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influenced by the title "I Believe," instead of basing his typical example upon typical facts.

He would have it appear by the footnote "Copyrighted 1953, by Cromwell Music, Inc." (p. 11), that the lead sheet "without accompaniment" (p. 13) was the form in which the composition was copyrighted by said publisher and submitted by it to the record companies for their alleged initial development and exploitation thereof. He would likewise have it appear that although, as he asserts, said publisher played no part in the development and exploitation thereof, it "generated for the copyright holder * * * license fees from recordings, amounting to $107,000 and 'performance' fees, largely made up of payments for broadcasting recorded music, amounting to $106,000" (p. 11).

The copyright of the said lead sheet “without accompaniment" to which he refers was not copyrighted by said publisher, but by the four writers thereof, on December 8, 1952, No. Eu 296633 (the Eu designating unpublished). It had been written by them for a Jane Froman television production of the Columbia Broadcasting System, Inc., and was subsequently featured by her rendition thereof in said production. The writers had followed the customary procedure of registering the same for copyright with only the words and melody for protection prior to the public rendition thereof, where it had not been previously acquired by a music publisher. Such initial rendition having received a favorable response, the broadcasting company contacted Mitch Miller, the artist and repertoire man in charge of recordings for its Columbia Records division, regarding its manufacture of records thereof. Although they had their own so-called music publishing subsidiary-April Music, Inc.-Miller wanted to make certain that the composition, and accordingly their records thereof, would have the requisite exploitation by a qualified music publisher, to assure the success of their recording. Accordingly, they then selected and contacted the said Cromwell Music, Inc., which had been highly successful in the requisite exploitation of new compositions and recordings thereof.

Columbia then arranged for the writers to transfer the composition to Cromwell, pursuant to an agreement between April and Cromwell whereby the former was to receive 50 percent of the net income of Cromwell therefrom. The composition was thereupon initially copyrighted by Cromwell by publication, complete with melody and accompaniment, and registered as a published work on February 2, 1953, No. Ep. 69561 (Ep. designating published). Cromwell had agreed to assign the said copyright to April on demand and pursuant thereto executed an assignment thereof to April on June 22, 1954. However, April thereupon obviously deemed this inadvisable, for on the following day, June 23, 1954, it reassigned the copyright to Cromwell, pursuant to the aforesaid agreement that Cromwell would again reassign it to April upon demand.

The exploitation of this composition by Cromwell was indeed a typical example of what such exploitation by a qualified publisher in its category can mean in creating a public demand therefor and accordingly for the records thereof. Professor Glover speaks of performing fees accruing therefrom of $106,000, "largely made up of payments for broadcasting recorded music." On the contrary the performing fees received by Cromwell for the live renditions of such composition, from the American Society of Composers, Authors & Publishers through which all of such rights were exercised, were in excess of those received from the broadcasting of recordings thereof. This likewise dissipates the testimony of David Kapp, president of Kapp Records, Inc., that "Approximately 95 percent of all new music in America is introduced by means of phonograph records" and "Today there is practically only one way the publisher and writer can reach the millions of Americans quickly with his new song-via a phonograph record" (pp. 1055, 1056). For the purpose of its extensive exploitation thereof, Cromwell published at least 15 different editions of said composition, including orchestrations and in every form of instrumentation. Of course, this called for most substantial expenditures on its part, in addition to the required payment to April, for which a one-half interest in the copyright was held in trust by Cromwell, of 50 percent of their net receipts. Accordingly, in speaking of the substantial returns over a period of 12 years that were "generated for the copyright holder," he left the "s" off the word "holder," in addition to adroitly avoiding any mention of the requisite most substantial expenditures by Cromwell to achieve such results. In the final analysis the net returns to Cromwell, of the amount "generated" for the copyright "holder(s)," was indeed a minor part thereof. Yet this has been cited "As an illustration of the role record companies and others play in the creative

process and the rewards that flow from these efforts" (p. 11). This would require a drastic revision in Professor Glover's employment of "I Believe" as a typical illustration of the development and respective returns of the record company and the publisher from a "copyrighted musical piece."

Professor Glover's entire analysis and calculations are founded upon the flagrantly erroneous hypothesis that "Presently, the cost of copyright license fees represents about 19 percent of the retail price." The following reflects the true percentage of the retail price, of the cost of such license fees to the record companies, under the licenses issued by the Harry Fox office.

Testimony of Professor Glover (p. 998) :

"Mr. EDWARDS. What percentage of the sales of the record industry is in the $3.98 area?

"Mr. GLOVER. About 73 percent. I am reminded.

"Mr. EDWARDS. About 75 percent. In other words, the small 45's is what percent?

"Mr. GLOVER. Twenty-two percent of the selections."

The license fees of a $3,98 record, containing 12 compositions, is 2 cents a composition for a total of 24 cents, which is only 6 percent of the retail price instead of 19 percent. However, in many instances the record company insists upon, and accordingly obtains, a special deal for 12 cents, 14 cents and even 1 cent a composition, which, of course, would materially reduce even such percentage.

The retail price of a 45 containing two compositions is 98 cents, of which the license fee is 2 cents per composition for a total of 4 cents, which is only 4.1 percent of the retail price instead of 19 percent. Likewise, in many instances the record company insists upon, and accordingly obtains, a special deal for a like reduced price.

According to Professor Glover's aforementioned testimony, these two records represent 97 percent of the sales of the record industry. Following is a chart reflecting the true percentage of the retail price of the cost of the license fees of the other record sales:

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Likewise, in instances the record company insists upon, and accordingly obtains, a special deal for a reduced price.

The foregoing, particularly the true radically smaller percentage of the retail price of the $3.98 and 45 records, which represent 97 percent of the sales of the record industry, completely dissipates Professor Glover's analysis and calculations. It exposes a substantial increase in the net profits of the record companies and a substantial reduction in the proportionate gross fees of the publishers. Deducting from such gross fees of the publishers, in addition to the writers' share of 50 percent, their extensive outlay for the requisite exploitation of their musical copyrights and the recordings thereof, set forth supra, it is readily understandable why, in the instance where the publisher can obtain the payment of the maximum royalty fee, the increase thereof is an essential requirement. It is an essential requirement that the publishers continue such requisite activities to assure the record sales. However, it is essential that their net returns are adequate to justify such activities. The record companies, in their fervent de sire to defeat such increase, have presented to Professor Glover, for his purported analysis and calculations, a decidedly distorted image of the true picture. Professor Glover's manipulation of this material was such an unexpected revelation that Goddard Lieberson, president of Columbia Records, could not restrain his delight, in remarking "I am delighted that Professor Glover has demonstrated some facts here today, many of them I think, that were new to us in the industry" (p. 1026).

With all that has been said, regarding the radical inaccuracies of Professor Glover's demonstration of facts "that were new to us in the industry," there are still more in the same category.

It was testified that the Harry Fox office represents "approximately 70 percent of all music publishers" (p. 1029), which is conceded, and that 19 companies (20 in 1964) did 70 percent of the total record industry business (p. 1017, later corrected to 60 percent). Exhibit 12 reflects royalty payments to publishers in 1964 of $25.2 million. If $25.2 million was paid by these companies and this represents 60 percent of the total payments, of which the Harry Fox office collected 70 percent, his office should have collected $29.4 million thereof. The amount actually collected by his office in 1964 was $20.4 million. Likewise, if $25.2 million was paid by these 20 companies and the Harry Fox office received approximately 70 percent, this would amount to $17.6 million. The total payments actually made in 1964 to the Harry Fox office by these companies was $15.3 million.

Goddard Lieberson stated, "Today a record company receives between $1.50 and $1.80 from its distributor for a record bearing a suggested list price of $3.98 (p. 1026)." He failed to state that all of the major record companies, and 90 percent of all record companies, have their own distribution units. He did not indicate that this constitutes an intercompany transaction, so that the profit of both is the profit of the organization. This likewise applies to the computations in the chart exhibits of the appendix to Professor Glover's statement (exhibits 2, 18, 19, and 20). Furthermore, all of the major record companies are units of large diversified organizations. Accordingly, such units are operated in conjunction with such other activities, as an essential element thereof.

In his appendix Professor Glover lists 20 companies under the heading "The 20 record companies providing financial data shown in this section of the presentation are listed below," which he terms the "19 principal companies" (p. 986, one having been added in the calculations). The fallacy of the total of such "financial data" provided by these companies, upon which such calculations are based, is illustrated by reference to the following listed companies:

Continental Record Co., Inc.-Some years ago one Donald H. Gabor was con ducting a record company under the then corporate name of Remington Records, Inc. Having accounted and paid royalties to the music publishers in only a trivial amount, I brought an action on behalf of a number of publishers against both him and his company, in the U.S. District Court, Southern District of New York. Upon the hearings before the special master, appointed by the court, he only produced data indicating an insignificant amount of records manufactured and of the returns therefrom, and testified that there was no other available data. I thereupon offered expert testimony to the effect that, for an operation of this size, proof of the activities thereof had been stultified by the purported insignificant returns therefrom. I likewise offered such testimony to establish the approximate true extent of such activities and of royalties owing. The special master, while expressing sympathy for the publishers' predicament, determined that he could not legally admit such testimony. The district court likewise expressed sympathy for their predicament, but affirmed the master's report. The court of appeals, second circuit, in 265 F. 2d 263, reversed the determination of the district court and held that under such circumstances the expert testimony was admissible, saying "Perhaps it will also serve as a guide, if not a deterrent, to such members of the industry who engage in what has been described as 'piracy,' but which might better be described by the other terms connoting larceny; historically, at least, piracy was characterized by frontal attack with unmistakable notice to the victim who could then take such means as were available to defend himself. *** We will not permit commercial piracy to produce illegal gains immune from recovery. While the law cannot prevent all sin and wrongdoing it can take some of the profit out of it." In view of this denunciation, Mr. Gabor obviously deemed it expedient to forego such operations under said corporate title, and subsequently renewed the same under the aforesaid corporate title of Continental Record Co., Inc. Again, having failed to render accountings and make payment to the publishers of the requisite royalties, it became essential for my firm to institute proceedings against his present company. There are now such pending actions on behalf of 46 plaintiffs. Nevertheless, this is one of the companies, the "financial data" of which has been relied upon by Professor Glover to illustrate the purported nominal returns and profits of the record companies.

Premier Albums of New Jersey, Inc.-In 1960, this company having repeatedly failed to render accountings and make royalty payments to the publishers, we wrote advising that unless the matter was given their attention, legal proceed

ings would ensue. Under date of September 21, 1960, we obtained a certified check for $25,000 and an agreement to pay a balance of $9,478.76, within a specified time. In 1963, we again sent a communication to the same effect, and under date of February 21, 1963, it executed a confession of judgment for $75,000. This year we again sent a communication to the same effect and under date of May 10, 1965, it executed a confession of judgment for $15,028.41. This is another example of the source and nature of the "financial data," upon which Professor Glover's analysis is based.

Folkways Record & Service Co.-The royalty payments to the Harry Fox office by this record company, have averaged approximately only $100 yearly. Another example.

As a member of the subcommittee observed:

"Mr. EDWARDS. But I do think that you can see a little difficulty when we are asked to base our whole judgment on a grouping of 19 companies, where maybe 15 or 20, or 30 or 40 percent of these companies might be doing a very bad job, and yet they are bringing the average down" (p. 1045).

As he further observed:

"Mr. EDWARDS. Professor Glover, the chart, and shall we take 1964 for the moment, 'Record Companies' Net Profit.' Then the red is the amount paid to the copyright people. That is the gross paid, not the net profits of the copyright holders" (p. 976).

Goddard Lieberson, president of Columbia Records, testified that, as the major record companies do not have separately published profit and loss statements, the only information available is through an independent survey of "store sales" made by Billboard magazine, and his calculations were based solely upon such survey. He specifically conceded, "As I say we don't have access to the figures, unfortunately" (pp. 1044, 1078, 1080). However, in a recently published report of Radio Corp. of America, it is stated "The RCA Victor Record Division, another longtime member of the RCA family, is currently enjoying the greatest acceptance in history. First-quarter sales were at an all-time high, and earnings for the first quarter were substantially greater than last year. This trend is expected to continue throughout the remainder of 1965." In the July 24, 1965, issue of the trade publication Cash Box, there appeared an article under the heading "RIAA: Disk Sales Set Mark," in which it was stated "Manufacturers sales of phonograph records in 1964 set a new all-time high of $275,530,000, the Record Industry Association Of America (RIAA) announced last week." Likewise, Alan W. Livingston, president of Capitol Records, Inc., one of the three major companies, testified "Mechanical license fees paid by Capitol Records alone, for example, increased from $1,256,052 in 1955 to $4,612,376 in 1964." This establishes a 357 percent increase in their record output during said period. This is, accordingly, radically at variance with Professor Glover's analysis and calculations.

The publishers must have regular audits made of the books and records of the numerous record companies throughout the United States. Such audits, in many instances, establish that the business activities of the companies are substantially in excess of that reported to the publishers, whereby the obligation for royalty payments is substantially increased. Furthermore, numerous actions must be brought on behalf of the publishers against record companies throughout the United States who either refuse to account and make payment to the publishers or account and make payment of only a minor part of their obligations. The foregoing illustrates additional substantial expenditures that must be made by the publishers, for them and the writers to realize the fees to which they are entitled. Of course, in many such instances the record company thereupon discontinues its business operations, and there is no recovery. Professor Glover would have it appear that the music publisher realizes a greater percentage today of the record returns than in 1909, when the present act was enacted. On the contrary in 1909 the publisher only paid the writers 25 percent of its receipts therefrom, while today the uniform percentage is 50 percent.

Professor Glover advances the contention that, if the statutory fee were raised to 3 cents, it would be unlawful for the nublisher to exact a lesser fee from one record company than from another, so that "a 3-cent fee would become not a ceiling, not a floor" for negotation "it would likewise become the fee" (pp. 1006, 1007). There is no basis whatsoever for such a contention. This very argument has been advanced in a number of cases we have brought and in each

the court, in rejecting such a defense, has cited the uniform holding of the courts to the contrary. In fact it has been uniformly held, (a) that the pertinent provision of the Clayton Act only applies to price discrimination between "purchasers of commodities" that are sold, and can have no application to the granting of a license, and (b) that a statute cannot be altered or controlled, and the legal rights and liabilities of the parties as thereby fixed cannot be changed, by a custom or usage in the industry.

The Register of Copyrights, after a thorough consideration of the respective interests of the record companies and music publishers and the purport of the royalty increase, justifies such increase in the following pertinent statement (supplemental report, p. 58):

"It should be borne in mind that exercise of the compulsory license is entirely optional with the record producer, being compulsory only on the copyright owner. The alternative of bargaining with the copyright owner for a negotiated license is always open to the record producer. Consequently the statutory royalty rate operates as 8 iling: the record producer can bargain for a lower rate, but the copyright owner can never bargain for a higher one. The vast majority of recording licenses in the United States have been negotiated and, at various times in the past, record producers have obtained negotiated licenses at less than the existing statutory rate of 2 cents. If the present 2-cent ceiling is raised, licenses could still be negotiated at 2 cents or less if current market conditions did not justify more; and if a higher ceiling resulted in negotiated licenses at more than 2 cents, it could well be argued that a 2-cent ceiling has proved to be too low. As we see it, the statutory rate should be at the high end of a range within which the parties can negotiate, now and in the future, for actual payment of a rate that reflects market values at that time. It should not be so high, however, as to make it economically impractical for record producers to invoke the compulsory license if negotiations fail."

Goddard Lieberson, president of Columbia Records, made the following statement with respect to the existing compulsory license provision of the act: "Not only were record companies against the repeal, but so were many publishers and writers who recognized the benefits which they have received from this provision through the years" (p. 1029). On the contrary, the publishers and writers uniformly sought a repeal thereof, so that all licenses could be negotiated apart from any statutory requirement. This was the original recommendation of the Register. The subsequent retention by the Register of the compulsory license provision and the increase of the ceiling to the 3-cent rate was a compromise. This took into consideration the desire of the record companies to retain such provision, and the essential requirement of the publishers and writers to increase the ceiling, as stated by the Register, so that "the statutory rate should be at the high end of a range within which the parties can negotiate, now and in the future, for actual payment of a rate that reflects market values at that time."

Mr. KASTENMEIER. You may proceed.

Mr. ABELES. Over the years I have been counsel in copyright litigation for many leading motion picture companies and companies in allied fields. For a number of years I was chairman of the board and general counsel of the National Association of Orchestra Directors, the membership of which comprised every leading orchestra leader in popular music in the United States.

I appear primarily as general counsel for the Music Publishers Protective Association, Inc., the membership of which comprises practically every leading popular music publisher in the United States.

I also appear as general counsel for Harry Fox, agent and trustee for over 900 music publishers in the licensing and enforcement of rights to their musical works, in the manufacture of electrical transcriptions for radio broadcasting, phonograph records, and recordings for motion picture and television productions.

I am a member of the Panel of Consultants to the Register of Copyrights and I attended the various meetings that were held.

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