SPEAKERS CONTENTS INSERTS
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MUSIC 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,
Washington, DC.
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 dogs—not 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 requests—perhaps ''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 societies—ASCAP, BMI, and SESAC—oppose 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.
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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 many—and 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.
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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.
Thank you.
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 societies—between the restaurants and ASCAP, as you say—the 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 to—they 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 now—and this has nothing to do directly with discussing the bill—if our point is to not take away—any Members—to take away personal property, I think that that is hypocritical of us.
Mr. COBLE. Well, if the gentleman would yield for a minute, Mr. Bono—and 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 today—a 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.
Thank you.
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[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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DOMESTIC POLICY CONSIDERATIONS
(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.
General
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 services—a 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 establishment—somewhere 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.
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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).
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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.
INTERNATIONAL CONSIDERATIONS
(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).
CONCLUSION
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.
Mr. Stoll.
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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 Harmony—Patents, 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 societies—ASCAP, 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 1976—the 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. 94–1476, 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.
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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.
INTERNATIONAL OBLIGATIONS
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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CONCLUSIONS
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 obligations—that'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 long—actually 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 office—I am very pleased that he turns on the radio while he's drilling my teeth—and, 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 represent—the 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.
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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:]
| U.S. Department of Justice, |
| Office of Legislative Affairs, |
| Washington, DC., July 7, 1997. |
Hon. F. JAMES SENSENBRENNER, JR.,
U.S. House of Representatives,
Washington, DC.
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. 13–95 (S.D.N.Y., entered March 14, 1950, amended February 19, 1993); U.S. v. BMI, Amended Final Judgment, Civ. No. 18–35 (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.
REPERTORY ACCESS
The ASCAP decree requires that ASCAP keep available for public inspection a list of all musical compositions in its repertory. U.S. v. ASCAP, 1950–51 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 CD–ROM 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.
LICENSES
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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RATE COURT
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.
NON-DISCRIMINATION PROVISIONS
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.
Sincerely,
| Andrew Fois, |
| 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.
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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, that—well, 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 they—is 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 them—is 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 exemption—now the other guys are saying, ''Now wait a minute, I don't even know if you can give that home exemption because that is—legally 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.
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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 co