Wednesday, March 12, 2014

Class 20: The Performance Right (cont.)


In Class 19, we began our discussion of the performance right. In this class, we will learn about exceptions to the performance right, including the compulsory licenses for secondary transmissions and satellite transmissions. We will discuss the role of performing rights societies in enforcing the performance right. And we will also learn about the digital performance right.

The Performance Right

As we learned in Class 19, the performance right gives certain copyright owners the exclusive right to control public performances of their works. Section 106 of the Copyright Act grants copyright owners of "literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works" the exclusive right "to perform the copyrighted work publicly." 17 U.S.C. § 106(4). As a result, the performance right does not extend to copyright owners of pictorial, graphic, and sculptural works or sound recordings.

Under the Copyright Act of 1909, the performance right only gave copyright owners the exclusive right to control public performances of their works for profit, and only extended to the authors of literary and musical works. 17 U.S.C. § 1(c) & (e) (1909 Act). In other words, copyright owners could not control nonprofit public performances of their works.

Exceptions to the Performance Right

The Copyright Act of 1976 extended the performance right to nonprofit public performances of copyrighted works, but created specific exemptions for certain nonprofit performances. As Congress explained:
Performing rights and the “for profit” limitation.—The right of public performance under section 106(4) extends to “literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works and sound recordings” and, unlike the equivalent provisions now in effect, is not limited by any “for profit” requirement. The approach of the bill, as in many foreign laws, is first to state the public performance right in broad terms, and then to provide specific exemptions for educational and other nonprofit uses. 
This approach is more reasonable than the outright exemption of the 1909 statute. The line between commercial and “nonprofit” organizations is increasingly difficult to draw. Many “non-profit” organizations are highly subsidized and capable of paying royalties, and the widespread public exploitation of copyrighted works by public broadcasters and other noncommercial organizations is likely to grow. In addition to these trends, it is worth noting that performances and displays are continuing to supplant markets for printed copies and that in the future a broad “not for profit” exemption could not only hurt authors but could dry up their incentive to write. 
The exclusive right of public performance is expanded to include not only motion pictures, including works recorded on film, video tape, and video disks, but also audiovisual, works such as filmstrips and sets of slides. This provision of section 106(4), which is consistent with the assimilation of motion pictures to audiovisual works throughout the bill, is also related to amendments of the definitions of “display” and “perform” discussed below. The important issue of performing rights in sound recordings is discussed in connection with section 114.
H.R. Rep. No 94-1476, at 63 (1976).

Accordingly, Section 110 of the Copyright Act exempts certain nonprofit public performances from the scope of the performance right:
  • Educational Performances: Section 110(1) exempts the "performance . . . of a work by instructors or pupils in the course of face-to-face teaching activities of a nonprofit educational institution, in a classroom or similar place devoted to instruction." In other words, teachers and students can perform works in class.
  • Educational Transmissions: Section 110(2) exempts the transmission of copyrighted works for certain educational purposes, providing that the "performance of a nondramatic literary or musical work or reasonable and limited portions of any other work . . . by or in the course of a transmission, if— (A) the performance or display is made by, at the direction of, or under the actual supervision of an instructor as an integral part of a class session offered as a regular part of the systematic mediated instructional activities of a governmental body or an accredited nonprofit educational institution; (B) the performance or display is directly related and of material assistance to the teaching content of the transmission; (C) the transmission is made solely for, and, to the extent technologically feasible, the reception of such transmission is limited to— (i) students officially enrolled in the course for which the transmission is made; or (ii) officers or employees of governmental bodies as a part of their official duties or employment; and (D) the transmitting body or institution— (i) institutes policies regarding copyright, provides informational materials to faculty, students, and relevant staff members that accurately describe, and promote compliance with, the laws of the United States relating to copyright, and provides notice to students that materials used in connection with the course may be subject to copyright protection." In other words, teachers can send certain works to their students under certain circumstances.
  • Religious Services: Section 110(3) exempts the "performance of a nondramatic literary or musical work or of a dramatico-musical work of a religious nature, or display of a work, in the course of services at a place of worship or other religious assembly." In other words, churches can perform works in the course of religious services.
  • Certain Nonprofit Performances: Section 110(4) exempts the "performance of a nondramatic literary or musical work otherwise than in a transmission to the public, without any purpose of direct or indirect commercial advantage and without payment of any fee or other compensation for the performance to any of its performers, promoters, or organizers, if— (A) there is no direct or indirect admission charge; or (B) the proceeds, after deducting the reasonable costs of producing the performance, are used exclusively for educational, religious, or charitable purposes and not for private financial gain, except where the copyright owner has served notice of objection to the performance." In other words, nonprofit organizations can perform works under certain circumstances.
  • Agricultural and Horticultural Fairs: Section 110(6) exempts the "performance of a nondramatic musical work by a governmental body or a nonprofit agricultural or horticultural organization, in the course of an annual agricultural or horticultural fair or exhibition conducted by such body or organization; the exemption provided by this clause shall extend to any liability for copyright infringement that would otherwise be imposed on such body or organization, under doctrines of vicarious liability or related infringement, for a performance by a concessionnaire, business establishment, or other person at such fair or exhibition, but shall not excuse any such person from liability for the performance." In other words, county fairs are exempted from liability for the performance of copyrighted works.
  • Music and Record Stores: Section 110(7) exempts the "performance of a nondramatic musical work by a vending establishment open to the public at large without any direct or indirect admission charge, where the sole purpose of the performance is to promote the retail sale of copies or phonorecords of the work, or of the audiovisual or other devices utilized in such performance, and the performance is not transmitted beyond the place where the establishment is located and is within the immediate area where the sale is occurring." In other words, record stores and electronics stores can play records in order to promote sales.
  • Transmissions to the Handicapped: Sections 110(8) and (9) exempt the noncommercial transmission of literary works and dramatic works to the handicapped.
  • Veterans and Fraternal Organizations: Section 110(10) exempts the "performance of a nondramatic literary or musical work in the course of a social function which is organized and promoted by a nonprofit veterans’ organization or a nonprofit fraternal organization to which the general public is not invited, but not including the invitees of the organizations, if the proceeds from the performance, after deducting the reasonable costs of producing the performance, are used exclusively for charitable purposes and not for financial gain. For purposes of this section the social functions of any college or university fraternity or sorority shall not be included unless the social function is held solely to raise funds for a specific charitable purpose." In other words, veterans organizations and fraternal organizations can perform works for their members, if any proceeds are used for charitable purposes.
  • Home Video Bowdlerization: Section 110(11) exempts "the making imperceptible, by or at the direction of a member of a private household, of limited portions of audio or video content of a motion picture, during a performance in or transmitted to that household for private home viewing, from an authorized copy of the motion picture, or the creation or provision of a computer program or other technology that enables such making imperceptible and that is designed and marketed to be used, at the direction of a member of a private household, for such making imperceptible, if no fixed copy of the altered version of the motion picture is created by such computer program or other technology." In other words, consumers can use devices or programs to censor their personal copy of a motion picture.
 17 U.S.C. § 110.

  1. Does the Section 110(1) exemption authorize a kindergarten class to play Happy Birthday on the recorder? Does it authorize the class to play Happy Birthday for their parents?
  2. Should Section 110(7) exempt both record stores and electronics stores?
  3. Is the Section 110(10) exemption of veterans and fraternal organizations justified?
  4. Does Section 106 prohibit the conduct exempted by Section 110(11)?
  5. How much of a work does Section 110(11) authorize consumers to skip or remove? Could a consumer remove an entire scene from a motion picture? What about an advertisement embedded in a motion picture? What about an entire work in a compilation?
Secondary Transmissions

A "secondary transmission" is the re-transmission of a broadcast work in a non-broadcast medium. For example, streaming a radio or television broadcast on the Internet is a secondary transmission.

Under the Copyright Act of 1909, the Supreme Court initially held that secondary transmissions infringe the performance right. In Buck v. Jewell-LaSalle Realty Co., 283 U.S. 191 (1931), it held that a hotel infringed the performance right by rebroadcasting a radio station into guest rooms. But eventually, it reversed itself, holding that secondary transmissions do not infringe the performance right. In Fortnightly Corp. v. United Artists Television, Inc., 392 U.S. 390 (1968), it held that a cable television network did not infringe the performance right by rebroadcasting television programs to its customers.

The Copyright Act of 1976 overruled the Supreme Court, providing that secondary transmissions do infringe the performance right. But it also created several exemptions and compulsory licenses, including a compulsory license for cable television networks to rebroadcast television programs.

Section 111 provides cable television networks a compulsory license to rebroadcast television programs, so long as they pay royalties and comply with reporting requirements. 17 U.S.C. § 111. As the cable television industry has grown and changed over time, the efficiency of the compulsory license has come into question.

Section 119 provides satellite television networks a compulsory license to rebroadcast television programs. 17 U.S.C. § 119. The efficiency of this compulsory question has also into evidence.

Performing Rights Societies

Copyrighted works are performed in innumerable places every day. As a result, copyright owners cannot effectively enforce their own performance rights, and collectively use performing rights societies to enforce their performance rights. A performing rights society is an organization that manages the performance right for many different filmmakers.

In particular, the authors of musical works have formed performing rights organizations to manage their performance rights by collecting and distributing royalties. The two largest performing arts societies are the American Society of Composers, Authors, and Publishers ("ASCAP") and Broadcast Music Inc. ("BMI").

Membership in a performing rights society has three essential elements. First, the author of a work grants the performing rights society a non-exclusive right to license performances of the work. Second, the author grants the performing rights society the authority to enforce the performance right. Third, the performing rights  society promises to pay royalties to the author, based on its rules.

The performing rights society generally collects royalties from the users of the works in the form of "blanket licenses," the cost of which may depend on the size of the user. After deducting expenses, the performing rights organization the distributes the royalties to its members, on a complicated pro rata basis.

  1. Do you think performing rights societies are a good idea?
  2. How should performing rights societies distribute their profits?
Incidental Public Reception

The Copyright Act exempts from the performance right certain secondary transmissions of copyrighted works by businesses that serve the public. Specifically, it exempts the "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— (i) a direct charge is made to see or hear the transmission; or (ii) the transmission thus received is further transmitted to the public." 17 U.S.C. § 110(5). In addition, it exempts certain businesses that play multiple radios or televisions, under certain circumstances. 17 U.S.C. § 110(5)(B). Essentially, Section 110 provides an exception for certain businesses that want to play a radio or television.

  1. Why do the performing rights societies oppose Section 110(5)?
  2. Should Congress have adopted the Section 110(5) extension?
The Digital Performance Right

Section 106 of the Copyright Act grants copyright owners of "sound recordings" the exclusive right to perform the copyrighted work publicly by means of a digital audio transmission." 17 U.S.C. § 106(6). The digital performance right gives the copyright owners of sound recordings a limited performance right to control the transmission of their work over the Internet.

Section 114 creates exceptions to the digital performance right for (1) non-interactive, non-subscription digital transmission of sound recordings (i.e. digital-only radio); (2) the secondary transmission of certain exempt primary transmissions (i.e. streaming radio); and (3) transmissions within and to businesses (i.e. streaming MUZAK). Section 114 also creates a compulsory license for digital transmission of sound recordings. 17 U.S.C § 114.

  1. Why did Congress grant copyright owners of sound recordings only a digital performance right?
  2. Should Congress grant copyright owners of sound recordings the full performance right? 
Broadcast Music, Inc. v. CBS, Inc., 441 U.S. 1 (1979)
MR. JUSTICE WHITE delivered the opinion of the Court. 
This case involves an action under the antitrust and copyright laws brought by respondent Columbia Broadcasting System, Inc. (CBS), against petitioners, American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music, Inc. (BMI), and their members and affiliates. The basic question presented is whether the issuance by ASCAP and BMI to CBS of blanket licenses to copyrighted musical compositions at fees negotiated by them is price-fixing per se unlawful under the antitrust laws. 
CBS operates one of three national commercial television networks, supplying programs to approximately 200 affiliated stations and telecasting approximately 7,500 network programs per year. Many, but not all, of these programs make use of copyrighted music recorded on the soundtrack. CBS also owns television and radio stations in various cities. It is "the giant of the world in the use of music rights,'" the "'No. 1 outlet in the history of entertainment.'" 
Since 1897, the copyright laws have vested in the owner of a copyrighted musical composition the exclusive right to perform the work publicly for profit, but the legal right is not self-enforcing. In 1914, Victor Herbert and a handful of other composers organized ASCAP because those who performed copyrighted music for profit were so numerous and widespread, and most performances so fleeting, that, as a practical matter, it was impossible for the many individual copyright owners to negotiate with and license the users and to detect unauthorized uses. "ASCAP was organized as a clearing-house' for copyright owners and users to solve these problems" associated with the licensing of music. 400 F.Supp. 737, 741 (SDNY 1975). As ASCAP operates today, its 22,000 members grant it nonexclusive rights to license nondramatic performances of their works, and ASCAP issues licenses and distributes royalties to copyright owners in accordance with a schedule reflecting the nature and amount of the use of their music and other factors. 
BMI, a nonprofit corporation owned by members of the broadcasting industry, was organized in 1939, is affiliated with or represents some 10,000 publishing companies and 20,000 authors and composers, and operates in much the same manner as ASCAP. Almost every domestic copyrighted composition is in the repertory either of ASCAP, with a total of three million compositions, or of BMI, with one million. 
Both organizations operate primarily through blanket licenses, which give the licensees the right to perform any and all of the compositions owned by the members or affiliates as often as the licensees desire for a stated term. Fees for blanket licenses are ordinarily a percentage of total revenues or a flat dollar amount, and do not directly depend on the amount or type of music used. Radio and television broadcasters are the largest users of music, and almost all of them hold blanket licenses from both ASCAP and BMI. Until this litigation, CBS held blanket licenses from both organizations for its television network on a continuous basis since the late 1940's, and had never attempted to secure any other form of license from either ASCAP or any of its members. Id. at 752-754
The complaint filed by CBS charged various violations of the Sherman Act and the copyright laws. CBS argued that ASCAP and BMI are unlawful monopolies, and that the blanket license is illegal price-fixing, an unlawful tying arrangement, a concerted refusal to deal, and a misuse of copyrights. The District Court, though denying summary judgment to certain defendants, ruled that the practice did not fall within the per se rule. 337 F.Supp. 394, 398 (SDNY 1972). After an 8-week trial, limited to the issue of liability, the court dismissed the complaint, rejecting again the claim that the blanket license was price-fixing and a per se violation of § 1 of the Sherman Act, and holding that, since direct negotiation with individual copyright owners is available and feasible, there is no undue restraint of trade, illegal tying, misuse of copyrights, or monopolization. 400 F.Supp. at 781-783. 
Though agreeing with the District Court's factfinding and not disturbing its legal conclusions on the other antitrust theories of liability, the Court of Appeals held that the blanket license issued to television networks was a form of price-fixing illegal per se under the Sherman Act. 532 F.2d 130, 140 (CA2 1977). This conclusion, without more, settled the issue of liability under the Sherman Act, established copyright misuse, and required reversal of the District Court's judgment, as well as a remand to consider the appropriate remedy. 
ASCAP and BMI petitioned for certiorari, presenting the questions of the applicability of the per se rule and of whether this constitutes misuse of copyrights. CBS did not cross-petition to challenge the failure to sustain its other antitrust claims. We granted certiorari because of the importance of the issues to the antitrust and copyright laws. 439 U.S. 817 (1978). Because we disagree with the Court of Appeals' conclusions with respect to the per se illegality of the blanket license, we reverse its judgment and remand the cause for further appropriate proceedings. 
In construing and applying the Sherman Act's ban against contracts, conspiracies, and combinations in restraint of trade, the Court has held that certain agreements or practices are so "plainly anticompetitive," National Society of Professional Engineers v. United States, 435 U. S. 679, 435 U. S. 692 (1978); Continental T.V., Inc. v. GTE Sylvania Inc., 433 U. S. 36, 433 U. S. 50 (1977), and so often "lack . . . any redeeming virtue," Northern Pac. R. Co. v. United States, 356 U. S. 1, (1958), that they are conclusively presumed illegal without further examination under the rule of reason generally applied in Sherman Act cases. This per se rule is a valid and useful tool of antitrust policy and enforcement. And agreements among competitors to fix prices on their individual goods or services are among those concerted activities that the Court has held to be within the per se category. But easy labels do not always supply ready answers. 
To the Court of Appeals and CBS, the blanket license involves "price-fixing" in the literal sense: the composers and publishing houses have joined together into an organization that sets its price for the blanket license it sells. But this is not a question simply of determining whether two or more potential competitors have literally "fixed" a "price." As generally used in the antitrust field, "price-fixing" is a shorthand way of describing certain categories of business behavior to which the per se rule has been held applicable. The Court of Appeals' literal approach does not alone establish that this particular practice is one of those types or that it is "plainly anticompetitive" and very likely without "redeeming virtue." 
Literalness is overly simplistic and often overbroad. When two partners set the price of their goods or services, they are literally "price-fixing," but they are not per se in violation of the Sherman Act. See United States v. Addyston Pipe & Steel Co., 85 F. 271, 280 (CA6 1898), aff'd, 175 U. S. 11 (1899). Thus, it is necessary to characterize the challenged conduct as falling within or without that category of behavior to which we apply the label "per se price-fixing." That will often, but not always, be a simple matter. 
Consequently, as we recognized in United States v. Topco Associates, Inc., 405 U. S. 596, 405 U. S. 607-608 (1972), "[i]t is only after considerable experience with certain business relationships that courts classify them as per se violations. . . ." See White Motor Co. v. United States, 372 U. S. 253, 372 U. S. 263 (1963). We have never examined a practice like this one before; indeed, the Court of Appeals recognized that, "[i]n dealing with performing rights in the music industry, we confront conditions both in copyright law and in antitrust law which are sui generis." 562 F.2d at 132. And though there has been rather intensive antitrust scrutiny of ASCAP and its blanket licenses, that experience hardly counsels that we should outlaw the blanket license as a per se restraint of trade. 
This litigation and other cases involving ASCAP and its licensing practices have arisen out of the efforts of the creators of copyrighted musical compositions to collect for the public performance of their works, as they are entitled to do under the Copyright Act. As already indicated, ASCAP and BMI originated to make possible and to facilitate dealings between copyright owners and those who desire to use their music. Both organizations plainly involve concerted action in a large and active line of commerce, and it is not surprising that, as the District Court found, "[n]either ASCAP nor BMI is a stranger to antitrust litigation." 400 F.Supp. at 743. 
The Department of Justice first investigated allegations of anticompetitive conduct by ASCAP over 50 years ago. A criminal complaint was filed in 1934, but the Government was granted a mid-trial continuance and never returned to the courtroom. In separate complaints in 1941, the United States charged that the blanket license, which was then the only license offered by ASCAP and BMI, was an illegal restraint of trade, and that arbitrary prices were being charged as the result of an illegal copyright pool. The Government sought to enjoin ASCAP's exclusive licensing powers and to require a different form of licensing by that organization. The case was settled by a consent decree that imposed tight restrictions on ASCAP's operations. Following complains relating to the television industry, successful private litigation against ASCAP by movie theaters, and a Government challenge to ASCAP's arrangements with similar foreign organizations, the 1941 decree was reopened and extensively amended in 1950.  
Under the amended decree, which still substantially controls the activities of ASCAP, members may grant ASCAP only nonexclusive rights to license their works for public performance. Members, therefore, retain the rights individually to license public performances, along with the rights to license the use of their compositions for other purposes. ASCAP itself is forbidden to grant any license to perform one or more specified compositions in the ASCAP repertory unless both the user and the owner have requested it in writing to do so. ASCAP is required to grant to any user making written application a nonexclusive license to perform all ASCAP compositions, either for a period of time or on a per-program basis. ASCAP may not insist on the blanket license, and the fee for the per-program license, which is to be based on the revenues for the program on which ASCAP music is played, must offer the applicant a genuine economic choice between the per-program license and the more common blanket license. If ASCAP and a putative licensee are unable to agree on a fee within 60 days, the applicant may apply to the District Court for a determination of a reasonable fee, with ASCAP having the burden of proving reasonableness. 
The 1950 decree, as amended from time to time, continues in effect, and the blanket license continues to be the primary instrument through which ASCAP conducts its business under the decree. The courts have twice construed the decree not to require ASCAP to issue licenses for selected portions of its repertory. [Footnote 21] It also remains true that the decree guarantees the legal availability of direct licensing of performance rights by ASCAP members; and the District Court found, and in this respect the Court of Appeals agreed, that there are no practical impediments preventing direct dealing by the television networks if they so desire. Historically, they have not done so. Since 1946, CBS and other television networks have taken blanket licenses from ASCAP and BMI. It was not until this suit arose that the CBS network demanded any other kind of license. 
Of course, a consent judgment, even one entered at the behest of the Antitrust Division, does not immunize the defendant from liability for actions, including those contemplated by the decree, that violate the rights of nonparties. See Sam Fox Publishing Co. v. United States, 366 U. S. 683, 366 U. S. 690 (1961), which involved this same decree. But it cannot be ignored that the Federal Executive and Judiciary have carefully scrutinized ASCAP and the challenged conduct, have imposed restrictions on various of ASCAP's practices, and, by the terms of the decree, stand ready to provide further consideration, supervision, and perhaps invalidation of asserted anticompetitive practices. In these circumstances, we have a unique indicator that the challenged practice may have redeeming competitive virtues, and that the search for those values is not almost sure to be in vain. Thus, although CBS is not bound by the Antitrust Division's actions, the decree is a fact of economic and legal life in this industry, and the Court of Appeals should not have ignored it completely in analyzing the practice. See id. at 366 U. S. 694-695. That fact alone might not remove a naked price-fixing scheme from the ambit of the per se rule, but, as discussed infra, 441 U. S. here we are uncertain whether the practice on its face has the effect, or could have been spurred by the purpose, of restraining competition among the individual composers. 
After the consent decrees, the legality of the blanket license was challenged in suits brought by certain ASCAP members against individual radio stations for copyright infringement. The stations raised as a defense that the blanket license was a form of price-fixing illegal under the Sherman Act. The parties stipulated that it would be nearly impossible for each radio station to negotiate with each copyright holder separate licenses for the performance of his works on radio. Against this background, and relying heavily on the 1950 consent judgment, the Court of Appeals for the Ninth Circuit rejected claims that ASCAP was a combination in restraint of trade and that the blanket license constituted illegal price-fixing. K-91, Inc. v. Gershwin Publishing Corp., 372 F.2d 1 (1967), cert. denied, 389 U.S. 1045 (1968). 
The Department of Justice, with the principal responsibility for enforcing the Sherman Act and administering the consent decrees relevant to this case, agreed with the result reached by the Ninth Circuit. In a submission amicus curiae opposing one station's petition for certiorari in this Court, the Department stated that there must be "some kind of central licensing agency by which copyright holders may offer their works in a common pool to all who wish to use them." Memorandum for United States as Amicus Curiae on Pet. for Cert. in K-91, Inc. v. Gershwin Publishing Corp., O.T. 1967, No. 147, pp. 10-11. And the Department elaborated on what it thought that fact meant for the proper application of the antitrust laws in this area: 
"The Sherman Act has always been discriminatingly applied in the light of economic realities. There are situations in which competitors have been permitted to form joint selling agencies or other pooled activities, subject to strict limitations under the antitrust laws to guarantee against abuse of the collective power thus created. Associated Press v. United States, 326 U. S. 1; United States v. St. Louis Terminal, 224 U. S. 383; Appalachian Coals, Inc. v. United States, 288 U. S. 344; Chicago Board of Trade v. United States, 246 U. S. 231. This case appears to us to involve such a situation. The extraordinary number of users spread across the land the ease with which a performance may be broadcast, the sheer volume of copyrighted compositions, the enormous quantity of separate performances each year, the impracticability of negotiating individual licenses for each composition, and the ephemeral nature of each performance -- all combine to create unique market conditions for performance rights to recorded music." 
Id. at 10 (footnote omitted). The Department concluded that, in the circumstances of that case, the blanket licenses issued by ASCAP to individual radio stations were neither a per se violation of the Sherman Act nor an unreasonable restraint of trade. 
As evidenced by its amicus brief in the present case, the Department remains of that view. Furthermore, the United States disagrees with the Court of Appeals in this case, and urges that the blanket licenses, which the consent decree authorizes ASCAP to issue to television networks, are not per se violations of the Sherman Act. It takes no position, however, on whether the practice is an unreasonable restraint of trade in the context of the network television industry. 
Finally, we note that Congress itself, in the new Copyright Act., has chosen to employ the blanket license and similar practices. Congress created a compulsory blanket license for secondary transmissions by cable television systems, and provided that, 
"[n]otwithstanding any provisions of the antitrust laws, . . . any claimants may agree among themselves as to the proportionate division of compulsory licensing fees among them, may lump their claims together and file them jointly or as a single claim, or may designatee a common agent to receive payment on their behalf." 
17 U.S.C.App. § 111(d)(5)(A). And the newly created compulsory license for the use of copyrighted co,positions in jukeboxes is also a blanket license, which is payable to the performing rights societies such as ASCAP unless an individual copyright holder can prove his entitlement to a share. § 116(c)(4). Moreover, in requiring noncommercial broadcasters to pay for their use of copyrighted music Congress again provided that,"[n]otwithstanding any provision of the antitrust laws" copyright owners "may designate common agents to negotiate, agree to pay, or receive payments." § 118(1). Though these provisions are not directly controlling, they do reflect an opinion that the blanket license, and ASCAP, are economically beneficial in at least some circumstances. 
There have been District Court cases holding various ASCAP practices, including its licensing practices, to be violative of the Sherman Act, [Footnote 25] but even so, there is no nearly universal view that either the blanket or the per-program licenses issued by ASCAP at prices negotiated by it are a form of price-fixing subject to automatic condemnation under the Sherman Act, rather than to a careful assessment under the rule of reason. 
Of course, we are no more bound than is CBS by the views of the Department of Justice, the results in the prior lower court cases, or the opinions of various experts about the merits of the blanket license. But, while we must independently examine this practice, all those factors should caution us against too easily finding blanket licensing subject to per se invalidation. 
As a preliminary matter, we are mindful that the Court of Appeals' holding would appear to be quite difficult to contain. If, as the court held, there is a per se antitrust violation whenever ASCAP issues a blanket license to a television network for a single fee, why would it not also be automatically illegal for ASCAP to negotiate and issue blanket licenses to individual radio or television stations or to other users who perform copyrighted music for profit? Likewise, if the present network licenses issued through ASCAP on behalf of its members are per se violations, why would it not be equally illegal for the members to authorize ASAP to issue licenses establishing various categories of uses that a network might have for copyrighted music, and setting a standard fee for each described use? 
Although the Court of Appeals apparently thought the blanket license could be saved in some or even many applications, it seems to us that the per se rule does not accommodate itself to such flexibility, and that the observations of the Court of Appeals with respect to remedy tend to impeach the per se basis for the holding of liability. 
CBS would prefer that ASCAP be authorized, indeed directed, to make all its compositions available at standard per-use rates within negotiated categories of use. 400 F.Supp. at 747 n. 7. But if this, in itself or in conjunction with blanket licensing, constitutes illegal price-fixing by copyright owners, CBS urges that an injunction issue forbidding ASCAP to issue any blanket license or to negotiate any fee except on behalf of an individual member for the use of his own copyrighted work or works. Thus, we are called upon to determine that blanket licensing is unlawful across the board. We are quite sure, however, that the per se rule does not require any such holding. 
In the first place, the line of commerce allegedly being restrained, the performing rights to copyrighted music, exists at all only because of the copyright laws. Those who would use copyrighted music in public performances must secure consent from the copyright owner or be liable at least for the statutory damages for each infringement and, if the conduct is willful and for the purpose of financial gain, to criminal penalties. Furthermore, nothing in the Copyright Act of 1976 indicates in the slightest that Congress intended to weaken the rights of copyright owners to control the public performance of musical compositions. 
Quite the contrary is true. Although the copyright laws confer no rights on copyright owners to fix prices among themselves or otherwise to violate the antitrust laws, we would not expect that any market arrangements reasonably necessary to effectuate the rights that are granted would be deemed a per se violation of the Sherman Act. Otherwise, the commerce anticipated by the Copyright Act and protected against restraint by the Sherman Act would not exist at all, or would exist only as a pale reminder of what Congress envisioned. 
More generally, in characterizing this conduct under the per se rule, our inquiry must focus on whether the effect and, here because it tends to show effect, see United States v. United States Gypsum Co., 438 U. S. 422, 438 U. S. 436 n. 13 (1978), the purpose of the practice are to threaten the proper operation of our predominantly free-market economy -- that is, whether the practice facially appears to be one that would always or almost always tend to restrict competition and decrease output, and in what portion of the market, or instead one designed to "increase economic efficiency and render markets more, rather than less, competitive." Id. at 438 U. S. 441 n. 16; see National Society of Professional Engineers v. United States, 435 U.S. at 435 U. S. 688; Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. at 433 U. S. 50 n. 16; Northern Pac. R. Co. v. United States, 356 U.S. at 356 U. S. 4. 
The blanket license, as we see it, is not a "naked restrain[t] of trade with no purpose except stifling of competition," White Motor Co. v. United States, 372 U. S. 253, 372 U. S. 263 (1963), but rather accompanies the integration of sales, monitoring and enforcement against unauthorized copyright use. See L. Sullivan, Handbook of the Law of Antitrust 59 p. 154 (1977). As we have already indicated, ASCAP and the blanket license developed together out of the practical situation in the marketplace: thousands of users, thousands of copyright owners, and millions of compositions. Most users want unplanned, rapid and indemnified access to any and all of the repertory of compositions, and the owners want a reliable method of collecting for the use of their copyrights. Individual sales transactions in this industry are quite expensive, as would be individual monitoring and enforcement, especially in light of the resources of single composers. Indeed as both the Court of Appeals and CBS recognize, the costs are prohibitive for licenses with individual radio stations, nightclubs, and restaurants, 562 F.2d at 140 n. 26, and it was in that milieu that the blanket license arose. 
A middleman with a blanket license was an obvious necessity if the thousands of individual negotiations, a virtual impossibility, were to be avoided. Also, individual fees for the use of individual compositions would presuppose an intricate schedule of fees and uses, as well as a difficult and expensive reporting problem for the user and policing task for the copyright owner. Historically, the market for public performance rights organized itself largely around the single-fee blanket license, which gave unlimited access to the repertory and reliable protection against infringement. When ASCAP's major and user-created competitor, BMI, came on the scene, it also turned to the blanket license. 
With the advent of radio and television networks, market conditions changed, and the necessity for and advantages of a blanket license for those users may be far less obvious than is the case when the potential users are individual television or radio stations, or the thousands of other individuals and organizations performing copyrighted compositions in public. But even for television network licenses, ASCAP reduces costs absolutely by creating a blanket license that is sold only a few, instead of thousands, of times, and that obviates the need for closely monitoring the networks to see that they do not use more than they pay for. ASAP also provides the necessary resources for blanket sales and enforcement, resources unavailable to the vast majority of composers and publishing houses. Moreover, a bulk license of some type is a necessary consequence of the integration necessary to achieve these efficiencies, and a necessary consequence of an aggregate license is that its price must be established. 
This substantial lowering of costs, which is, of course, potentially beneficial to both sellers and buyers, differentiates the blanket license from individual use licenses. The blanket license is composed of the individual compositions plus the aggregating service. Here, the whole is truly greater than the sum of its parts; it is, to some extent, a different product. The blanket license has certain unique characteristics: it allows the licensee immediate use of covered compositions, without the delay of prior individual negotiations, and great flexibility in the choice of musical material. Many consumers clearly prefer the characteristics and cost advantages of this marketable package, and even small performing rights societies that have occasionally arisen to compete with ASCAP and BMI have offered blanket licenses. Thus, to the extent the blanket license is a different product, ASCAP is not really a joint sales agency offering the individual goods of many sellers, but is a separate seller offering its blanket license, of which the individual compositions are raw material. ASCAP, in short, made a market in which individual composers are inherently unable to compete fully effectively. 
Finally, we have some doubt -- enough to counsel against application of the per se rule -- about the extent to which this practice threatens the "central nervous system of the economy," United States v. Socony-Vacuum Oil Co., 310 U. S. 150, 310 U. S. 226 n. 59 (1940), that is, competitive pricing as the free market's means of allocating resources. Not all arrangements among actual or potential competitors that have an impact on price are per se violations of the Sherman Act, or even unreasonable restraints. Mergers among competitors eliminate competition, including price competition, but they are not per se illegal, and many of them withstand attack under any existing antitrust standard. Joint ventures and other cooperative arrangements are also not usually unlawful, at least not as price-fixing schemes, where the agreement on price is necessary to market the product at all. 
Here, the blanket license fee is not set by competition among individual copyright owners, and it is a fee for the use of any of the compositions covered by the license. But the blanket license cannot be wholly equated with a simple horizontal arrangement among competitors. ASCAP does set the price for its blanket license, but that license is quite different from anything any individual owner could issue. The individual composers and authors have neither agreed not to sell individually in any other market nor use the blanket license to mask price-fixing in such other markets. Moreover, the substantial restraints placed on ASCAP and its members by the consent decree must not be ignored. The District Court found that there was no legal, practical, or conspiratorial impediment to CBS's obtaining individual licenses; CBS, in short, had a real choice. 
With this background in mind, which plainly enough indicates that, over the years and in the face of available alternatives, the blanket license has provided an acceptable mechanism for at least a large part of the market for the performing rights to copyrighted musical compositions, we cannot agree that it should automatically be declared illegal in all of its many manifestations. Rather, when attacked, it should be subjected to a more discriminating examination under the rule of reason. It may not ultimately survive that attack, but that is not the issue before us today. 
As we have noted, n 27, supra, the enigmatic remarks of the Court of Appeals with respect to remedy appear to have departed from the court's strict, per se approach, and to have invited a more careful analysis. But this left the general import of its judgment that the licensing practices of ASCAP and BMI under the consent decree are per se violations of the Sherman Act. We reverse that judgment, and the copyright misuse judgment dependent upon it, see n. 9, supra, and remand for further proceedings to consider any unresolved issues that CBS may have properly brought to the Court of Appeals. Of course, this will include an assessment under the rule of reason of the blanket license as employed in the television industry, if that issue was preserved by CBS in the Court of Appeals. 
The judgment of the Court of Appeals is reversed, and the cases are remanded to that court for further proceedings consistent with this opinion. 
It is so ordered. 
MR. JUSTICE STEVENS, dissenting. 
The Court holds that ASCAP's blanket license is not a species of price-fixing categorically forbidden by the Sherman Act. I agree with that holding. The Court remands the case to the Court of Appeals, leaving open the question whether the blanket license, as employed by ASCAP and BMI, is unlawful under a rule of reason inquiry. I think that question is properly before us now, and should be answered affirmatively. 
There is ample precedent for affirmance of the judgment of the Court of Appeals on a ground that differs from its rationale, provided of course that we do not modify its judgment. In this litigation, the judgment of the Court of Appeals was not that blanket licenses may never be offered by ASCAP and BMI. Rather, its judgment directed the District Court to fashion relief requiring them to offer additional forms of license as well. Even though that judgment may not be consistent with its stated conclusion that the blanket license is "illegal per se" as a kind of price-fixing, it is entirely consistent with a conclusion that petitioners' exclusive all-or-nothing blanket license policy violates the rule of reason. 
The Court of Appeals may well so decide on remand. In my judgment, however, a remand is not necessary. The record before this Court is a full one, reflecting extensive discovery and eight weeks of trial. The District Court's findings of fact are thorough and well supported. They clearly reveal that the challenged policy does have a significant adverse impact on competition. I would therefore affirm the judgment of the Court of Appeals. 
In December, 1969, the president of the CBS television network wrote to ASCAP and BMI requesting that each "promptly . . . grant a new performance rights license which will provide, effective January 1, 1970, for payments measured by the actual use of your music."
ASCAP and BMI each responded by stating that it considered CBS's request to be an application for a license in accordance with the provisions of its consent decree, and would treat it as such, even though neither decree provides for licensing on a per-composition or per-use basis. Rather than pursuing further discussion, CBS instituted this suit. 
Whether or not the CBS letter is considered a proper demand for per-use licensing is relevant, if at all, only on the question of relief. For the fact is, and it cannot seriously be questioned, that ASCAP and BMI have steadfastly adhered to the policy of only offering overall blanket or per-program licenses, notwithstanding requests for more limited authorizations. Thus, ASCAP rejected a 1971 request by NBC for licenses for 2,217 specific compositions, as well as an earlier request by a group of television stations for more limited authority than the blanket licenses which they were then purchasing. 
Neither ASCAP nor BMI has ever offered to license anything less than its entire portfolio, even on an experimental basis. Moreover, if the response to the CBS letter were not sufficient to characterize their consistent policy, the defense of this lawsuit surely is. It is the refusal to license anything less than the entire repertoire -- rather than the decision to offer blanket licenses themselves -- that raises the serious antitrust questions in this case. 
Under our prior cases, there would be no question about the illegality of the blanket-only licensing policy if ASAP and BMI were the exclusive sources of all licenses. A copyright, like a patent, is a statutory grant of monopoly privileges. The rules which prohibit a patentee from enlarging his statutory monopoly by conditioning a license on the purchase of unpatented goods, or by refusing to grant a license under one patent unless the licensee also takes a license under another, are equally applicable to copyrights.It is clear, however, that the mere fact that the holder of several patents has granted a single package license covering them all does not establish any illegality. This point was settled by Automatic Radio Mfg. Co. v. Hazeltine Research, Inc., 339 U. S. 827, 339 U. S. 834, and reconfirmed in Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U. S. 100, 395 U. S. 137-138. The Court is therefore unquestionably correct in its conclusion that ASCAP's issuance of blanket licenses covering its entire inventory is not, standing alone, automatically unlawful. But both of those cases identify an important limitation on this rule. In the former, the Court was careful to point out that the record did not present the question whether the package license would have been unlawful if Hazeltine had refused to license on any other basis. 339 U.S. at 339 U. S. 831. And in the latter case, the Court held that the package license was illegal because of such a refusal. 395 U.S. at 385 U. S. 140-141. 
Since ASCAP offers only blanket licenses, its licensing practices fall on the illegal side of the line drawn by the two Hazeltine cases. But there is a significant distinction: unlike Hazeltine, ASCAP does not have exclusive control of the copyrights in its portfolio, and it is perfectly possible -- at least as a legal matter -- for a user of music to negotiate directly with composers and publishers for whatever rights he may desire. The availability of a practical alternative alters the competitive effect of a block-booking or blanket licensing policy. ASCAP is therefore quite correct in its insistence that its blanket license cannot be categorically condemned on the authority of the block-booking and package licensing cases. While these cases are instructive, they do not directly answer the question whether the ASCAP practice is unlawful. 
The answer to that question depends on an evaluation of the effect of the practice on competition in the relevant market. And, of course, it is well settled that a sales practice that is permissible for a small vendor, at least when no coercion is present, may be unreasonable when employed by a company that dominates the market.
We therefore must consider what the record tells us about the competitive character of this market. 
The market for music at issue here is wholly dominated by ASCAP-issued blanket licenses. Virtually every domestic copyrighted composition is in the repertoire of either ASCAP or BMI. And again, virtually without exception, the only means that has been used to secure authority to perform such compositions is the blanket license.
The blanket all-or-nothing license is patently discriminatory. The user purchases full access to ASCAP's entire repertoire, even though his needs could be satisfied by a far more limited selection. The price he pays for this access is unrelated either to the quantity or the quality of the music he actually uses, or, indeed, to what he would probably use in a competitive system. Rather, in this unique all-or-nothing system, the price is based on a percentage of the user's advertising revenues, a measure that reflects the customer's ability to pay but is totally unrelated to factors -- such as the cost, quality, or quantity of the product -- that normally affect price in a competitive market. The ASCAP system requires users to buy more music than they want at a price which, while not beyond their ability to pay and perhaps not even beyond what is "reasonable" for the access they are getting, may well be far higher than what they would choose to spend for music in a competitive system. It is a classic example of economic discrimination. 
The record plainly establishes that there is no price competition between separate musical compositions. Under a blanket license, it is no more expensive for a network to play the most popular current hit in prime time than it is to use an unknown composition as background music in a soap opera. Because the cost to the user is unaffected by the amount used on any program or on all programs, the user has no incentive to economize by, for example, substituting what would otherwise be less expensive songs for established favorites or by reducing the quantity of music used on a program. The blanket license thereby tends to encourage the use of more music, and also of a larger share of what is really more valuable music than would be expected in a competitive system characterized by separate licenses. And since revenues are passed on to composers on a basis reflecting the character and frequency of the use of their music the tendency is to increase the rewards of the established composers at the expense of those less well known. Perhaps the prospect is, in any event, unlikely, but the blanket license does not present a new songwriter with any opportunity to try to break into the market by offering his product for sale at an unusually low price. The absence of that opportunity, however unlikely it may be, is characteristic of a cartelized, rather than a competitive, market. 
The current state of the market cannot be explained on the ground that it could not operate competitively, or that issuance of more limited -- and thus less restrictive -- licenses by ASCAP is not feasible. The District Court's findings disclose no reason why music performing rights could not be negotiated on a per-composition or per-use basis, either with the composer or publisher directly or with an agent such as ASCAP. In fact, ASCAP now compensates composers and publishers on precisely those bases. If distributions of royalties can be calculated on a per-use and per-composition basis, it is difficult to see why royalties could not also be collected in the same way. Moreover, the record also shows that, where ASCAP's blanket license scheme does not govern, competitive markets do. A competitive market for "synch" rights exists, and after the use of blanket licenses in the motion picture industry was discontinued, such a market promptly developed in that industry. In sum, the record demonstrates that the market at issue here is one that could be highly competitive, but is not competitive at all. 
Since the record describes a market that could be competitive and is not, and since that market is dominated by two firms engaged in a single, blanket method of dealing, it surely seems logical to conclude that trade has been restrained unreasonably. ASCAP argues, however, that at least as to CBS, there has been no restraint at all, since the network is free to deal directly with copyright holders. 
The District Court found that CBS had failed to establish that it was compelled to take a blanket license from ASCAP. While CBS introduced evidence suggesting that a significant number of composers and publishers, satisfied as they are with the ASCAP system, would be "disinclined" to deal directly with the network, the court found such evidence unpersuasive in light of CBS's substantial market power in the music industry and the importance to copyright holders of network television exposure. [Footnote 2/26] Moreover, it is arguable that CBS could go further and, along with the other television networks, use its economic resources to exploit destructive competition among purveyors of music by driving the price of performance rights down to a far lower level. But none of this demonstrates that ASCAP's practices are lawful, or that ASCAP cannot be held liable for injunctive relief at CBS's request. 
The fact that CBS has substantial market power does not deprive it of the right to complain when trade is restrained. Large buyers, as well as small, are protected by the antitrust laws. Indeed, even if the victim of a conspiracy is himself a wrongdoer, he has not forfeited the protection of the law. Moreover, a conclusion that excessive competition would cause one side of the market more harm than good may justify a legislative exemption from the antitrust laws, but does not constitute a defense to a violation of the Sherman Act. Even though characterizing CBS as an oligopolist may be relevant to the question of remedy, and even though free competition might adversely affect the income of a good many composers and publishers, these considerations do not affect the legality of ASCAP's conduct. 
More basically, ASCAP's underlying argument that CBS must be viewed as having acted with complete freedom in choosing the blanket license is not supported by the District Court's findings. The District Court did not find that CBS could cancel its blanket license "tomorrow" and continue to use music in its programming and compete with the other networks. Nor did the District Court find that such a course was without any risk or expense. Rather, the District Court's finding was that, within a year, during which it would continue to pay some millions of dollars for its annual blanket license, CBS would be able to develop the needed machinery and enter into the necessary contracts. In other words, although the barriers to direct dealing by CBS as an alternative to paying for a blanket license are real and significant, they are not insurmountable. 
Far from establishing ASCAP's immunity from liability, these District Court findings, in my judgment, confirm the illegality of its conduct. Neither CBS nor any other user has been willing to assume the costs and risks associated with an attempt to purchase music on a competitive basis. The fact that an attempt by CBS to break down the ASCAP monopoly might well succeed does not preclude the conclusion that smaller and less powerful buyers are totally foreclosed from a competitive market. Despite its size, CBS itself may not obtain music on a competitive basis without incurring unprecedented costs and risks. The fear of unpredictable consequences, coupled with the certain and predictable costs and delays associated with a change in its method of purchasing music, unquestionably inhibits any CBS management decision to embark on a competitive crusade. Even if ASCAP offered CBS a special bargain to forestall any such crusade, that special arrangement would not cure the marketwide restraint. 
Whatever management decision CBS should or might have made, it is perfectly clear that the question whether competition in the market has been unduly restrained is not one that any single company's management is authorized to answer. It is often the case that an arrangement among competitors will not serve to eliminate competition forever, but only to delay its appearance or to increase the costs of new entry. That may well be the state of this market. Even without judicial intervention, the ASCAP monopoly might eventually be broken by CBS, if the benefits of doing so outweigh the significant costs and risks involved in commencing direct dealing. But that hardly means that the blanket licensing policy at issue here is lawful. An arrangement that produces marketwide price discrimination and significant barriers to entry unreasonably restrains trade even if the discrimination and the barriers have only a limited life expectancy. History suggests, however, that these restraints have an enduring character. 
Antitrust policy requires that great aggregations of economic power be closely scrutinized. That duty is especially important when the aggregation is composed of statutory monopoly privileges. Our cases have repeatedly stressed the need to limit the privileges conferred by patent and copyright strictly to the scope of the statutory grant. The record in this case plainly discloses that the limits have been exceeded, and that ASCAP and BMI exercise monopoly powers that far exceed the sum of the privileges of the individual copyright holders. Indeed, ASCAP itself argues that its blanket license constitutes a product that is significantly different from the sum of its component parts. I agree with that premise, but I conclude that the aggregate is a monopolistic restraint of trade proscribed by the Sherman Act.
  1. The majority holds that the ASCAP's blanket license is not a per se antitrust violation because it "is not a 'naked restrain[t] of trade with no purpose except stifling of competition,' . . . but rather accompanies the integration of sales, monitoring and enforcement against unauthorized copyright use," and ASCAP created "a market in which individual composers are inherently unable to compete fully effectively." Do you agree?
  2. Justice Stevens argues that ASCAP's blanket license is a per se antitrust violation based on its market behavior. Do you agree?
  3. Copyright grants copyright owners a limited monopoly. How should that affect the antitrust analysis?

No comments:

Post a Comment

Creative Commons License
Copyright Law Casebook by Brian L. Frye is licensed under a Creative Commons Attribution 4.0 International License.
Based on a work at