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only "blanket” licenses have been offered and the existence of a single court of appeal, namely, New York, discourages dispute resolution which can bankrupt a small business.
As a result of all of this absurdity, I have worked closely with my colleague, Representative Sensenbrenner from Wisconsin, to make music licensing fair. Representative Sensenbrenner's bill, H.R. 789, will allow small businesses to play incidental or background music on radios or TV's without paying licensing fees. Those are the royalty fees paid to licensing organizations for the right to play music.
Think about it, the last time you were at your favorite diner for breakfast and you heard Michael Jackson's latest hit song, did you say to yourself, “Gee whiz, I hope this diner is paying Michael Jackson to play this song while I eat my eggs?" I don't think so. Under current law, the American Society of Composers,
Authors, and Publishers, ASCAP; Broadcast Music Incorporated, BMI; and other music licensing organizations can demand payment from almost any music played in a place of business, be it live or rebroadcast, and no matter how many times it has already been paid. This means that if any diner, hair salon, or other small business plays a radio or television, a licensing representative can demand a royalty. That goes for music coming over boom boxes and cassette and CD's.
The bottom line is that there is no reason at all why small businesses across New Hampshire and the United States should have to pay just to have the radio playing, and I don't believe that that's fair, and I think it's just plain wrong. That's why I'm supporting and working hard to pass H.R. 789.
In closing, I'd like to commend the National Restaurant Association for their hard work, diligence and dedication to bring this issue forth. I want to thank all members of the Music Licensing Fairness Coalition for addressing this issue of great importance to small business owners. I look forward to the remaining testimony.
Again, I want to repeat, those who compose and perform music works have every right to receive fair compensation. My good friend, John LaFalce, I heard you talk about level of burden. I own three small businesses. I know what a level of burden is. I signed the front page of that paycheck, and I'll tell you, there's a big level of burden. Whether it's a $1.58 or a $1.10, everybody's nipping at the heels of small business, and we're going to bite the hand that feeds us.
Businesses create jobs. If it's not fair, we ought to straighten it out now. Again, give fairness on both sides of the issue. I look forward to the remaining testimony.
[Mr. Zeliff's statement may be found in the appendix.]
Mr. SKELTON. Mr. Chairman, don't you think we ought to have some background music for this hearing?
Mr. ZELIFF. I could always count on you to come up with a common sense solution. Are you going to pay $1.58 or $1.10?
Any other Members on either side of the aisle care to make an opening statement?
Mr. POSHARD. Mr. Chairman, I ask permission to offer an opening statement for the record.
(Mr. Poshard's statement may be found in the appendix.]
Mr. ZELIFF. Certainly.
Mr. HILLEARY. Mr. Chairman, I'd like to just welcome Danny Casey from Nashville out here in the audience. He's with the Church Music Publisher's Association, from Nashville, and welcome Pat Alger. If you're not a Pat Alger fan, then you're not a Garth Brooks fan. Because he writes a few songs for Garth Brooks, and he's out of Nashville, and I just want to welcome you to Washington today.
Mr. ALGER. Thank you.
Mr. ZELIFF. Anyone else wishing to make a statement? I'd like to introduce the first witness.
Mr. Rule is a respected member of the antitrust bar and partner in the Washington DC firm of Covington & Burling. He's a former Assistant Attorney General who was in charge of the Antitrust Division of Department of Justice during the final years of President Reagan's second term. So, Mr. Rule, if you can condense your testimony and submit the balance for the record.
TESTIMONY OF CHARLES F. RULE, COVINGTON & BURLING
Mr. RULE. Sure. Thank you. It's a pleasure to be here. I appreciate that introduction. I am here today at the invitation of the Committee, and I'm not representing any client. Perhaps one could say it's an unwise thing for a lawyer to do, but I'm here, nevertheless. I am here in part, I assume, because of my experience in the Antitrust Division of the U.S. Department of Justice as the head of the Division in the 1980's when we administered the so-called “ASCAP and BMI decrees.”
Even though I'm here and the views I express are my own, and not those of my partners or my clients, I do want to just mention that one of my partners, Neil Roman, on behalf of the NFL, has submitted a statement on the legislation. I understand that will be in the record, and I just want to say that generally I agree with the sentiments of that statement, which is that, “if you're going to address fairness in musical licensing, it's important to craft the bill or the legislation in a way that focuses in on nondramatic copyrighted musical works and to avoid sweeping other things like professional sports broadcasts into the scope of the exception from the copyright protection.”
Basically, today I deem my role as trying to provide a little background in terms of the ASCAP and BMI decrees and to speak to some extent to the options that face restaurant owners and others who may not be satisfied with protection provided by decrees. My own personal view is that if the Congress or society in general believes that there is a problem and that small business owners are somehow being abused by ASCAP and BMI—and I say “if,” because I'm not personally convinced that that's the case—but if that is the case, then I believe legislation is the appropriate mode of solution.
Whether one loves or hates ASCAP and BMI, it's hard to imagine an effective system of copyright protection for musical compositions in this day and age without some enforcement organization like them. From 1897 when copyright owners first got the right to control public performances until 1914, it was effectively impossible for copyright owners to enforce their rights under the statute.
The void was filled by ASCAP, which was formed in 1914 by a group of composers. As a practical matter, it turned out to be quite a boon. ASCAP generally, and it's been recognized by the courts and others, is an efficient mechanism for licensing a large group
of copyrights owned by a large group of owners to a large group of potential licensees. In the absence of some kind of mechanism or clearing house like ASCAP and BMI, a role that they filled, the cost of trying to negotiate those thousands upon thousands of individual licenses would be prohibitive, and copyright owners would never get a return on their investment in the copyrighted works.
Nothing, of course, is perfect in life, and neither is ASCAP/BMI. While it may be an engineers model of efficiency, it's an antitrust lawyer's nightmare, in terms of reduction in competition.
As a practical matter, in order to work, ASCAP has to bring together a lot of potentially competing copyrights and in effect, issue a single license for all of them. As a practical matter that means that historically there has not been, as in most other industries in this country, a lot of competition and competitive constraint in terms of the prices that ASCAP charges.
Not surprisingly against that background, ASCAP and subsequently BMI have been subject to a great deal of antitrust litigation. The decrees against ASCAP were first entered in 1941, subsequently modified in 1950, and those decrees ever since have, in effect, been an attempt to regulate the fees in a way ASCAP licenses and BMI licenses their copyrights.
Apparently, small businesses feel that it's not working effectively. In my statement, I have mentioned some of the alternatives that are open to the restaurants and others to protect their interests. They can bring antitrust suits, though, looking at the law, one would have to say their likelihood of success is not great. They could bring a copyright misuse action, though again there are problems in the law in bringing that kind of action. They could try to persuade the Antitrust Division to modify the decree to provide relief. But to do that, the Antitrust Division would also, in effect, have to bring a new antitrust action that would be difficult, expensive, and the outcome would at least be in doubt.
None of these options makes as much sense as legislation. On the other hand, I think the question whether or not legislation is in order is very difficult, and it's one that's very hard to answer in the abstract. It's also very hard, I believe, for courts to answer; and it's also one of the difficulties, I think, the rate court has had in terms of establishing fees.
On the one hand, if a restaurant improves its ambiance and its business as a result of being able to play background music and, therefore, profits from that, it's hard to argue that copyright holders don't deserve to share in those profits. On the other hand, the difficulty of collecting royalties and the increased cost may provide additional incentives to copyright holders that at the margin aren't necessary. Maybe we're investing too much in copyrights. On that basis, it may be appropriate to, with respect to the incidental playing of background music, to restrict the rights of copyright holders.
But, from my perspective, at least from an antitrust lawyers perspective, there's no obviously correct answer to the conundrum. Rather it's an essentially political question that best results in a
political forum, Congress. I wish we could help as antitrust lawyers, but I think that you're on your own on this one. Thank you.
[Mr. Rule's statement may be found in the appendix.]
Chair MEYERS. Well, we were looking to you for the answer, Mr. Rule, so I'm sorry. The hearing's over. Mr. Barba is our next witness, and he runs a hotel and a restaurant in New Hampshire and I believe is a constituent of Mr. Zeliff's.
Mr. ZELIFF. He's a future constituent in the but I just want to again just say that he runs one of the most quality operations in the world, and I have tremendous respect for Steve Barba.
Chair MEYERS. Mr. Barba.
TESTIMONY OF STEPHEN P. BARBA, THE BALSAMS GRAND
RESORT HOTEL Mr. BARBA. Madam Chair and members of the Committee, today is an important day. My name is Stephen Barba, and I want to say thank you, first of all, for hosting this important meeting and a special thanks to Bill Zeliff, my friend for many years now, for all those kind remarks.
Bill succeeded me as President of the New Hampshire Travel Council and the New Hampshire Lodging and Restaurant Association. As a resort owner, himself, probably more than anyone on the Committee, he understands my frustration with this issue and has been one of the best proponents for fixing the problems that exist with the music licensing societies.
I am the President and Managing Partner of the Balsams Grand Resort Hotel, a 212 room seasonal high in the white mountains near the Canadian border. We're a destination resort in our 131st summer season, with three rooms of live music and entertainment each night. Our hotel is in a very remote area. In fact, the nearest stop light is 50 miles away. You may have heard of my town, Dixville Notch, we're the folks who vote first in the New Hampshire primary and the national elections. We take no responsibility for that though. Dixville Notch may be a small town of 25, but we know a big city racket when we see one. That's why I came here today to tell you why America's music licensing system is well overdue for reform.
My own experience started at the Balsams, began as a caddie, at the caddie camp 37 years ago. I have spent my entire life in the hospitality business at the Balsams. I've dealt with almost every kind of contract and supplier and vendor imaginable. I can honestly say that I have never had a business relationship that comes close to resembling the one I have with the music licensing societies: ASCAP and BMI. It's completely one-sided. They bill us, we are forced to pay without knowing how they set their rates, we have no practical way of contesting a fee that we think is unfair. In my business, I've come to find that it's too expensive to whistle while I work.
As you can see, I'm not alone in my belief. There's a lot of restaurant operators behind me today, and today I speak for hundreds of business owners in my own State. As a past Chairman of the American Hotel & Motel Associations National Resort Committee, I have heard the same complaints over and over from colleagues
around the country about the unfair pricing and strong-arm tactics of ASCAP and BMI.
Consider the case of my good friend, Fritz Koeppel, a New Hampshire hotel owner who was approached by an ASCAP investigator. The inspector said Fritz's piano player had sung Zip-a-dee-doo-da on request, an ASCAP licensed song—this happened the night before—and ASCAP hit Fritz with a lawsuit for $50,000.
Before I go on, let me make one thing clear. My complaint is not with the song writers of this country, they certainly have the right to collect royalties; but the question is: How many times can they collect for playing the same song?
My only eye-opening introduction to music licensing came in my very first year of management at the Balsams. I was in my lobby office one morning and 3 men in T-suits appeared. They had stayed overnight and heard music being performed in one of our nightclubs. They said that they were from ASCAP and that our live band was playing songs copyrighted by ASCAP artists.
Right away they started threatening my partner and me with a lawsuit. They demanded we sign a contract with them immediately and start paying for licensing music at their rates, and what if I didn't want to pay their fee we asked? They said the only way we could challenge this fee was to initiate a lawsuit in one single court in New York City, a lawsuit they have never lost they told me, a ridiculously expensive prospect for any business owner. With the lawsuit and a potential penalty of $20,000 per song hanging over our head, we eventually signed.
Today we pay a total of $10,752 each year to ASCAP and BMI, and we can't fight them because it cost more in legal fees than to pay their invoice. That is why thousands and thousands of business people like me are imploring Congress to act on this issue.
We support the bill, H.R. 789, that would instill some common sense and fairness to music licensing. I want to point out two reasons why I support the bill.
First H.R. 789 would stop licensing groups from double-dipping on fees. Right now ASCAP and BMI can hit up a hotel or restaurant for licensing fees on background music that comes over television and radios. That's patently unfair, in my opinion, because the rights to use that music have already been paid for, usually many times over, by television and radio stations. To then charge us for something as incidental as a jingle on a television commercial that we neither knew would be played nor was the purpose for turning the television on smacks of opportunism.
Let me give you an example to be sure you understand what I mean by "double-dipping.” Think about when you see my alma mater at Michigan State's marching band play a song at halftime on nationally televised football games. Now just how many times ASCAP or BMI collect fees when that song is played over the air. Not once, twice, three times; but they collect fees five times from five different sources once each from the station, the national network, the local station, the local cable or prime star system, and finally from a bar that is showing the game. That's not double-dipping folks, that's quintuple-dipping.
Second, I'm glad that H.R. 789 would set up a fair arbitration system. This is of particular importance to me. Right now music li