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Again I want to thank our witnesses.

Mr. KASTENMEIER. Do any other members have questions?

Mr. SANTINI. No, Mr. Chairman.

Mr. KASTENMETER. If not, the Chair would like to thank Ms. Ringer and her noble colleagues for their contributions here today. Obviously, we have explored many areas, probably not all the areas, as fully as we might, but nonetheless this does make an enormous contribution to the subcommittee's deliberations on this question. It is particularly useful, since all members of the subcommittee were here this morning.

As somebody suggested, we may yet have to have beyond these 2 days some further hearing. I am not necessarily anticipating it, but I do anticipate we will be in further touch with the Register of Copyrights and/or the Assistant Librarian of Congress for copyright services in this matter.

Thank you very much.

I would like to call on the Deputy Assistant Attorney General for the Department of Justice, Mr. Ky Ewing, who is our next witness. Mr. Ewing, you have a rather brief statement. You may proceed from it as you wish or in any other form.

TESTIMONY OF KY P. EWING, JR., DEPUTY ASSISTANT ATTORNEY GENERAL ANTITRUST DIVISION, DEPARTMENT OF JUSTICE; ACCOMPANIED BY MARK TARLOV, EVALUATION SECTION

Mr. EWING. Thank you, Mr. Chairman.

If I may, in the interests of your time situation, I would like to submit this statement for the record, and, even though it is brief, summarize it even more briefly.

Mr. KASTEN MEIER. Without objection, your statement and, indeed, that of the preceding witness, Ms. Ringer, will be accepted for the record.

[The information follows:]

STATEMENT OF KY P. EWING, JR., DEPUTY ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, U.S. DEPARTMENT OF JUSTICE

I appreciate the opportunity to testify today on behalf of the Department of Justice on H.R. 6063, a bill to amend the Copyright Act to provide for performance rights in sound recordings.

The bill would require certain users of sound recordings, such as broadcast television and radio stations and background music services, to pay license fees for the right to play copyrighted sound recordings publicly in their commercial operations. One half of these new license fees will ultimately be distributed to the owners of the copyrights in the sound recording and the other half will be distributed to the performers.

The bill purports to permit the user, at its option, to pay the license fee on a peruse, prorated, or blanket basis; however, it does not seem to provide a mechanism for calculating per-use license fees. The bill also seems to allow for the negotiation of higher license fees than those specified in the bill for blanket or prorated licenses, but it is unclear under what circumstances, if any, such negotiations would be contemplated. In general, the liability of most users under the bill will be fixed by the provisions concerning blanket license fees. These fees are calculated based upon the advertising revenues in the case of radio and television broadcast users and upon gross receipts in the case of background music services. The bill exempts from the requirement to pay license fees radio stations with gross advertising receipts of less than $25,000, television stations with gross advertising receipts of less than $1 million and background music services with gross subscription receipts of less than $10,000,

The compulsory license fees will initially be collected by the Register of Copyrights who will then distribute the fees to copyright owners and performers who have submitted claims for a portion of the fees. Controversies over the appropriate distribution of fees among claimants will be settled by the Copyright Royalty Tribunal. The bill encourages copyright owners, performers, and users to establish a private, nongovernmental entity to assume the collection and distribution functions initially assigned to the Register of Copyrights. The Register of Copyrights will continue to be involved in the collection and distribution of the compulsory license fees as long as "there remain copyright owners, performers and copyright users" who are not party to any private collection and distribution entity established pursuant to the bill.1

The bill permits performers and copyright owners to agree as to the proportionate division of the compulsory licensing fees among them and to aggregate and jointly file their claims with the Register of Coyprights.

The bill exempts from the coverage of the antitrust laws agreements among copyright owners, performers, and users relating to the collection and distribution of the compulsory licensing fees.

The creation of new property rights in the performance of sound recordings will necessarily impose increased costs on users who will be required to pay the compulsory licensing fees. These costs will ultimately be passed on to the public through higher advertising rates to sponsors and increased prices for the sponsors' products. Of course, the costs imposed by the creation of these additional rights should be balanced against the benefits which are expected to be derived from supplementing the current system of compensating record companies and performers in the marketplace. In this regard it should be noted that those record companies and performers who are most successful in the marketplace are also likely to receive an equally large proportionate share of the compulsory licensing fees. However, the resolution of this income distribution issue is essentially a balancing of equities on which we express no ultimate view. Nor do we express any view as to whether a workable system of compensating claimants could be implemented under legislation along the lines of H.R. 6063.

The Department of Justice's primary concern over this bill is with the provisions that would confer blanket immunity from the proscriptions of the antitrust laws for the activities of copyright owners and performers in the collection and distribution of the compulsory licensing fees. I recognize that the Copyright Act contains similar antitrust immunities in the cable television, jukebox, and public broadcasting areas. The Department of Justice expressed its opposition to the enactment of this type of provision in its October 7, 1975, letter to Senator Eastland concerning the public broadcasting immunity provision. We adhere to the position stated in that letter.

Exemptions from the antitrust laws are generally disfavored because they remove a principal barrier to anticompetitive behavior. Such behavior has the capacity to impose societal costs not contemplated by the proposed bill and not justified by any public benefit conferred by the immunity.

Although the maximum liability of users for the payment of compulsory licensing fees is fixed by the bill, the opportunity for collusion among claimants still exists. The immunity conferred in the bill could arguably extend beyond the mere aggregation of claims and equitable distribution of the compulsory licensing fees. Agreements which are intended to injure certain claimants or classes of claimants or which have the effect of injuring such persons might not be actionable under the antitrust laws either in a case brought by the government or an action brought by an injured party. Parties injured by such anticompetitive conduct should not be deprived of their recourse to an antitrust suit in the absence of some compelling justification. I am unaware of the existence of any justification, compelling or otherwise, for the inclusion of the antitrust immunity provisions contained in this bill.

Mr. KASTENMEIER. Do you have a colleague?

Mr. EWING. I would like to introduce Mr. Mark Tarlov of our Evaluation Section.

We have in essence two points to make about this bill, H.R. 6063. First, the creation of new property rights in the performers of sound

1 Use of the word "and" raises questions as to whether members of each named class must remain unaffiliated for the Register of Copyrights to remain involved.

recordings will necessarily impose increased costs on users who will be required to pay the compulsory licensing fees. We believe this bill involves, in essence, an income redistribution, but at the same time we believe you must realize that there will be, in total, some increased costs to be borne by the users in this country. We take no position and express no view as to whether the one outweighs the other. We believe that is a judgment you should make, but we are, from our point of view, as competition analysts and advocates, desirous of pointing out to you that there is an additional cost to the ultimate consumer being created here.

I might add in connection with this first point that we don't express any view as to whether H.R. 6063 is in fact creating a workable system for compensating claimants.

Our second major point is really our primary concern, and that is with the provision that would confer blanket immunity from the proscriptions of the antitrust laws for the activities of copyright owners and performers in the collection and distribution of the compulsory licensing fees.

Generally, exemptions from the antitrust laws are disfavored because they remove a principal barrier to anticompetitive behavior. We believe that the system being created here could be, as it were, the new game in town and should not have associated with it an antitrust immunity for the various players in that game.

Our basic concern, then, boils down to a concern with the antitrust immunity granted under this bill, and we oppose that grant of antitrust immunity.

I believe that summarizes the major points of my statement, the details of whcih will be available to you in the record.

Mr. KASTEN MEIER. Thank you, Mr. Ewing.

By the same token, you would have opposed or perhaps did oppose, I am not sure, the copyright revision bills. It contained certain exemptions as well.

Mr. EWING. Mr. Chairman, we did oppose the antitrust exemption in those bills and we expressed the opposition in a letter of October 7, 1975, to Senator Eastland. We continue to adhere to that position.

However, I would like to emphasize that the bill in front of you today, H.R. 6063, does have a different kind of antitrust immunity from that created for either the jukebox or CATV industries

Mr. KASTENMEIER. Would you spell it out for us? In what respect? Mr. EWING. In several respects.

First, the critical difference between the immunity in this bill and the existing jukebox and CATV immunities is that the existing immunities go only to the distribution and apportionment of claims among the copyright holders, whereas the immunity here goes to the collection of the fees as well as to the distribution among claimants. Second, the immunity here may have a more pernicious effect than those in the jukebox and CATV areas. This is so because the nature of the claimant pool here differs markedly from that of the cable or jukebox systems situation. There are relatively few cable systems compared with the number of broadcast stations nationwide, and CATV draws its programing from only a few sources, primarily network or syndicated television programing. This makes it easier

for an individual claimant to present an authenticated claim to an impartial entity; namely, the Copyright Tribunal, which has ready access to much of the necessary data, and thus is able fairly to adjudicate the claim.

The jukebox situation is also different inasmuch as the function. of ascertaining performance credits for individual claimants is already performed by either ASCAP, BMI, or SESAC, which represent most, if not all, of the composers and publishers entitled to payment under those provisions.

I might add that the number of persons entitled to compensation under the bill is many times greater than the number of composers and publishers entitled to distributions from ASCAP, BMI, or SESAC.

I might also add that those three entities are subject to the provi sions of the antitrust laws, and indeed are regulated by a series of consent decrees obtained by the Antitrust Division. Now while it is conceivable that a new organization to monitor jukebox performance rights might be immune from antitrust attack in its administration of claims and its distributions to its members, it hardly seems likely to us that such a new organization will be created to supplant the existing organizations in the field, principally due to the cost of it and the membership duplication.

Mr. Chairman, to continue a very long answer to your question, in the situation created by this bill, performers have neither the advantage of dealing with a relatively small number of users or suppliers, or an existing monitoring system regulated by the antitrust laws. Nor does it appear that the performers would have an impartial government entity collecting their moneys, investing them at interest, and adjudicating their claims.

Under the bill as it is presently drafted, as opposed to the Copyright Office's suggested substitute, the performer is left in the position of not being able to represent his own interest, and in fact, as a prac tical matter, being compelled to join some new entity. This gives the new entity or entities a leverage over performers. That leverage may be exercised in either the distribution or the collection process in any number of ways. For example, the agencies may exact higher rates or fix rates among competing collective organizations for administering, monitoring, or collecting claims. They conceivably might engage in boycotts of certain claimants to exact some advantage for other claimants. Precedent, Mr. Chairman, for this kind of activity-for this kind of interclaimant anticompetitive behavior-can be found in the ASCAP and BMI activities of the early and mid-1960's. Abuses were corrected by consent decrees and the continuing supervision of a district judge in New York over the working of these organizations.

Performance groups under this bill, HI.R. 6063, would be exempt. from the antitrust laws, and enable to engage in anticompetitive activities, and this we don't think is healthy, and we oppose it.

Mr. KASTENMEIER. One of the unknown factors is what sort of entities, if any, will be created under this bill for the purposes of collection, distribution, and apportionment, but there are already organizations involving virtually all the parties here. There is the National Association of Broadcasters, there is the Record Industry Association of America, and there are the two or three labor organizations which

represent the musical performers. Whether or not these organizations play a role is another question. But you indicated that you thought that they would be required to form a new organization. I think you were referring to broadcasters, were you not?

Mr. EWING. What I was referring to, Mr. Chairman, was the fact that we think under this system, as a practical matter, the individual performer is not going to be able to prosecute his own individual claim. Necessarily, in the real world, he will have to get his claims presented by some organization, whether it is an exising entity or whether it is a new one. The likelihood is that more than one such entity will be created, and our concern is that when you have those multiple players in the game, with the prize being large, whether it is $15 million or $200 million, those players should be subject to our normal antitrust laws, as indeed the players are in the ASCAP-BMI situation.

Mr. KASTENMEIER. Are you arguing that they could effectively discharge whatever responsibilities they would have for collection, distribution and apportionment without an exemption?

Mr. EWING. Yes, sir. We think that it is possible to create a system here legislatively, without an antitrust exemption, that does not have the same problems.

Mr. KASTENMEIER. And if they got out of bounds, why you would immediately bring them into court and obtain a consent decree from them presumably to operate within certain

Mr. EWING. If they violated the antitrust laws, we would certainly attempt to bring them into court, and I would say hopefully we could obtain a consent decree.

Mr. KASTENMEIER. I think you are correct, in terms of individual musicians, there are a vast number potentially to be covered, but, on the other hand, we have any number of, for example, as far as music operators, we have presumably thousands or tens of thousands of them that are covered under the present legislation. We have vast numbers of entities, of individuals or groups, that are affected by present law in the copyright field, do we not?

Mr. EWING. We have most of the players in the present situation covered by the antitrust laws. We don't have an enormous exemption, except where Congress created it for the cable and jukebox situations. Mr. KASTENMEIER. Yes.

Mr. EWING. I tried to explain why we believe this is very different as it is presently drafted.

Mr. KASTENMEIER. Let me ask you whether you have examined prospects, alternatives, to the extent that you could suggest that there would be as efficient and as economically a method of distribution of royalties without this antitrust exemption. We are talking about a more complex system that would have to result if you didn't have this exemption?

Mr. EWING. I think my answer has to be twofold.

One, we haven't attempted to go out and build a different model and analyze its competitive costs or economic costs in any form, but, second, we have taken a look at the Copyright Office's version of this, which is substantially different, because it does not give to private

Mr. DANIELSON. Would the gentleman speak up a little, please? It is hard to hear.

Mr. EWING. I am sorry.

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