the current law for the distribution of contested cable

television and jukebox royalty fees. The administrative costs incurred by the Tribunal in determining the distribution of royalties would be deducted from the fees payable to copyright owners (§ 120(b)(5)(B)), and would not impose any additional costs on American

taxpayers.

In conclusion, the administrative procedure

that would be established by the Mathias-Edwards legislation is practical and time-tested.

C. The Fair Marketing

Amendment -- a Response to the

Problem of Record Rentals

The Mathias-Edwards legislation also contains

a provision that would deal with the emerging problems created by retail establishments that rent sound recordings for individuals to tape at home. It is now possible to rent an album for a modest fee, tape the album at home, and then return it to the record store.. The potential effect of this practice on record sales and the copyrights of creators is devastating.

96-601 0-82-49

55

If the home taping problem is to be tackled

comprehensively by the Congress, a provision dealing with this new phenomenon must be included in the legislative solution. The new provision proposed by Senator Mathias, Representative Edwards and others would permit copyright owners to control commercial record rentals; it would not affect noncommercial rentals or private lending or borrowing.

(i) Background

The retail record rental business made its first appearance in Japan. The first record rental outlet

opened in Tokyo in June 1980.44/ By February 1982,

it was estimated that there were over 1,100 rental outlets throughout Japan 45/ The phenomenon soon spread to Canada, where there are now 10 outlets operating under the "Rena's Rent-A-Record" franchise.46/

Then,

in September 1981, Rena's Rent-A-Record opened its first

44/ See "Japanese Disc Production Off; Rental Blamed," Billboard, Feb. 27, 1982, at 1.

45/ Letter from J. Kamei, Executive Director, Japan Phonograph Record Association (Mar. 8, 1982). (Attached as Appendix Eight.)

46/ See Greene, "Albums for Rent," The Sacramento Bee, Feb. 22, 1982, at B-3; see also "Retailer to Franchise Rent-A-Disc Scheme," Billboard, Feb. 28, 1981, at 57; "Disc Rental Chain Expands, Video Offered," Billboard, May 30, 1981, at 63.

franchise outlet in the United States, in Providence,

Rhode Island.47/

Additional outlets are planned in

Detroit, Chicago, Cleveland, Baton Rouge, Los Angeles

and New York. Other record retailers have opened rental operations in Los Angeles and Michigan.

The rental outlet in Providence offers a wide

variety of albums for a 36-hour rental period.48/

The

outlet also sells blank tapes, and during its opening week gave away a free 90-minute cassette with each customer's first rental.49/ The Canadian franchisor,

Mr. David Nancoff, describes his business as

"unbelievable," and says that he has "never had anything so good in my life."

50/

Of course, the purpose and effect of these commercial record rental schemes is to facilitate home taping. As indicated by the chart on the following page, 97.4 percent of all rental outlet users surveyed

in Japan said that they recorded rented records at home.

47/

See Lichtman, "Rent-A-Record Bows Unit in U.S.," Billboard, Aug. 19, 1981, at 3.

48/ Id.

49/ Id.

50/ Id.

A record rental (for as little as 99 cents at

one Los Angeles store) and blank tape purchase is just a cheaper way of "buying" a record, except that no compensation is paid to the songwriter, publisher,

musician, vocalist or record company. The extraordinary impact of these record rentals on record

and chilling

sales is illustrated by the Japanese experience.

According to a recent survey in that country, record sales by retail stores in the vicinity of the rental

outlets dropped by 30 percent.51/

-

Overall, Japanese

record production fell in 1981 for the first time

are an omen of things to come in the United States.

(ii) Current Law

Under the Copyright Act of 1976, the copyright

owner has the right to control or obtain royalties for the public distribution of copies of a copyrighted work, including a sound recording.53/ This distribution right

51/ Letter from J. Kamei, Executive Director, Japan Phonograph Record Association (Mar. 8, 1982) (attached as Appendix Eight); see also Fujita, "Japanese Production Off; Rental Blamed," Billboard, Feb. 27, 1982, at 1.

52/ See Fujita, "Japanese Disc Production Off; Rental Blamed," Billboard, Feb. 27, 1982, at 1.

53/ See 17 U.S.C. § 106(3).

59

includes the right to distribute copies to the public by sale, rental, lease or lending.54/

However, under

present statutory provisions, the distribution right unlike the other rights of reproduction, public

performance and public display

is "exhausted" after

the first sale of a particular copy of the work to an

individual.

Thus, a purchaser of a record is free to

dispose of the record (though not to reproduce it)

without copyright liability.55/

This is the so-called "first sale doctrine"

in American copyright law. Retail record stores that purchase their record stock claim they are free to rent records again and again on a commercial basis without permission of or payment to the copyright owner. If stores engage in this rental activity, record producers, recording artists, composers, publishers and others involved in the musical and recording arts receive no

compensation for commercial rentals of the records they

have created.

54/ Id.

55/ See 17 U.S.C. § 109(a).