professional sports broadcasts, into an overly broad exception

to copyright protection.

While I agree with the NFL's statement and the

changes that it recommends to H.R. 789, I do not intend to address that issue this morning.

Instead, I will try to

respond to the Committee's request for some background on the ASCAP and BMI consent decrees and on some of the antitrust and copyright issues inherent in those decrees. I will also

mention some of the ways other than legislation that restaurant owners and others who feel aggrieved by the

licensing tactics of ASCAP and BMI might try to change or prohibit those practices. My own personal view is that, if it is determined that society is made worse off by the way in which ASCAP and BMI deal with those small commercial

establishments that "incidentally" perform non-dramatic musical works (though it is not clear to me that society is),

then legislation is the preferable mode of solution.

BACKGROUND

Whether one loves or hates ASCAP and BMI, it is 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 the

copyright law vested in the owner of a copyrighted work the exclusive right to perform the work for profit, until 1914, when a handful of composers formed ASCAP, composers had no practical way to enforce their performance rights. The cost

of negotiating individual agreements between the multitude of copyright owners and the various venues (e.g., theaters, night clubs, bandstands, and broadcasters) within which the works

Moreover, it was simply

might be performed was prohibitive. impossible for each composer on his or her own to monitor all the venues throughout the country in order to detect and deter infringing performances.

ASCAP filled the void, dramatically reducing the transactions costs of licensing performance rights and creating an efficient mechanism for policing infringement. ASCAP provided blanket licenses to venues, granting them the ability to perform any composition within ASCAP's catalog in exchange for a single fee. The venues could then perform a chosen musical work without having to track down and negotiate a license with the owner(s); copyright owners would not have constantly to monitor licensed venues in order to detect infringement; and the owners of the performed works would get compensated even if they were unaware of the performance.

Nothing, of course, is perfect, and so it goes with ASCAP. While combining a vast number of compositions in a single catalog and selling blanket licenses to that catalog is an engineer's dream of efficiency, it is an antitrust lawyer's nightmare of reduced competition. To work, ASCAP essentially must eliminate competition among independently copyrighted works. By taking a blanket license, the performer of the copyright forgoes his or her ability to play copyright owners

against one another in order to get the most competitive licensing arrangement.

In a very short time, ASCAP came to control a

monopoly share of copyrighted composition, and with that share came the power to set the price of licenses with little if any competitive constraints. In the 1930s, radio broadcasters like CBS, concerned largely about the lack of competition for ASCAP, formed the rival licensing organization BMI. For various reasons, however, BMI failed to inject much competition into the process.

Also during the 1930s, ASCAP (and shortly thereafter BMI) became the target of antitrust. In 1941, both ASCAP and BMI entered into consent decrees regulating their licensing practices. In 1950, after, among other things, successful private antitrust suits challenging the way in which ASCAP licensed "synchronization" and performance rights to motion picture producers and exhibitors, ASCAP and the Department agreed to a completely modified decree. That decree, inter alia, requires ASCAP to issue licenses, prohibits it from engaging in price discrimination, limits it to obtaining nonexclusive licenses from copyright holders, and provides a mechanism through which a potential licensee may have the court set a reasonable license fee.

1/ BMI agreed to a new decree in 1966. Though the ASCAP and BMI decrees do differ in various respects, they tend to regulate the organizations' operations similarly.

CHALLENGES TO THE STATUS QUO

To this day, ASCAP and BMI remain subject to

Department of Justice consent decrees. Moreover, those

decrees, practically speaking, provide on-going regulation of the organizations' licensing practices. The decrees in theory provide certain third-party rights and protections to

licensees of performance rights, including owners of small commercial establishments. I presume (though I have not

attempted to draw an independent conclusion) that the decrees do not provide small commercial establishments with sufficient protection (at least from the perspective of those establishments) against unreasonable and abusive claims by ASCAP and BMI. If the decrees are inadequate, are there any options other than legislation available? In theory, there are several; however, they are all probably inferior to legislation I repeat, assuming there really is a problem. First, an establishment or a trade organization of establishments such as the National Restaurant Association might consider filing a private antitrust action challenging the practices of ASCAP and/or BMI. It would not be the first time such a suit has been filed. However, even though some of the early private suits met with some success (see, e.g., Alden-Rochelle, Inc. v. ASCAP, 80 F.Supp. 888 (S.D.N.Y. 1948)), plaintiffs have lost the more recent cases.

The most famous of the more recent private actions was brought by CBS on the theory that the blanket licenses

provided by ASCAP and BMI to broadcast networks amount to per se illegal price fixing (because a single price is set for multiple competing copyrighted musical works) and tying (because a licensee is forced to take a license for all the compositions in the catalog). That case ultimately found its

way to the Supreme Court. In one of the most important antitrust decisions in the last thirty years, the Court held that the blanket license had to be examined under the rule of

reason. BMI, Inc. v. CBS, Inc., 441 U.S. 1 (1979).

Suffice

it to say that in light of the tremendous inherent efficiencies of a blanket license and against the background of the Department of Justice decrees, it is very difficult for a plaintiff to prove that ASCAP and/or BMI unreasonably restrain competition.

Second, a licensee or group of licensees might

challenge an abusive licensing practice by ASCAP and/or BMI as copyright misuse, which might be established even if it cannot be proven that ASCAP and BMI have violated the antitrust laws.2/

In its Lasercomb decision, the Fourth Circuit Court of Appeals refused to enforce a copyright against admitted infringers because the copyright holder had enforced a broad non-compete provision against third parties.

2/See Lasercomb America, Inc. v. Reynolds, 911 F.2d 970 (4th Cir. 1990) ("The question is not whether the copyright is being used in a manner violative of antitrust law (such as whether the licensing agreement is 'reasonable'), but whether the copyright is being used in a manner violative of the public policy embodied in the grant of a patent").