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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 an 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 beliere 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 hy 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

THE LIBRARIAN OF CONGRESS,

Washington, D.C., June 11, 1975. Hon. PETER W. RODINO, Jr., Chairman, Committee on the Judiciary, U.S. House of Representatives, Wash

ington, 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, 20 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 of an author' in the constitutional sense, and are as fully worthy of protection as any of the many different kinds of 'derivative works'accorded protection under the Federal copyright statute."

Since record performances are constitutionally capable of copyright, the sole issue is one of policy. We support the principle of legislation to protect record performances, but remain concerned over the possible adverse effect such legislation may have on the program for general revision. H.R. 5345 has been proposed as separate legislation, but it presumably could be incorporated in the general revision program at soine point. As a separate bill, certain technical adjustments would probably be necessary to make the proposal workable. While the bill is patterned after section 114 of the revision bill in the 93rd Congress, no agency is designated in H.R. 5345 to receive compulsory license fees for distribution; also, there is no anti-trust exemption to facilitate voluntary royalty agreements or agreements about distribution of the fees.

The Copyright Office and the Library of Congress endorses the general principle which H.R. 5345 seeks to advance. If it becomes apparent that legislation for this purpose cannot, as a practical matter, be included in the bill for general revision of the copyright law. we hope that it will be given favorable consideration as separate legislation in the future. Sincerely yours,

John G. LORENZ, Acting Librarian of Congre88.

NATIONAL ENDOWMENT FOR THE ARTS,

Washington, D.C., July 31, 1975. Hon. ROBERT KASTENMEIER, Chairman, Subcommittee on Courts, Civil Liberties and the Administration of

Justice, Committee on the Judiciary, U.S. House of Representatives, Wash

ington, D.C. DEAR MR. CHAIRMAN: This is in response to the request of Herbert Fuchs, Counsel to the Subcommittee, for our views and comments on H.R. 5345 to amend the Copyright Act of 1909 by providing a performance right in copyrighted sound recordings.

The National Endowment for the Arts is aware that the Sound Recording Amendment of 1971 provides for a statutory copyright in sound recordings and for the first time extends copyright protection to the original performances of recording artists and musicians, and the creative technical expertise of record companies. We note, however, that the Amendment, while recognizing the talent, originality, and value of the creative efforts of these individuals, includes no provision for compensating them when others use the copyrighted sound recordings for profit making purposes. Undoubtedly, it is a performing artist's personal rendition that brings to "life" the work of music composers and lyricists; and, a record producer's ability to creatively capture, electronically process, compile, and edit sounds that enables broadcasters to utilize recording artists' unique performances again and again to fill their commercially available time. We therefore wholeheartedly support H.R. 5345 which, by subjecting the public performance of sound recordings to a compulsory license, would require radio and television broadcasters, jukebox owners, and other transmitters of copyrighted sound recordings to pay a performance royalty in the form of an annual licensing fee to the performer and copyright owner of the recording.

It would not appear that paying such a performance royalty to recording artists, musicians and record companies (as copyright owners of the sound recording) would impose a financial burden on the broadcast industry. As proposed in Section 3 of H.R. 5345, royalty fees would vary according to the amount of gross receipts received by a broadcast station from commercial sponsors. The stations, in turn, could pass on the additional expense to advertisers who are the ultimate financial beneficiaries of the recording artist's contribution to a station's programming.

Further, according to Section 3(c) of the proposed bill, royalty fees are to he divided equally between the performers and copyright owners of the sound recording and neither may assign his right to royalties to the other. We favorably note that this language will preclude the performer or copyright owner from obtaining all of the benefits intended to be divided between them.

Although we support the general concepts of H.R. 53-5, we would like to see it incorporated into the general legislation on copyright revision. If it becomes

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apparent that legislation of this type cannot be included in the general bill, we recommend favorable consideration of separate legislation.

In conclusion, the National Endowment for the Arts strongly believes that musicians and record companies who contribute their creative efforts to the production of copyrighted sound recordings should share in the income enjoyed by radio and television stations and other commercial organizations who use the recordings for profit.

The Office of Management and Budget has advised us that it has no objection to the submission of this report from the standpoint of the Administration's program. Sincerely,

NANCY HANKS,

Chairman.

AMERICAN BROADCASTING COMPANIES, INC.,

New York, N.Y., August 7, 1975. Hon. ROBERT W. KASTENMEIER, Chairman, Subcommittee on Courts, Civil Liberties and the Administration of

Justice, Committee on the Judiciary, U.S. House of Representatives, Wash

ington, D.C. DEAR MR. KASTENMEIER: American Broadcasting Companies, Inc. (ABC) wishes to provide your Subcommittee with its comments on H.R. 5345, a bill to extend to record companies and performers a public performance right in sound recordings parallel to existing federal copyright provisions granting public performance rights to composers.

ABC believes that H.R. 5345 would be an unwise and unnecessary extension of the copyright laws.

ABC is a major user of sound recordings ; ABC's stations, and radio stations in general, are important outlets for the dissemination to the general public of recordings. It is a known fact that broadcasters greatly stimulate record sales by exposing new releases, and particularly those of relatively unknown artists, to potential buyers. Radio stations contribute immeasurably to the popularity of recordings and therefore to the profits enjoyed by record manufacturers and performers alike. As radio play provides effective advertising and creates consumer demand, it is not surprising that record companies expend considerable efforts promoting the use of their material on the air. Unlike most advertising, which can only be descriptive of a given product, radio broadcast provides the potential buyer with a precise appraisal of the product.

Composers, record companies, and performers pay nothing for this valuable promotional effort. Legal and business considerations preclude broadcasters from charging for their use of such material. H.R. 5345, however, would compel broadcasters to pay those for whom air play already provides, directly or indirectly, major benefits. In addition, ABC, like all broadcast users, pays substantial amounts for performance rights to the music rights groups such as ASCAP and BMI, Inc.

It is argued that record companies and performers do not share equitably in the revenues generated either by broadcast or payments to the music rights groups. Uncompensated public performance of records produced jointly by record companies and performers, it is said, respresents an expropriation by certain record users, principally broadcasters, of economic benefits to which record producers have a legitimate claim.

ABC finds this argument unconvincing and doubts that the proposed statute would even achieve its intended purpose of allocating a greater share of revenues to record companies and performers.

Professors Robert L. Bard and Lewis S. Kurlantzick recently published an article evaluating the issue of public performance rights for record producers in terms of economic theory and equitable and legal consequences. They find no convincing argument for granting record producers such rights. Record public performance rights, they conclude, will not redress alleged injustices to musical artists whose records continue to be broadcast long after the exhaustion of their sales potential. Composers, rather than record companies and performers, would be the most likely beneficiaries of such a revision. Any benefits that accrued would not fall equally to performers and record companies, as many

1 Bard and Kurlantzick. A Public Performance Right in Recordings: How to Alter the Copyright System Without Improving It, 43 Geo. Wash. L. Rev. 152 (1974).

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