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owner may give written notice to the licensee that, unless the default is remedied within thirty days from the date of the notice, the compulsory license will be automatically terminated. Such termination renders either the making or the distribution, or both, of all phonorecords for which the royalty has not been paid, actionable as acts of infringement under section 501 and fully subject to the remedies provided by sections 502 through

506 and 509. (Pub. L. 94-553, title I, § 101, Oct. 19, 1976, 90 Stat. 2561; Pub. L. 98-450, $ 3, Oct. 4, 1984, 98 Stat. 1727.)

HISTORICAL AND REVISION NOTES

HOUSE REPORT NO. 94-1476 The provisions of section 1(e) and 101(e) of the present law [sections 1(e) and 101(e) of former title 17], establishing a system of compulsory licensing for the making and distribution of phonorecords of copy. righted music, are retained with a number of modifications and clarifications in section 115 of the bill. Under these provisions, which represented a compromise of the most controversial issue of the 1909 act, a musical composition that has been reproduced in phonorecords with the permission of the copyright owner may generally be reproduced in phonorecords by another person, if that person notifies the copyright owner and pays a specified royalty.

The fundamental question of whether to retain the compulsory license or to do away with it altogether was a major issue during earlier stages of the program for general revision of the copyright law. At the hearings it was apparent that the argument on this point had shifted, and the real issue was not whether to retain the compulsory license but how much the royalty rate under it should be. The arguments for and against retention of the compulsory license are outlined at pages 66-67 of this Committee's 1967 report (H. Rept. No. 83, 90th Cong., 1st Sess.). The Committee's conclusion on this point remains the same as in 1967: “that a compulsory licensing system is still warranted as a condition for the rights of reproducing and distributing phonorecords of copyrighted music," but "that the present system is unfair and unnecessarily burdensome on copyright owners, and that the present statutory rate is too low."

Availability and Scope of Compulsory License. Subsection (a) of section 115 deals with three doubtful questions under the present law: (1) the nature of the original recording that will make the work available to others for recording under a compulsory license; (2) the nature of the sound recording that can be made under a compulsory license; and (3) the extent to which someone acting under a compulsory license can depart from the work as written or recorded without violating the copyright owner's right to make an "arrangement” or other derivative work. The first two of these questions are answered in clause (1) of section 115(a), and the third is the subject of clause (2).

The present law, though not altogether clear, apparently bases compulsory licensing on the making or licensing of the first recording, even if no authorized records are distributed to the public. The first sentence of section 115(a)(1) would change the basis for compulsory licensing to authorized public distribu tion of phonorecords (including disks and audio tapes but not the sound tracks or other sound records accompanying a motion picture or other audiovisual work). Under the clause, a compulsory license would be available to anyone as soon as “phonorecords of a nondramatic musical work have been distributed to the public in the United States under the authority of the copyright owner."

The second sentence of clause (1), which has been the subject of some debate, provides that “a person

may obtain a compulsory license only if his or her primary purpose in making phonorecords is to distribute them to the public for private use." This provision was criticized as being discriminatory against background music systems, since it would prevent a background music producer from making recordings without the express consent of the copyright owner; it was argued that this could put the producer at a great competitive disadvantage with performing rights societies, allow discrimination, and destroy or prevent entry of businesses. The committee concluded, however, that the purpose of the compulsory license does not extend to manufacturers of phonorecords that are intended primarily for commercial use, including not only broadcasters and jukebox operators but also background music services.

The final sentence of clause (1) provides that a person may not obtain a compulsory license for use of the work in the duplication of a sound recording made by another, unless the sound recording being duplicated was itself fixed lawfully and the making of phonorecords duplicated from it was authorized by the owner of copyright in the sound recording (or, if the recording was fixed before February 15, 1972, by the voluntary or compulsory licensee of the music used in the recording). The basic intent of this sentence is to make clear that a person is not entitled to a compulsory license of copyrighted musical works for the purpose of making an unauthorized duplication of a musical sound recording originally developed and produced by another. It is the view of the Committee that such was the original intent of the Congress in enacting the 1909 Copyright Act, and it has been so construed by the 3d, 5th, 9th and 10th Circuits in the following cases: Duchess Music Corp. v. Stern, 458 F.2d 1305 (9th Cir.), cert. denied, 409 U.S. 847 (1972) (93 S.Ct. 52, 34 L.Ed.2d 88); Edward B. Marks Music Corp. v. Colorado Magnetics, Inc., 497 F.2d 285, aff'd on rehearing en banc, 497 F.2d 292 (10th Cir. 1974), cert. denied, 419 U.S. 1120 (1975) (95 S.Ct. 801, 42 L.Ed.2d 819); Jondora Music Publishing Co. v. Melody Recordings, Inc., 506 F.2d 392 (3d Cir. 1974, as amended 1975), cert. denied, 421 U.S. 1012 (1975) (95 S.Ct. 2417, 44 L.Ed.2d 680]; and Fame Publishing Co. v. Alabama Custom Tape, Inc., 507 F.2d 667 (5th Cir.), cert. denied, 423 U.S. 841 (1975) (96 S.Ct. 73, 46 L.Ed.2d 61).

Under this provision, it would be possible to obtain a compulsory license for the use of copyrighted music under section 115 if the owner of the sound recording being duplicated authorizes its duplication. This does not, however, in any way require the owner of the original sound recording to grant a license to duplicate the original sound recording. It is not intended that copyright protection for sound recordings be circumscribed by requiring the owners of sound recordings to grant a compulsory license to unauthorized duplicators or others.

The second clause of subsection (a) is intended to recognize the practical need for a limited privilege to make arrangements of music being used under a compulsory license, but without allowing the music to be perverted, distorted, or travestied. Clause (2) permits arrangements of a work "to the extent necessary to conform it to the style or manner of interpretation of the performance involved," so long as it does not "change the basic melody or fundamental character of the work." The provision also prohibits the compulsory licensee from claiming an independent copyright in his arrangement as a “derivative work" without the express consent of the copyright owner.

Procedure for Obtaining Compulsory License. Section 115(b)(1) requires anyone who wishes to take advantage of the compulsory licensing provisions to serve a “notice of intention to obtain a compulsory license,” which is much like the "notice of intention to use" required by the present law. Under section 115, the notice must be served before any phonorecords are distributed, but service can take place "before or within 30 days after making" any phonorecords. The notice is

to be served on the copyright owner, but if the owner compulsory licensing requirements have not been met. is not identified in the Copyright Office records, “it As under the present law, even if a presser, manufacshall be sufficient to file the notice of intention in the turer, or other maker had no role in the distribution Copyright Office.”

process, that person would be regarded as jointly and The Committee deleted clause (2) of section 115(b) severally liable in a case where the court finds that inof S. 22 as adopted by the Senate. The provision was a fringement has taken place because of failure to vestige of jukebox provisions in earlier bills, and its re comply with the provisions of section 115. quirements no longer served any useful purpose.

Under existing practices in the record industry, Clause (2) (formerly clause (3)] of section 115(b) (cl.

phonorecords are distributed to wholesalers and retail(2) of subsec. (b) of this section) provides that "failure

ers with the privilege of returning unsold copies for to serve or file the notice required by clause (1)

credit or exchange. As a result, the number of recordforecloses the possibility of a compulsory license and,

ings that have been “permanently” distributed will in the absence of a negotiated license, renders the

not usually be known until some time-six or seven making and distribution of phonorecords actionable as

months on the average-after the initial distribution. acts of infringement under section 501 and fully sub

In recognition of this problem, it has become a well-esject to the remedies provided by sections 502 through

tablished industry practice, under negotiated licenses, 506.” The remedies provided in section 501 are those

for record companies to maintain reasonable reserves applicable to infringements generally.

of the mechanical royalties due the copyright owners, Royalty Payable Under Compulsory License. Identifica

against which royalties on the returns can be offset. tion of Copyright owner.-Under the present law a

The Committee recognizes that this practice may be copyright owner is obliged to file a “notice of use" in

consistent with the statutory requirements for monththe Copyright Office, stating that the initial recording

ly compulsory license accounting reports, but recogof the copyrighted work has been made or licensed, in

nizes the possibility that, without proper safeguards, order to recover against an unauthorized record manu

the maintenance of such reserves could be manipulatfacturer. This requirement has resulted in a technical

ed to avoid making payments of the full amounts loss of rights in some cases, and serves little or no pur

owing to copyright owners. Under these circumpose where the registration and assignment records of

stances, the regulations prescribed by the Register of the Copyright Office already show the facts of owner

Copyrights should contain detailed provisions ensurship. Section 115(c)(1) therefore drops any formal

ing that the ultimate disposition of every phonorecord “notice of use" requirements and merely provides

made under a compulsory license is accounted for, and that, "to be entitled to receive royalties under a com

that payment is made for every phonorecord "volunpulsory license, the copyright owner must be identified in the registration or other public records of the

tarily and permanently” distributed. In particular, the

Register should prescribe a point in time when, for acCopyright Office." On the other hand, since proper identification is an important precondition of recov

counting purposes under section 115, a phonorecord

will be considered “permanently distributed," and ery, the bill further provides that “the owner is entitled to royalties for phonorecords manufactured and

should prescribe the situations in which a compulsory

licensee is barred from maintaining reserves (e.g., situdistributed after being so identified, but is not entitled to recover for any phonorecords previously made and

ations in which the compulsory licensee has frequentdistributed."

ly failed to make payments in the past.) Basis of Royalty.-Under the present statute the

Rate of Royalty.--A large preponderance of the exspecified royalty is payable "on each such part manu

tensive testimony presented to the Committee on secfactured," regardless of how many "parts” (i.e., rec

tion 115 was devoted to the question of the amount of ords) are sold. This basis for calculating the royalty

the statutory royalty rate. An extensive review and has been revised in section 115(c)(2) to provide that

analysis of the testimony and arguments received on "the royalty under a compulsory license shall be pay

this question appear in the 1974 Senate report (S. able for every phonorecord made and distributed in

Rep. No. 94-473) at page 71-94. accordance with the license." This basis is more com

While upon initial review it might be assumed that patible with the general practice in negotiated licenses

the rate established in 1909 would not be reasonable at today. It is unjustified to require a compulsory licens the present time, the committee believes that an inee to pay license fees on records which merely go into

crease in the mechanical royalty rate must be justified inventory, which may later be destroyed, and from

on the basis of existing economic conditions and not which the record producer gains no economic benefit.

on the mere passage of 67 years. Following a thorough It is intended that the Register of Copyrights will

analysis of the problem, the Committee considers that prescribe regulations insuring that copyright owners

an increase of the present two-cent royalty to a rate of will receive full and prompt payment for all phonorec 234 cents (or .6 of one cent per minute or fraction of ords made and distributed. Section 115(c)(2) states

playing time) is justified. This rate will be subject to that "a phonorecord is considered 'distributed' if the

review by the Copyright Royalty Commission, as properson exercising the compulsory license has voluntar

vided by section 801, in 1980 and at 10-year intervals ily and permanently parted with its possession.” For

thereafter. this purpose, the concept of "distribution” comprises Accounting and Payment of Royalties; Effect of Default. any act by which the person exercising the compulso

Clause (3) of Section 115(c) provides that royalty payry license voluntarily relinquishes possession of a pho

ments are to be made on a monthly basis, in accordnorecord (considered as a fungible unit), regardless of

ance with requirements that the Register of Copywhether the distribution is to the public, passes title,

rights shall prescribe by regulation. In order to inconstitutes a gift, or is sold, rented, leased, or loaned, crease the protection of copyright proprietors against unless it is actually returned and the transaction can economic harm from companies which might refuse or celled. Neither involuntary relinquishment,

fail to pay their just obligations, compulsory licensees through theft or fire, nor the destruction of unwanted will also be required to make a detailed cumulative records, would constitute “distribution."

as

annual statement of account, certified by a Certified The term “made" is intended to be broader than Public Accountant. "manufactured," and to include within its scope every

A source of criticism with respect to the compulsory possible manufacturing or other process capable of re

licensing provisions of the present statute has been producing a sound recording in phonorecords. The use the rather ineffective sanctions against default by of the phrase "made and distributed" establishes the compulsory licensees. Clause (4) of section 115(c) corbasis upon which the royalty rate for compulsory li rects this defect by permitting the copyright owner to censing under section 115 is to be calculated, but it is serve written notice on a defaulting licensee, and by in no way intended to weaken the liability of record providing for termination of the compulsory license if pressers and other manufacturers and makers of the default is not remedied within 30 days after notice phonorecords for copyright infringement where the is given. Termination under this clause "renders either

95-007 O-89-4 (Vol. 7): QL3

the making or the distribution, or both, of all phonorecords for which the royalty had not been paid, actionable as acts of infringement under section 501 and fully subject to the remedies provided by sections 502 through 506."

AMENDMENTS 1984–Subsec. (c)(3) to (5). Pub. L. 98-450 added par. (3) and redesignated existing pars. (3) and (4) as (4) and (5), respectively. EFFECTIVE AND TERMINATION DATES OF 1984

AMENDMENT Amendment by Pub. L. 98-450 effective Oct. 4, 1984, but not applicable to rentals, leasings, lendings (or acts or practices in the nature of rentals, leasings, or lendings) occurring five years after Oct. 4, 1984, see section 4 of Pub. L. 98-450, set out as a note under section 109 of this title. PERSONS OPERATING UNDER PREDECESSOR COMPULSORY

LICENSING PROVISIONS Section 106 of Pub. L. 94-553 provided that: “In any case where, before January 1, 1978, a person has lawfully made parts of instruments serving to reproduce mechanically a copyrighted work under the compulsory license provisions of section 1(e) of title 17 as it existed on December 31, 1977, such person may continue to make and distribute such parts embodying the same mechanical reproduction without obtaining a new compulsory license under the terms of section 115 of title 17 as amended by the first section of this Act (this section). However, such parts made on or after January 1, 1978, constitute phonorecords and are otherwise subject to the provisions of said section 115 (this section)."

CROSS REFERENCES Action for infringement of copyright, see section 501 of this title.

Determinations concerning adjustment of reasonable copyright royalty rates by Copyright Royalty Tribunal, see section 801 of this title.

Exclusive rights in copyrighted work, see section 106 of this title.

Fee for notice of intention to make phonorecords, see section 708 of this title.

Institution and conclusion of proceedings concerning adjustment of royalty rates as provided in this section, see section 804 of this title.

SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 106, 501, 708, 801, 804 of this title; title 18 section 2319.

which the certificate required by clause (1)(C) of subsection (b) is not affixed to the phonorecord player, by the copyright owner, to make full disclosure, by registered or certified mail, of the identity of the operator of the phonorecord player.

(2) The operator of the coin-operated phonorecord player may obtain a compulsory license to perform the work publicly on that phonorecord player by filing the application, affixing the certificate, and paying the royalties provided by subsection (b).

(b) RECORDATION OF COIN-OPERATED PHONORECORD PLAYER, AFFIXATION OF CERTIFICATE, AND ROYALTY PAYABLE UNDER COMPULSORY LICENSE.

(1) Any operator who wishes to obtain a compulsory license for the public performance of works on a coin-operated phonorecord player shall fulfill the following requirements:

(A) Before or within one month after such performances are made available on a particular phonorecord player, and during the month of January in each succeeding year that such performances are made available on that particular phonorecord player, the operator shall file in the Copyright Office, in accordance with requirements that the Register of Copyrights, after consultation with the Copyright Roy. alty Tribunal (if and when the Tribunal has been constituted), shall prescribe by regulation, an application containing the name and address of the operator of the phonorecord player and the manufacturer and serial number or other explicit identification of the phonorecord player, and deposit with the Register of Copyrights a royalty fee for the current calendar year of $8 for that particular phonorecord player. If such performances are made available on a particular phonorecord player for the first time after July 1 of any year, the royalty fee to be deposited for the remainder of that year shall be $4.

(B) Within twenty days of receipt of an application and a royalty fee pursuant to subclause (A), the Register of Copyrights shall issue to the applicant a certificate for the phonorecord player.

(C) On or before March 1 of the year in which the certificate prescribed by subclause (B) of this clause is issued, or within ten days after the date of issue of the certificate, the operator shall affix to the particular phonorecord player, in a position where it can be readily examined by the public, the certificate, issued by the Register of Copyrights under subclause (B), of the latest application made by such operator under subclause (A) of this clause with respect to that phonorecord player.

(2) Failure to file the application, to affix the certificate, or to pay the royalty required by clause (1) of this subsection renders the public performance actionable as an act of infringement under section 501 and fully sub

8 116. Scope of exclusive rights in nondramatic musi

cal works: Compulsory licenses for public performances by means of coin-operated phonorecord players (a) LIMITATION ON EXCLUSIVE RIGHT.-In the case of a nondramatic musical work embodied in a phonorecord, the performance of which is subject to this section as provided in section 116A, the exclusive right under clause (4) of section 106 to perform the work publicly by means of a coin-operated phonorecord player is limited as follows:

(1) The proprietor of the establishment in which the public performance takes place is not liable for infringement with respect to such public performance unless

(A) such proprietor is the operator of the phonorecord player; or

(B) such proprietor refuses or fails, within one month after receipt by registered or certified mail of a request, at a time during

ject to the remedies provided by sections 502 through 506 and 509. (c) DISTRIBUTION OF ROYALTIES.

(1) The Register of Copyrights shall receive all fees deposited under this section and, after deducting the reasonable costs incurred by the Copyright Office under this section, shall deposit the balance in the Treasury of the United States, in such manner as the Secretary of the Treasury directs. All funds held by the Secretary of the Treasury shall be invested in interest-bearing United States securities for later distribution with interest by the Copyright Royalty Tribunal as provided by this title. The Register shall submit to the Copyright Royalty Tribunal, on an annual basis, a detailed statement of account covering all fees received for the relevant period provided by subsection (b).

(2) During the month of January in each year, every person claiming to be entitled to compulsory license fees under this section for performances during the preceding twelvemonth period shall file a claim with the Copyright Royalty Tribunal, in accordance with requirements that the Tribunal shall prescribe by regulation. Such claim shall include an agreement to accept as final, except as provided in section 810 of this title, the determination of the Copyright Royalty Tribunal in any controversy concerning the distribution of royalty fees deposited under subclause (A) of subsection (b)(1) of this section to which the claimant is a party. Notwithstanding any provisions of the antitrust laws, for purposes of this subsection any claimants may agree among themselves as to the proportionate division of compulsory licensing fees among them, may lump their claims together and file them jointly or as a single claim, or may designate a common agent to receive payment on their behalf.

(3) After the first day of October of each year, the Copyright Royalty Tribunal shall determine whether there exists a controversy concerning the distribution of royalty fees deposited under subclause (A) of subsection (b)(1). If the Tribunal determines that no such controversy exists, it shall, after deducting its reasonable administrative costs under this section, distribute such fees to the copy. right owners entitled, or to their designated agents. If it finds that such a controversy exists, it shall, pursuant to chapter 8 of this title, conduct a proceeding to determine the distribution of royalty fees.

(4) The fees to be distributed shall be divided as follows:

(A) to every copyright owner not affiliated with a performing rights society, the pro rata share of the fees to be distributed to which such copyright owner proves entitlement.

(B) to the performing rights societies, the remainder of the fees to be distributed in such pro rata shares as they shall by agreement stipulate among themselves, or, if they fail to agree, the pro rata share to which such performing rights Societies prove entitlement.

(C) during the pendency of any proceeding under this section, the Copyright Royalty Tribunal shall withhold from distribution an amount sufficient to satisfy all claims with respect to which a controversy exists, but shall have discretion to proceed to distribute any amounts that are not in controversy.

(5) The Copyright Royalty Tribunal shall promulgate regulations under which persons who can reasonably be expected to have claims may, during the year in which performances take place, without expense to or harassment of operators or proprietors of establishments in which phonorecord players are located, have such access to such establishments and to the phonorecord players located therein and such opportunity to obtain information with respect thereto as may be reasonably necessary to determine, by sampling procedures or otherwise, the proportion of contribution of the musical works of each such person to the earnings of the phonorecord players for which fees shall have been deposited. Any person who alleges that he or she has been denied the access permitted under the regulations prescribed by the Copy. right Royalty Tribunal may bring an action in the United States District Court for the District of Columbia for the cancellation of the compulsory license of the phonorecord player to which such access has been denied, and the court shall have the power to declare the compulsory license thereof invalid from the date of issue thereof.

(d) CRIMINAL PENALTIES.-Any person who knowingly makes a false representation of a material fact in an application filed under clause (1)(A) of subsection (b), or who knowingly alters a certificate issued under clause (1)(B) of subsection (b) or knowingly affixes such a certificate to a phonorecord player other than the one it covers, shall be fined not more than $2,500.

(e) DEFINITIONS.-As used in this section and section 116A, the following terms and their variant forms mean the following:

(1) A “coin-operated phonorecord player" is a machine or device that

(A) is employed solely for the performance of nondramatic musical works by means of phonorecords upon being activated by insertion of coins, currency, tokens, or other monetary units or their equivalent;

(B) is located in an establishment making no direct or indirect charge for admission;

(C) is accompanied by a list of the titles of all the musical works available for performance on it, which list is affixed to the phonorecord player or posted in the establishment in a prominent position where it can be readily examined by the public; and

(D) affords a choice of works available for performance and permits the choice to be made by the patrons of the establishment in which it is located.

(2) An "operator" is any person who, alone or jointly with others:

(A) owns a coin-operated phonorecord player; or

(B) has the power to make a coin-operated phonorecord player available for placement in an establishment for purposes of public performance; or

(C) has the power to exercise primary control over the selection of the musical works made available for public performance on a coin-operated phonorecord player.

(3) A “performing rights society” is an association or corporation that licenses the public performance of nondramatic musical works on behalf of the copyright owners, such as the American Society of Composers, Authors and Publishers, Broadcast Music, Inc., and

SESAC, Inc. (Pub. L. 94-553, title I, § 101, Oct. 19, 1976, 90 Stat. 2562; Pub. L. 100-568, § 4(b)(1), Oct. 31, 1988, 102 Stat. 2857.)

HISTORICAL AND REVISION NOTES

HOUSE REPORT NO. 94-1476 General Background of the Problem. No provision of the present law has attracted more heated denunciations and controversy than the so-called jukebox exemption of section 1(e) (section 1(e) of former title 17). This paragraph, which has remained unchanged since its enactment in 1909, provides that,

The reproduction or rendition of a musical composition by or upon coin-operated machines shall not be deemed a public performance for profit unless a fee is charged for admission to the place where such reproduction or rendition occurs.

This blanket exemption has been widely and vigorously condemned as an anachronistic "historical accident" and in terms such as "unconscionable," "indefensible," "totally unjustified,” and “grossly discriminatory."

Efforts to repeal the clause have been going on for more than 50 years, and between 1947 and 1965 there had been some 25 days of congressional hearings de. voted to the subject. The following summarizes the arguments against retaining the exemption:

1. The exemption for coin-operated machines was added to the 1909 act at the last moment, and its consequences were completely unforeseen. The coinoperated music player of today is not comparable to the player pianos and "penny parlor" mechanisms in use in 1909, and the unanticipated effect of the provision, creating a blanket exemption for a large industry that is based on use of copyrighted material, represents the "core defect" in the present law.

2. The exemption not only deprives copyright owners of revenue to which they are fairly entitled. but it also discriminates against all other commercial users who must pay in order to perform copyrighted music. Over the years the jukebox industry has become strong and prosperous by taking a free ride on the hits created and developed by authors and publishers. Jukebox operators, alone in the entertainment field, continue to use others' property for profit without payment.

3. The exemption also creates serious international problems. It is obviously unfair for U.S. composers to be paid when their songs are used in jukeboxes abroad, but also for foreign composers to be deprived of revenue from jukebox uses of their compositions in this country. The problem is particularly acute with respect to Canada. Jukebox royalties in foreign countries at the time of the hearings in the early 1960's averaged between $40 and $50 per machine annually, and are now higher.

4. It is difficult to find support for the argument that jukebox operators cannot afford to pay for use

of the very property they must have in order to exist: copyrighted music. Revenues from jukebox performances may gross as much as $500 million annually of which the copyright owners receive nothing.

The following summarizes the principal arguments made by jukebox operators and manufacturers for retaining the present exemption:

1. The exemption in section 1(e) (section 1(e) of former title 17) was not an accident or anomaly, but a carefully conceived compromise. Congress in 1909 realized that the new royalties coming to copyright owners from mechanical sound reproductions of their works would be so substantial that in some cases fees for performances resulting from the use of mechanical reproductions would not be justified. Automatic phonographs were widely known and used in 1909.

2. The present law does not discriminate in favor of jukebox operators, but removal of the exemption would discriminate against them; jukebox performances are really forms of incidental entertainment like relays to hotel rooms or turning on a radio in a barber shop, and should be completely exempted like them. The industry buys some 50 million records per year which, under the present mechanical royalty of 2 cents per composition or 4 cents per record, means that jukebox operators are indirectly paying copyright owners over $2 million a year now and would be paying them more under any increased mechanical royalty in the bill. No one has shown why this is not ample. Moreover, jukeboxes use hit records rather than hit compositions, and the composition is usually not the most important factor in the success of a record; jukeboxes represent an effective plugging medium that promotes record sales and hence mechanical royalties.

3. The operation of coin-operated phonographs has been, for some time, a declining business, and a great many locations are now operating at a loss and are kept going only through profits from other coinoperated vending machines. Jukebox operators could not sustain licensing fees comparable to those paid in other countries.

Conclusions Reached by the Committee. The committee's basic conclusions can be summarized as follows:

1. The present blanket jukebox exemption should not be continued. Whatever justification existed for it in 1909 exists no longer, and one class of commercial users of music should not be completely absolved from liability when none of the others enjoys any exemption.

2. Performances on coin-operated phonorecord players should be subject to a compulsory license (that is, automatic clearance) with statutory fees. Unlike other commercial music users, who have been subject to full copyright liability from the beginning and have made the necessary economic and business adjustments over a period of time, the whole structure of the jukebox industry has been based on the existence of the copyright exemption.

3. The most appropriate basis for the compulsory license is a statutory per box fee, with a mechanism for periodic review and adjustment of the per box fee. Such a mechanism is afforded by the Copyright Royalty Commission.

4. The $8 per box annual compulsory license fee represents a compromise figure adopted in 1967 and, as a compromise, it is acceptable as the rate to be specified in section 116. The Committee was impressed by the testimony offered to show that shifting patterns in social activity and public taste, combined with increased manufacturing and servicing costs, have made many jukebox operations unprofitable.

Limitations on Exclusive Right. The compulsory licensing provisions in section 116 have been patterned after those in section 115, although there are differences. One difference occurs in the first subsection: section

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