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applies for a copyright on the song, usually in conjunction with the initial recording, and thereby becomes entitled to receive a royalty fee of two cents for each and every mechanical reproduction of all subsequent recordings of that song pursuant to the compulsory license provision of the Copyright Act. However, in lieu of the statutory rights afforded by this Act, it has, through necessity, become the common practice of the independent publishers to enter into a so-called negotiated or private licensing agreement with the record companies substantially in the form of Exhibit "B" attached hereto. Section 26
The defendants are the major producers of first class phonograph records and other mechanical reproductions of sound recordings used both publicly and privately by the consuming public for listening entertainment purposes. By virtue of this position, the defendants establish the policies and procedures which are implemented throughout the industry as standard industry practice. Section 27
The defendants have absolute control over all aspects of sound recordings produced by their companies, including which songs get recorded, the recording artist and musicians used, the technical personnel and recording facilities, and ultimately the release, distribution, promotion and sale of the product. These products of the defendants are advertised and distributed throughout the United States, and abroad, and are sold in virtually every community in this nation and extensively in foreign countries. Section 28
The defendants are in violation of Section 1 of the Sherman Act (15 U.S.C. Section 1), by entering into and carrying out contracts, combinations or conspiracies effectuating an undue, unreasonable and direct.restraint of trade and commerce with regard to the production, reproduction and sale of sound recordings of copyrighted songs, including, among other things, the matters more specifically described hereinafter. Section 29
Beginning many years ago and continuing up to this date, the defendants have engaged in the unlawful concerted activity of refusing to contract with the plaintiffs and members of their class under the terms of the compulsory license provision of the Copyright Act of 1909 (17 U.S.C. Section 1(3)). This Act provides, among other things, that once a copyrighted musical composition has been performed, or recorded, “... any other person may make similar use of the copyrighted work upon the payment to the copyright proprietor of a royalty of 2 cents on each such part manufactured, to be paid by the manufacturer thereof; ..." The defendants, through their control over the recording and the mechanical reproduction and sale of phonograph records, have circumvented this statutory provision afforded to plaintiffs and the class in the great majority of cases by refusing to record a song unless the copyright owner enters into a private licensing agreement, substantially similar to Exhibit "B" hereto. The so-called private licensing agreement reduces the royalty fee to a maximum of two-thirds of the statutory amount and imposes a further limitation on the number of units to be paid on, from the number "manufactured" to the number "manufactured and sold." Section 30
In order to do business with the defendants, the plaintiffs and their class must agree to be relegated to royalty fees of less than the amount provided by law as aforesaid, notwithstanding that the statutory provision was enacted in 1909, and since that time the cost of living has greatly increased and the average retail price paid for a phonograph record has increased an even greater amount. Moreover, in the past few years these defendants, along with other phonograph record companies not made parties hereto, have purchased, established or otherwise acquired extensive holdings in music publishing companies whose operations are in direct competition with the plaintiffs and their class. In addition to having to compete in the publishing business with the publishing companies owned or controlled by defendants, plaintiffs allege and verily believe that the defendants do not impose upon their own companies these same financial restraints of reduced royalty fees.
Defendants have individually as well as collectively refused to obtain com. pulsory licenses from the music publisher members of this class except upon the contract terms described herein, and each of the defendants knows that the others systematically refuse to do so. As a result of this concerted activity with tacit understanding among the defendants, they have suppressed competition between publisher members of the plaintiffs' class and publishers owned or controlled by defendants, and consequently have unlawfully restrained trade and commerce with regard to all plaintiffs and the class, have suppressed and restrained the songwriter members of this class in their creative activities, and have restrained plaintiffs and the class froin realizing the full potential value of their copyrighted songs and have thus deprived the public of access to and the enjoyment of many other songs in many cases. Section 35
For further cause of action, plaintiffs and the class allege that defendants are in violation of Section 2 of the Sherman Act (15 U.S.C. Section 2) by attempting to monopolize and by monopolizing the music industry with regard to the production, manufacture and sale of phonograph records and other sound recordings of copyrighted musical compositions. Section 36
Defendants and their subsidiaries produce approximately 65% of all phonograph records and an undetermined amount of other types of sound recordings which are sold throughout the United States and abroad. In addition, defendants, either directly or through subsidiary or associated companies, own music publishing companies which control a significant percentage of the copyrighted musical compositions which are recorded and released on phonograph records and other types of sound recordings. Because of this ownership structure, defendants possess and exercise the power to restrict, eliminate and exclude competition from plaintiffs and the class. Section 37
In order for plaintiffs and the class to get songs recorded by the defendant record companies, the quality and appeal of the songs have to be very greatly superior to any songs in the catalogs of defendants' publishing companies. Consequently, thousands of otherwise marketable original songs remain in the files of plaintiffs and the class, idle, unrecorded and never offered for sale to the consuming public, thereby denying plaintiffs and the class the opportunity to get any compensation whatsoever from their works. On the other hand, on the exceptional occasions when a promising composition is accepted, recorded and sold, the financial returns to plaintiffs and the class have been substantial. Section 38
In each of the numerous instances, both writers and publishers, in plaintiffs class have been compelled to enter agreements for split royalties with defendants publishers and agents in order to get their songs recorded. Even with this arrangement, the defendants only rarely spend as much money in the promotional effort of these songs as the songs in which they have the exclusive publishing rights. Section 43
Among the common instances where plaintiffs and the class are paid less than the contract rate are on the sales of phonograph records through record clubs. This is usually accomplished through a sublicensing arrangement between the respective defendants and the record clubs. On the total number of units sold in this manner, the copyright owner gets paid at the rate of only seventy-five percent of the contract rate. The contract rate is, in a majority of the cases, set at 112 cents per copy rather than the 2 cents provided by statute, and this 1122 cent rate is arbitrarily factored down to seventy-five percent of that amount, or 1.125 cents. Club sales account for a significant portion of total record sales and are usually sold at the same price as retail sales through any other retail outlet. Also, this same manner of arbitrarily reducing the contract royalty rate is practiced by the defendants in sales of records to military post exchanges. Plaintiffs and the class are paid no royalties at all on records that the defendants account for as being returned and/or scrapped, but most of which are usually
eventually sold at discount prices or are given away free of charge as bonus records in order to promote other records unrelated to plaintiffs and the class.
[Subsequent to the hearing the following letter and attachments were received for the record from Alan I. Wally.]
East WINDSOR, N.J., July 22, 1975. Representative ROBERT KASTENMEIER, House of Representatives Washington, D.C.
DEAR Mr. KASTENMEIER: First, I would like to thank you very much for allowing us the opportunity to present our views on the anti-piracy provisions of the General Copyright Revision Bill.
Pursuant to our conversation I am enclosing a copy of the October 5, 1974 issue of Billboard Magazine where I got the quote that I used in testimony. Unfortunately, this reference library has a terrible Xerox machine so I apologize for its fuzziness.
You indicated to me that you would make a special effort to read my paper in its entirety. I am sure that after reading it you can see why I did not want to go no with Mr. Gramuglia or Mr. Heilman as I had a completely different point of view than they did. Nevertheless, our own end goal happens to be the same mandatory licensing.
In reviewing this Xerox copy it seems that last year you indicated to Rep. John Conyers and Rep. John Seiberling that in this current session of Congress there would be in-depth hearings by the Sub-Committee with reference to the public interest and anti-trust aspects involved in the way the record industry functions under copyright revision.
One of the things I specifically asked for in my paper was an economic impact survey which would demonstrate conspiracy, collusion, price fixing, structural anti-trust, restraint of trade, violations of the Sherman & Clayton Anti-Trust Act, etc.
I am positive if you will allow the Justice Department to use some of the points which I have raised as a guideline you will find that everything I have said in my paper is true and that some form of modification of the anti-piracy provisions, specifically compulsory licensing after 15 months, would give the major labels exactly what they are asking for but would then effectively protect the artists, the retailer and the consumer.
It is absolutely imperative that compulsory licensing carry a provision that the artists be given the exact same royalty payments that they get from the record companies. This would allow the artists to get royalties in perpetuity as against the average 16 weeks the artists currently receive royalties for now. But, compulsory licensing to take effect is months after release of record which is 9 months after 99.5% of all records come off charts, are no longer being produced by major labels (so they can't lose) and artists no longer getting royalties.
There are 15,000 jobs at stake no one loses and everyone gains.
During the course of testimony I stated that the consumers would benefit from compulsory licensing. You asked me if there were any consumer groups that I could cite that would be willing to come forward and testify.
I live in a development that has 14,000 people in it. Our Food Co-Op Committee started exactly as a food co-op committee. However, although it is still called a food co-op committee it is also a consumer watch-dog group.
Would you like me to have the president of that committee write to testify in regards to the above issue for a consumer point of view ? Respectfully yours,
ALAN I. WALLY.
HOUSE GROUP OKS ANTIPIRACY ACTION
(By Mildred Hall) WASHINGTON—The House Judiciary Committee last week approved the antipiracy bill, H.R. 13364 with the milder prison terms of one and two years maximum for first and repeated offenses respectively. The bill carries maximum fines of $25,000 for a first offender and $50,000 for repeaters.
At the same time, Rep. Robert W. Kastenmeier (D., Wis.), author of the bill and chairman of the House Copyrights Subcommittee, has promised that this and all other aspects of the functioning of the record industry under the copy
right law-from antipiracy to performance rights—will be given an in-depth exploration during 1975 hearings on the general revision bill.
The Senate Copyrights Subcommittee has sent word that it will go along with the milder prison terms in the House bill. This will avoid conference delays and speed action on the legislation needed to make protection of copyrighted recordings a permanent part of the federal copyright law.
The recently passed Senate antipiracy bill, like its rerision bill, proposed maximum prison sentences of three and seven years (Billboard, Sept. 21).
The House Judiciary Committee vote was 30 to 2 on the Kastenmeier antipiracy bill. Rep. Robert Drinan (D., Mass.), the chief dissenter, made his customary attack on the record industry for alleged monopoly practices. He said that record companies should be given exclusive ownership for only five years, with mandatory licensing to tape duplicators after that period.
Rep. Drinan argued that the tape duplicators could serve the public by lowering prices, and providing reissues of non-hit or older recordings, also benefiting performers and music licensees. He said big record companies and their record clubs dominate the industry and "authors and performers lose.”
His argument brought questions from Reps. John Conyers (D., Mich.) and John Seiberling (D., Ohio). They asked whether the House revision hearings nest year would cover the public interest and any antitrust aspects involved, in the way the record industry will function under the copyright revision.
Rep. Kastenmeier assured fellow members of the Judiciary Committee that there would be in-depth hearings by his subcommittee. Justice Department will be asked for comment not only from its Criminal Division (on the record piracy question), but also from the Anti-Trust Division on any monopoly aspects.
"The public interest in copyright, beyond the owners and user groups, needs to be considered in depth" he said.
But Rep. Kastenmeier demolished much of Rep. Drinan's tape duplicator argument by pointing out that unauthorized tape duplicators who do a $300 million a year business do not make copies of out-of-press or non-hit recordings, or of “finer works” that do not become hits. The pirates siphon off the top hits while they are at the head of the popularity charts.
To Rep. Drinan's contention that performing artists "don't understand the copyright law," Rep. Kastenmeier said today's artists and their representatives are "highly sophisticated" about the law. Many form their own recording and publishing companies. “If any performers and composers felt they were disadvantaged by the law, they would have testified at House hearings in 1965 on the revision bill, and 1971 and 1974 hearings on the House antipiracy bills."
Finally, Rep. Kastenmeier pointed out that the Constitution itself-like it or not-has deliberately assured a monopoly for copyright owners for limited periods of time, in order to provide incentive to produce further works. Wholesale pirating kills that incentive.
Rep. Kastenmeier hopes for an early vote on the antipiracy bill. He will also hold hearings on the interim Senate bills which were passed by that body, since the House cannot act on a revision bill this year.
One would extend expiring copyrights for two years, and another would establish a commission to study new technological uses of copyrighted materials. An individual Senate antipiracy bill was included, but the House will vote on its own H.R. 13364.
Rep. Kastenmeier is not personally in favor of extending the expiring copp. rights for another two years, but says he will go along with the majority, if the other members of his subcommittee feel it is beneficial.
Mr. KASTEN MEIER. Thank you, Mr. Wally.
Mr. GRAMUGLIA. Thank you, Mr. Chairman. I would first like if possible to have “The Great American Rip-Off” put in as part of the record, if that is possible.
Mr. KASTEN MEIER. This is a piece by Mike Terranova ?
Mr. KASTENMEIER. And it is related to this question. Without objection, this will be received and made a part of the record at this point,
Mr. GRAMUGLIA. Thank you.