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known to this committee. Ten years ago I had the pleasure that Mr. Mann had today. As I recall, there was the retiring president from the west coast, from the Bay area, Mr. George Miller, and he was replaced by C. W. Pierce, who was from my district and was a constituent of mine from Green County, Wis. Mr. Pierce, I guess, has long since ceased to be a national president, but I am sure he is still interested in your organization.
Mr. ALLEN. Ile sent his greetings to you, Mr. Chairman, and enlisted your sympathetic ear.
Mr. KASTENMEIER. Mr. Mawdsley, you may proceed.
Mr. MAWDSLEY. With your permission, may I defer to Mr. Patterson, who has an appointment, and may he go on first, please?
Mr. KASTEN MEIER. Yes, indeed.
TESTIMONY OF PERRY S. PATTERSON, COUNSEL, ROCK-OLA MANU.
FACTURING CORP., ROWE INTERNATIONAL, AND SEEBURG, INC.
Mr. PATTERSON. Thank you, Mr. Chairman.
Mr. Chairman, and members of the subcommittee, my name is Perry S. Patterson, and I presently reside in Coudersport, Pa. I am a member of the District of Columbia bar as well as the Pennsylvania bar, but I am a retired partner in the Washington and Chicago firm of Kirkland, Ellis, and Rowe, and that firm, through other partners than myself, have represented the Rock-Ola Manufacturing Corp. and the Seeburg Corp. and Rowe International, which are the only surviving jukebox manufacturers in the country, for going on at least 40 years.
I am here to reflect the manufacturers' unqualified support of the $8 annual fee, and this was the provision, of course, which was approved by this committee and passed by the House in 1967, and then again embodied in the Senate version as passed last year in precisely this same form. In its present form it is acceptable to the manufacturers, and we urge approval.
Now, my last appearance, as the chairman noted, was in 1966, and the composition of the subcommittee has changed, with the exception of the chairman and Mr. Fuchs.
There have been just innumerable hearings on this subiert going back to the Vestal bill, which was introduced in 1926 to repeal the copyright exemption. And, there is voluminous testimony, quite inconsistent with the representations by the performing rights societies that coin-operated machines did not exist in significance. And, in this connection, without belaboring the history of the matter, in hearings in 1952 by Mr. David Rockola, quoting a spokesman for the authors copyright league, cites the existence of an extensive coin-operated business between 1905 and 1909. I mean, there were coin-operated xylophones, player pianos, phonographs, banjos, and even talking pictures. But, in these hearings in which Mr. Rockola, who is a real person, testified on H.R. 5473, there is ample documentation that Congress was aware of the existence of a coin-operated machine, coin-operated machine industry when it did enact the exemption of the coin-operated machines. They did not speak in terms of automatic phonographs, but in terms of a variety of coin-operated machines.
One of the objectives in the protracted negotiations by which we arrived at the $8 annual rate was to insulate the operators, and here again, speaking for the manufacturers, they obviously are not going to pay the annual fee directly. Their concern is with the economic impli. cations of what annual fee the operators may have to pay.
In that connection, we had extended negotiations with the representatives of the performing rights societies, the Register of Copyrights, representatives of the manufacturers, and did come up with the $8 annual fee.
And, again in hearings before the Senate subcommittee, we did persuade the committee that this was a valid approach, and the utilization of the Office of Copyrights as a vehicle for distribution of the fees was equitable and reasonable as a substitute for direct negotiations on behalf of the operators with each of the performing rights societies.
Obviously as the testimony on behalf of the performing rights societies has indicated, they feel that the 1967 $8 rate is too low, and they oppose the insulation of reconsideration of that rate by the copyright tribunal.
Now, the manufacturers feel that the $8 rate, and here again, the three manufacturers whom I have canvassed tell me that their best information is that there are between 450,000 and 500,000 boxes in the country at the present time, they advise the the urban renewal programs have eliminated an awful lot of neighborhood taverns and restaurants. The interstate highway systems have insulated countless taverns from traffic patterns and patronage, so their business has not really enlarged. And in this connection, the first time I was here, let's say 20 years ago when I first was an associate in my firm participating in these hearings, I think there were 10 manufacturers of jukeboxes, and today there are 3.
Last year the Wurlitzer Corporation, which had been in existence, I think, since around-well, for 118 years—went out of the jukebox business. And, in their annual report to shareholders, they stated :
In our coin-operated phonograph business, operating losses were sustained both in U.S. and some foreign subsidiaries due to steady rising costs, limited market growth, heavy investment in all areas, and high interest rates. As a result of the current situation as well as poor future prospects in the domestic market for this product, the board of directors of Wurlitzer, on March 5, decided to sell or liquidate the coin-operated segment of the company's business in the United States, and to close all branches of Wurlitzer Distributing Corporation.
And, in a press release on that same date, again the chairman of the company said that the company had sustained an operating loss of $7 million and concluded for business purposes to get out of the business.
The three remaining manufacturers are highly competitive, and they have provided me with information on the understanding that individual company figures would not be set on the record. The three remaining manufacturers advise me that in the aggregate, dollar sales volume and unit production is down between 20 and 30 percent. Employment is down drastically in all of the companies, in one particular, from 1,450 employees to 450. One of the other manufacturers has shut down its jukebox production from April to date. And, I am advised that their distributors' inventories are up to 300 percent and not mov. ing. In other words, the jukebox business has not kept pace with population growth.
As I previously advised you, there are fewer jukeboxes in operation in this country by the manufacturers' estimate than there were in the years immediately succeeding World War II.
Now, in Mr. Mawdsley's testimony, I know he is going to detail the monetary contribution of the industry, the operators to the composers and artists, which historically, again, record after record will show, has not been negligible by any means.
In summary I note that no mention was made in the testimony of the performing artists, representatives of the performing societies, relative to the performing artists royalty, although there is a bill before this committee, and Senator Scott has introduced a bill to establish again this, what we feel is a rather anomalous utilization of the copyright law, that it would add to the $8, $1 a year to be paid to the Register of Copyrights, of which 50 percent would go to the performing artist, such as Al Hirt or IIelen Reddy, and 50 percent would go, half of it, 50 cents would go to the record manufacturers.
As I note in my statement, I think this really is an anomalous extension of the whole concept of paragraph 8 of the Constitution, which states that its purpose was:
To promote the progress of science and useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.
To use the copyright clause of the Constitution as a vehicle for payment of royalties to record companies or to artists, because of their talents, which they are compensated for in any event, we feel is an abuse of the constitutional concept of copyright.
In this connection, I just noteii recently that the November 1974 issue of the George Washington Law Review, has an 80-page article on the public performance right in recordings, and at the end, in summary, they conclude that they do not feel that it would be in the best economic interest of the industry to establish a new public performance right, and conclude that it would not be a desirable element in the general copyright revision.
I would commend—and I know Mr. Fuchs is familiar with the article, but it is an in-depth analysis of the implications of this problem.
So, in conclusion, we do support the $8 annual fee. We feel that the operators should not have to be subjected to a copyright tribunal review. The manufacturers, as I have just stated, oppose a performing artist royalty.
[The prepared statement of Mr. Patterson follows:] STATEMENT BY PERRY S. PATTERSON ON BEHALF OF ROCK-OLA MANUFACTI BING
CORP., THE SEEBURG CORP. AND ROWE INTERNATIONAL, INC. Mr. Chairman and Members of the Subcommittee, my name is Perry S. Pat. terson. I presently reside in Coudersport, Pennsylvania and appear as counsel for the Rock-Ola Manufacturing Corporation. The Seeburg (orporation, and Rowe International, Inc., the only manufacturers of coin operated automatic phonographs in the l'nited States.
I am a member of the District of Columbia, Maryland, Illinois and Penner!vania bars. I am a retired partner of the Chicago and Washington firm of Kirkland, Ellis and Rowe and the foregoing companies, and other manufacturers who have vanished from the scene, have been represented by partners of my former firm and by me on copyright legislation matters for at least forty years.
I am here to reflect the manufacturers' unqualified support of Section 118 of H.R. 2223 as now drafted providing for an $8.00 annual royalty per automatic phonograph. This is the royalty provision originally approved by this Subconn. mittee in 1967 and enacted by the House in that year in H.R. 2512. It represented a compromise arrived at only after protracted negotiations by the Office of the Register of Copyrights, The Music Operators of America, the manufacturers and the representatives of the performing rights societies, ASCAP, BMI and SESAC. It was in fact the first time that Congress had imposed a performance royalty on coin operated automatic phonographs.
Section 116 in H.R. 2223 is the same provision passed by the Senate in S. 1361 in September, 1974, In its present form it is wholly acceptable to the automatic phonograph manufacturers and we urge approval without modification.
My last appearance before this Subcommittee was in 1966 at the time of the consideration of H.R. 2512. The composition of this Subcommittee has so changed that the only surviving members of the 1967 Subcommittee are your chairman, Robert Kastenmeier and staff counsel, Herbert Fuchs, Esquire. For this reason I feel it relevant to note briefly in the current record some of the historical background of the juke box exemption.
Section 1(e) of the Copyright Law of 1909 expressly exempted the public performance of copyrighted works on coin operated machines from the obligation of making performance royalty payments. This exemption was not a frivolous or lightly considered action but rather a recognition by Congressional members after being presented with extensive documentation of the existence of a very substan. tial coin operated music machine industry that the payment of performance royalties, by the thousands of nickelodeon pianos and music boxes in saloons, restaurants and hotels would work undue economic hardship on the owners of such devices.
Representatives of ASCAP stated explicitly in the record of the hearings before this Subcommittee in the 80th Congress on H.R. 1269, H.R. 1270, and H.R. 2570 that ASCAP had no desire to extract performance royalties from the "little fellows', the little restaurant keepers or ice cream parlors and, that the representatives of ASCAP had instructions not to attempt to collect from the small businessmen even though they claimed they had such a right if they chose to exercise it. (Record of Hearings on above bills, pages 148-159, incl.).
The royalty structure in H.R. 2223 effectively protects the small operators and little businessmen from direct negotiations with the performing rights society.
I will not burden this record by detailed repetition of the history of efforts by the performing rights societies to repeal the 1909 exemption other than to say in brief summary as follows:
In 1926 the Vestal Bill H.R. 10434 was introduced at the initiation of ASCAP to repeal the juke box exemption and collect royalties from coin operated phonographs. Since then, for nearly 50 years legislation has been introduced or pending in every session of Congress, including the present one, aimed at repealing or modifying the provision of the 1909 Act exempting coin operated machines from the performing rights provisions of the law,
Hearings have been held on such bills in the Senate and House on at least 14 separate occasions to say nothing of extensive debates in both the Senate and House. Subcommittee members interested in the detailed history of legislative efforts of the performings rights societies for repeal of the exemption and the successful opposition of the operators and manufacturers to such repeal have available in the files of the Subcommittee, thousands of pages of testimony, statements, exhibits and reports. They amply document the unwillingness of prior committees and Congress to accept the argument for repeal.
The manufacturers will not, of course, be directly subject to royalty payments under Section 116 of H.R. 2223. As in the past, the surviving manufacturers are concerned about the legislation for the basic business reason that the businesses of their customers, the operators who buy their machines will be significantly affected by any increase in the proposed $8.00 annual rate. My clients' concern, however, is not confined to the $8.00 annual rate in H.R. 2223 as now drafted, but to three important prospective legislative considerations involving increased monetary exposure for the operators which are not presently in Section 116 of H.R. 2223 but which may be introduced by amendment for inclusion in Section 116 before final action on H.R. 2223.
The first anticipated problem affecting Section 116 is the prospect that an effort will be made to increase the $8.00 annual rate. On November 27, 1974, Senator McClellan sent a letter to the operators, the manufacturers, and other in
terested parties in which he discussed what he thought would be a reasonable annual rate per phonograph for juke box operators to pay. He concluded that in lieu of the $1.00 rate that consideration be given to an annual rate of $19.70 per box, per year. Over the years of hearings suggested royalty rates had ranged fron $4.00 annually to $90.00 annually but the apparent source for Senator Malellan's figure was a self-serving resolution passed by the National Licensed Brserage Association in 1907 in the course of hea rings on repeal of the juke box
**aiion which association or its members would not in any event have been liable for payment of any royalty.
The second problem involves a provision in the Senate version of the General (pyright Revision, which, in addition to the $8.00 annual fee, provided for a Performing Artists Royalty payable by juke boxes at the rate of $1.00 annually but also payable at much higher rates by the broadcast industry and vigorously apped by that industry. Prior to Senate passage, this provision was deleted by an amendinent sponsored by Senator Ervin who expressed grave reservations as to its constitutionality. The manufacturers strongly oppose the re-introduction of this royalty in Section 116.
Finally, the Senate passed General Copyright Revision while setting an $8.00 annual royalty free per phonograph did not subject this fee to periodic review by the Copyright Tribunal established by the bill. The manufacturers favor retention of this exemption, becanse it relieves them of inevitable confrontations with the performing rights societies.
In summary, the automatic phonograph manufacturers oppose : (1) Any increase in the proposed $8.00 annual rate. (2) Any attempt to establish a Performing Artists Royalty. 13) Subjection of the $5.00 annual fee to periodic Copyright Tribunal Review.
The Performing Artists royalty ignores the fact that the performing artists and record manufacturers are already compensated for their performing efforts ; mincians on the basis of union scale, their popularity and bargaining powers.
The Performing Artists Royalty, particularly as it compensates manufacturers, achieves a result never conceived by the draftsmen of the copyright provision of the ('onstitution; Section 8. Clause 8, "To promote the Progress of Science and the l' efnl Arts by securing for limited times to Authors and Inventors the exciusive Right to their respective Writing and Discoveries."
Mr. Mawdsley has described the problems faced by the music operators and their monetary contribution to the performing rights societies and music industry.
I will direct myself to the plight of the manufacturers. We are not living in what can be described as normal economic times and there are few industries that cannot demonstrate declining sales and employment over the past several Fear. However, in the case of the automatic phonograph manufacturers, which numbered about 10 thirty years ago, three now reinain. The three companies for which I peak are Rock-Ola, Seeburg, and Rowe International.
In 1974 the Wurlitzer Corporation, which had manufactured musical instruments since 18:30 and automatic phonographs since 1808 discontinued the manufacture of automatic phonographs because of the deteriorating economic climate in the industry.
I attach as Exhibit A an extract from the 1974 Annual Report of Wurlitzer er. plaining Its reasons for withdrawal from the antomatic phonograph field. Also, as Erhibit B, a Wurlitzer Press Release on the same subject.
The three surviving manufacturers for whom I speak have not benefited yet Iron Wurlitzer's withdrawal from competition. Each company has supplied me with information concerning their operations but have reqnested that I consolidaie such inforination for reasons of competitive confidentiality.
In the aggregate, dollar sales volume and unit production is down by between 20 € and 30%. Employment is down drastically, in one company from 1,430 einplopees to 450 employees. Another company has shutdown production for three months. Distributors' inventories in certain instances are as much as 300% alve normnal and sales are not improving.
'The juke box business has not kept pace with population growth. It is estimated that there are fewer juke boxes in operation now than in the period 20 years ago after World War II.
Jir. Mawdsley has detailed the present and prospertive monetary contribution of the industry to the record industry and the performing rights societies. Enact. ment of H.R. 2223 as now drafted will result in a contribution by the operators to the music industry of an estimated $8,500,000.00 a year. This is nearly 10% of