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score the necessity of understanding the numerous complexities involved.

Madam Chair, that's why I wrote to you on two occasions on April 18 and April 25-requesting three specific witnesses who I thought would add important perspective to the presentations. I do know we have four witnesses of one perspective, two of another today. But specifically the witnesses I asked for would be a witness from the National License Beverage Association, the organization which negotiated an agreement with ASCAP and BMI in November 1995 to present concerns about small business use of radio, TV, music.

I also believe we would have benefited and, therefore, requested a representative from the Church Music Publishers Association to learn how their perspective differs from that of the National Religious Broadcasters.

Now I understand that there are differences of opinion within both organizations, of course, as there is within the Democratic and Republican party, but the overwhelming position of the Church Music Publishers differs from the National Religious Broadcasters.

Finally, I especially think we would have benefited immeasurably if we would have asked Judge Harold Tyler, who is experienced in overseeing the ASCAP consent decree and its operations, to come and share the benefit of his considerable expertise with us, and I regret that my specific request could not be accommodated within one of the three. I look forward to hearing the witnesses.

Mr. ZELIFF. I would like to thank Chair Meyers for holding this very important hearing very vital to interests of small business, and would like to particularly welcome my good friend, Steve Barba, of the world famous Balsams Resort from Dixville Notch, New Hampshire.

I got to tell you that the Balsams is one of the quality resorts recognized around the world, even though you are a competitor of ours. It's great to have you here, and I look forward to your very knowledgeable testimony. If anybody knows this issue, you do, and thank you for being here.

As a small business owner myself with a country inn, Christmas Farm Inn in Jackson, New Hampshire, and another small business called Yesterdays in Jackson, I know firsthand the arbitrary nature of music licensing fees. I want to emphasize from the outset that I fully endorse the necessity for strong intellectual property rights protection in the music industry. Those who compose and perform musical works have every right to receive compensation for their efforts.

At the same time, I'm very concerned about evidence suggesting inconsistent, erratic, and heavy-handed music license enforcement practices of leading music licensing societies. Under current law, creators of music are allowed not only to collect fees at the source, but also each step along the way. Collecting compensation from both the radio station that plays the music and the local tavern that keeps the radio on as background music, for instance, is double-dipping in my judgment, and it's wrong and it's unfair.

Moreover, there's not any evidence that the enforcement of contracts for the holders of these music copyrights resembles a monopoly. Increases have been demanded despite existing contract terms,

only "blanket" licenses have been offered and the existence of a single court of appeal, namely, New York, discourages dispute resolution which can bankrupt a small business.

As a result of all of this absurdity, I have worked closely with my colleague, Representative Sensenbrenner from Wisconsin, to make music licensing fair. Representative Sensenbrenner's bill, H.R. 789, will allow small businesses to play incidental or background music on radios or TV's without paying licensing fees. Those are the royalty fees paid to licensing organizations for the right to play music.

Think about it, the last time you were at your favorite diner for breakfast and you heard Michael Jackson's latest hit song, did you say to yourself, “Gee whiz, I hope this diner is paying Michael Jackson to play this song while I eat my eggs?" I don't think so.

Under current law, the American Society of Composers, Authors, and Publishers, ASCAP; Broadcast Music Incorporated, BMI; and other music licensing organizations can demand payment from almost any music played in a place of business, be it live or rebroadcast, and no matter how many times it has already been paid. This means that if any diner, hair salon, or other small business plays a radio or television, a licensing representative can demand a royalty. That goes for music coming over boom boxes and cassette and CD's.

The bottom line is that there is no reason at all why small businesses across New Hampshire and the United States should have to pay just to have the radio playing, and I don't believe that that's fair, and I think it's just plain wrong. That's why I'm supporting and working hard to pass H.R. 789.

In closing, I'd like to commend the National Restaurant Association for their hard work, diligence and dedication to bring this issue forth. I want to thank all members of the Music Licensing Fairness Coalition for addressing this issue of great importance to small business owners. I look forward to the remaining testimony.

Again, I want to repeat, those who compose and perform music works have every right to receive fair compensation. My good friend, John LaFalce, I heard you talk about level of burden. I own three small businesses. I know what a level of burden is. I signed the front page of that paycheck, and I'll tell you, there's a big level of burden. Whether it's a $1.58 or a $1.10, everybody's nipping at the heels of small business, and we're going to bite the hand that feeds us.

Businesses create jobs. If it's not fair, we ought to straighten it out now. Again, give fairness on both sides of the issue. I look forward to the remaining testimony.

[Mr. Zeliff's statement may be found in the appendix.]

Mr. SKELTON. Mr. Chairman, don't you think we ought to have some background music for this hearing?

Mr. ZELIFF. I could always count on you to come up with a common sense solution. Are you going to pay $1.58 or $1.10?

Any other Members on either side of the aisle care to make an opening statement?

Mr. POSHARD. Mr. Chairman, I ask permission to offer an opening statement for the record.

(Mr. Poshard's statement may be found in the appendix.]

Mr. ZELIFF. Certainly.

Mr. HILLEARY. Mr. Chairman, I'd like to just welcome Danny Casey from Nashville out here in the audience. He's with the Church Music Publisher's Association, from Nashville, and welcome Pat Alger. If you're not a Pat Alger fan, then you're not a Garth Brooks fan. Because he writes a few songs for Garth Brooks, and he's out of Nashville, and I just want to welcome you to Washington today.

Mr. ALGER. Thank you.

Mr. ZELIFF. Anyone else wishing to make a statement? I'd like to introduce the first witness.

Mr. Rule is a respected member of the antitrust bar and partner in the Washington DC firm of Covington & Burling. He's a former Assistant Attorney General who was in charge of the Antitrust Division of Department of Justice during the final years of President Reagan's second term. So, Mr. Rule, if you can condense your testimony and submit the balance for the record.


Mr. RULE. Sure. Thank you. It's a pleasure to be here. I appreciate that introduction. I am here today at the invitation of the Committee, and I'm not representing any client. Perhaps one could say it's an unwise thing for a lawyer to do, but I'm here, nevertheless. I am here in part, I assume, because of my experience in the Antitrust Division of the U.S. Department of Justice as the head of the Division in the 1980's when we administered the so-called “ASCAP and BMI decrees.”

Even though I'm here and the views I express are my own, and not those of my partners or my clients, I do want to just mention that one of my partners, Neil Roman, on behalf of the NFL, has submitted a statement on the legislation. I understand that will be in the record, and I just want to say that generally I agree with the sentiments of that statement, which is that, "if you're going to address fairness in musical licensing, it's important to craft the bill or the legislation in a way that focuses in on nondramatic copyrighted musical works and to avoid sweeping other things like professional sports broadcasts into the scope of the exception from the copyright protection.”

Basically, today I deem my role as trying to provide a little background in terms of the ASCAP and BMI decrees and to speak to some extent to the options that face restaurant owners and others who may not be satisfied with protection provided by decrees. My own personal view is that if the Congress or society in general believes that there is a problem and that small business owners are somehow being abused by ASCAP and BMI-and I say “if,” because I'm not personally convinced that that's the case-but if that is the case, then I believe legislation is the appropriate mode of solution.

Whether one loves or hates ASCAP and BMI, it's 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 copyright owners first got the right to control public performances until 1914, it was effectively impossible for copyright owners to enforce their rights under the statute.

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The void was filled by ASCAP, which was formed in 1914 by a group of composers. As a practical matter, it turned out to be quite a boon. ASCAP generally, and it's been recognized by the courts and others, is an efficient mechanism for licensing a large group of copyrights owned by a large group of owners to a large group of potential licensees. In the absence of some kind of mechanism or clearing house like ASCAP and BMI, a role that they filled, the cost of trying to negotiate those thousands upon thousands of individual licenses would be prohibitive, and copyright owners would never get a return on their investment in the copyrighted works.

Nothing, of course, is perfect in life, and neither is ASCAP/BMI. While it may be an engineers model of efficiency, it's an antitrust lawyer's nightmare, in terms of reduction in competition.

As a practical matter, in order to work, ASCAP has to bring together a lot of potentially competing copyrights and in effect, issue a single license for all of them. As a practical matter that means that historically there has not been, as in most other industries in this country, a lot of competition and competitive constraint in terms of the prices that ASCAP charges.

Not surprisingly against that background, ASCAP and subsequently BMI have been subject to a great deal of antitrust litigation. The decrees against ASCAP were first entered in 1941, subsequently modified in 1950, and those decrees ever since have, in effect, been an attempt to regulate the fees in a way ASCAP licenses and BMI licenses their copyrights.

Apparently, small businesses feel that it's not working effectively. In my statement, I have mentioned some of the alternatives that are open to the restaurants and others to protect their interests. They can bring antitrust suits, though, looking at the law, one would have to say their likelihood of success is not great. They could bring a copyright misuse action, though again there are problems in the law in bringing that kind of action. They could try to persuade the Antitrust Division to modify the decree to provide relief. But to do that, the Antitrust Division would also, in effect, have to bring a new antitrust action that would be difficult, expensive, and the outcome would at least be in doubt.

None of these options makes as much sense as legislation. On the other hand, I think the question whether or not legislation is in order is very difficult, and it's one that's very hard to answer in the abstract. It's also very hard, I believe, for courts to answer; and it's also one of the difficulties, I think, the rate court has had in terms of establishing fees.

On the one hand, if a restaurant improves its ambiance and its business as a result of being able to play background music and, therefore, profits from that, it's hard to argue that copyright holders don't deserve to share in those profits. On the other hand, the difficulty of collecting royalties and the increased cost may provide additional incentives to copyright holders that at the margin aren't necessary. Maybe we're investing too much in copyrights. On that basis, it may be appropriate to, with respect to the incidental playing of background music, to restrict the rights of copyright holders.

But, from my perspective, at least from an antitrust lawyers perspective, there's no obviously correct answer to the conundrum. Rather it's an essentially political question that best results in a

political forum, Congress. I wish we could help as antitrust lawyers, but I think that you're on your own on this one. Thank you.

[Mr. Rule's statement may be found in the appendix.]

Chair MEYERS. Well, we were looking to you for the answer, Mr. Rule, so I'm sorry. The hearing's over. Mr. Barba is our next witness, and he runs a hotel and a restaurant in New Hampshire and I believe is a constituent of Mr. Zeliff's.

Mr. ZELIFF. He's a future constituent in the but I just want to again just say that he runs one of the most quality operations in the world, and I have tremendous respect for Steve Barba.

Chair MEYERS. Mr. Barba.


RESORT HOTEL Mr. BARBA. Madam Chair and members of the Committee, today is an important day. My name is Stephen Barba, and I want to say thank you, first of all, for hosting this important meeting and a special thanks to Bill Zeliff, my friend for many years now, for all those kind remarks.

Bill succeeded me as President of the New Hampshire Travel Council and the New Hampshire Lodging and Restaurant Association. As a resort owner, himself, probably more than anyone on the Committee, he understands my frustration with this issue and has been one of the best proponents for fixing the problems that exist with the music licensing societies.

I am the President and Managing Partner of the Balsams Grand Resort Hotel, a 212 room seasonal high in the white mountains near the Canadian border. We're a destination resort in our 131st summer season, with three rooms of live music and entertainment each night. Our hotel is in a very remote area. In fact, the nearest stop light is 50 miles away. You may have heard of my town, Dixville Notch, we're the folks who vote first in the New Hampshire primary and the national elections. We take no responsibility for that though. Dixville Notch may be a small town of 25, but we know a big city racket when we see one. That's why I came here today to tell you why America's music licensing system is well overdue for reform.

My own experience started at the Balsams, began as a caddie, at the caddie camp 37 years ago. I have spent my entire life in the hospitality business at the Balsams. I've dealt with almost every kind of contract and supplier and vendor imaginable. I can honestly say that I have never had a business relationship that comes close to resembling the one I have with the music licensing societies: ASCAP and BMI. It's completely one-sided. They bill us, we are forced to pay without knowing how they set their rates, we have no practical way of contesting a fee that we think is unfair. In my business, I've come to find that it's too expensive to whistle while I work.

As you can see, I'm not alone in my belief. There's a lot of restaurant operators behind me today, and today I speak for hundreds of business owners in my own State. As a past Chairman of the American Hotel & Motel Associations National Resort Committee, I have heard the same complaints over and over from colleagues

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