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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.

STATEMENT OF CHARLES F. (RICK) RULE

CONCERNING H.R. 789

BEFORE THE COMMITTEE ON SMALL BUSINESS
OF THE U.S. HOUSE OF REPRESENTATIVES

MAY 8, 1996

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,

is a somewhat unusual role I am representing no client. 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

might be performed was prohibitive. Moreover, it was simply 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 While combining a vast number of compositions in a

ASCAP.

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

By taking a blanket license, the performer of the

works.

copyright forgoes his or her ability to play copyright owners

24-690

9? 4

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 non

exclusive 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.

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