HOUSE OF REPRESENTATIVES,

Committee on Rules, Saturday, February 16, 1929.

The committee met at 10.30 o'clock a. m., Hon. Bertrand H. Snell

(chairman) presiding.

The CHAIRMAN. The committee will be in order. We will have a further hearing this morning on H. R. 13452. I believe Mr. Chindblom desires to make a brief statement.

FURTHER STATEMENT OF HON. CARL R. CHINDBLOM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Mr. CHINDBLOM. Mr. Chairman, Mr. Bankhead asked me at the last hearing for the proof of the statement which I made that there had been holdings that the members of the American Society of Authors, Composers, and Publishers in the disposition of copyright interests are not subject to the present antitrust laws, and I agreed I would get the authority for that statement.

I have appended to the statement which I made before the committee the other day by way of an extension of my remarks a release issued by the Department of Justice on August 6, 1926, and also a résumé of the decision in a suit entitled Harms v. Cohen in 279 Federal Reporter, page 276, decided by the United States District Court for the Eastern District of Pennsylvania, in 1922.

Mr. BANKHEAD. What is the gist of that decision? Did they hold that this was a combination?

Mr. CHINDBLOM. To quote their language, without stating the facts or the issues as they arose, the court said:

But a copyright is an intangible thing, and it is separate and distinct from the material object copyrighted, and the right under a copyright to perform musical compositions is not trade or commerce, any more than producing plays is trade or commerce, or producing grand opera, or the giving of exhibitions or baseball games.

The court further said:

The material objects, the sheets of music, are not involved. If, therefore, the material object is not involved, so far as the defendant is concerned, the answer does not show that interstate commerce is directly affected by the combination and it is therefore no defense.

This suit related to sheets of music. Of course the same rule would apply as to a record, which is merely the material for a mechanical reproduction.

Then there is the release issued by the Department of Justice on August 6, 1926, which is to the following effect:

As the result of a large number of complaints which were received by the Department of Justice with reference to the so-called music tax collected by the American Society of Composers, Authors, and Publishers from the owners of motion-picture houses and of other public places of entertainment where popular music is played

the department had considered the question as to whether this organization had violated any existing statute, and particularly the antitrust laws, and stated that

it was found, however, that the American society had nothing whatsoever to do with the published music or with any physical objects which enter into 36355-29-3

the course of interstate commerce, and that it has been held repeatedly by the courts that acts similar to the granting of licenses for the local performance of music in a place of amusement do not constitute interstate commerce, even when the contracts are entered into in a different State from that where the performance may take place.

Similarly, in this case, a contract for the manufacture of records may occur in one State for sale in another State, and even in that case, the records themselves not being the subject matter of the contract, but the copyright itself being that which is assigned, granted, sold or dealth with, the present antitrust laws do not apply. My point is that this law, being based upon the express authority of Congress to pass legislation relative to copyright, the law itself may provide against monopolies and combinations in the use and disposition of copyright privileges. I thnk there is full authority for such legislation because Congress may clearly determine the conditions and limitations under which the copyright grant shall be made.

The CHAIRMAN. Mr. Wolverton is here. Can you make your statement in 10 or 12 minutes? We have covered this matter fairly well.

STATEMENT OF HON. CHARLES A. WOLVERTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY

Mr. WOLVERTON. I will be as brief as I can, Mr. Chairman. In the first place, I want to express my appreciation for the careful consideration which has been given by this Committee on Rules to the important subject matter of this bill. It is, indeed, far more important and far-reaching in its effect than would be gathered from just a mere casual observation of the bill.

The application for this rule to this committee, which has extraordinary powers, I have assumed, must be based upon either the necessity or the importance of the proposed legislation. In other words, when proposed legislation is of sufficient importance, from a national standpoint, or because of some emergency or necessity that it should have preference above other proposed legislation which is already upon the House calendars and awaiting action, then it is within the power of the Rules Committee to recognize such fact and give preference to that bill above others.

I do not consider that there is any necessity whatsoever, from a national standpoint, ever any situation that creates such an emergency, as would require this committee, in the exercise of its judgment, to give preference to this legislation over other legislation awaiting its turn for action in the House.

It is said that this bill deals with the law of copyright: It does not deal with the entire subject matter of copyright, It only deals with a very small portion of that law, namely, the mechanical reproduction of musical compositions.

As Mr. Chindblom emphasized the other day, there are some 18 or 19 rights involved in copyrights of this character, and this bill relates to just one of them, hence covers only one-nineteenth of the whole subject matter.

In the second place, there is no general or public demand for this legislation. The proponents of this bill-I am not speaking of the

Committee on Patents, that has approved it, nor Mr. Vestal, who introduced it—but do mean those who are asking for this particular legislation, are very few indeed in actual numbers. They are in fact just a few publishers in the city of New York. They probably do not exceed 6, 8, or 10 in number, and yet they control, I hink I am conservative in saying from 60 to 80 per cent of all the musical compositions that are given out to the public. They are banded together under the title of "The American Society of Authors, Composers, and Publishers." While this bill in terms applies to composers yet none have appeared in its behalf. Its enactment is sought by the publishers and not by the composers.

So that this bill is being urged by only a small group of 8 or 10 publishers. While it is true there may be 300 or more members of the Society of Authors, Composers, and Publishers, yet as a matter of fact, nearly all the publishing of music is done by this small group of publishers of whom I speak. There are probably only one or two or three like Irving Berlin who publish their own music. So much for the source of the demand for this legislation.

On the other hand, who is opposing it? In the first place, it is being opposed by all the mechanical musical reproducing companies of our country. There are 300 or more factories of this character throughout our Nation. They have over $225,000,000 invested, and their annual products are worth $200,000,000. They employ thousands of individuals.

They are opposing it, and the reasons for which they are opposing it are not selfish reasons. They are basic, economic considerations. They realize that the public will suffer and the industry be imperiled if this particular legislation is enacted.

If this bill is enacted into law, it will absolutely mean an increase in the price of records to the public. At the present time, under the present law, the fixed price is 2 cents for each composition or 4 cents for each record that bears two compositions. This is paid to the composer. I say "to the composer," because that is technically the case; but as a matter of fact, approximately 80 per cent of all such royalties is paid to these publishers as they own 80 per cent of the compositions.

If this proposed law is enacted-in other words, if so-called free bargaining is permitted in place of the 2-cent royalty now fixed by law-what will be the effect? There will be absolutely no limit to what this little coterie of New York publishers can do in the fixing of prices.

I will just give one illustration of what they can do, based upon what they have already done in cases where free-bargaining now exists.

The present copyright law fixes the royalty price of a mechanical reproduction of a musical composition at 2 cents. This law when it was drawn in 1909, inadvertently, I think, failed to cover word music rolls." That is music used on player pianos. The result is, that any melody used on a piano music roll must pay to the American Society of Authors. Composers, and Publishers, as a royalty for its use, the sum of 12 cents. The same melody however, used on a phonograph record, would be only 2 cents. The difference is due to the fact that the copyright law of 1909 fixed the price at

2 when the melody was reproduced in record form for use on a phonograph, but, through oversight neglected to give the same protection to music rolls, hence, permitting free bargaining with no restriction whatsoever on the small group of publishers in New York City to act collectively, and thereby arbitrarily fix a price of 122 cents instead of the 2-cent royalty fixed by statute.

If this act is passed, it will remove the 2-cent restriction, and give the publishers the same advantage, of unrestricted price fixing, in regard to records as they are now enjoying as to music rolls.

Now, what would happen as to the cost of phonograph records if the royalty fee to be charged should be unrestricted and the same royalty fee, namely, 121⁄2 be fixed, as now applies to music-roll productions? It would mean a charge of 25 cents instead of 4 cents, as now fixed by law.

It can be very readily understood by any manufacturer on this committee, that the cost of manufacture plus the intervening profits of wholesaler, jobber, and retailer, determines the price that is charged to the public. It is generally recognized as a basic fact in determining the sale prices to the public the price which is generally paid by the public for any manufactured article is approximately three times the cost of manufacture. This is because of the intervening hands through which the article goes before it reaches the purchasing public-that is, after the manufacturer, the jobber, the wholesaler, and the retailer; and the retailer is probably the one who causes the greatest increase. His price to the public must be sufficient to cover overhead charges of rent, insurance, pay roll. breakage in case of records, loss through stock left on his hands and undisposed, advertising, and all the many and varied charges that must be paid by the retailer to do business. Therefore, if you increase the cost of manufacture of these records by increasing the royalty rate from 4 cents to 25 cents you have a net increase of 21 cents, and we have a right to assume that the royalty rate will be increased to 25 cents for a double record, because the publishers have already fixed this price for music rolls and they are just as likely to do it for records.

Therefore, if you add 21 cents to the cost of a record, you are thereby adding 63 cents to cost to the ultimate consumer, and this without any substantial increase of profit to the manufacturer. Thus a 75-cent record is increased to $1.35 or $1.38.

This is a very important consideration to have in mind for such an increase in price would undoubtedly affect the amount of sales and prove disastrous to the business.

Such an increase would absolutely destroy all the business of these companies now producing the cheap grade of records sold at 18 cents. If you add to the cost of such records the same royalty fee that is now put on music rolls it would increase the price of the 18-cent record to 39 cents and this would be the effect without even considering the additional cost incident to the intervening handling, which being based upon cost of manufacture would undoubtedly raise the price considerably more. If you place the ultimate cost on the usual commercial basis of three times the cost of manufacture it would add 63 cents to the 18 cents, making a total cost of 81 cents to the consumer or more than four times its present cost. That, of course, would put the cheap record companies out of business.

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I think the illustration which I have just given, based upon the experience already had with so-called free bargaining as to music rolls, is sufficient to indicate the substantial and meritorious reason the musical-producing companies have for opposing the present proposed legislation. Whether the publishers would put the 121⁄2 price on records, I do not know. I assume that they would, as they have already done so with reference to music rolls.

Who would get the benefit of any such increase? There is naturally a desire that the composers should be the beneficiary, but he does not get it now; and, he would not get it even if the law should be changed.

The amount the composer now receives from the publisher for his composition is not fixed by the royalty that is paid. Most of the composers work for a weekly wage. Such produce compositions and turn them over to the publisher for so much per week; others sell their compositions to the publishers and receive, on the average, a price of $25 or $50. Very seldom is more than $100 paid for any composition.

For instance, the song Three O'clock in the Morning that was so popular a few years ago. I am told that the composer of that song did not get anything at all for it; but the publisher, however, collected from musical reproducing companies, royalties on records that amounted to at least $100,000.

If the present restriction of 2 cents had been withdrawn and the publisher permitted to fix a price of 122 cents-the same price that he fixes as a royalty for music rolls-that same publisher would have received $500,000 for the use of that melody on records instead of $100,000, and the composer would have received nothing.

Or, take the song Dardanella, which was for a long time a very popular song. The composer of that is reported to have received only $100; but it netted the publisher, just from his royalties from music companies alone, a sum between $50,000 and $100,000. While I only give these two illustrations yet I assure many others could be given if time permitted.

The composer does not get the benefit. The reason is this-when a composer writes a melody neither he nor the publisher knows whether it will be popular or not. Neither can tell until the public gets hold of it. Therefore, the publisher will not pay any considerable price for the composition, as he is taking chances on what it is going to bring in in the future. Thus, the composer does not get the benefit if the composition proves successful. It is that small group of publishers in the city of New York who get the benefit.

In the next place, this proposed act sets absolutely at naught the principles upon which this legislation was passed in 1909. Permit me to give you the basic reason given by the patent committee for the royalty restriction of 2 cents that was placed in the law of

1909.

In its report the committee said:

The main object to be desired in expanding copyright protection accorded to music has been to give to the composer an adequate return for the value of his composition, and it has been a serious and difficult task to combine the protection of the composer with the protection of the public, and to so frame an act that it would accomplish the double purpose of securing to the composer an adequate return for all use made of his composition and at the same time prevent the formation of oppressive monopolies, which might be founded upon