implications of pending music licensing proposals not only on music users, but on

the legitimate interests of music creators and copyright owners, domestically and

abroad.

It is an honor and a privilege to be invited to

testify before this committee on H.R. 789, the Fairness in Musical Licensing Act of 1995. My name is Rick Rule, and I am a partner at the law firm of Covington & Burling. Prior to joining the firm, I served in the Antitrust Division of the Department of Justice from 1982 until 1989. From late 1986 until I left the Department, I was the Assistant Attorney General in charge of the Division. Among the responsibilities

of that job is the enforcement of the consent decrees against ASCAP and BMI, and, during my tenure, I had the "pleasure" of wrestling with various issues under those decrees.

I appear before the committee in what, for a lawyer,

-

I am representing no client.

is a somewhat unusual role The views I express are my own and not those of my partners or our clients.

Nevertheless, the Committee should note that on

behalf of our client, the National Football League, my partner Neil Roman has submitted a statement for the record. In that statement, the NFL makes the altogether sensible recommendation that a bill such as H.R. 789 that purports to address fairness in musical licensing should be carefully focused on non-dramatic musical works and should not (as H.R. 789 currently does) sweep other copyrighted works, such as

professional sports broadcasts, into an overly broad exception

to copyright protection.

While I agree with the NFL's statement and the

changes that it recommends to H.R. 789, I do not intend to address that issue this morning.

Instead, I will try to

respond to the Committee's request for some background on the ASCAP and BMI consent decrees and on some of the antitrust and copyright issues inherent in those decrees. I will also

mention some of the ways other than legislation that restaurant owners and others who feel aggrieved by the

licensing tactics of ASCAP and BMI might try to change or prohibit those practices. My own personal view is that, if it is determined that society is made worse off by the way in which ASCAP and BMI deal with those small commercial

establishments that "incidentally" perform non-dramatic musical works (though it is not clear to me that society is),

then legislation is the preferable mode of solution.

BACKGROUND

Whether one loves or hates ASCAP and BMI, it is 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 the copyright law vested in the owner of a copyrighted work the exclusive right to perform the work for profit, until 1914, when a handful of composers formed ASCAP, composers had no practical way to enforce their performance rights. The cost

of negotiating individual agreements between the multitude of copyright owners and the various venues (e.g., theaters, night clubs, bandstands, and broadcasters) within which the works

Moreover, it was simply

might be performed was prohibitive. impossible for each composer on his or her own to monitor all the venues throughout the country in order to detect and deter infringing performances.

ASCAP filled the void, dramatically reducing the transactions costs of licensing performance rights and creating an efficient mechanism for policing infringement. ASCAP provided blanket licenses to venues, granting them the ability to perform any composition within ASCAP's catalog in exchange for a single fee. The venues could then perform a chosen musical work without having to track down and negotiate a license with the owner(s); copyright owners would not have constantly to monitor licensed venues in order to detect infringement; and the owners of the performed works would get compensated even if they were unaware of the performance.

Nothing, of course, is perfect, and so it goes with ASCAP. While combining a vast number of compositions in a single catalog and selling blanket licenses to that catalog is an engineer's dream of efficiency, it is an antitrust lawyer's nightmare of reduced competition. To work, ASCAP essentially must eliminate competition among independently copyrighted works. By taking a blanket license, the performer of the copyright forgoes his or her ability to play copyright owners

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against one another in order to get the most competitive licensing arrangement.

In a very short time, ASCAP came to control a

monopoly share of copyrighted composition, and with that share came the power to set the price of licenses with little if any competitive constraints. In the 1930s, radio broadcasters like CBS, concerned largely about the lack of competition for ASCAP, formed the rival licensing organization BMI. For various reasons, however, BMI failed to inject much competition into the process.

Also during the 1930s, ASCAP (and shortly thereafter BMI) became the target of antitrust. In 1941, both ASCAP and BMI entered into consent decrees regulating their licensing practices. In 1950, after, among other things, successful private antitrust suits challenging the way in which ASCAP licensed "synchronization" and performance rights to motion picture producers and exhibitors, ASCAP and the Department agreed to a completely modified decree.1 That decree, inter alia, requires ASCAP to issue licenses, prohibits it from engaging in price discrimination, limits it to obtaining nonexclusive licenses from copyright holders, and provides a mechanism through which a potential licensee may have the court set a reasonable license fee.

1/ BMI agreed to a new decree in 1966. Though the ASCAP and BMI decrees do differ in various respects, they tend to regulate the organizations' operations similarly.