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essentially the same argument that you made this morning, that they, in fact, benefit the broadcasters, and that they charge no fee for that and that they certainly shouldn't be charged a fee for that. That does seem, at least on the surface of it, to be inconsistent. I would like a

comment.

Mr. WASILEWSKI. I think I may understand how it may seem that way on the surface. However, in the case of the cable carrying of the broadcast signal, we are dealing with an already acknowledged subject of the copyright. In other words, a motion picture is now subject to copyright. A recording per se is not subject to the copyright in the sense of the performance attached thereto, and that is one clear distinction.

The other distinction is that the broadcasters are not per se in that proposed legislation, asking for payment to them for the use of their signal per se. They are asking for payment to the copyright proprietor for the use of that programing material by the CATV, by the copyright proprietor a motion picture producer, special sports interest, or what have you. So, I think there are substantial differences, between the two situations.

Mr. PATTISON. The other point that was made, and I think we ought to address ourselves to it, when an artist, even a star, makes his or her debut with the recording company, and does make a contractual deal for royalties, that is based upon records sold, but there is no way to make it based upon the number of times the record is played, because that—no one has any control over that, and that is one of the reasons that they argue for the performance royalty.

Mr. WASILEWSKI. Yes, sir.

Mr. PATTISON. There is no way that they can bargain on that. No matter how much power you have, or don't have, you can't bargain, because there is no way to determine, since anybody can play that by simply having this ASCAP or BMI or SESAC license, that you have no way to make any bargain on that.

Mr. WASILEWSKI. The number of times that record is played, it usually is related directly to the amount of sales of that record, too, so there is that indirect benefit and payment. Also, I have asked numerous of my radio station members have they ever been the recipient of a request of one of the stars or performing artists, please don't play my record, and that has not been done very often. Mr. PATTISON. I have no further questions.

Mr. KASTEN MEIER. Let me ask just one last question.

Would you agree or disagree that the contributions made by musicians and others, apart from those that are covered by royalty contracts referred to in negotiations, would you agree that those contributions are creative, creative within the meaning of the copyright law?

Mr. WASILEWSKI. Sir, I would go that far to indicate that they are creative, and at the end of my statement, I indicate that they are creative. However, I have not gone to the point that it is necessary under the Constitution to give that added right, namely, the performance right, to that creative rendition in order to augment the creativity involved.

Mr. KASTEN MEIER. Thank you. I thank all you gentlemen for your appearance here this morning.

Mr. WASILEWSKI. Thank you.

Mr. KASTEN MEIER. This concludes the hearing today on the performance rights, sound records, and after the August recess, on September 11, this committee will convene to hear testimony on a related question, that of mechanical royalties, which some of the witnesses here this morning are also interested in.

Until that time, the subcommittee stands adjourned.

[Whereupon, at 12:40 p.m., the subcommittee recessed, to reconvene on September 11, 1975.]

[The subcommittee has received statements for the record as follows concerning H.R. 5345: Department of State; Department of Commerce; Librarian of Congress; National Endowment for the Arts; American Broadcasting Companies, Inc., National Broadcasting Company, Inc., Music Operators of America, Inc.; and juke box manufacturers represented by Perry S. Patterson, Esq.]

DEPARTMENT OF STATE, Washington, D.C. July 16, 1975.

Hon. PETER W. RODINO, Jr.

Chairman, Committee on the Judiciary,

House of Representatives.

DEAR MR. CHAIRMAN: The Secretary has asked that I respond to your letter of April 2, 1975 requesting the Department of State's views on H.R. 5345, to amend the Copyright Act, and for other purposes.

This legislation relates to the payment of fees for certain public performances of sound recordings. Essentially the legislation is of a domestic nature and does not have foreign policy implications. Therefore the Department of State would defer to the views of other interested agencies.

The Office of Management and Budget advises that from the standpoint of the Administration's program, there is no objection to the submission of this report. Sincerely yours,

ROBERT J. MCCLOSKEY, Assistant Secretary for Congressional Relations.

GENERAL COUNSEL OF THE DEPARTMENT OF COMMERCE,

Washington, D.C., July 8, 1975.

Hon. PETER W. RODINO, Jr.

Chairman, Committee on the Judiciary,

U.S. House of Representatives, Washington, D.C.

DEAR MR. CHAIRMAN: This is in response to your request for the views of the Department of Commerce with respect to H.R. 5345, a bill: “To amend the Copyright Act of 1909, and for other purposes."

H.R. 5345 would amend Chapter 1 of the Copyright Act (17 U.S.C. §§ 1-32) to establish performance rights in sound recordings. It would create compulsory licensing for the public performance of sound recordings, establish annual royalties for compulsory licenses, and require that such royalities be divided equally between the performers and the copyright owners of a sound recording. Section 2 of H.R. 5345 would replace subsection (f) of 17 U.S.C. § 1 with a new subsection (f) granting the owner of a copyright in a sound recording the right to perform it publicly for profit in addition to the existing rights of reproduction and distribution. However, none of the rights would extend to imitative but independently produced sound recordings. The subsection would also make the public performance of a copyrighted sound recording subject to compulsory licensing once the copyrighted sound recording is distributed to the public under the authority of the copyright owner.

Section 3 of H.R. 5345 would add a new section 33 to Chapter 1. Subsection (a) would establish specific royalties to be paid of compulsory licenses for the public performance of sound recordings but would allow a negotiated license to be substituted if such negotiated rate were higher than the specified royalty fees.

Yearly performance royalty rates for radio and television broadcasting stations would be based on a station's gross advertising receipts with royality exemptions for stations whose gross advertising receipts are below specified minimum amounts. A radio station whose gross advertising receipts are higher than $200,000 a year could utilize an alternative prorated rate taking into account the amount of the station's commercial time devoted to the playing of copyrighted sound recordings. For background music services and other transmitters of performances of sound recordings, a yearly blanket rate would be based on the gross receipts from subscribers or others who pay to receive the transmission during the applicable period with a prorated rate taking into account the proportion of time devoted to musical performances by the transmitter during the applicable period available for utilization in the alternative. Background music services or other transmitters whose annual gross receipts from subscribers or others who pay to receive the transmision fall below a minimum amount would be exempted from the payment of royalties. Operators of coin-operated phonorecord players would be subject to a royalty of $1.00 per phonorecord player per year. For all other users not otherwise exempted, there would be a blanket rate of $25.00 per year or an alternative prorated rate not to exceed $5 per day of use based on the number of separate performances of such works during the year. Subsection (b) would make the annual royalty fees established in subsection (a) applicable for a period of not less than two years following the date of enactment of the bill and until a negotiated royalty rate is agreed upon by the copyright owner and the licensee. In the event that the parties cannot agree upon a royalty rate pursuant to negotiation, the public performance of the sound recording would be made subject to compulsory licensing at a royalty rate and under terms set by an arbitration panel. Subsection (c) would require that royalties be equally divided between the performers and the copyright owners of a sound recording.

Although within the broad category of intellectual property rights, the subject matter of this bill does not directly relate to any of the Department of Commerce's programs. However, it is the Department's understanding that the creation of performing rights in sound recordings is a highly controversial issue in this country. We note that the lack of protection for these performing rights causes problems internationally in view of the fact that many other countries do grant such rights. In view of the controversy surrounding this issue we believe that the subject bill would be appropriate for Congressional hearings.

We do, however, have some technical recommendations regarding the proposed bill. Section 2(4) reads: "by inserting immediately before the period at the end of the last sentence of such section (relating to coin-operated machines) a comma and the following "except that the provisions of this sentence shall not apply to the public performance of a sound recording under subsection (f) of this section".

Since section 2(4) refers to coin-operated machines it appears to amend existing 17 U.S.C. § 1(e). If so, a technical drafting error arises because section 2(2) would have already deleted the period referred to in section 2(4). If such is the case, the error could be corrected by deleting both the semicolon and the word "and" appearing in the last line of proposed subsection f(2); by deleting section 2(4): and by substituting the following for proposed section 2(2): “by striking out the period at the end of subsection (e) and inserting in lieu thereof a comma and the following "except that the provisions of this sentence shall not apply to the public performance of a sound recording under subsection (f) of this section; and"

We would also note that H.R. 5345 fails to indicate where royalties are to be paid or how and when they are to be distributed. Presumably, these matters would be negotiated or arbitrated between the parties two years after the date of enactment of the bill. However, to avoid confusion, we believe that provisions for interim royalty payment and disbursement should be added to this bill. In this regard, we would suggest that the provisions of section 114 of S. 1361, as amended by the Senate Committee on the Judiciary, July 3, 1974, could be adopted to serve this purpose.

We have been advised by the Office of Management and Budget that there would be no objection to the submission of this report from the standpoint of the Administration's program.

Sincerely,

B. PARRETTE, Deputy General Counsel.

57-786 76 pt. 2 45

Hon. PETER W. RODINO, Jr.,

THE LIBRARIAN OF CONGRESS,
Washington, D.C., June 11, 1975.

Chairman, Committee on the Judiciary, U.S. House of Representatives, Washington, D.C.

DEAR MR. RODINO: This is in response to your request of April 2, 1975 for comments on H.R. 5345, 94th Cong. 1st Sess., to amend the Copyright Act of 1909.

The purpose of H.R. 5345 is to establish performing rights in sound recordings for the benefit of record producers and performers. Although most public performances of sound recordings result in a copyright royalty for the composer of the underlying music, no royalties accrue to record manufacturers or performers. As a result, industries which are dependent on the performance of sound recordings, such as broadcasting organizations, jukebox operators and producers of background music, pay nothing to those responsible for producing such sound recordings other than the original purchase price of the records.

Whether a performance right should be extended to sound recordings has been a controversial issue in the United States for many years. Initial versions of the copyright revision bill, considered in Congress during the last decade, did not include a performance right in sound recordings. This omission was essentially due to concern that the controversial nature of the issue would unduly delay enactment of the much needed revision. This view was articulated by the Register of Copyrights in his Supplementary Report on the 1965 Revision Bill:

"[W]e cannot close our eyes to the tremendous impact a performing right in sound recordings would have throughout the entire entertainment industry. We are convinced that, under the situation now existing in the United States, the recognition of a right of public performance in sound recordings would make the general revision bill so controversial that the chances of its passage would be seriously impaired." [Pages 51-52]

When the revision bill stalled in the late 1960's, extensive record and tape piracy forced Congress to consider separate legislation affording copyright protection for sound recordings. In the fall of 1971 Congress amended the 1909 Copyright Act to establish a so-called "limited copyright" in sound recordings. Under this amendment only those sound recordings fixed and published on or after February 15, 1972 are eligible for protection and must, as well, comply with a notice requirement.

The protection afforded sound recordings is termed "limited" because only the unauthorized reproduction and distribution to the public of copies of the sound recording is prohibited. Thus, the duplication of sound recordings for private, personal use and the performance of sound recordings through broadcasting or other means are outside the scope of the amendment.

The constitutionality of the 1971 amendment was attacked in Shaab v. Kleindienst, 345 F. Supp. 589 (D.C.C. 1972) on the grounds that sound recording material could not be considered as the "writing of an author." The Court rejected this argument and held that the copyright clause of the Constitution had to be interpreted broadly in order to incorporate technical advances which were unknown to our founding fathers.

The revision bill introduced by Senator McClellan in the 93rd Congress (S. 1361) included a performance royalty for sound recordings which was subject to compulsory licensing (section 114). Although a negotiated license could be substituted for the compulsory license, the bill provided that negotiated royalty fees could not be less than the compulsory rate. The bill outlined the procedures to be followed in obtaining a compulsory license and also provided for the deposit of the required royalty fees with the Register of Copyrights. In the absence of a negotiated license, failure to comply with the specified requirements would render the public performance of a sound recording an infringement, subject to the civil remedies established by other sections of the bill.

The royalty fees were to be computed on either a blanket or a prorated basis: the blanket fees for broadcast stations ranged from no liability for stations with gross receipts under $25,000 to one percent of the net sponsor receipts over $200.000. For all operators of background music services with receipts over $10,000 the blanket rate was established as two percent of gross receipts from subscribers.

The bill directed the Register of Copyrights, after deducting reasonable administrative costs, to distribute the funds deposited to eligible owners and performers or their designated agents, and provided further that "one half of all royalties

to be distributed shall be paid to the performers of the sound recordings for which claims have been made . . ." In the event of a controversy concerning the distribution of funds, the Copyright Royalty Tribunal would have been convened to resolve it.

Although proponents of the performance right for sound recordings had sufficient support in the Senate Judiciary Committee to report the bill with the record performance royalty included, there was substantial opposition to the provision in the Committee. Essentially two general arguments were advanced in opposition to the performance royalty-one constitutional, the other public policy.

Concerning Article 1, Section 8, Clause 8 of the Constitution it was argued that for the purposes of recognizing a performance right in sound recordings, record manufacturers and performers were not "authors." While acknowledging that sound recordings were protectible to the extent established by the 1971 amendment, the minority seemed to feel that further protection for record manufacturers and the recognition of certain rights of the performer stretched the meaning of "author" too far.

On the public policy question it was argued that record manufacturers and performers were actually benefited by public performances of their recordings since it served as free advertising. It was also argued that, since organizations performing sound recordings usually pay composers copyright royalties, to be required to pay additional royalties to record manufacturers and performers would be an economic hardship. In addition, fixing the compulsory licensing rate on gross receipts was attacked on the ground that it was not related to ability to pay, since, the overall profitability of a given station was not a factor. Finally, it was argued that record companies were already more profitable than broadcast organizations, and that additionl revenues flowing from broadcasters to record manufacturers would only serve to increase the imbalance and thereby retard the development of the communications industry.

In Senate Report 93-983, 93rd Congress, 2d Session, the majority responded to these arguments. On the constitutional issue, the Report cited Capitol Records, Inc. v. Mercury Records Corp., 221 F. 2d 656 (2d. Cir. 1955), which indicated that sound recordings could be protected under federal law if Congress chose to enact such protection. By establishing the "limited copyright" protection for sound recordings in 1971, Congress concluded that such material was a "writing" within the meaning of the Constitution and this conclusion received judicial sanction in Shaab v. Kleindienst, 345 F. Supp. 589 (1972).

A telling argument in favor of a performance right for sound recordings lay in the seemingly contradictory position of the broadcast organizations as related to their own performance of sound recordings as opposed to the use by cable television of such copyrighted materials. The position of broadcasters towards cable has long been that the use of broadcast signals should require equitable remuneration since intellectual property is being exploited for profit. Since the revision bill would establish a compulsory licensing system for cable transmission the majority argued that it was only fair to apply the same principle in regard to the broadcasters' use of intellectual property.

An additional argument advanced by the majority was that the financial data clearly indicated an ability to pay by broadcasters and jukebox operators. Moreover, it was pointed out that a substantial number of European countries recognized a performance right in sound recordings.

Although proponents of the performing rights amendment had sufficient support in the Senate Judiciary Committee, greater opposition arose on the floor of the Senate when the bill was debated. Ultimately, following debate on the merits of a record performing right, the Senate voted to delete the measure. As a result, the revision bill passed the Senate in the last session of the 93rd Congress without the record performance right provision.

H.R. 5345 by Mr. Danielson, would establish a performance right in sound recordings within the context of the 1909 Copyright Act. As the Register of Copyrights commented to Senator Scott in a letter of July 31, 1974, we have no doubt as to the constitutionality of a record performance royalty:

"Performing artists contribute original, creative authorship to sound recordings in the same way that the translator of a book creates an independently copyrightable work of authorship. Record producers similarly create an independently copyrightable work of authorship in the same way that a motion picture producer creates a cinematographic version of a play or novel. In my opinion, the contributions of both performers and record producers are clearly the 'writings

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