industry, including racing, showing and rodeo, the segments of the industry most adversely affected by current music licensing laws.
Each of these industries is affected by music licensing laws in different ways, all of them adding to the overhead costs, thus reducing revenues for an industry that is already facing a declining profit margin.
Racetracks have televisions available, particularly at box seats and dining room tables, so patrons can watch the live racing, the track's shows on racing or other races from around the country. While these televisions are generally pre-tuned to the live racing action, they can be changed by patrons to watch regular, commercial television. This makes it technically possible that a patron may hear television music. This is the basis for the licensing societies collecting fees from race tracks.
Few racing patrons take advantage of box seats and dining room tables at the race track; fewer still change stations once they are at a box seat or dining room table. Obviously, the vast majority of patrons come to the track to watch the races. If a television is changed to a commercial station, during station breaks and commercials, the most obvious times when a patron may hear background music, this is when the racing patron places a bet, leaves the seat for refreshments or the restroom or studies the next race.
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Horse shows and rodeos are affected differently by music licensing laws. During breaks in the event, many shows and rodeos play the radio over the sound system. These breaks are often of a short duration and scattered throughout the day.
Again, individuals do not come to horse shows or rodeos to hear music during the breaks. If anything, patrons would prefer no breaks in the action, thus no music played.
In all of these instances the playing of copyrighted music is clearly incidental to the main purpose of the event. The music is not part of the event and adds little or no value to the event.
The American Horse Council strongly supports legislation introduced by Congressman Jim Sensenbrenner (RWI), H.R. 789, that would extend current law to exempt radio or television music from licensing fees as long as the music is purely background or incidental to the main purpose of the event and patrons are not charged a fee to listen to the music. The legislation would also exempt nonprofit agricultural organizations, including many horse organizations, from music licensing fees during the course of an agricultural fair, convention, meeting, event or exhibition conducted by the organization.
This bill would remedy the current situation where racetracks, horse shows and rodeos are forced to pay music licensing fees for music that is truly incidental to the main purpose of their event.
Page 318 PREV PAGE TOP OF DOC As the Subcommittee is aware, there have been several negotiation sessions between the music licensing organizations and interested business organizations. As a result of these negotiations some have looked toward an exemption from licensing fees for small businesses based on square footage requirements and the number of speakers located in a business. When racetracks, horse shows and rodeos are measured by square acres, any exemptions based on square footage would effectively exclude the horse industry.
Again, the American Horse Council would like to thank the Subcommittee for this opportunity to share with it our views on H.R. 789. We trust that the Subcommittee will keep in mind the needs of all small businesses, including those involved in the horse industry, as it considers the music licensing issue.
PREPARED STATEMENT OF THE FOOD MARKETING INSTITUTE
On behalf of the nation's food retailers, the Food Marketing Institute submits this testimony in support of H.R. 789, ''The Fairness in Musical Licensing Act of 1997.'' This legislation is especially important to the independent grocers comprising more than half of our membership. It presents a balanced approach to the issue of music licensing fees assessed against these small businesses.
As a matter of background, the Food Marketing Institute (FMI) is a nonprofit association conducting programs in research, education, industry relations and public affairs on behalf of its 1,500 members including their subsidiariesfood retailers and wholesalers and their customers in the United States and around the world. FMI's domestic member companies operate approximately 21,000 retail food stores with a combined annual sales volume of $220 billionmore than half of all grocery store sales in the United States. FMI's retail membership is composed of large multi-store chains, small regional firms and independent supermarkets.
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If enacted, this legislation, H.R. 789, will allow grocery retailers to play radio music in their stores without having to pay an additional fee. Currently, businesses that play a single radio are exempt from the copyright licensing fees. This bill simply modernizes the law to recognize current technological advancements in electronics. Speakers are customarily installed in all areas of a store for public announcements, to address public safety issues, and to communicate with employees in the public areas of a store, as well as in the back room, bathrooms and breakroom.
Stores may Lay the radio, or a television if they have a video department, which is broadcasting music already licensed for millions of dollars by music transmitters. We are not referring to live performances here. This is music that a broadcaster has already licensed that is being played purely as background, and which is incidental to the main purpose of the business. Clearly, consumers are not going to the grocery store to hear the background music.
This legislation provides grocers with fair and effective protection against arbitrary pricing, discriminatory enforcement and abusive collection practices of the performing rights organizations. H.R. 789 exempts retail establishments from paying fees for the use of televisions and radios unless a charge is made by the establishment to see or hear the transmission. It establishes a third-party mechanism for businesses seeking redress from oppressive fees imposed by music licensing organizations. Under the current system, the performing rights organizations can charge arbitrary fees. If retailers object to the amount of those fees mandated by these organizations they have no recourse but to go to a single court in New York City. Under H.R. 789, local arbitration would be established to settle disputes.
Page 320 PREV PAGE TOP OF DOC Indeed, supermarkets by their nature are places of public accommodation, where food and grocery staples are purchased, with lots of service departments, including take-home meals, banking and floral departments. They have become the centers of community life, the ''town squares'' where you shop, and where you also meet your neighbors and friends.
The retail food industry is extremely competitive. Average industry bottom-line profits last year were just 1.2 percent of salesjust over a penny on the dollar after taxes. These razor-thin margins mean that in order to make a profit the business must sell a large volume of product. Exemptions from fees based on square footage or store size, which were included in legislation in the last Congress, do not provide relief for independent grocers. The size of the store is not the issue. We are pleased that H.R. 789 recognizes this.
We appreciate the hard work and dedication that songwriters apply to their craft. We feel they are amply remunerated by the license fees paid to broadcast their music and that food retailers should hot be charged an additional fee for simply playing in their place of public accommodation the same music that was playing on a customer's car radio as he or she drove to the supermarket. In no way does this legislation erode a songwriter's claim to his own creation.
In an era when the issues of ''intellectual property'' are taking on a new urgency, it is time to update the laws to reflect the reality of the marketplace.
Thank you for this opportunity to share our views. On behalf of FMI and the Music Licensing Fairness Coalition, we urge you to support ''The Fairness in Musical Licensing Act of 1997,'' HR 789.
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PREPARED STATEMENT OF THE AMERICAN GREYHOUND TRACK OWNERS ASSOCIATION
The American Greyhound Track Operators Association (AGTOA) appreciates the opportunity to submit testimony for this hearing. Greyhound tracks have long sought relief from the arbitrary pricing, discriminatory enforcement, and abusive collection practices of music licensing organizations.
AGTOA is a non-profit corporation composed of the owners and operators of 41 greyhound tracks located throughout the United States. Greyhound racing is currently recognized as the nation's sixth largest spectator sport. It has been legalized in 17 states: Alabama, Arizona, Arkansas, Colorado, Connecticut, Florida, Iowa, Kansas, Massachusetts, Nevada, New Hampshire, Oregon, Rhode Island, South Dakota, Texas, West Virginia, and Wisconsin.
AGTOA members strongly object to the inconsistent and heavy-handed practices of the music licensing societies. Under current law, creators of music are allowed not only to collect fees at the source, but also along each step of the waya practice known as '' double-dipping.'' This means that the American Society of Composers, Authors, and Publishers (ASCAP), Broadcast Music, Inc. (BMI), and other music licensing organizations can demand payment for almost any music played in a place of business, be it live or rebroadcast, and no matter how many times it has been already been played.
In our greyhound tracks, the clubhouses (which serve food and beverages) have television monitors that are pre-set to greyhound racing. The televisions can access commercial television if a patron changes channels, but the televisions are pre-tuned to racing. This commercial television access accommodates weekend patrons who might want to check the score of a basketball, football, or baseball game, but hardly are they a source of independent viewing other than to monitor the races.
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We believe that charging full licensing fees for television background music is unfair. No one sits in the clubhouse of a racetrack simply to hear the background music. No one would be willing to pay to hear it. Background music is a very small component of a television broadcast for which the performing artist has already been fairly compensated by the broadcaster.
Most patrons at our clubhouses actually watch the racesonly a small minority actually change the television channel. Television background music is most frequently played at the beginning or end of station breaks and in commercials. Often, patrons use the time when the background music is playing to place a bet or to leave their seats for refreshments or the restroom. Therefore, we are being charged by ASCAP and BMI for the mere possibility that our patrons will change the TV station.
We are also concerned that the remedy for inequitable rate demands is to litigate a rate case in New York Federal District Court at a cost that often exceeds the desired rate reduction. To litigate a rate case requires travel to New York, hotel accommodations for the company representatives and witnesses, and retaining a member of the New York bar. Since no AGTOA tracks are located in New York, it is often cheaper for our members to pay an inequitable fee rather than pay for the litigation costs to contest the fee.
AGTOA strongly supports legislation introduced by Representative Jim Sensenbrenner (R-Wis.), H.R 789, to exempt radio and television music from licensing fees as long as the music is purely background or incidental to the main purpose of the business and customers are not charged a fee to listen to the music. This would put an end to the practice of music licensing companies collecting exorbitant fees from television stations, and then collecting again from the businesses that carry their broadcasts.
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The Sensenbrenner bill would also establish an arbitration mechanism for businesses to dispute unreasonable fees imposed by the licensing societies. This would allow our tracks to use local arbitrators to determine fair and reasonable fees in a forum that is not prohibitively expensive.
We appreciate having this opportunity to contribute to the discussion regarding music licensing reform. If you need any additional information, please contact Ronald A. Sultemeier, President of AGTOA, at 438 Main Street, Buffalo, New York, 14202, (716) 8585133.
PREPARED STATEMENT OF THE AMERICAN SOCIETY OF ASSOCIATION EXECUTIVES, WASHINGTON, DC
Mr. Chairman and Members of the Subcommittee, the American Society of Association Executives (ASAE) appreciates the opportunity to provide its comments on the Fairness in Music Licensing Act of 1997.
ASAE is an organization comprised of 23,500 professionals who manage more than 11,000 leading trade, individual and voluntary organizations. Their members total more than 287 million people. ASAE facilitates its members through education, networking, and lobbying. Associations utilize meetings, seminars, conventions, and expositions to achieve these goals. ASAE would like to address the association community's concerns about music licensing and its interests in the Fairness in Music Licensing Act of 1997.
Page 324 PREV PAGE TOP OF DOC While it is often overlooked, the meeting industry plays an integral role in America's economy. In 1995, the meetings and travel industry generated $535 billion in gross revenue, translating into $58 billion in tax revenues for federal, state, and local governments. In 1996, the industry produced $64 billion in tax revenues. Direct spending by the meetings industry alone totaled more than $82 billion according to a 1995 economic impact study conducted by the Convention Liaison Council. Also, the meeting and travel industry is a significant creator of jobs. Fourteen million Americans worked in the industry in 1995, and in 1996 the number grew to 15.5 million. Most importantly, association meetings and conventions are the primary source of continuing adult education in America.
However, current copyright law prevents the meetings industry from reaching its full economical and social potential. Associations needlessly spend money on music licenses in order to protect themselves from being sued on the theory of ''vicarious liability,'' to avoid the overreaching efforts of the music licensing societies, and to escape the high cost of fighting the music licensing societies in court.
ASAE strongly supports the Fairness in Music Licensing Act of 1997 because it effectively addresses all of these problems.
THE FAIRNESS IN MUSIC LICENSING ACT OF 1997 Protects Trade Show Operators From Vicarious Liability
With the uncertainty of the current law, associations that sponsor trade shows are faced with the complicated dilemma of deciding whether they are responsible for the music licensing violations of their exhibitors. For example, the U.S. District Court for the Southern District of New York held in 1994 that trade show operators are not vicariously liable in such situations (Artists Music, Inc. v. Reed Publishing (USA), Inc., 31 U.S.P.Q.2d 1623 (S.D.N.Y. 1994)), while that same year the U.S. District Court in Massachusetts stated that a sponsor of a trade show would be liable under such instances (Polygram Intern. Pub. v. Nevada/TIG, Inc., 855 F. Supp. 1314 (D. Mass.)). While the association community strongly believes that the decision by the Southern District of New York is the correct analysis, not every trade show sponsor is willing to risk the thousands of dollars necessary to defend a lawsuit based on his belief that he will win in the end. Thus, in reality, associations which sponsor trade shows often purchase music licenses even when they have no intention of playing any music, just to cover themselves in case an exhibitor plays unlicensed music. And as a result, music licensing organizations are the recipients of an unnecessary bounty, getting payments from sponsors to cover all trade show exhibitors (a number which often runs into the thousands with large association expositions), rather than receiving much smaller payments from individual exhibitors that wish to play music.
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ASAE recognizes the property rights of songwriters and strongly supports their right to collect royalties from exhibitors or others who directly employ their work for a more than incidental benefit. By prohibiting vicarious liability, the Fairness in Music Licensing Act of 1997 does not allow the performance of unlicensed music. Rather, it places the onus of purchasing a music license on the true music userthe exhibitor. By suing on the theory of vicarious liability, the music licensing organizations posit that trade show sponsors have the ability to control their exhibitors to such an extent that the sponsors are able to prevent exhibitors from playing unlicensed music. But in reality, the exhibitor is the most capable person to ensure that the performance of music is legal. Holding the association trade show sponsor liable under such instances creates a wasteful situation of over-coverage at the expense of the association, the other exhibitors (in the form of higher space rental costs), and those who attend these events (in the form of higher registration fees).
ASAE believes that it is fundamentally unfair to hold trade show operators vicariously liable for the actions of exhibitors for which they have no knowledge or control. The Fairness in Music Licensing Act of 1997 recognizes the unjustness and uncertainty in the current law and eliminates vicarious liability for trade show operators. Eliminating vicarious liability will halt this practice of wasteful spending and allow associations to use their resources to increase attendance, staffing and education at their meetings and conventions.
THE FAIRNESS IN MUSIC LICENSING ACT OF 1997 Requires the Justice Department to Exercise Increased Oversight of the Music Licensing Societies' Business Practices
Since 1989 ASAE has received numerous complaints from its members regarding the strong arm intimidation tactics of the music licensing societies. To name a few, the Chicago Society of Association Executives, the Builders Association of Southeastern Michigan, the Printing Industries of America, and the American Association of Meat Processors have contacted ASAE about the music licensing societies' business tactics.
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According to the communications ASAE has received from its members, it appears that the music licensing societies have employed a three-prong strategy in the past when trying to acquire new contracts with associations. First, they accuse the association of copyright infringement without proof. Second, they threaten to immediately impose the statutory maximize fine if the association does not sign an agreement. Third, the music licensing societies demand immediate signing of the licensing contract.
ASAE welcomes the Justice Department's oversight of the music licensing societies outlined in the Fairness in Music Licensing Act of 1997 as a means of ensuring fair and ethical practices in the societies' dealings with music users.
THE FAIRNESS IN MUSIC LICENSING ACT OF 1997 Establishes a Fair and Impartial Forum for Settling Disputes Between Music Licensing Societies and the Public
Under the current law all disputes of copyrighted material must be settled in U.S. District Court for the Southern District of New York. ASAE's members have complained that the cost of litigating a dispute in New York significantly outweighs the cost of paying the music licensing societies their fees. As a result, ASAE members will often pay the fees even if they legally do not have to because it is a less expensive alternative to litigation. The music licensing societies are able to use the expense of litigation as a bargaining tactic to acquire new agreements.
Requiring all music licensing disputes to be heard in New York gives music licensing societies unequal bargaining power and unfairly burdens users of music who are seeking a fair hearing. In most business situations, associations are able to challenge practices of vendor companies in a jurisdiction which bears some relationship to the location of the association or the source of the dispute. But under current law regarding music licensing societies, an association based in Charlotte, North Carolina, which has a meeting in North Carolina, may only challenge the rates charged to it by ASCAP and BMI in New York City.
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ASAE believes that it does not make sense to require associations to spend more money litigating a dispute than the actual dispute is worth. The Fairness in Music Licensing Act of 1997 makes disputing music licensing fair by calling for local arbitration. ASAE believes local arbitration is fair because the music licensing societies' agents work in many of the court districts across the country, limiting any burden litigation might cause. In contrast, most associations do not have agents in New York.
ASAE commends the Subcommittee for holding a hearing on this important subject and allowing ASAE to voice its opinion on the Fairness in Music Licensing Act of 1997. We ask you to support H.R. 789.
PREPARED STATEMENT OF JOHN B. BURCHAM, JR., ON BEHALF OF THE NATIONAL ASSOCIATION OF BEVERAGE RETAILERS
Thank you for the opportunity to present the views of the National Association of Beverage Retailers (NABR) on the issue of music licensing. NABR represents more than 15,000 on and off-premise alcohol beverage retailers in nearly 30 states. As NABR Executive Director, it is my duty to represent the best interests and welfare of my retail-membership, our customers, and the communities in which we live and do business.
Page 328 PREV PAGE TOP OF DOC I commend the Committee for holding hearings on July 17, 1997 on such an important issue and appreciate this opportunity to submit testimony for your consideration.
The National Association of Beverage Retailers supports a legislative solution to curb the abuses of ASCAP (the American Society of Composers, Authors and Publishers), BMI (Broadcast Music, Inc.) and SESAC that affect a broad spectrum of music users, including taverns, liquor stores, restaurants, florist shops, beauty shops, race tracks, funeral homes or other retail establishments which use a radio or TV.
It is time that retailers are given affordable and fair options to solve the numerous conflicts that may arise when engaged in a business transaction with one of the existing music licensing organizations. Currently, if a fee or an abusive business practice is contested by a retailer, the only available recourse is to travel to New York City to the sole federal court which hears related grievances. This is not an affordable option for many small business operators, nor is it fair.
NABR would like to establish with the Committee that we believe in the need for copyright law and do not want to diminish the fundamental importance of copyrighted music used by retail establishments such as CDs, tapes and live entertainment. However, we feel it is time for the monopolistic practices and the abuses of the music licensing societies to come to an end. A legislative approach to music licensing and copyright law is the only sensible means of providing much-needed solutions for local arbitration, fair protection against arbitrary pricing and the discriminatory enforcement practices of music licensing organizations including ASCAP, BMI and SESAC.
Page 329 PREV PAGE TOP OF DOC We live in a competitive marketplace society where consumers have the right to know in advance what they are buying, should be given the right to choose, and should be provided with a fair and convenient forum to air any grievances. In any other business, the seller is responsible for the services they provide and are responsible for the fair business practices of their employees. The music licensing societies should be subject to the same rules.
The National Association of Beverage Retailers supports the efforts of Congressman Sensenbrenner to curb the abuses by the music licensing societies by forwarding fair and sensible legislation. We believe Congressman Sensenbrenner's bill takes an important step toward resolving the current biased arbitration procedure for small retailers by moving arbitration authority from one federal court in New York City to local or regional federal-district courts. Congressman Sensenbrenner's bill also would expand copyright law to exempt businesses from being required to pay fees to play radio and TV music in the background at their place of business. This exemption would apply only to background radio and TV music and does not include the use of CDs, tapes or live entertainment.
The National Association of Beverage Retailers, as part of the Music Licensing Coalition, has worked to promote a legislative settlement on the issue of music licensing. Although past negotiations with the music licensing societies were not fruitful, NABR believes that a legislative solution is still within our reach. It is only through a legislative solution that a fair and binding system of arbitration, assessment and collection will be established.
The National Association of Beverage Retailers remains ready and willing to work with the Music Licensing Fairness Coalition, Members of the Judiciary Committee and the music licensing societies to bring about an equitable legislative resolution on this issue.
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Rep. HOWARD COBLE, Chairman,
|National Licensed Beverage Association,|
|Alexandria, VA., July 25, 1997.|
Subcommittee on Courts and Intellectual Property,
U.S. House of Representatives,
DEAR CHAIRMAN COBLE: As you requested, we are pleased to submit the following additional comment to supplement the National Licensed Beverage Association's (NLBA) July 17, 1997, testimony before your subcommittee relating to music licensing issues and proposed changes to the copyright law. We appreciate your Subcommittee staff's indication that these comments will be added to the permanent hearing record. The following are our comments:
NLBA IS NOT ALONE IN ITS AGREEMENTS
Various members and witnesses before the Subcommittee left the impression that the NLBA agreements with ASCAP, BMI, and SESAC are unique to our organization. We would like to clarify again, that the NLBA in one of dozens of associations and other entities that have concluded through hard work and negotiations fair and equitable contractual agreements for their members with the PROs. There are no ''sweetheart deals.'' For NLBA, negotiating our differences with the PROs was urged on by our members, members of this subcommittee, and other members or Congress as the best way to resolve conflicts within the music copyright law. We are proud to join the following groups who have concluded that private commercial agreements do work: American Callers Association, American Council on Education, American Hotel and Motel Association, American Music Operators Association, American Society of Association Executives, American Symphony Orchestra League, Amway, Arena Football League, Callerlab, Continental Basketball Association, East Coast Hockey League, Football Bowl Association, Ice Skating Institute of America, Independent Background Music Association, International Association of Amusement Parks and Attractions, International Association of Fitness Professionals, Jazzercise, Inc., Major League Baseball, Major League Soccer, Music Educators National Conference, Music Teachers National Association, National Association of Country Western Dance Teachers, National Association Professional Baseball Leagues, Inc., National Association of RV Parks and Campgrounds, National Ballroom and Entertainment Association, National Basketball Association, National Clogging and Hoe-down Council, National Federation of Music Clubs, National Hockey League, National Hot Rod Association, Professional Rodeo Cowboys Association, Roller Skating Association, Shriners, and YWCA of the USA.
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RELEASE OF PRIVATE CONTRACTS
Some members on the Subcommittee and others asked questions relating to the NRA's inability to secure a copy of the NLBA's private contract with each of the PROs. NLBA has prepared extensive information and details on our PRO agreements for our members and others in the industry. Our testimony provided an example of the information we distributed to thousands of licensees on the agreement and made available to other organizations and the press. In fact, the NRA and the TLW utilized this information in their testimonies. Like any other contract privately conducted, we do have a problem in releasing these confidential documents, especially to competing organizations. We firmly believe the contractual agreement between the NLBA and each PRO is proprietary. Would the NRA be willing to release to the NLBA its vendor agreements for member benefits?
QUESTIONS ON THE NLBA'S FORMER AFFILIATE, THE TLW
During the hearing, Mr. Chairman, you asked how many members of the Tavern League of Wisconsin (TLW) are members of the NLBA? For many years, in fact, since the founding of the NLBA after World War II, the TLW was our Wisconsin state affiliate. All members of the TLW were members of NLBA. A few years ago, the TLW decided to withdraw from our association and we are not able to cross reference the membership of our remaining affiliate, the Licensed Beverage Association of Wisconsin, principally based in the greater Milwaukee area, with the membership of the TLW. We also are not convinced that Mr. Madland' s testimony to you that the TLW's membership in the greater Milwaukee area ''tripled'' as a direct result of our music licensing agreement with the PROs. Membership recruitment results from many factors but we are also experiencing increased membership in our affiliate, the LBA of Wisconsin. Rep. Goodlatte had asked what percentage of our NLBA members are bars and taverns and I believe that it approximates 85% to 90% of our members. I would also like to point out, Mr. Chairman, that after our initial October 1995 agreement with the PROs on equipment and square footage legislative changes to Section 110(5) of the copyright code (which eventually were incorporated into our individual agreement with each PRO) we secured hundreds and hundreds of letters of support for the NLBA agreement from a large variety of hospitality outlets in Rep. Sensenbrenner's district. These letters of support will be sent under separate cover to your Subcommittee Counsel for retention in the permanent files of this hearing. We strongly believe, that if the members of the TLW or any other hospitality retailers around the country take the time to review the NLBA agreement and confirm that it is beneficial to the establishment's use of music, they will join the NLBA.
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NLBA'S AGREEMENT DOESN'T GO FAR ENOUGH
Mr. Kilgore (NRA) testified before the Subcommittee that our agreements with the PROs do not go far enough to address the concerns of the Music Licensing Coalition on arbitration, access to repertoire, per programming fees, and vicarious liability. As to the issues of vicarious liability and the concerns of religious broadcasters and others in the broadcasting community contained in H.R. 789, we agree. These are not our members' issues nor were they the issues which originally brought us to the Congress by our members concerned with music copyright requirements. Arbitration and rate court provisions will not be needed by our members since the agreements we have reached with the PROs include a simple fee schedule written for each category of gross square footage which includes all music uses for all three music licensing societies. Most small business owners cannot afford the fees associated with locally based lawsuits any more than they can afford to instigate a lawsuit in New York City. Lowering the costs from $25,000 to $15,000 is still not affordable to most. Lastly, access to repertoire has been available to anyone for over a year on the Internetascap.com, bmi.com, and sesac.com.
SOME MISUNDERSTAND THE NLBA AGREEMENT
Throughout testimony and questions during the hearing, some people apparently misunderstood the NLBA's agreement so I'll clarify some of those points. The NLBA literature clearly states that the total gross square footage used in the rate chart does not include the parking lot or apartments. NLBA based the rates on the establishment's total gross square footage because it is easily verified by written documents such as their lease, mortgage, or blueprints. No on-site measurements need to be taken as would be the case if only public space was licensed. For music users who are already exempt under the current law but apply for the NLBA exemption, the NLBA returns their check with a letter informing them of the current exemption under Section 110(5). For those who are not exempt under current law but are exempt under the NLBA provisions, no portion of the $30 exemption fee goes to the PROs. It is an NLBA administrative fee. The NLBA agreement clearly outlines the size of the televisions and the number of radio or TV speakers so that any size of establishment may be exempt by meeting those simple, clearly defined requirements. The NLBA provides its member businesses with an additional option for paying music licensing fees. The NLBA is helping them and encouraging them to meet their legal responsibilities, not further avoidance of compliance with federal copyright laws.
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Mr. Chairman, NLBA has tried very hard to abide by the wishes of former Chairman William Hughes (DNY), former Chairman Carlos Moorehead (RCA), many of the members of this Subcommittee, Sen. Orrin Hatch (RUT), many of the members of the Senate Judiciary Committee, and several members of Congress to met individually with ASCAP, BMI, and SESAC to resolve our differences. We proudly joined the list with dozens of other groups which successfully negotiated music licensing agreements with the PROs. We discussed our complying with congressional suggestions in this regard with our Board of Directors and members and believe that we have arrived at a point where much more has been accomplished through private contracts with the PROs rather than through endless lobbying. We undertook this effort in good faith and are pleased, Mr. Chairman, to have been able to share our positive activities with you and the members of this Subcommittee. If you would like any other information, please do not hesitate to contact me.
Congressman HOWARD COBLE,
|Tavern League of Wisconsin,|
|Madison, WI, July 25, 1997.|
U.S. House of Representatives,
Page 334 PREV PAGE TOP OF DOC DEAR CONGRESSMAN CABLE: I would like to thank you once again for the opportunity to testify on the issue of music licensing before your subcommittee on Courts and Intellectual Property. We strongly support Congressman Sensenbrenner in his effort to return some common sense to the issue of music licensing. Please add this letter as an addendum to my remarks to be included in the record.
At the hearing, ASCAP and BMI testified that they are small businesses too, just like the tavern and restaurant owner. I thought it was revealing to see three large air conditioned Cadillacs waiting for the ''small business owners'' as they left the Rayburn Office Building.
I would like to expand on a question asked by Congressman Berman regarding whether or not the TLW would be willing to negotiate with ASCAP or BMI instead of pursuing a legislative solution. As President of the TLW I was elected to do what is in the best interest of our over 4,000 members. If I could negotiate a compromise in the interest of my membershipI would do it. However, we oppose the deal signed between NLBA and ASCAP, BMI, and SESAC and do not view that as an acceptable alternative.
While we would welcome the opportunity to negotiate with ASCAP, BMI and SESAC, we do not hold out much hope of ever attaining a substantive agreement which would truly benefit small Mom and Pop tavern owners in Wisconsin. We continue to believe a legislative solution is the best approach to the many music licensing problems facing taverns in Wisconsin.
If you should have any questions please feel free to contact me at any time.
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|Pete Madland, President,|
|Tavern League of Wisconsin.|
PREPARED STATEMENT OF THE AMERICAN FARM BUREAU FEDERATION
The American Farm Bureau Federation (''AFBF'') submits this written testimony supporting passage of HR 789, the Fairness in Musical Licensing Act of 1997.
The American Farm Bureau Federation was founded in 1919 in Chicago, Illinois and was incorporated in 1920 under the Illinois Not-For-Profit Corporation Act and is exempt under Section 501(C)(5) of the Internal Revenue Code. AFBF is a voluntary, nongovernmental, membership organization with affiliated Farm Bureau organizations in all fifty states and Puerto Rico. The AFBF speaks as the voice of America's agriculture representing over 4.7 million member families who are America's independent farmers and ranchers and others who support the policies of AFBF. The purpose of AFBF is to promote, protect and represent the agricultural interests of the nation's farmers and ranchers and to develop agriculture. AFBF and its state affiliates provide a wide variety of programs to its members including legislative, commodities and marketing, education, health and safety, environmental, GPS/site specific farming and the like. With only 1.6% of America's national work force in 1996, America's farmers and ranchers produced 10.4% of the value of this nation's total exports.
Page 336 PREV PAGE TOP OF DOC AFBF directs this testimony to a feature of the bill important to American farmers and ranchersSection 2(b), which would provide a clarifying amendment to Section 110(6) of the Copyright Act.
Section 110(6) currently provides for an exemption from copyright infringement for performances of nondramatic musical works by governmental bodies or nonprofit agricultural or horticultural organizations, in the course of an annual agricultural or horticultural fair or exhibition conducted by such body or organization, including exemption from liability for copyright infringement under the doctrines of vicarious liability or related infringement. The exemption does not extend to performances by concessionaires, business establishments or other persons who participate in such fairs or exhibitions, but rather only exempts the organization conducting the event.
It would seem obvious that, by enacting Section 110(6), Congress intended to create an exemption from copyright royalties for nonprofit agricultural and horticultural organizations who are holding meetings and other events not for commercial gain, but to promote and support the agricultural community which provides the nation's food and fiber. AFBF, like other nonprofit agricultural organizations, is concerned with agricultural and horticultural issues which benefit the public interest and, in pursuit thereof, customarily holds many meetings and events throughout the year at the national, state and county levels. AFBF does not represent any individual concessionaires, business establishments or others who may render performances of nondramatic musical works for or at any conventions or at other meetings or gatherings of its members.
Unfortunately, since the enactment of the Copyright Act of 1976, controversy has repeatedly arisen between the American Farm Bureau Federation and its state Farm Bureau associations on the one hand, and performing rights societies such as ASCAP and BMI on the other, with respect to the scope of the exemption contained in Section 110(6), especially with regard to what constitutes an ''agricultural or horticultural fair or exhibition.''
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The music licensing organizations have taken the position that music performed in the course of meetings or conventions of nonprofit agricultural organizations such as AFBF, including its annual meeting, would not be entitled to the exemption.
The proposed amendment contained in Section 2(b) seeks to resolve these ongoing controversies by clarifying the language of 110(6) so that it applies to all fairs, conventions, meetings, events, or exhibitions conducted by governmental bodies or nonprofit agricultural or horticultural organizations, so long as they are nonprofit in nature. This amendment will draw a bright line between what is and what is not exempt under Section 110(6). The amendment does not seek to extend the exemption to the concessionaires or other vendors who may participate in such events. Thus, ASCAP, BMI, and the other performing rights societies will still be able to obtain royalties for performances of works in their inventories at such events from participating vendors, concessionaires, and the like who actually perform the works. The performing rights societies should not be entitled to ''double dip'' and obtain royalties from both the organizing entities and the vendors and concessionaires actually performing the copyrighted works. Thus, the proposed amendment does not exceed the original intent of Congress in enacting the exemptions contained in 110(6), exemptions which the performing rights societies have chosen to construe so restrictively as to render them meaningless.
AFBF is aware of concerns raised by others over whether the terms ''agricultural or horticultural'' modify the terms ''fair, convention, meeting, event or exhibition'' in Section 2(b), and also over the exemption of event sponsors from liability under the doctrine of contributory infringement.
Page 338 PREV PAGE TOP OF DOC The language of Section 2(b) of HR 789 is consistent with prior interpretation of the language of Section 110(6). It merely adds to the list of items modified by the terms ''agricultural or horticultural.'' During the entire history of Section 110(6), no one, and certainly not any of the performing rights societies, has suggested that ''agricultural or horticultural'' does not modify ''fairs or exhibitions'' such that the exemption could apply to fairs or exhibitions conducted by any entity, whether agricultural or horticultural in nature or not. It is safe to speculate that such an interpretation would have been met with a firestorm of opposition from BMI and ASCAP when Section 110(6) was introduced. It is inconsistent to apply such a strained and illogical interpretation of Section 2(b) at this late date.
Notwithstanding, AFBF would support an amendment to the language of Section 2(b) which reads as follows, if the concerned parties still feel a compelling need for a grammatical change in its legislative drafting:
''(6) Performance of a nondramatic musical work by a governmental body or a nonprofit agricultural or horticultural organization, in the course of an agricultural or horticultural fair, agricultural or horticultural convention, agricultural or horticultural meeting, agricultural or horticultural event, or agricultural or horticultural exhibition conducted by such body or organization:''
Concerns over the exemption from liability under the doctrine of contributory infringement are based on the fact that the contributory infringement doctrine conditions liability on both knowledge of and participation in an act of infringement. Any suggestion that AFBF or its state and county members intend to knowingly participate in copyright infringement by those who perform musical works at its meetings and events is an outrageous accusation. Rather, AFBF simply does not wish to be accused of knowing participation in an infringement because it happens to provide a venue for those who perform copyrighted works and who are beyond its control, but who nonetheless choose not to pay royalties to the performing arts societies as required by the Statute. To hold event sponsors liable for contributory infringement under those conditions would nullify the exemption intended by Congress when it enacted Section 110(6). Indeed, the original language of Section 110(6) already exempts event sponsors from liability under the doctrine of vicarious liability, which involves a far more direct form of copyright infringement than the doctrine of contributory infringement.
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AFBF urges the passage of the Fairness in Musical Licensing Act of 1997, including Section 2(b) thereof. This clarifying amendment will end years of haggling over the scope of the exemption provided in Section 110(6) and, despite the cries of its detractors, does not represent a broad substantive change in the copyright law beyond that already intended by Congress when it is construed consistently with prior interpretation.
Hon. HOWARD COBLE,
|Willey, Rein and Fielding,|
|Washington, DC., July 29, 1997.|
U.S. House of Representatives,
Subcommittee on Courts and Intellectual Property,
Re: Comments on Government Witness Statements At July 17, 1997 Music Licensing Hearing.
DEAR CHAIRMAN COBLE: We represent the National Religious Broadcasters Music License Committee, which is interested in two important provisions of H.R. 789, the Fairness in Musical Licensing Act. Specifically, the NRBMLC is concerned with the provisions of that bill dealing with per programming period licenses (section 4) and access to information concerning the repertoires of the performing rights organizations (section 5).
The NRBMLC asks that this letter be included in the record of the July 17, 1997 hearing before your Subcommittee. At that hearing, two government witnesses presented statementsMarybeth Peters, the Register of Copyrights, and Robert Stoll, representing Bruce Lehman, the Commissioner of Patents and Trademarks. In addition, a letter from the Department of Justice, the Executive Branch department charged with administration of the antitrust laws, also was submitted for the record by Congressman Sensenbrenner. These were the first record statements from government witnesses about H.R. 789. Ms. Peters' testimony specifically discusses sections 4 and 5 of the bill. The Justice Department letter discusses the issues addressed in those sections.
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I am providing a copy of this letter to the two government witnesses as a courtesy. I would be delighted to meet with either of them or their of rices, or with you, to discuss the issues addressed below, or any other issue pertaining to the music licensing concerns of the NRBMLC.
THE POSITION OF THE ADMINISTRATION, AS REFLECTED IN THE STATEMENT OF THE COMMISSIONER OF PATENTS AND TRADEMARKS AND THE JUSTICE DEPARTMENT LETTER
The PTO comments notably do not take any position on sections 4 or 5 of H.R. 789. Although the Administration expressly opposes other provisions of the bill, it does not oppose these two provisions.
To the contrary, the letter from the Justice Department makes clear that it has concerns similar to those of the NRBMLC. On the issue of repertoire access, addressed by section 5 of H.R. 789, the Justice Department notes that the online databases of both BMI and ASCAP ''are incomplete, and both ASCAP and BMI reserve the right to sue for unlicensed use of a song whether or not the song is listed in the database.'' Letter at 2. The Department thus makes clear that it is considering whether changes are needed ''to require more complete disclosure'' or ''to minimize the risks associated with inadvertent infringement.'' Id. at 3.
On the issue of per programming period licenses, addressed by section 4 of H.R. 789, the Department confirms several key propositions underlying the position of the NRBMLC. The Department notes that ''from a competition standpoint, the availability of a per-program license is important'' to constrain the market power of the performing rights organizations. Id. Further, the Department confirms that ''until recently, per-program rates for local television stations and for radio stations were several times the equivalent blanket rate, so that only stations that could license substantial amounts of their programming through some alternative to the PRO could economically opt to use a per program license.'' Id. In fact, while the relationship between the television per program and blanket license fee rates was changed by court order, after years of Rate Court litigation (id. at 4), the situation noted by the Department still holds in radio. That is precisely what section 4 seeks to change.
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THE COPYRIGHT OFFICE STATEMENT
Very little of the l7-page statement by Ms. Peters addresses sections 4 and 5 of H.R. 789. Unfortunately, the portions of the testimony that do discuss those sections appear to be based on fundamental misunderstandings of the way radio music licensing markets now operate. Also regrettable is the statement's failure to acknowledge the legitimate concerns of music users, who are significant participants in the copyright system administered by the Copyright Office.
Notably, the Office does not say that it ''opposes'' sections 4 and 5, as it does with respect to other provisions of the bill. I hope that in this letter I am able to respond to the questions and concerns raised by the Copyright Office with respect to sections 4 and 5.
The Per Programming Period License
The primary concern of the Copyright Of lice with the per programming period license provisions of the FMLA appears to be that they violate a principle of government non-interference with the ''marketplace'' and the ''contractual freedom of copyright owners and users to negotiate terms and conditions for the use of copyrighted works.'' Statement at 13. Unfortunately, there is no real marketplace in radio music licensing and there is no contractual freedom. Thus, the government long ago recognized that intervention in this market was essential to cabin the collective market power of ASCAP and BMI.
Page 342 PREV PAGE TOP OF DOC The Office's statement acknowledges that ASCAP and BMI operate under court orders entered in antitrust cases brought by the government. However, it fails to note that both organizations have been ordered to offer per program licenses that offer genuine alternatives to their blanket licenses. The per programming period license that would be required by H.R. 789 is just one species of such a per program license.(see footnote 8) The bill contemplates a license that is intended to meet the requirements of the antitrust decrees and add long needed clarity to the vague decree provisions that have spawned extraordinarily burdensome and wasteful litigation. In fact, it is modeled after the per program license ordered by the ASCAP Rate Court in the Buffalo Broadcasting case, which dealt with the local television industry. This is no greater government intervention than already exists. It is simply more rational government intervention.
Lest the record reflect any question about that market power and the need for rational antitrust constraints, the performing rights organizations function as true monopolies with respect to the radio industry. Every radio station must, as a practical matter, have a license from each organization. Music appears in syndicated programs, live events, and even public service announcements and commercials. The broadcaster has no control over many of these sources. He or she simply cannot decide to avoid all use of ASCAP or BMI music. Without a license, a broadcaster will be sued for infringement.(see footnote 9)
The courts have long recognized the potential for abuse of the extraordinary market power possessed by ASCAP and BMI that results from their collective nature. According to the Southern District of New York, the ''Rate Court'' charged with overseeing ASCAP licensing, ''the [ASCAP Decree] was designed to limit ASCAP's ability, by pooling copyrights for large amounts of music used in radio broadcasting, to extract unreasonable fees for the performances of the music. The availability of the per-program license, if reasonably priced as compared to the alternative blanket license, was one means of accomplishing this purpose.'' United States v. ASCAP, Application of Turner Broadcasting Sys., 782 F. Supp. 778, 810 (S.D.N.Y. 1991), aff'd, 956 F.2d 21 (2d Cir. 1992). The ASCAP Decree establishes ''preferential protection'' for the per program license as a ''counterbalance to ASCAP's market power, which is most clearly exercised by its preference for the blanket license.'' United States v. ASCAP, Application of Capital Cities/ABC, 157 F.R.D. 173, 185 (S.D.N.Y. 1994).
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The organizations' resistance to their decree obligation to provide a reasonable per program license is well documented. In 1993, after an in depth review of the record, a respected Magistrate Judge in the Rate Court found: ''since the early 1940's, ASCAP has viewed the per program license as inconsistent with its business interests . . . [and] has long resisted the use of the per program license in both radio and television.'' United States v. ASCAP, Application of Buffalo Broadcasting Co., 19931 Trade Cas. (CCH) 70,153 at 69,083 (S.D.N.Y. Feb. 26, 1993).
It is not clear on what the Office bases its expressed concern about the potential ''greatly to reduce the income generated for copyright owners.'' Given the overcharges by ASCAP and BMI for per program licenses over the years, a stronger argument can be made that users desiring such a license have paid far more than the consent decrees contemplated for a long time. Moreover, H.R. 789 would not fix the revenues available to copyright owners. It would simply better define the relationship between the per program and blanket licenses. Total revenues would still be subject to negotiation or litigated determination.
Access to Repertoire Information
The NRBMLC appreciates the fact that the Office does not comment negatively on the requirements of section 4 of H.R. 789 that would obligate the performing rights organizations to identify their repertoires on line. It is difficult to imagine a more fundamental economic right of a purchaser than the right to know what he or she is buying. This is doubly true in the context of the performing rights organizations, with whom every buyer must deal.
Page 344 PREV PAGE TOP OF DOC Of course, the obligations set forth in section 5 would be meaningless unless a reasonable remedy were attached. The remedy proposed by H.R. 789 is a reasonable remedy. In fact, it is the precise remedy that already is embodied in the ASCAP consent decree. See ASCAP Decree Section XIV (obligating ASCAP to ''maintain and keep current and make available for inspection'' a ''list of all musical compositions in the ASCAP repertory'' with certain defined content); id., Section IV(F) (defining ASCAP's repertory as the compositions appearing in the list mandated by Section XIV and prohibiting ASCAP from instituting, threatening or maintaining any suit or proceeding with respect to any composition not contained in the repertory, so defined); id., Section VII (requiring the fee charged under ASCAP's per-program licenses to be based on programs containing compositions in the repertory, so defined). In short, the remedy of Section 4 of H.R 789 is nothing new. The section simply brings the decrees into the modern world.
Ms. Peters suggests that this remedy might penalize a ''blameless composer for an error or omission by the society and make it impossible as a practical matter to enforce his or her rights.'' This concern ignores several key facts. First, and fundamentally, the composer, or the composer's publisher, is in the best position to ensure that the organization includes the works in the online repertoire listing. Thus, this remedy places the incentive exactly where it is most effective in ensuring that information is communicated. Second, as we have heard repeatedly during the testimony from composers in connection with H.R. 789, the organization is the composer's agent. It is well settled law that a principal is responsible for failings of its agent acting within the scope of its agency. This is hardly unfair. Third, as a practical matter, there is no loss to the individual Composer. The organization's payments to composers are calculated on the basis of surveyed performances, which are not directly linked to whether a specific performance is subject to fee under the per program license, or whether ASCAP or BMI are entitled to sue. Further, neither ASCAP nor BMI bring suit on the basis of a single unlicensed performance. They typically seek out multiple infringements before suing. Thus, as a practical matter, an individual composer is no worse off if his or her composition is not listed for a brief period of time.
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Finally, the Office's statement speculates that the remedy proposed in H.R. 789 could lead to claims that the U.S. is violating its international obligations. The first such obligation the statement cites is the TRIPS obligation to ''make available to rights holders'' civil judicial procedures. The second is the Berne Convention prohibition on formalities. The Office does not comment on the validity of any such claim. In fact, any such claim would appear to be wholly without merit.
As a general matter, if the current repertoire disclosure provisions of the ASCAP consent decree, sought by the U.S. government and entered by a U.S. court, do not violate U.S. treaty obligations, it is difficult to see how the analogous provisions of H.R. 789 would suddenly raise treaty concerns. Moreover, nothing in H.R. 789 fails to make available to ''rights holders'' civil judicial procedures. The individual ''rights holders'' retain the right to sue regardless of the status of the online directory. The organizations retain whatever right to sue they may have under U.S. law with respect to all works in their repertoire as identified in their online directory, a matter wholly within their control and the control of their principals.
Finally, conditions on litigation activities by collective licensing organizations cannot violate the Berne Convention. Nothing in the Berne Convention grants rights to such organizations or restricts a Member State's ability to regulate the conduct of such organizations. The Convention grants rights to ''the author and his successors in title.'' Berne Article 2(6). The performing rights organizations are neither. The author and successor in title (the publisher) remain free to exercise their rights under U.S. law without regard to any obligation imposed upon the organization. There is no formality that acts as a ''condition which is necessary for [the author's] right to exist.'' See WIPO Guide to the Berne Convention, note 5.5 (describing the intent of the prohibition on ''formalities'').
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Sections 4 and 5 of H.R. 789 are primarily directed to issues of competition and antitrust policy, not copyright. They are essential to promote competition and to ensure a level playing field between the performing rights organizations and music users. I would be happy to respond to any questions you might have.
Very truly yours,
cc: The Honorable Marybeth Peters.
|Bruce G. Joseph,|
|Counsel for the NRB Music License Committee.|
The Honorable Bruce Lehman.
Hon. Howard Coble, Chairman,
|Madden and Patton, L.L.C.,|
|Washington, DC., July 23, 1997.|
Subcommittee on Courts and Intellectual Property,
Re: The Fairness in Music Licensing Act of 1997HR 789.
DEAR CHAIRMAN COBLE: I represent the International Association of Assembly Managers (''IAAM'') in Irving, Texas. IAAM was one of the first members of Fairness in Music Licensing Coalition, which consist of thirty major trade associations. The members of IAAM manage stadiums, arenas, performing arts concerts, convention centers, auditoriums and amphitheaters. IAAM represents approximately 2,400 public assembly facility managers in the United States. These managers are very concerned about the issue of music licensing. Specifically, they are concerned about (1) vicarious liability, (2) access to the music licensing societies repertoires and (3) the location of the one federal court if a dispute arises between a music licensing society and a facility. Because of these concerns, we urge the Subcommittee to act favorably on ''The Fairness in Music Licensing Act of 1997,'' H.R. 789. Please include this letter as part of the July 17, 1997 Hearing Record on H.R. 789. More fully explained below are our three concerns and how the bill will bring fairness to public assembly facilities across the United States.
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First, facility managers, trade show operators and meeting organizers lack the ability to control the specific works being performed by tenants, lessees and exhibitors. While contracts may be structured to provide some control over the space user's conduct, those rights typically do not extent to control over the music performed. Further, in most cases, the space provider has no financial interest in infringement. Even if music indirectly enhances revenues from space fees and admission charges the facility's interest is not enhanced by a copyright infringement over permitted performance. Nevertheless, courts have, at times, ignored such realities by imposing vicarious liability. Section 7 of the proposed bill will provide predictability and reasonable limitations on when a facility or lessor of space may be held liable for its lessee's infringing public performance of a copyrighted work. A facility would be exempt from liability unless the facility actually exercised control over the selection of the works performed.
Second, when and if a facility manage desires to exercise control over the selection of the works performed by promoting an event, it is practically impossible to avoid paying all three societies (ASCAP, BMI and SESAC), because it is extremely difficult to determine what songs are licensed to each society. Section 5 of the bill requires the licensing societies to publish written directories of their repertoires every six months and to provide up-dated computer online access to the repertoires. If facility managers do buy music, they would like to know what they are buying when they pay music licensing fees.
Third, if a facility manager does enter into a license agreement with a society, the society sets the terms and conditions of the rates they charge to play music. If there is a contract dispute, currently the law requires all disputes with ASCAP and BMI, regardless of the amount in dispute or the size of the business or facility, must be resolved in federal court in New York City. Section 3 of the Bill establishes a right to binding local arbitration to resolve disputes between music users the music licensing societies.
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In closing, facility managers believe that composers, authors, songwriters and publishers should receive the financial rewards for their intellectual property, however, by imposing vicarious liability on facilities that have no financial interest in the performance makes us part of the collection process and liable for the licensing fees. Furthermore, the license fee should only be paid once for a performance. Several entities, the facility, the show promoter, and the exhibitor should not each have to pay a licensing fee to three different licensing societies for the same one-time performance. The licensing societies must come into the computer age and make it easy and friendly to have access to their repertories. Once again, the International Association of Assembly Managers urge the Subcommittee to fully support ''The Fairness in Music Licensing Act of 1997.''
cc: Mr. Dennis Finfrock, IAAM Chairman.
IAAM Board of Directors.
Mr. Bill Madison, Interim Executive Director.
MUSICAL LICENSING IN RESTAURANTS AND RETAIL AND OTHER ESTABLISHMENTS
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COURTS AND INTELLECTUAL PROPERTY
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
MUSICAL LICENSING IN RESTAURANTS AND RETAIL AND OTHER ESTABLISHMENTS
JULY 17, 1997
Serial No. 38
Printed for the use of the Committee on the Judiciary
For sale by the U.S. Government Printing Office
Page 350 PREV PAGE TOP OF DOCSuperintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON THE JUDICIARY
HENRY J. HYDE, Illinois, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR SMITH, Texas
STEVEN SCHIFF, New Mexico
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB INGLIS, South Carolina
BOB GOODLATTE, Virginia
STEPHEN E. BUYER, Indiana
SONNY BONO, California
ED BRYANT, Tennessee
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
CHRISTOPHER B. CANNON, Utah
JOHN CONYERS, Jr., Michigan
Page 351 PREV PAGE TOP OF DOCBARNEY FRANK, Massachusetts
CHARLES E. SCHUMER, New York
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey
THOMAS E. MOONEY, Chief of Staff-General Counsel
JULIAN EPSTEIN, Minority Staff Director
Subcommittee on Courts and Intellectual Property
HOWARD COBLE, North Carolina, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
ELTON GALLEGLY, California
BOB GOODLATTE, Virginia
SONNY BONO, California
EDWARD A. PEASE, Indiana
Page 352 PREV PAGE TOP OF DOCCHRISTOPHER B. CANNON, Utah
BILL McCOLLUM, Florida
CHARLES T. CANADY, Florida
BARNEY FRANK, Massachusetts
JOHN CONYERS, Jr., Michigan
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
ZOE LOFGREN, California
WILLIAM D. DELAHUNT, Massachusetts
MITCH GLAZIER, Chief Counsel
BLAINE MERRITT, Counsel
VINCE GARLOCK, Counsel
DEBBIE LAMAN, Counsel
ROBERT RABEN, Minority Counsel
C O N T E N T S
July 17, 1997
Coble, Hon. Howard, a Representative in Congress from the State of North Carolina, and chairman, Subcommittee on Courts and Intellectual Property
Page 353 PREV PAGE TOP OF DOCWITNESSES
Collins, Patrick, senior vice president for licensing, SESAC, Inc
Holyfield, Wayland, songwriter and president, Nashville Songwriters Association International, on behalf of the American Society of Composers, Authors and Publishers (ASCAP)
Davis, Mac, songwriter, on behalf of Broadcast Music, Inc. (BMI)
Kilgore, Peter, general counsel, National Restaurant Association, and member, Fairness in Music Licensing Coalition
Leach, Debra, executive director, National Licensed Beverage Association
Madland, Peter, restaurants-tavern owner, Chetek,WI, on behalf of The Tavern League of Wisconsin
Peters, Marybeth, Register of Copyrights, Copyright Office of the United States, Library of Congress
Shapiro, Gary, president, Consumer Electronics Manufacturers Association, and representative, International Association for Exposition Management
Showman, Thelma, owner, Thelma Showman School of Dance, Broken Arrow, OK
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Stoll, Robert, Administrator, Office of Legislative and International Affairs, U.S. Patent and Trademark Office
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Collins, Patrick, senior vice president for licensing, SESAC, Inc: Prepared statement
Davis, Mac, songwriter, on behalf of Broadcast Music, Inc. (BMI): Letter dated July 31, 1997, to Howard Coble
Holyfield, Wayland, songwriter and president, Nashville Songwriters Association International, on behalf of the American Society of Composers, Authors and Publishers (ASCAP): Prepared statement
Kilgore, Peter, general counsel, National Restaurant Association, and member, Fairness in Music Licensing Coalition:
Information from Music Licensing Fairness Coalition
Letter dated July 16, 1997, to Howard Coble
Leach, Debra, executive director, National Licensed Beverage Association:
Information submitted from National Licensed Beverage Association
Page 355 PREV PAGE TOP OF DOCPrepared statement
Lehman, Bruce A., Assistant Commissioner of Patents and Trademarks:
Letter dated July 7, 1997 to James Sensenbrenner, Jr
Letter dated August 26, 1997 to Howard Coble
Madland, Peter, restaurants-tavern owner, Chetek,WI, on behalf of The Tavern League of Wisconsin: Prepared statement
Peters, Marybeth, Register of Copyrights, Copyright Office of the United States, Library of Congress: Prepared statement
Shapiro, Gary, president, Consumer Electronics Manufacturers Association, and representative, International Association for Exposition Management: Prepared statement
Showman, Thelma, owner, Thelma Showman School of Dance, Broken Arrow, OK: Prepared statement
Material submitted for the hearing
(Footnote 1 return)
1 Article 11(1) of the Berne Convention mandates that authors of musical works have the ''exclusive right of authorizing: the public performance of their works, including such public performance by any means or process.''
Article 11bis(1)(iii) grants authors of literary and artistic works ''the exclusive right of authorizing the public communication by loudspeaker or any other analogous instrument transmitting, by signs, sounds or images, the broadcast of the work.'' Such a right, according to section (2) of this Article, ''shall not in any circumstances be prejudicial . . . to his right to obtain equitable remuneration . . .''.
(Footnote 2 return)
As you are undoubtedly aware, there is also a third performing rights organization, SESAC, that is not regulated by a consent decree.
(Footnote 3 return)
See Letter of Bruce A. Lehman, Assistant Secretary of Commerce and Commissioner of Patents and Trademarks (May 9, 1997); Letter of Marybeth Peters, Register of Copyrights (June 5, 1997).
(Footnote 4 return)
The copyright law protects U.S. and foreign artists. ASCAP's web page states it represents 200,000 foreign artists in addition to its 75,000 U.S. members.
(Footnote 5 return)
Seventeen cases are reported in U.S. Code Annotated since 1980.
(Footnote 6 return)
CEMA estimates that 13 million American homes have a home theater defined as: a large screen TV (25 inches or over including projection), at least four separate speakers, a hi-fi VCR and/or laserdisc or DVD and a surround sound processor of some sort.
(Footnote 7 return)
Universal City Studios v. Sony Corp., 480 F. Supp. 429 (45657) (C.D. Cal. 1979) (demonstration copying and playback are fair use). Although the Ninth Circuit reversed other aspects of the district court's decision, it affirmed this holding. 659 F.2d 963, 976 (9th Cir. 1981).
(Footnote 8 return)
The Office's statement (at 13) implies that the per programming period license is different from the per program license. In fact, the BMI per program license is based on the same 15 minute programming periods as provided in H.R. 789. The ASCAP license charges for a variable program period of up to one hour. The bill would simply harmonize radio per program licenses on the 15 minute model, which more accurately approximates actual music use.
(Footnote 9 return)
The Office's suggestion that direct licenses are generally available to radio broadcasters defies credulity. Such licenses, as a general rule, are not offered. Further, ASCAP's per program license until recently ensured that no such licenses would be issued, by double charging for performances that were directly licensed.